• the market in question being served to a significant extent by enterprises which operate under the ownership, control or policy supervision or guidance of the authorities of the exporting country;

• state presence in firms allowing the state to interfere with respect to prices or costs;

• public policies or measures discriminating in favour of domestic suppliers or otherwise influencing free market forces;

• the lack, discriminatory application or inadequate enforcement of bankruptcy, corporate or property laws;

• wage costs being distorted;

• access to finance granted by institutions which implement public policy objectives or otherwise not acting independently of the state’.

According to Article 2(6a)(b) of the basic Regulation, the assessment of the existence of significant distortions within the meaning of Article 2(6a)(a) shall take into account, amongst others, the non-exhaustive list of elements in the former provision. Pursuant to Article 2(6a)(b)of the basic Regulation, in assessing the existence of significant distortions, regard shall be had to the potential impact of one or more of these elements on prices and costs in the exporting country of the product concerned. Indeed, as that list is non-cumulative, not all the elements need to be given regard to for a finding of significant distortions. Moreover, the same factual circumstances may be used to demonstrate the existence of one or more of the elements of the list. However, any conclusion on significant distortions within the meaning of Article 2(6a)(a) must be made on the basis of all the evidence at hand.

Article 2(6a)(c) of the basic Regulation provides that ‘[w]here the Commission has well-founded indications of the possible existence of significant distortions as referred to in point (b) in a certain country or a certain sector in that country, and where appropriate for the effective application of this Regulation, the Commission shall produce, make public and regularly update a report describing the market circumstances referred to in point (b) in that country or sector’.

Interested parties were invited to rebut, comment or supplement the evidence contained in the investigation file at the time of initiation. In that respect, the Commission relies on the Report showing the existence of substantial government intervention at many levels of the economy, including specific distortions in key factors of production (such as land, energy, capital, raw materials and labour) as well as in specific sectors (such as steel and chemicals) which are particularly relevant for the investigation at hand. The Report was placed in the investigation file.

The Commission examined whether it was appropriate or not to use domestic prices and costs in the PRC, due to the existence of significant distortions within the meaning of point (b) of Article 2(6a) of the basic Regulation. The Commission did so on the basis of the evidence available on the file, including the evidence contained in the Report, which relies on publicly available sources, notably on Chinese legislation, official published Chinese policy documents, reports published by international organisations, and studies and articles by renowned academics, specifically identified in the Report. That analysis covered the examination of the substantial government interventions in its economy in general, but also the specific market situation in the relevant sector including the product under review.

As specified in recitals (28) to (33), neither the GOC nor the Chinese producers commented or provided evidence supporting or rebutting the existing evidence on the case file, including the Report, and the additional evidence provided by the applicants, on the existence of significant distortions and/or on the appropriateness of the application of Article 2(6a) of the basic Regulation in the case at hand.

In the PRC, enterprises operating under the ownership, control and policy supervision or guidance by the State represent an essential part of the economy.

With regard to control by the State, the government and the CCP maintain structures that ensure their continued influence over enterprises The State (and in many respects also the CCP) not only actively formulates and oversees the implementation of general economic policies by individual enterprises, but it also claims its rights to participate in their operational decision making. The elements that point to the existence of government control over enterprises in the steel and iron sector are further developed in section 3.2.2.4 below, in particular in recital (75).

As concerns policy supervision and guidance by the State in the sector, the existence of such supervision and guidance is demonstrated by, on the one hand, the tight links between the enterprises in the iron and steel sector and the CCP, which is present and claims the right to decision making in such enterprises (see in particular recitals (74) - (75)) and, on the other hand, the public industrial planning documents as well as additional governmental policy tools and directives applicable to the sector (see in particular recitals (79) - (83)). With the high level of government control and intervention in the steel and iron sector as described below, even privately owned tube and pipe cast fittings producers are prevented from operating under market conditions.

On the basis of the above, the Commission concluded that the market for tube or pipe cast fittings in the PRC was served to a significant extent by enterprises subject to control or policy supervision or guidance by the Chinese government.

Based on all of the above, it is concluded that the State presence in firms in the iron and steel sector, as well as in the financial sector allows the GOC to interfere with respect to prices and costs.

It is therefore established that the GOC has public policies in place influencing free market forces concerning the production of tube or pipe cast fittings and the raw materials used for producing them.

Therefore, the Chinese bankruptcy and property laws do not appear to properly work, resulting in distortions when maintaining insolvent firms afloat and in relation to the land provision and acquisition in the PRC. These laws also apply with respect to the iron and steel sector, including to the exporting producers of the product under review.

In light of the above, the Commission concluded that there was discriminatory application or inadequate enforcement of bankruptcy and property laws in the iron and steel sector, including with respect to the product under review.

The iron and steel sector, including the product under review, is also subject to the Chinese labour law system described. The tube or pipe cast fittings sector is thus affected by the distortions of wage costs both directly (when making the product under review) as well as indirectly (when having access to capital or inputs from companies subject to the same labour system in the PRC).

On the basis of the above, the Commission concluded that wage costs were distorted in the iron and steel sector, including in respect of the product under review.

Access to capital for corporate actors in the PRC is subject to various distortions.

Secondly, borrowing costs have been kept artificially low to stimulate investment growth. This has led to the excessive use of capital investment with ever lower returns on investment. This is illustrated by the recent growth in corporate leverage in the state sector despite a sharp fall in profitability, which suggests that the mechanisms at work in the banking system do not follow normal commercial responses.

Thirdly, although nominal interest rate liberalization was achieved in October 2015, price signals are still not the result of free market forces, but are influenced by government induced distortions. Indeed, the share of lending at or below the benchmark rate still represents 45 % of all lending and recourse to targeted credit appears to have been stepped up, since this share has increased markedly since 2015 in spite of worsening economic conditions. Artificially low interest rates result in under-pricing, and consequently, the excessive utilization of capital.

Overall credit growth in the PRC indicates a worsening efficiency of capital allocation without any signs of credit tightening that would be expected in an undistorted market environment. As a result, non-performing loans have increased rapidly in recent years. Faced with a situation of increasing debt-at-risk, the Chinese government has opted to avoid defaults. Consequently, bad debt issues have been handled by rolling over debt, thus creating so called ‘zombie’ companies, or by transferring the ownership of the debt (e.g. via mergers or debt-to-equity swaps), without necessarily removing the overall debt problem or addressing its root causes.

In essence, despite the recent steps that have been taken to liberalize the market, the corporate credit system in the PRC is affected by significant systemic issues and distortions resulting from the continuing pervasive role of the state in the capital markets.

In light of the above, the Commission concluded that the producers of tube or pipe cast fittings had access to finance granted by institutions which implement public policy objectives or otherwise not acting independently from the state.

The Commission noted that the distortions described in the Report are not limited to the iron and steel sector in general. On the contrary, the evidence available shows that the facts and features of the Chinese system as described above in Sections 3.2.2.1-3.2.2.5 as well as in Part A of the Report apply throughout the country and across the sectors of the economy. The same holds true for the description of the factors of production as set out above in Sections 3.2.2.6-3.2.2.8 above and in Part B of the Report.

In order to produce tube or pipe cast fittings, a broad range of inputs is needed. When the tube or pipe cast fittings' producers purchase/contract these inputs the prices they pay (and which are recorded as their costs) are clearly exposed to the same systemic distortions mentioned before. For instance, suppliers of inputs employ labour that is subject to the distortions. They may borrow money that is subject to the distortions on the financial sector/capital allocation. In addition, they are subject to the planning system which applies across all levels of government and sectors.

As a consequence, not only the domestic sales prices of tube or pipe cast fittings cannot be used but all the input costs (including raw materials, energy, land, financing, labour, etc.) are also tainted because their price formation is affected by substantial government intervention, as described in Parts A and B of the Report. Indeed, the government interventions described in relation to the allocation of capital, land, labour, energy and raw materials are present throughout the PRC. This means, for instance, that an input that in itself was produced in the PRC by combining a range of factors of production is exposed to significant distortions. The same applies for the input to the input and so forth.

The analysis laid out in sections 3.2.2.2. to 3.2.2.9. which includes an examination of all the available evidence relating to the PRC's intervention in its economy in general as well as in the iron and steel sector (including the product tube or pipe cast fittings) showed that prices or costs, including the costs of raw materials, energy and labour, are not the result of free market forces because they are affected by substantial government intervention within the meaning of Article 2(6a)(b) of the basic Regulation. On that basis, and in the absence of any cooperation from the GOC and the Chinese producers, the Commission concluded that it is not appropriate to use domestic prices and costs to establish normal value in this case.

Consequently, the Commission proceeded to construct the normal value exclusively on the basis of costs of production and sale reflecting undistorted prices or benchmarks, that is, in this case, on the basis of corresponding costs of production and sale in an appropriate representative country, in accordance with Article 2(6a)(a) of the basic Regulation, as discussed in the following section. The Commission recalled that no Chinese producer cooperated with the investigation and that no claim was presented that some domestic costs would be undistorted under the third indent of Article 2(6a)(a) of the basic Regulation.

• A level of economic development similar to the PRC. For this purpose, the Commission used countries with a gross national income similar to the PRC on the basis of the database of the World Bank66;
• Production of the product under review in that country67;

• Availability of relevant public data in that country;

• Where there is more than one possible representative country, preference was given, where appropriate, to the country with an adequate level of social and environmental protection.

As explained in the Note of 20 June 2018, the Commission informed interested parties that it had identified four possible representative countries: Argentina, Brazil, Thailand and Turkey, and invited interested parties to comment and suggest other countries.

With regard to the representative country, subsequent to the Note of 20 June 2018, the Commission received a submission from the Chinese producer Jinan Meide Casting Co., Ltd (‘the submission of 18 July 2018’). The producer expressed disagreement to the Commission's intention to use the methodology in accordance with Article 2(6a) of the basic Regulation and submitted some comments which are addressed in recitals (35) (36) above.

With regard to the level of economic development, the Commission notes that both Thailand, Brazil, and Turkey are at the same income level ‘Upper Middle Income’, according to the World Bank. Thailand, Turkey and Brazil are therefore equally suitable as representative countries in this respect. On the contrary, Argentina is classified as a high income country and thus was not considered further in the analysis.

In its submission, Jinan Meide Casting Co., Ltd supported Thailand as a representative country over Turkey, due to geographical, cultural and economic proximity of Thailand and the PRC. Further arguments concerned Turkey, and its higher level of development compared to Thailand and the PRC, Turkey being candidate country to join the EU and that Turkey has a customs union with the EU.

Concerning Turkey being candidate country to join the EU, or the fact that Turkey is in a customs union with the EU, the Commission also notes that these facts are not relevant when assessing the appropriateness of a country as representative country. Jinan Meide did not provide any argument or evidence as to how these elements could invalidate that country being considered as a potential representative country. In this respect, Thailand and Turkey are equally suitable. Also, the cultural and geographical proximity do not affect the appropriateness of a country. The assessment of appropriateness is based on economic criteria, not cultural or geographic ones. Consequently, these claims were rejected.

As pointed out in the Note of 20 June 2018, the Commission was not able to find public financial data in respect of Brazil. After further analysis, the Commission confirmed that such information was not available as initially identified. Also, no interested party provided alternative sources where such data could be found. The Commission therefore considered that only Thailand and Turkey should be considered further in its analysis.

• Siam Fittings Co. Ltd (‘Siam’), Thailand

• BIS Pipe Fitting Industry Co., Ltd (‘BIS’), Thailand, and

• Trakya Döküm, Turkey.

BIS produces almost exclusively the product under review. According to publicly available information, its products cover only tube or pipe cast fittings produced according to American, British and DIN standards.

Trakya Döküm is a large group producing many other products. According to publicly available information, Trakya Döküm manufactures products for following industries: automotive, white goods, hydraulics, electrical, machinery, railway, fittings & construction (including malleable iron pipe fittings and king clamps) and other products such as clamping products, chain links and hand wheels. The product under review constitutes only a small part of its production.

So while BIS almost exclusively produces the product under review, the product under review constitutes only a sub-category of eight product categories of Trakya Dükum. Therefore, due to the larger share of the product under review in the total company turnover, the Commission considered the information available for BIS more appropriate than for Trakya Döküm. This is because in the case of BIS the SG&A and profit figures more directly relate to the product under review, while Trakya's data was less precise.

As far as the information concerning factors of production is concerned, for both countries, Turkey and Thailand, the Commission found it available at a sufficiently detailed level. The Commission analysed the share of Chinese imports into Thailand and Turkey for the main factor of production, steel scrap. For Thailand, only 4 % of all imports originated in the PRC. With regard to Turkey, the share of Chinese imports could not be established, because over 50 % of imports of steel scrap was reported as imports into Turkish Free Trade Zones, without indicating the origin. Therefore, since the origin of most imports into Turkey of the main factor of production are unavailable and therefore it is not possible to exclude imports from the PRC, Thailand was considered a more suitable representative country.

Under Article 2(6a)(a) first indent of the basic Regulation, the objective is finding, in a possible representative country, all or as many of the corresponding undistorted factors of production used by the Chinese producers and of undistorted amounts for manufacturing overheads, SG&A and profits as possible.

In view of the above analysis, Thailand met all the criteria laid down in Article 2(6a)(a), first indent of the basic Regulation in order to be considered as an appropriate representative country. In particular, Thailand has a substantial production of the product under review and a complete set of data available for all factors of production, SG&A and profit.

Having established that Thailand is an appropriate representative country in this case, there was no need to analyse further the level of social and environmental protection in Thailand.

With regard to steel scrap, HS code 7204 10 was indicated by the two Chinese producers that provided completed replies to Annex III to the Notice of Initiation. The Table presents the 11-digit code specific for Thailand, that in the absence of further information from Chinese producers nor comments from other interested parties, the Commission used for the purpose of constructing normal value.

With regard to zinc, this factor of production was reported by one of the Union producers and by one of the Chinese producers, but under different codes. While the Union producer reported code 7901 11 00 for ‘Zinc, unwrought, not alloyed, containing by weight 99,99 % or more of zinc’, the Chinese producer proposed to use code 2608 00 that is ‘Zinc ores and concentrates’. The Commission found that it was not appropriate to use the code for zinc ore and decided to use the HS code as presented in the Table, as proposed by the Union producer.

With regard to Ferro-silicon, the applicants indicated ‘Fe-Alloys’ without indicating a code. The Chinese producer, as well as two Union producers proposed code 7202 21 00. The Commission used the 11-digit code presented in the Table, specific to Thailand.

With regard to Ferro-manganese, the applicants indicated ‘Fe-Alloys’ without indicating a code. One Chinese producer suggested HS code 7202 30 that represents Ferro-silico-manganese. The 11-digit code specific to Thailand used by the Commission was found to better describe the factor of production used by the tube or pipe cast fittings producers.

With regard to the bentonite, the 11-digit code indicated in the Table and used for the calculation reports the same material as the more general 8-digit code proposed by one of the Union producers. The Memorandum sets the same 11-digit code. It stands for ‘Bentonite’. None of the exporting producers proposed a tariff code for bentonite.

For all materials, absent any information on the Thai market, the Commission relied on import prices. An import price in the representative country was determined as a weighted average of unit prices of imports from all third countries excluding the PRC, as well as the following non-market economy countries: Azerbaijan, Belarus, Kazakhstan, North Korea, Turkmenistan and Uzbekistan.

The Commission decided to exclude the imports from the PRC into the representative country as it concluded in recital (105) that in the present case it is not appropriate to use domestic prices and costs in the PRC due to the existence of significant distortions in accordance with Article 2(6a)(b). On the basis of the evidence available, and absent any rebuttal by interested parties, the Commission considered that the same distortions affected export prices. After excluding the countries listed in recital (143), the imports from other third countries remained representative ranging from 94 % to 100 % of total volumes imported into Thailand.

In order to establish undistorted price of materials as delivered at the gate of the Chinese producer's factory as provided by Article 2(6a)(a), first indent, the Commission added domestic transport costs.

With regard to coke, this factor of production was reported by one of the Union producers, at the 6-digit level and it represents ‘Coke and semicoke of coal, of lignite or of peat, whether or not agglomerated; retort carbon’. With regard to this factor of production a special attention must be paid to the fact that this coke is used as energy source, and not the ‘carbon dust’ or ‘baking coal’, that may constitute a raw material input. The Commission used the 11-digit code specific for Thailand, which represents ‘Coke and semicoke of coal’. This code was more specific than the one reported by one of the Union producers and referred more specifically to coke used as a source of energy.

In order to establish the constructed normal value, the Commission followed the following two steps.

First, the Commission established the undistorted manufacturing costs. In the absence of cooperation by the Chinese producers, the Commission used the same materials, labour and energy and related consumption ratio as the largest Union producer. It multiplied the usage factors by the undistorted costs per unit observed in the representative country Thailand and added domestic transport costs.

Second, to the manufacturing costs identified above the Commission applied SG&A expenses and profit from the Thai company BIS and the manufacturing overhead costs from the largest Union producer.

On that basis, the Commission constructed the normal value on an ex-works basis in accordance with Article 2(6a)(a) of the basic Regulation. Due to the fact no Chinese producers cooperated, the normal value was established on a countrywide basis and not for each producer separately.

Thanks to the increased Union production volume, the capacity utilisation increased by 4 percentage points.

The increase in productivity also stems from the industrial innovations, where robots continuously replace the factory workers, especially in the field of machining and expedition.

As indicated in Table 2, the Union consumption decreased between 2014 and the review investigation period by more than 1 000 tones, while the volume of dumped imports decreased by more than 2 000 tonnes during the same period. The Union industry was able to increase their sales by more than 1 000 tonnes, benefiting from the decrease of the dumped imports.

Dumping continued during the review investigation period at a significant level, as explained under section 3 above.

Since the volumes of the dumped imports from the PRC and Thailand were lower than during the original investigation period, the Commission concluded that the impact of the magnitude of the dumping margin on the Union industry was significantly less pronounced than in the original investigation.

The decreasing trend is the result of the pressure from the dumped imports on the market.

The average Union sales price of the sampled producers decreased over the period by 4 %, whilst the average costs of production increased by 4 % during the same period as shown below.

The Commission established the profitability of the sampled Union producers by expressing the pre-tax net profit of the sales of the like product to unrelated customers in the Union as a percentage of the turnover of those sales.

Profitability dropped over the period considered by 24 %, in particular after 2016.

The net cash flow, the Union industry's ability to self-finance its activities, increased significantly until 2016, then decreased in review investigation period to a lower level but still 17 % higher than in 2014.

The development of the investments of the Union producers confirmed that this industry is very capital intensive. Substantial investments need to be done in order to comply with increasing environmental standards same as to counterweight the increasing cost for staff needed in the production by replacing them by robots. The drop in the investments in the review investigation period as of 2015 is caused by the timing/approval process of one of the sampled producers and does not earmark any change in the trend. In fact the Union producers consider that further substantial investments will be needed in order to retain sufficient profitability levels in the future.

The Union industry's return on investment, the profit as a percentage of the net book value of assets, dropped by 26 % over the period considered. This is mainly due to the increasing value of the capital employed in the production assets, when compared with just slightly sliding profits made during the period considered.

Due to the sufficient profitability and return on investments, sampled Union producers were in general able to raise capital for their necessary capital expenditures. However some Union producers noted increased difficulties to raise capital in the light of the uncertainty of the continuation of the measures and for the future investments.