(1)

On 4 May 2018, the European Commission (‘the Commission’) adopted Regulation (EU) 2018/683 (2) imposing a provisional anti-dumping duty on imports of certain pneumatic tyres, new or retreaded, of rubber, of a kind used for buses or lorries, with a load index exceeding 121 (‘tyres’ or ‘product concerned’) originating in the People’s Republic of China (‘PRC’).

(2)

On 18 October 2018 the Commission adopted Implementing Regulation (EU) 2018/1579 (3) imposing a definitive anti-dumping duty and collecting definitively the provisional duty imposed on imports of certain pneumatic tyres, new or retreaded, of rubber, of a kind used for buses or lorries, with a load index exceeding 121 originating in the People’s Republic of China (‘the original anti-dumping Regulation’).

(3)

On 9 November 2018, the Commission adopted Implementing Regulation (EU) 2018/1690 (4) imposing definitive countervailing duties on imports of certain pneumatic tyres, new or retreaded, of rubber, of a kind used for buses or lorries and with a load index exceeding 121 originating in the People’s Republic of China and amending Implementing Regulation (EU) 2018/1579 imposing a definitive anti-dumping duty and collecting definitively the provisional duty imposed on imports of certain pneumatic tyres, new or retreaded, of rubber, of a kind used for buses or lorries, with a load index exceeding 121 originating in the People’s Republic of China and repealing Implementing Regulation (EU) 2018/163 (‘the original anti-subsidy Regulation’).

(4)

Following a challenge lodged by China Rubber Industry Association (‘CRIA’) and China Chamber of Commerce of Metals, Minerals & Chemicals Importers & Exporters (‘CCCMC’), the General Court of the European Union annulled on 4 May 2022, in its judgement in joined cases T-30/19 and T-72/19 (5) (‘the Court judgement’), the original anti-dumping and the original anti-subsidy Regulations as regards several exporting producers.

(5)

Following the Court judgment, the Commission reopened the investigations and on 4 April 2023, the Commission re-imposed a definitive anti-dumping duty by Commission Implementing Regulation (EU) 2023/737 (6) (‘the second anti-dumping Regulation’) and a definitive countervailing duty by Commission Implementing Regulation 2023/738 (7) (‘the second anti-subsidy Regulation).

(6)

On 6 September 2024, the Commission terminated two partial interim reviews of the anti-dumping and countervailing measures applicable to imports of certain pneumatic tyres, new or retreaded, of rubber, of a kind used for buses or lorries and with a load index exceeding 121 originating in the People’s Republic of China (8) (9).

(7)

The countervailing duties currently in force are in euros per item ranging between 3,75 to 57,28 euros per item.

(8)

Following the publication of a notice of impending expiry (10) the European Commission ('the Commission') received a request for a review pursuant to Article 18 of Regulation (EU) 2016/1037 ('the basic Regulation').

(9)

The request for review was submitted on 11 August 2023 by the Coalition against unfair tyres imports (‘the applicant’) on behalf of the Union industry of certain pneumatic tyres, new or retreaded, of rubber, of a kind used for buses or lorries, with a load index exceeding 121 in the sense of Article 10(6) of the basic Regulation. The request for review was based on the grounds that the expiry of the measures would be likely to result in continuation or recurrence of subsidisation and continuation or recurrence of injury to the Union industry.

(10)

Having determined, after consulting the Committee established by Article 25(1) of the basic Regulation, that sufficient evidence existed for the initiation of an expiry review, on 10 November 2023 the Commission initiated an expiry review with regard to imports into the Union of certain pneumatic tyres, new or retreaded, of rubber, of a kind used for buses or lorries, with a load index exceeding 121 originating in the People's Republic of China (‘the country concerned’) on the basis of Article 18 of the basic Regulation. It published a Notice of Initiation in the Official Journal of the European Union (11) (‘the Notice of Initiation’).

(11)

The investigation of continuation or recurrence of subsidisation covered the period from 1 July 2022 to 30 June 2023 (‘review investigation period’). The examination of trends relevant for the assessment of the likelihood of a continuation or recurrence of injury covered the period from 1 January 2020 to the end of the review investigation period (‘the period considered’).

(12)

In the Notice of Initiation, interested parties were invited to contact the Commission in order to participate in the investigation. In addition, the Commission specifically informed the applicant, the known producers in the People's Republic of China and the authorities of the People's Republic of China, the known importers, as well as associations known to be concerned about the initiation of the expiry review and invited them to participate.

(13)

Interested parties had an opportunity to comment on the initiation of the expiry review and to request a hearing with the Commission and/or the Hearing Officer in trade proceedings.

(14)

In the Notice of Initiation, the Commission stated that it might sample the interested parties in accordance with Article 17 of the basic Regulation.

(15)

In the Notice of Initiation, the Commission stated that it had provisionally selected a sample of Union producers. The Commission selected the sample on the basis of:

(16)

This sample consisted of 6 Union producers. The sampled Union producers accounted for more than 25 % of the estimated total volume of production and sales of the like product in the Union.

(17)

In accordance with Article 27 of the basic Regulation, the Commission invited interested parties to comment on the provisional sample. No comments were received. The sample was thus considered representative of the Union industry.

(18)

To decide whether sampling was necessary and, if so, to select a sample, the Commission asked unrelated importers to provide the information specified in the Notice of Initiation.

(19)

One unrelated importer made itself known to the Commission but did not provide the requested information nor agreement to be included in the sample. No other unrelated importers came forward.

(20)

To decide whether sampling was necessary and, if so, to select a sample, the Commission asked all exporting producers in the People's Republic of China to provide the information specified in the Notice of Initiation. In addition, the Commission asked the mission of the People's Republic of China and associations of exporting producers to identify and/or contact other exporting producers, if any, that could be interested in participating in the investigation.

(21)

Three exporting producers or group of exporting producers in the country concerned provided the requested information and agreed to be included in the sample. Two groups of exporting producers covered around 50 % of the reported volume exported to the European Union during the period July 2022-June 2023 while the volume of exports of the third exporting producer was found not significant. In accordance with Article 27 of the basic Regulation, the Commission selected a sample of two groups of exporting producers on the basis of the largest representative volume of exports to the Union which could reasonably be investigated within the time available. In accordance with Article 27 of the basic Regulation, all known exporting producers concerned, and the authorities of the country concerned, were consulted on the selection of the sample. No comments were made.

(22)

In the original investigation, 49 exporting producers agreed to be included in the sample. In the present review investigation while more than 140 exporting producers were listed in the complaint, only 3 exporting producers or group of exporting producers provided a sampling reply.

(23)

The cooperated exporting producers accounted for around 50 % of the total volume of imports of tyres from the PRC into the European Union and accounted for less than 2 % of the total production of tyres in the PRC. As the Union market share of imports from the PRC was around 5,4 % during the review investigation period, the Commission considered that half of these imports would provide sufficient information to assess the export price and the existence of continuation or recurrence of subsidisation during the review investigation period and can therefore be considered representative of the total imports from the PRC.

(24)

The Commission sent questionnaires to the two sampled groups of exporters and the six sampled Union producers. The same questionnaire had also been made available online on the day of initiation. In addition, the Commission sent a questionnaire to the applicant.

(25)

Questionnaire replies were received from the two sampled groups of exporting producers and from 6 Union producers. The reply received from one Union producer, Recauchutagem São Mamede, Lda (‘RSM’) was deficient and the Commission requested this producer to complement its reply. No further reply was received, and the Commission informed RSM that it intends to apply Article 28 of the basic Regulation and use the facts available. No further comments were received from this Union producer.

(26)

Consequently, the data provided by the remaining 5 union producers was used by the Commission. Not obtaining data from RSM had only marginal impact on the representativity of the sample. The remaining 5 Union producers continued to account for more than 25 % of the estimated total volume of production and sales of the like product in the Union. This remaining sample of 5 Union producers was therefore considered representative of the Union industry.

(27)

The Commission sent a questionnaire to the Government of the People’s Republic of China (‘GOC’). No questionnaire reply was received.

(28)

Therefore, the verification visits pursuant to Article 26 of the basic Regulation were carried out only at the premises of the following companies:

(29)

The product subject to this review is certain pneumatic tyres, new or retreaded, of rubber, of a kind used for buses or lorries, with a load index exceeding 121 currently falling under CN codes 4011 20 90 and ex 4012 12 00 (TARIC code 4012 12 00 10). The CN and TARIC codes are given for information only and without prejudice to a subsequent change in the tariff classification (‘the product under review’).

(30)

The product under review covers both new and retreaded pneumatic tyres for buses or lorries which share the same essential physical, chemical and technical characteristics. Both types of the product concerned are made of the same input (even if the technology involved may differ) and have a similar structure. The variance in raw materials and structure impart different performance characteristics.

(31)

Manufacturing process of the new lorry and bus tyres involves: (1) compounding and mixing rubber; (2) tyre components preparation; (3) (green) tyre building; (4) curing (vulcanisation); and (5) final inspection. All lorry and bus tyres are made from the same basic raw materials, namely natural rubber, synthetic rubber, steel, carbon black, other chemicals and oils as well as fabric and have the same components, namely tread belt, sidewall, inner casing, bead wires, steel belts, casing cords, even if a certain variance is found between the various producers of this product.

(32)

The manufacturing process of the new lorry and bus tyres was also found to involve varying technologies, which, however, did not impact on the overall findings of interchangeability.

(33)

Retreading is essentially a recycling process whereby worn tyres are refurbished through a replacement of the tread on an old casing. Casings are main elements of the retreading process, and, as such a substantial part of the retreader activity is the selection and acquisition of casings suitable for retreading. Casings are thereby the main input of the production process and constitute — depending on their quality — either a real ‘semi-finished’ product or a waste.

(34)

Again, this process can involve varying technologies without impact on the Commission's interchangeability findings.

(35)

Lorry and bus tyres are produced in a large variety of types and sizes found on a wide range of commercial vehicles, from local delivery lorries and buses in urban or regional settings to the long-haul lorries and buses according to their size and load index specifications. They are neither suitable for use on passenger vehicles or on other light commercial vehicles nor for fully off-the-road vehicles such as agricultural tractors.

(36)

Tyres for lorries or buses are sold in two types and four categories. Tube type tyre is a more traditional option; it has an inner tube, which has its own valve, placed inside the tyre. In a tubeless tire, the tire and the rim of the wheel form an airtight seal, with the valve being directly mounted on the rim. An overwhelming majority of tyres for lorries or buses sold in the Union are tubeless tyres. The four categories of tyres for lorries or buses are: steer, drive, trailer and multi-position. Steer tyres are designed to be used on the front axle to aid with steering but can be used in all positions on the lorries or bus depending on the vehicle's use. Drive tyres are designed for the drive train and provide better traction. Trailer tyres are designed to be mounted on trailers, while multiposition tyres are designed to be used in all in all positions on a vehicle depending on its use.

(37)

Tyres, new or retreaded, are subject to the same safety requirements in the Union market as set out in Directive 2007/46/EC of the European Parliament and of the Council (13).

(38)

Information collected and received by the Commission indicates that the Union market for bus and lorry tyres is segmented in three tiers or segments. While there are no clear dividing lines among tiers, there is a general agreement among interested parties and the findings of the Commission on the following categorisation.

(39)

Tier 1 tyres cover premium new tyres with the flagship brand of main manufacturers. Brand recognition is a key factor for tyres in this tier and justifies significantly higher prices for expected high performances as well particularly strong marketing investments. Original equipment for lorries or buses manufacturers (‘OE1’) tyres are primarily included in that tier. The quality of tier 1 tyres ensures a high level of retreadability of the tyres which are designed to be ‘multi-life’ tyres further increasing the significantly higher mileage of the original product (up to three retreading for a normal use). Tier 1 tyres are also associated with a higher level of safety and are often accompanied with a good level of after-sale services.

(40)

Tier 2 tyres cover most non-premium tyres, both new and retreaded tyres, with prices ranging between approximately 65 % and 80 % of the price of tier 1 tyres. Original equipment for trailers manufacturers (‘OE2’) tyres may be included in that tier. Brand recognition remains important in this tier and brands are usually well-known from purchasers which are also able to identify the tyre manufacturers. They are generally retreadable at least once and, although more limited than tier 1 tyres, deliver good performances in terms of mileage.

(41)

Tier 3 tyres cover both new and retreaded tyres with lower mileage performances and very limited retreadability, if any. They are typically priced at less than 65 % of the price and mileage performance of tier 1 tyres. In that tier, brand recognition is almost non-existent and price becomes the determining factor in the customer's decision to purchase. They are usually not provided with after-sale services.

(42)

Retreaded tyres can be classified under tier 2 or tier 3. While some Chinese tyres are retreadable, there is very little retreading performed in China. Retreading is, however, quite widespread in the Union and in other markets, for example in Brazil. The retreading activity in the Union consists of:

(43)

The Commission applied the same mapping of new and retreaded tyres by brand as in the original investigation. This information was also provided by the complainant and was made available to all the interested parties on initiation day.

(44)

The product concerned by this investigation is the product under review originating in the People’s Republic of China (‘the product concerned’).

(45)

As established in the original investigation, this expiry review investigation confirmed that the following products have the same basic physical, chemical and technical characteristics as well as the same basic uses:

(46)

These products are therefore considered to be like products within the meaning of Article 2(c) of the basic Regulation.

(47)

In accordance with Article 18 of the basic Regulation, and as stated in the Notice of Initiation, the Commission examined whether the expiry of the existing measures would likely lead to a continuation or recurrence of subsidisation of the product concerned originating in the PRC.

(48)

The Commission decided that, in view of the findings below confirming the existence of continued subsidisation with respect to the subsidies countervailed in the original investigation, as well as the existence of new additional subsidies (namely bank acceptance notes), there was no need to investigate all subsidies alleged to exist by the applicant. Indeed, pursuant to Article 18 of the basic Regulation, the Commission should examine whether there is evidence of continued subsidisation, regardless of its amount.

(49)

On the basis of the information contained in the review request and in the Notice of Initiation, the Commission investigated the following subsidy practices:

(50)

As regards the provision of goods at less than adequate remuneration for input materials, in the original investigation the Commission concluded that there was no benefit on the domestic purchases of the most commonly used input materials, namely natural rubber, synthetic rubber, carbon black, nylon cord. Therefore, in the current expiry review the Commission concluded that was not necessary to investigate such scheme.

(51)

On 15 March 2024, the Commission sent a questionnaire to the GOC. The GOC was also asked to forward questionnaires intended for banks and other financial institutions known by the GOC to have provided loans to the tyres industry in China, for the Chinese Export & Credit Insurance Corporation (‘Sinosure’) and for producers and distributors of hot-rolled and cold-rolled steel that had provided inputs for the production of the product under review.

(52)

Neither the GOC, nor any of the other intended recipients of the questionnaires mentioned above, responded to the Commission's request.

(53)

By Note Verbale of 26 April 2024, the Commission informed the Chinese authorities that following non-cooperation from the GOC and the Chinese producers of the product under review, the Commission intended to make its findings on the basis of the facts available, in accordance with Article 28(1) of the basic Regulation. They were also informed that a finding based on facts available may be less favourable than if the GOC and producers cooperated. The Commission did not receive any comments.

(54)

As such, in accordance with Article 28 of the basic Regulation, the Commission considered the use of facts available necessary in order to establish the continuation or recurrence of subsidisation of the product concerned originating in the PRC.

(55)

Accordingly, the Commission used for its analysis all facts available to it, in particular:

(56)

Before analysing the alleged subsidisation in the form of specific subsidies or subsidy programmes (sections 3.4 and following below), the Commission assessed government plans, projects and other documents, which were relevant for more than one of the subsidies or subsidy programmes. It found that all subsidies or subsidy programmes under assessment form part of the implementation of the GOC’s central planning for the following reasons.

(57)

The findings of the original investigation based on government plans in force at that time are upheld in the current expiry review investigation. The Commission established in the review investigation that a number of policy documents indicate the tyre industry as an ‘Encouraged’ industry. This concerns in particular the 14th Five-Year Industrial Technology Innovation Program issued by the Ministry of Industry and Information Technology (25).

(58)

The 14th five-year plan (‘14th FYP’) (26) for the period 2021 to 2025 highlights the strategic vision of the GOC for improvement and promotion of key industries. In its Part Three, Article VIII, it lays out the strategic visions of the GOC for the transformation and upgrading of traditional industries. Furthermore, Article IX states the development axis for strategic emerging industries, including the industries of new materials, new energy vehicles, and high-end equipment. This encompasses the tyre industry through rubber or petrochemical-oriented support. The plan further targets key technologies used for the manufacture of tyres, i.e. petrochemical, rubber, steel and textile.

(59)

The 14th FYP is further implemented through sectoral plans, which set the direction of policies to be implemented for the development of strategic industries and sectors. The “Guiding Opinions on Promoting the high-quality development of the petrochemical and chemical industry during the 14th FYP” include tyres under the rubber industry.

(60)

The “Made in China 2025” is a State-led industrial policy that seeks to make the PRC dominant in global high-tech manufacturing through government subsidies, State-Owned Enterprises, and intellectual property acquisition, thereby replacing foreign capacity. It includes measures directly relevant to the manufacturing of tyres, targeting both tyres and inputs to their production. Under the Made in China 2025 Roadmap, "basic new materials" are defined as including "iron and steel, non-ferrous, petrochemical, building materials, light industry, textiles and other basic materials in the high-end materials" (major inputs of tyre production). The policy also refers to "explor[ing] the use of industrial funds, state-owned capital income, and other channels to support the globalization of […] automobiles, […] and other equipment and well-positioned industrial capacities, and to implement overseas investment and M&A." (27) Therefore, through the inclusion of both tyres and essential inputs to their manufacture in the "key industries" and "new materials" that are “encouraged” under the Made in China 2025 policy, the Chinese tyre industry has access to substantial State funding.

(61)

In the original investigation, the Commission established, with reference to ‘Decision No 40 of the State Council’ (28) (‘Decision No. 40’), that this act is an order from the State Council, i.e. the highest administrative body in the PRC, and remains legally binding on other public bodies and economic operators. Under Decision No. 40, several sectors of relevance are identified as encouraged, in particular, petrochemicals, fine chemicals, bio-chemicals, transportation and urban public transportation (buses). Encouraged sectors receive several subsidies. In particular, Truck, Bus and Radial (TBR) tyres are classified under the “encouraged” category (under the "petrochemicals and chemicals industry”) in the 2019 edition of the Guidance Catalogue as follows: "High performance radial tire (including tubeless truck radial tire, mega engineering radial tire (above 49 inch), low cross section and flat (less than 55 Series)) and intelligent manufacturing technology and equipment, aviation tire, agricultural radial tire and supporting special materials and equipment, development and application of new type natural rubber." (29) Other sectors of direct relevance to the tyre manufacturing are also "encouraged" such as natural rubber, synthetic rubber, manufacturing equipment, recycling, textile, and steel. Moreover, the 2022 edition of the Catalogue of Encouraged Industries for Foreign Investment also includes several tyre-related industries, such as natural and synthetic rubber production, manufacturing equipment and textile (30).

(62)

The key industrial plans issued by the GOC also provide for support to industries which are essential to the tyre production, in particular:

(63)

The Chinese tyre industry is further guided by the Guiding outline of the 14th FYP for the development of the Rubber industry, published by the CRIA, which target the entire rubber industry supply chain and set out objectives and direct resources.

(64)

Therefore, both tyre production itself as well as its entire supply chain is part of the industries 'encouraged' by the GOC and, as a result, beneficiary of the GOC's support, which includes access to preferential financing and inputs for less than adequate remuneration (land, electricity, (synthetic) rubber, etc.).

(65)

In the original investigation (36), the Commission established that State-owned banks (‘SOBs’) were public bodies as they exercised government authority.

(66)

With respect to the banks that provided loans to the producers who cooperated in the original investigation, the great majority were State-owned. The information available from the original investigation and the most recent anti-subsidy investigations mentioned in recital (55) above showed that most of the major banks continued to be State-owned, including the major commercial banks in China, such as the Bank of China, the China Construction Bank, Agricultural Bank of China and the Industrial and Commercial Bank of China. Furthermore, it was also found that these State-owned commercial banks held a predominant place in the market and, in their capacity as public bodies, were engaged in offering lending at below-market interest rates. Accordingly, it was concluded that the GOC had a policy to provide preferential lending to the tyres industry.

(67)

The Commission also established, on the basis of, inter alia, Articles 34 of the Law of the PRC on Commercial Banks (‘Bank law’) and Articles 17 and 18 of Decision No 40, that privately owned commercial banks in China were entrusted and directed by the GOC to provide preferential loans to the tyre industry, as belonging to the ‘encouraged’ category, in line with Article 3(1)(a)(iv) of the basic Regulation.

(68)

Therefore, the Commission concluded that there was a financial contribution to the tyre producers in the form of a direct transfer of funds from the GOC within the meaning of Article 3(1)(a)(i) of the basic Regulation; and privately owned banks were also entrusted or directed by the government to provide financial contributions to the same producers within the meaning of Article 3(1)(a)(iv) of the basic Regulation.

(69)

Based on the information provided by the applicant in the request and also information from the recent investigations mentioned above in recital (55), the Commission concluded that Chinese credit ratings do not provide a reliable estimation of the credit risk of the underlying asset. On this basis, even if some of the sampled companies in the current expiry review were awarded a good credit rating by a Chinese rating agency, the Commission concluded that such ratings are not reliable.

(70)

A benefit within the meaning of Articles 3(2) and 6(b) of the basic Regulation was found to exist to the extent that the government loans were granted on terms more favourable than the recipient could actually obtain on the market. Since it was established that non-government loans in China do not provide an appropriate market benchmark (privately owned banks being entrusted and directed by the GOC), such a benchmark was constructed on the basis of standard lending rate of the People’s Bank of China. This rate was adjusted to reflect normal market risk by adding the appropriate premium expected on bonds issued by firms with rating of ‘non-investment grade’ bonds (at BB rate).

(71)

This subsidy programme was found to be specific within the meaning of Article 4(2)(a) of the basic Regulation, as the tyres industry belonged to the encouraged category according to the Decision No 40.

(72)

Furthermore, the programme was found to be specific under Article 4(2)(b) of the basic Regulation, as certain government plans and documents were encouraging and instructing to provide financial support to steel industry, also in specific geographical regions of China.

(73)

The subsidy rate established in the original investigation for the sampled exporting producers varied from 0,34% to 48,37 %.

(74)

In the request (37), the applicant provided evidence that Chinese tyre producers continued to benefit from preferential lending and below-market interest rates from domestic banks in the PRC.

(75)

The applicant provided evidence of the significant presence and continued market dominance of SOBs in the Chinese banking sector. The request listed the major SOBs that provided lending on preferential terms to the tyre producers in China.

(76)

Finally, the applicant indicated that private banks continued to be entrusted and directed by the GOC to provide subsidized loans, within the meaning of Article 3.1(a)(iv) of the basic Regulation.

(77)

In the absence of cooperation from the GOC and considering no arguments were presented by interested parties during the investigation which would challenge the evidence presented by the applicant with regard to the current situation of the Chinese banking system, the Commission is of the view that its findings from the original investigation continue to be applicable.

(78)

Furthermore, the critical facts relevant for the establishment of this subsidisation programme and its continuation, namely acting of SOBs as public bodies, their dominance in the banking sector, entrustment and direction of private banks, were confirmed by the findings of the most recent OCS, fibre glass, aluminium foil, BEV (38) investigations.

(79)

The Commission then calculated the amount of the countervailable subsidy. For this calculation, it assessed the benefit conferred on the recipients during the review investigation period (‘RIP’). According to Article 6(b) of the basic Regulation, the benefit conferred on the recipients is the difference between the amount of interest that the company pays on the government loan and the amount that the company would pay for a comparable commercial loan obtainable on the market.

(80)

As in the original investigation, the Commission calculated the benefit from the preferential lending practices for each sampled group of exporting producers on an individual basis and allocated such benefit to the product concerned.

(81)

The two exporting producers of the Hankook Group (‘Hankook’) have a very different financial situation. The first company, Jiangsu Hankook Tire Co. Ltd ('JHKT'), is a mature business with constant profits during the period 2020-2023. The second company, Chongqing Hankook Tire Co. Ltd ('CHKT'), accumulated heavy losses since its start up in 2010, although it made net profit in 2020 and 2023. This assessment was confirmed during the verification visit. The debt to assets ratio is quite low in the first case and relatively high in the second case.

(82)

The Commission noted that JHKT has been awarded credit ratings AAA- by Chinese state-owned financial institutions, whereas CHKT has been awarded credit ratings ranging from A to AA by the same state-owned financial institutions. In light of the overall distortions of Chinese credit ratings mentioned in section 3.4.1.1 above, the Commission concluded that this rating was not reliable.

(83)

During the review investigation period, one of the producers secured some funds from short-term loans by selling their export receivables to Chinese banks. CHKT did not take any loans and used only intercompany cash pooling to finance its operations.

(84)

The Commission considered that the overall financial situation of the group corresponds to a BB rating, which is the highest rating that does no longer qualify as “investment grade”. “Investment grade” means that bonds issued by the company are judged by the rating agency as likely enough to meet payment obligations that banks are allowed to invest in them.

(85)

The premium expected on bonds issued by firms with this rating (BB) was then applied to the standard lending rate of the People's Bank of China (‘PBOC’) in order to determine the market rate.

(86)

That mark-up was determined by calculating the relative spread between the indices of US AA rated corporate bonds to US BB rated corporate bonds based on Bloomberg data for industrial segments. The relative spread thus calculated was then added to the benchmark interest rates as published by the PBOC at the date when the loan was granted (39), and for the same duration as the loan in question. This was done individually for each loan provided to the company.

(87)

In the comments to the final disclosure, Hankook claimed that JHKT should not be downgraded as it is unjustified. The company alleged that the financial situation of the whole group should not have impact of the assessment of the company rating. The Commission conducted the assessment of the financial situation of the companies based on the collected data in the investigation. The Commission took into account the financial situation of the whole group due to the fact of the close links and relation between the companies of the Group. The companies not only have direct related transactions but are also involved in the financing schemes like cash pooling, discounting bills. Therefore, the claims had been disregarded and the assessment of the companies’ credit rates remain unchanged.

(88)

The exporting producers, Giti Radial Anhui, Giti Fujian, of the GITI Group (‘GITI’) have a very diverse financial situation. One of them was profitable during the period considered. Another one, was also profitable in during the period concerned, with exception to year 2022. Furthermore, other financial indicators, such as the debt to assets ratio have at the level above 50%. However, another producer was loss-making during the entire period considered and its liabilities excess the assets. Despite that, it had no loans from financial institution and was financed by the parent company.

(89)

The Commission in the original investigation concluded that regarding the GITI Group it was appropriate to use the BB benchmark as set out in recitals (65) to (80) above at the level of the group activities to calculate the overall benefit conferred upon tyres derived from the absence of a proper risk assessment.

(90)

Due to the absence of cooperation of the banks and no considerable changes in the financial situation of the company during the review investigation period, the Commission concluded that this benchmark remains appropriate.

(91)

The subsidy programme in question was still specific within the meaning of Articles 4(2)(a) and 4(2)(b) of the basic Regulation, given that the legal situation described in section 3.4.1 had not changed compared to when it was assessed by the Commission during the original investigation and in the light of the new 14th FYP for the petrochemical and chemical sector, confirming the tyres under the rubber industry as an encouraged industry.

(92)

Accordingly, the Commission concluded that there is sufficient evidence showing that the loans as a countervailable subsidy continued during the review investigation period.

(93)

The subsidy amount established with regard to the loans during the review investigation period for the sampled groups of companies amounts to:

Loans

(94)

The purpose of a credit line is to establish a borrowing limit that the company can use at any time to finance its current operations, thus making working capital financing flexible and immediately available when needed. Therefore, the Commission considered that in principle, all short-term financing of the sampled companies, such as short-term loans, bank acceptance drafts etc., should be covered by a credit line instrument.

(95)

Similar to the original investigation, the review investigation showed that Chinese financial institutions also provided credit lines in connection with the provision of individual loans to each of the sampled companies. These consisted of framework agreements, under which the bank would allow the sampled companies to withdraw up to a certain maximum amount of funds in the form of various debt instruments (loans, documentary bills, trade financing, bank acceptance note etc.). Under normal market circumstances, such credit lines would normally be subject to a so-called "arrangement" or "commitment" fee to compensate for the bank's costs and risks, as well as to renewal fees charged on an early basis for renewing the validity of the credit lines. However, the Commission found that all of sampled companies benefited from credit lines provided free of charge.

(96)

In accordance with Article 6(d)(ii) of the basic Regulation, the benefit conferred on the recipients is considered to be the difference between the amount that the company pays for the provision of credit lines by Chinese financial institutions and the amount that the company would pay for a comparable commercial credit line obtainable on the market.

(97)

The level of the fees used as a benchmark was applied pro rata to the amount of each credit line in question to obtain the amount of subsidy (minus any fees actually paid). In cases where the duration of the credit line was more than one year, the total amount of subsidy was allocated over the duration of the credit line and an appropriate amount attributed to the investigation period.

(98)

As mentioned in recital (67), according to Decision No 40, financial institutions shall provide credit support to encouraged industries.

(99)

The Commission considered that credit lines are a form of a preferential financial support by financial institutions to encouraged industries, such as the tyres industry. As specified in Section 3.3 above, the tyres industry is among the encouraged industries and is therefore eligible for all possible financial support.

(100)

In accordance with Article 6(d)(ii) of the basic Regulation, the Commission considered the benefit conferred on the recipients to be the difference between the amount that they paid as a fee for the opening or the renewal of the credit lines by Chinese financial institutions, and the amount that they would pay for a comparable commercial credit line obtained at an undistorted market rate.

(101)

The appropriate benchmarks for the arrangement fee and for the renewal fee were established at 1,5 % and 1,25 % respectively by reference to publicly available data (40) and benchmarks used in previous investigations listed in recital (55) above.

(102)

In principle, the arrangement fee and the renewal fee are payable on a lump sum basis at the time of the opening of a new credit line or the renewal of an existing credit line respectively. However, for calculation purposes, the Commission took into account credit lines which had been opened or renewed before the review investigation period but which were available to the sampled groups during the investigation period and also the credit lines that were opened during the investigation period. Then, the Commission calculated the benefit based on the period within the review investigation period during which the credit line was available.

(103)

Following the disclosure Giti claimed that the benchmark used was not appropriate and that the Commission inappropriately relied on credit lines in GBP issued by a small bank to conclude that the absence of fees charged for opening credit lines by banks in China constituted a subsidy. Giti also claimed that some of the credit lines were actually renewal of the previous ones, however in their regard the Commission applied the benchmark of the opening fee.

(104)

The Commission did not consider that the benchmark used was unjustifiably higher. As a matter of fact, it was very close to that used in past investigations and based on publicly available information. The fact that the producers do not operate in GBP was not considered relevant for the appropriateness of the benchmark chosen, where what matters is the market conditions offered to borrow money (regardless of the currency). Further, Giti in the questionnaire reply did not report any credit lines and only during the verification visit the Commission find out that the company had active credit lines during the RIP. Nevertheless, the exporter did not provide any proof, such as written agreement, indicating that these credit lines are renewal of the previous ones. Therefore, the Commission applied the opening fee benchmark in those instances.

(105)

Hankook further claimed that the Commission should first resort to available data in the country of the provision. The company claims that the branch of the Korean Bank in China provides credit lines for the fee and therefore this fee should apply to the benefit calculation for all credit lines of the exporter. The Commission applied the fees from the third countries as could not find any credit lines granted to the sampled companies that would be subject to any of the fees that would normally be payable at the market. Therefore, even if, in fact Chinese bank with foreign capital, provides credit lines with the fee, as alleged by the exporter, this fee is not payable or highly distorted. Having regard non-cooperation of the Chinese banks in the ongoing investigation the Commission is not able to verify this information in the current investigation. Moreover, the exporter did not provide any other proof, except the printout from unknown website in Korean (partially translated) that this fee is actually charged in China. Therefore, this claim was also disregarded.

(106)

The subsidy amount established with regard to the preferential lending during the review investigation period for the sampled groups of companies amounts to:

Credit lines

(107)

Bank acceptance drafts are a financial product aimed at developing a more active domestic money market by broadening credit facilities. It is a form of short-term financing that might “reduce fund cost and enhance capital efficiency” of the drawer (41). In addition, as stated by the PBOC on its website, “the bank acceptance draft can guarantee the establishment and performance of the contract between the buyer and the seller, as well as promote the capital turnover via the intervention of Bank of China’s credit” (42). In addition, on its website DBS Bank advertises bank acceptance drafts as a means to “improve working capital by deferring payments” (43).

(108)

The Commission already established in the previous investigations that bank acceptance drafts are largely used as a means of payment in commercial transactions as a substitute to a money order thus, facilitating the cash turnover and the working capital of the drawer (44). From a cash point of view, the instrument de facto grants the drawer a deferred due date of payment of 6 months or 1 year because the actual cash payment of the transaction amount occurs at the maturity of the bank acceptance draft and not at the moment when the drawer had to pay its supplier. In the absence of such a financial instrument, the drawer would either use its own working capital, which has a cost, or contract a short-term working capital loan with a bank in order to pay its suppliers, which also has a cost. In fact, by paying with bank acceptance drafts, the drawer uses the supplied goods or services for a period of 3 months to 1 year without advancing any cash and without bearing any cost.

(109)

Under normal market circumstances, as a financial instrument, bank acceptance drafts would imply a cost of financing for the drawer. The review investigation showed that the GITI Group used bank acceptance drafts during the review investigation period and only paid a commission for the acceptance service provided by the bank, which was in general 0,05 % of the face value of the draft. However, did not bear a cost for the financing via bank acceptance drafts by deferring the cash payment of the supply of goods and services. Therefore, the Commission considered that the investigated companies of GITI group benefitted from financing in the form of bank acceptance drafts for which they did not bear any cost. No evidence of such benefit was found for Hankook.

(110)

Considering the above, the Commission concluded that the bank acceptance system put in place in the PRC provided exporting producers a free financing of their current operations, which conferred a countervailable benefit as described in recitals (115) to (120) below, in accordance with Article 3(1)(a)(i) and 3(2) of the basic Regulation.

(111)

The Commission established in a previous investigation (45) that bank acceptance drafts effectively have the same purpose and effects as short-term working capital loans, as they are used by companies to finance their current operations instead of using short-term working capital loans, and that consequently, they should bear a cost equivalent to a short-term working capital loan financing.

(112)

Concerning specificity, as mentioned in recital (71) according to Decision No 40, financial institutions shall provide credit support to encouraged industries.

(113)

The Commission considered that bank acceptance drafts are another form of preferential financial support by financial institutions to encouraged industries such as the tyres industry. Indeed, as specified in Section 3.3 above, the tyres industry is among the encouraged industries and is therefore eligible for all possible financial support. Bank acceptance drafts, as a form of financing, are part of the preferential financial support system by financial institutions to encouraged industries, such as the tyres industry.

(114)

No evidence was provided that any undertaking in the PRC (other than within encouraged industries) can benefit from bank acceptance drafts under the same preferential terms and conditions.

(115)

For the calculation of the amount of the countervailable subsidy, the Commission assessed the benefit conferred on the recipients during the review investigation period.

(116)

The Commission found that GITI Group used bank acceptance drafts to address their needs for short-term financing without paying a remuneration.

(117)

The Commission concluded that bank acceptance drawers should pay a remuneration for the period of financing. The Commission considered that the period of financing started on the date of the issuance of the bank acceptance draft and ended on the maturity date of the bank acceptance draft. Regarding bank acceptance drafts issued before the review investigation period and bank acceptance drafts with a maturity date after the end of the review investigation period, the Commission calculated the benefit only for the period of financing covered by the review investigation period.

(118)

In accordance with Article 6(b) of the basic Regulation, considering that bank acceptance drafts are a form of short-term financing and that they effectively have the same purpose as short-term working capital loans, the Commission considered that the benefit conferred on the recipients is the difference between the amount that the company had actually paid as remuneration of the financing by bank acceptance drafts and the amount that it should pay by applying a short-term financing interest rate.

(119)

The Commission determined the benefit resulting from the non-payment of a short-term financing cost. The Commission considered, as established in previous investigations (46), that bank acceptance drafts should bear a cost equivalent to a short-term loan financing. Therefore, the Commission applied the same methodology as to short-term loans financing denominated in CNY.

(120)

The subsidy amount established with regard to the preferential lending during the review investigation period for the sampled groups of companies amounts to:

Bank acceptance drafts

(121)

The review investigation showed that both sampled groups of exporting producers benefited from preferential lending during the review investigation period. In view of the existence of a financial contribution, a benefit to the exporting producers and specificity, these loans, credit lines, and bank acceptance drafts should be considered as a countervailable subsidy.

(122)

The subsidy amount established with regard to the preferential lending during the review investigation period for the sampled groups of companies amounts to:

Preferential lending

(123)

In the request, the applicant alleged that Sinosure provided export credit insurance on preferential terms to producers of the product concerned.

(124)

The legal basis for subsidies provided by Sinosure are the following:

(125)

the Notice on Cultivation and Development of the State Council on Accelerating Emerging Industries of Strategic Decision (GuoFa[2010] No.32 of 18 October 2010), issued by the State Council and its Implementing Guidelines (GuoFa[2011] No.310 of 21 October 2011) (47).

(126)

In recent anti-subsidy investigations (48), the Commission found that Sinosure is a public body within the meaning of Article 2(b) of the basic Regulation. In particular, as in the context of preferential lending above, the conclusion that Sinosure is vested with authority to exercise governmental functions is based on facts available relating to State ownership, formal indicia of government control as well as evidence showing that the GOC continues exercising meaningful control over the conduct of Sinosure.

(127)

As confirmed in other recent investigations (49), the government exercises full ownership and financial control over Sinosure. Sinosure is a State sole proprietorship, owned 100% by the State Council. The Articles of Association (‘AoA’) state that the business competent department of the company is the Ministry of Finance. Sinosure is required to submit financial and accounting reports and a fiscal budget report to the Ministry of Finance for examination and approval.

(128)

With regard to government control, as a State sole proprietorship, Sinosure does not have a Board of Directors. As for the Board of Supervisors, all of the supervisors are appointed by the State Council and execute their duties according to the ‘Interim Regulation on the Board of Supervisors of Important State-owned Financial Institution.’ The senior management of Sinosure is also appointed by the government.

(129)

In the original investigation, the Commission found that Sinosure presented formal indicia of government control with regards to the tyres industry. The Commission noted that, as per the Notice on the Implementation of the Strategy of Promoting Trade through Science and Technology by Utilising Export Credit Insurance, Sinosure was expected to increase its support to key industries and high-tech products. Said products are specifically referenced in the 2006 Chinese Export Catalogue of High-Tech Products, which includes "New pneumatic radial tires for passenger or freight vehicles (refers to rubber tires for motor vehicles, cross-sectional width ≥ 24 inch)," (50).

(130)

In the request, the applicant claimed that the Export Catalogue of High-Tech Products is still applicable to this date, with no indication of foreseeable modifications to it.

(131)

On the basis of the above elements and in the absence of cooperation from the GOC, the Commission concluded that Sinosure is a public body as it is vested with authority to exercise governmental functions. The same conclusions were reached in previous anti-subsidy investigations concerning encouraged industries in the PRC, as explained above in recital (55).

(132)

As Sinosure is a public body vested with government authority and executes governmental laws and plans, the provision of export credit insurance to tyres producers constitutes a financial contribution in the form of potential direct transfer of funds from the government within the meaning of Article 3(1)(a)(i) of the basic Regulation.

(133)

Based on the information provided in the request as well as on the findings in recent investigations, the Commission concluded that a benefit within the meaning of Articles 3(2) and 6(c) of the basic Regulation exists since Sinosure, as a policy mandate, provides export credit insurance on terms more favourable than the recipient could normally obtain on the market, or provides insurance cover that would otherwise not be available at all on the market. Specificity

(134)

The subsidies are contingent upon export performance within the meaning of Article 4(4)(a) of the basic Regulation, and therefore specific.

(135)

It has been found that one of the sampled companies benefited from the scheme, namely Hankook Group. The Commission has calculated the benefit for this producer. The Commission did not find evidence that Giti Group received any benefit from this subsidy scheme.

(136)

Since Sinosure represents around 90% of the domestic market for export insurance in the PRC, the Commission could not find a market-based domestic insurance premium. In line with previous anti-subsidy investigations, the Commission thus used the most appropriate external benchmark, for which information was readily available, i.e. the premium rates applied by the Export-Import Bank (‘Ex-Im Bank’) of the United States of America to non-financial institutions for exports to OECD countries.

(137)

The refunds of export insurance premiums awarded during the review investigation period were treated as a grant. Since there was no evidence of additional costs incurred by the companies for which an adjustment would be needed, the benefit was calculated as the full amount of the refund received in the review investigation period.

(138)

Following the final disclosure, Hankook Group comment that in the calculation the total benefit from all exports should not be allocated only to the exports of the product concerned to the Union. The Commission corrected the error, without this bearing any significant change on the amount of subsidisation found, and allocated the benefit to the total turnover of all exports.

(139)

The subsidy amount established with regard to this scheme during the review investigation period for the sampled exporting producers amounts to:

Preferential financing and insurance: export credit insurance

(140)

None of the producers of natural rubber, synthetic rubber, carbon black and nylon cord which had provided inputs to the sampled companies responded to the specific questionnaires, which the Commission had requested the GOC to forward to them.

(141)

Since the Commission did not receive any information concerning the corporate governance of the state-owned producers which provided inputs to the sampled companies, and no company-specific information on the price setting of the inputs provided by the suppliers of inputs to the sampled companies, the Commission had to rely on facts available for its findings concerning the provision of natural rubber, synthetic rubber, carbon black and nylon cord at less than adequate remuneration in accordance with Article 28(1) of the basic Regulation.

(142)

All sampled companies purchased the electricity based on a contract with the energy providers. The purchase prices of electricity from the grid followed the officially established price levels set at provincial level for large industrial clients. As it was determined in previous investigations (51), despite the implantation of the reform concerning liberalisation of the market price for the energy, the electricity purchases market is still heavily regulated.

(143)

In the course of the review investigation, the Commission established that the sampled companies benefitted from reductions or refunds of part of their electricity cost.

(144)

The legal basis is the following:

(145)

The Commission established that sampled companies purchased the electricity and benefitted from reductions or refunds/adjustments of part of their electricity cost because these companies participated in the pilot programme for market-oriented electricity transactions.

(146)

Considering there was no cooperation form the GOC, the Commission relied on the information from the original investigation. The Commission further found that investigated companies are allowed to purchase electricity directly from power generators by signing direct purchasing agreements, instead of buying from the grid. Such contracts provide for a certain quantity of electricity at a certain price, which is lower than the official prices set at provincial level for large industrial users.

(147)

As it was established in the previous investigations (52), the possibility to enter into such direct contracts is currently not open to all large industrial consumers. At national level, the Opinions of the Central Committee of the Communist Party of China and the State Council on Further Deepening the Reform of the Power System specify for example that “enterprises that do not conform to the national industrial policy and whose products and processes are eliminated should not participate in direct transactions” (53). The same Opinions also stipulate that “after the access standards are determined, we should also upgrade the catalogues of local power generation enterprises and electricity retailers that meet the standards that are annually publicized by governments and implement dynamic regulation of the user catalogue. The power generation enterprises, electricity retailers and users included in the catalogue can voluntarily register with the trading institutions to become market players”. Therefore, in order to participate in the direct trading system, a company should meet certain standards and be included in the “user catalogue”.

(148)

In practice, direct electricity trading is executed by the provinces. Companies have to apply to provincial authorities for approval to participate in the direct electricity pilot scheme, and they have to fulfil certain criteria. For certain companies, there is no actual market-based negotiation or bidding process, since the quantities purchased under direct contracts are not based on the real supply and demand. Indeed, power generators and power users are not free to sell or purchase all of their electricity directly. They are restricted by quantitative quotas, which are allocated to them by the local government. Furthermore, although prices are supposed to be negotiated directly between the power generators and the power users or through intermediary service companies, the invoices to the companies are actually issued by the State Grid Company. Finally, all signed direct purchase contracts need to be submitted to the local government for the record.

(149)

In 2018, the GOC issued the Circular of the National Development and Reform Commission and the National Energy Administration on Actively Promoting the Market-oriented Power Transactions and Further Improving the Trading Mechanism. Although the Circular aims to increase the number of direct transactions on the electricity market, it specifically mentions certain industries, including high-tech industries such as the tyres industry, as supported and benefitting from liberalisation of the electricity market. In particular, Section III. ‘Opening up to allow entry of user fulfilling requirements’, point (2) provides that “supporting emerging industries with high added value, such as high-tech, internet, big data and high-end manufacturing industries, as well as enterprises with distinct advantages and characteristics and high technology content, to participate in transactions, free from voltage levels and power consumption restrictions”.

(150)

Furthermore, according to the Notice on Fully Liberalizing the Electricity Generation and Consumption Plan for Commercially Operational Users, which aims to further liberalise the electricity market, provides that “among the commercial electricity users, those who do not comply with the national industry policies shall provisionally not participate in market-oriented transactions, and the electricity users whose products and processes belong to the eliminated and restricted categories of the ‘Guidance Catalogue for the Industry’s Structural Adjustment’ shall strictly implement the current differential prices policy for electricity.”

(151)

Therefore, the legislation provides for a selective application of direct transactions on the electricity market limited to certain industries such as the industries which comply with the national industry policies, with a particular focus on high-tech industries. As a result, these industries pay lower prices for electricity.

(152)

The Commission therefore considered that the reduced electricity rate and the refunds/adjustments resulting from the direct electricity trading, in which the sampled companies participated constitute a subsidy within the meaning of Article 3(1)(a)(ii) and Article 3(2) of the basic Regulation. There is a financial contribution in the form of revenue foregone by the GOC (i.e. the operator of the grid) that confers a benefit to the companies concerned. The benefit for the recipients is equal to the electricity cost saving, either through reduced electricity prices or through refunds/adjustments, since the electricity was provided at a price below the normal grid price paid by other large industrial users that could not benefit from the direct supply or were not part of the pilot project for direct supply.

(153)

This subsidy is specific within the meaning of Article 4(2)(a) of the basic Regulation as the legislation itself limits the application of this scheme only to enterprises that conform with certain industrial policy objectives determined by the State and whose products or processes are deemed eligible.

(154)

Thus, the Commission concluded that the subsidy scheme was in place during the review investigation period and that it is specific within the meaning of Articles 4(2)(a) and 4(3) of the basic Regulation.

(155)

The amount of countervailable subsidy was calculated in terms of the benefit conferred on the recipients during the review investigation period. This benefit was calculated as the difference between the total electricity price payable according to the normal grid rate and the total electricity price payable under the reduced rate.

(156)

Following the final disclosure Hankook claimed that the in the calculation for one company from the group, CHKT, the Commission did not use revised version of the file submitted by the company to the questionnaire reply. The company initially calculated the fees applicable to the amounts paid for the electricity based on the rates excluding the governmental fees, meanwhile, the grid rates include these fees. Therefore, the company before the verification visit submitted the revised version of the electricity prices paid by CHKT. CHKT claimed that the Commission should calculate the benefit based on the revised rates. The Commission analysed this claim and found it has merit. Therefore, the Commission corrected the error and calculated the benefit based on the rates paid by the CHKT including the governmental fees.

(157)

Further, Hankook alleged that the Commission incorrectly applied ‘zeroing’ method and disregarded the transactions on the monthly basis where the benefit was not found. The Commission recalled that the benefit was calculated taking into consideration each transaction and then compared them with the grid rates to verify if the company had been provided with the service on the less than adequate remuneration. The comparison was done between the same or the most similar services, for instance between the same rate (high peak, peak, normal, valley), period and area. Therefore, when in some instances the benefit was not found, these transactions were not considered in the total benefit. The Commission did not find any reasons that the offsetting method claimed by the company should be justified and applied to the subsidy amount calculation, therefore the claim was disregarded.

(158)

The subsidy amount established with regard to this scheme during the review investigation period for the sampled exporting producers amounts to:

Provision of electricity at less than adequate remuneration

(159)

In the original investigation, the Commission established that the tyres industry in the PRC benefited from the provision of land and, more specifically, the provision of land-use rights at less than adequate remuneration.

(160)

The land-use right provision in China falls under Land Administration Law of the People's Republic of China. In addition, the following documents also are part of the legal basis:

(161)

According to Article 10 of the “Provision on Assignment of State-owned Construction Land Use Right through Bid Invitation, Auction and Quotation”, local authorities set land prices according to the urban land evaluation system, which is only updated every three years, and the government's industrial policy.

(162)

In previous investigations (61), the Commission found that prices paid for LUR in the PRC were not representative of a market price determined by free market supply and demand, since the auctioning system was found to be unclear, non-transparent and not functioning in practice, and prices were found to be arbitrarily set by the authorities. As mentioned in the previous recital, the authorities set the prices according to the Urban Land Evaluation System which instructs them among other criteria to consider also industrial policy when setting the price of industrial land.

(163)

In the context of preferential access to industrial land for companies belonging to certain industries, the Commission noted that the price set by local authorities has to take into account the government’s industrial policy, as mentioned above. Within this industrial policy, the Tyres industry is listed as an encouraged industry. In addition, according to Decision No 40 of the State Council, public authorities shall take into account ‘The Guiding Catalogue of the Industrial Restructuring’ and the industrial policies when providing land. Article XVIII of Decision No 40 makes clear that industries that are ‘restricted’ will not have access to land use rights. It follows that the subsidy is specific under Article 4(2)(a) and 4(2)(c) of the basic Regulation because the preferential provision of land is limited to companies belonging to certain industries, in this case the tyres industry, and government practices in this area are unclear and non-transparent.

(164)

The review investigation did not show any noticeable changes in respect of the sampled producers. Only one exporting producer from Giti Group purchased a new parcel of land by the end of the review investigation period.

(165)

The findings of this investigation confirm that the situation concerning land provision and acquisition in the PRC is non-transparent and the prices were arbitrarily set by the authorities.

(166)

As in previous investigations (62) and in accordance with Article 6(d)(ii) of the basic Regulation, land prices from the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu (‘Taiwan’) were used as an external benchmark (63). The benefit conferred on the recipients is calculated by taking into consideration the difference between the amount actually paid by each of the sampled exporting producers (i.e., the actual price paid as stated in the contract and, when applicable, the price stated in the contract reduced by the amount of local government refunds/grants) for land use rights and the amount that should normally have been paid on the basis of the Taiwan benchmark.

(167)

The Commission considered Taiwan as a suitable external benchmark for the following reasons:

(168)

Following the methodology applied in previous investigations (64) (65), the Commission used the average land price per square meter established in Taiwan corrected for inflation and GDP evolution as from the dates of the respective LUR contracts. The information concerning industrial land prices as of 2015 was retrieved from the website of the Industrial Bureau of the Ministry of Economic Affairs of Taiwan (66). For the previous years, the prices were corrected using the inflation rates and evolution of GDP per capita at current prices in USD for Taiwan as published by the IMF for 2015.

(169)

Following the disclosure, two exporting producers alleged that the Taiwan is not an appropriate for benchmark because, among others Taiwan does not have the same level of the economic development, there are other countries with the same degree of industrial infrastructure. Hankook Group claimed that the Commission should therefore resort to Thailand as an appropriate for the benchmark, as it was done by the United Kingdom. Giti claimed that the Taiwan benchmark is not appropriate as it also does not reflect the market conditions in PRC and that the land prices were not adjusted in any way to account for the market conditions in mainland China.

(170)

The Commission considered that the choice of Taiwan as a suitable external benchmark was based on the examination of several factors listed in recital (168) of the Regulation and in the recent investigation (67) which justified its choice as a valid benchmark, including taking into consideration comparison of the industrial zones in Taiwan with the relevant industrial provinces in China. The Commission considered, however, that even if there were certain differences in the market conditions between land use rights in mainland China and sale of land in Taiwan, these would not be of such nature to invalidate the choice of Taiwan as a valid benchmark. The Commission could not identify during the investigation any other adequate benchmark or adjustment method that would adequately reflect these differences in the market conditions. Moreover, the Commission concluded on the benchmark based on their own assessment and result of the investigation and not on the other third countries findings in their own procedures. On this basis, this claim had to be rejected.

(171)

Giti claimed that the parcel the rights of which Giti has acquired during the RIP should not be taken into account in the calculation of the benefit as it is not used for the purposes of the production of the product concerned. The company itself admits that the purpose of acquiring the land is to construct the new factory and eventually move the production to this location. The mere fact that the production does not take place at the moment is not relevant for the subsidy amount received by the company. The company received the benefit and therefore this parcel has been also included in the calculation of the subsidy amount during the RIP. The claim has been disregarded.

(172)

In accordance with Article 7(3) of the basic Regulation, the subsidy amount has been allocated to the review investigation period using the normal lifetime of the land use rights for industrial use land, i.e. 50 years. This amount has then been allocated over the total respective company turnover during the review investigation period, because the subsidy is not contingent upon export performance and was not granted by reference to the quantities manufactured, produced, exported or transported.

(173)

The subsidy amount established with regard to this subsidy during the review investigation period for the sampled exporting producers amounts to:

Provision of Land use rights at less than adequate remuneration

(174)

According to the Law of the People's Republic of China on Enterprise Income Tax ('EIT Law'), high and new technology enterprises to which the State needs to give key support are given a reduced enterprise income tax rate of 15% rather than the standard tax rate of 25 %.

(175)

In the original investigation, the Commission established that tyre producers were receiving countervailable subsidies in the form of preferential treatment under income and other direct tax programmes and policies.

(176)

With regard to three specific programmes (i.e., Enterprise Income Tax (EIT) privileges for Resource Products from Synergistic Utilisation; EIT offset for research and development expenses; and Land use tax exemptions), the Commission, considering the lack of cooperation from the GOC, based its findings concerning the legal basis, eligibility, nature of the subsidy and its specificity on the findings from previous investigations (68) and the verified questionnaire replies of the sampled exporting producers. As such, the Commission was able to calculate individual subsidy rates for the sampled exporting producers.

(177)

The income and other direct tax programmes were found to be subsidies within the meaning of Article 3(1)(a)(ii) and Article 3(2) of the basic Regulation in the form of government revenue foregone which confers a benefit upon the recipient companies.

(178)

The legal basis of this programme is Article 28 and Article 30(1) of the EIT Law and Article 93 of the Implementation Rules for the EIT Law, as well as:

(179)

Only companies that are part of certain key high and new technology fields supported by the State, as well as the current priorities on high technology fields supported by the State, as listed in the Guidelines of the Latest Key Priority Developmental Areas in the High Technology Industries can benefit from the tax reduction. These guidelines clearly mention manufacturing technology and key raw materials for tyres as a priority area.

(180)

Companies benefiting from this measure must file their income tax return and the relevant annexes. The actual amount of the benefit is included in the tax return.

(181)

The Commission considered that the tax offset at issue is a subsidy within the meaning of Article 3(1)(a)(ii) and Article 3(2) of the basic Regulation because there is a financial contribution in the form of revenue foregone by the GOC that confers a benefit to the companies concerned. The benefit for the recipients is equal to the tax saving. This subsidy is specific within the meaning of Article 4(2)(a) of the basic Regulation as the legislation itself limits the application of this scheme only to enterprises that are operating in certain high technology priority areas determined by the State, such as some key technologies within the tyres sector.

(182)

The amount of countervailable subsidy was calculated in terms of the benefit conferred on the recipients during the review investigation period. This benefit was calculated as the difference between the total tax payable according to the normal tax rate and the total tax payable under the reduced tax rate.

(183)

The subsidy amount established with regard to this subsidy during the review investigation period for the sampled exporting producers amounts to:

Direct tax exemption and reduction programmes

(184)

As established in the original investigation, this programme provides an exemption from VAT and import tariffs for imports of capital equipment used in their production. The exemptions of both VAT and import duty during the review investigation period were identified for the sampled companies. These included exemptions for equipment imported in previous years, but for which the benefit was amortized over the lifespan of that equipment and was thus partially allocated to the review investigation period. While the Commission found no evidence that the tax exemptions were directly applicable during the review investigation period, the Commission established that the sampled companies still received some limited benefits under this programme from exemptions applicable during previous years.

(185)

As established in the original investigation, this programme provides a financial contribution in the form of revenue forgone by the GOC within the meaning of Article 3(1)(a)(ii) as Foreign Invested Enterprises (‘FIEs’) and other eligible domestic enterprises are relieved from payment of VAT and/or tariffs which would be otherwise due. It also confers a benefit on the recipient companies in the sense of Article 3(2) of the basic Regulation.

(186)

The programme is specific within the meaning of Article 4(2)(a) of the basic Regulation. The legislation pursuant to which the granting authority operates limits its access to enterprises that invest under specific business categories defined exhaustively by law and belonging either to the encouraged category or the restricted category B under the Catalogue for the guidance of industries for foreign investment and technology transfer or those which are in line with the Catalogue of key industries, products and technologies the development of which is encouraged by the State. In addition, there are no objective criteria to limit eligibility for this programme and there is no conclusive evidence to infer that eligibility is automatic under Article 4(2)(b) of the basic Regulation.

(187)

The amount of countervailable subsidy was calculated in terms of the benefit conferred on the recipients, which is found to exist during the review investigation period. The benefit conferred on the recipients is the amount of VAT and duties exempted on imported equipment. In order to ensure that the countervailable amount only covered the review investigation period, the benefit received was amortized over the useful life of the equipment according to the company's normal accounting procedures.

(188)

All the sampled companies benefitted from rebates under this scheme. The amount of subsidy established for this specific scheme was established at the level of 0,005% for Hankook Group and 0,02% for GITI Group.

(189)

The Commission established in the original investigation that all sampled companies had been qualified as so-called "processing trade enterprises". The Commission found during the review investigation that this scheme continued to apply during the review investigation period.

(190)

According to Article 3 of the Measures of the Customs of the People's Republic of China for the Supervision of Processing Trade Goods (69), "the term "processing trade" shall refer to business activities wherein the operating enterprise imports all or part of the raw or auxiliary materials, parts and components, component parts and packaging materials, and re-exports the finished products after processing or assembling, including processing of supplied and imported material." Article 5 furthermore states that "Where taxes are collected during import in accordance with the relevant provisions, customs shall rebate the collected taxes according to the verified quantity of the goods actually processed and re-exported after the export of the finished goods."

(191)

The legal bases of this programme are:

(192)

During the review investigation, the Commission found that all of the sampled companies had registered with customs for the processing trade scheme and all of them had received waivers of "taxes collected during import" (i.e. import duties) on imports of natural rubber used in the production of exported tyres.

(193)

Such a setup corresponds to a duty drawback scheme as described in Annex I(i) of the basic Regulation. Pursuant to point (i) of Annex I, substitution drawback systems can constitute an export subsidy to the extent that they result in an excess drawback of the import charges levied initially on the imported inputs for which drawback is being claimed.

(194)

In order to determine whether such excess remission existed, in accordance with Annex III, point II of the basic Regulation, the Commission requested additional information from the GOC on the processing trade scheme in general, and more specifically on the existence and effective application of the accompanying monitoring and verification procedures. The GOC did not provide any information in this regard. As such, the Commission determined the existence of the subsidisation based on the findings in the original investigation and information provided by the sampled exporting producers in the review investigation.

(195)

As established in the original investigation, the GOC put a legislative framework in place for monitoring the processing trade system. However, the Commission also noted that some features built into the system could potentially lead to excess drawbacks:

(196)

Furthermore, during the verification visits with the sampled exporting producers, it appeared that this framework was not effectively applied in practice. For example, the Commission found that the exporter declared in the customs electronic system, data on imports of natural rubber and quantities of exported tyres, including product concerned. Consumption of the rubber is declared based on the standard consumption and then compared with the actual consumption. Most of the sampled producers used the same consumption rates in the processing trade system as in their production, except one. During the verification visit, the Commission found that GITI Fujian reported consumption for production of the rubber that had not been actually used during the review investigation period. Therefore, the Commission calculated the usage of the particular types of the rubber and determined that the actual consumption varies from the one reported to the customs electronic system. It must be noted that the difference occurred despite on spot verifications at the premises of the sampled company conducted by the customs authorities during the review investigation period. Such findings were communicated to the GOC, with a view to allow it to conduct a further examination of the transactions at issue.

(197)

As a result, one of the exporters from GITI group did not pay all of the import duties which should have been due.

(198)

The Commission concluded that the GOC's monitoring system for processing trade was not effectively applied as far as natural rubber is concerned. Furthermore, the Commission determined that the processing trade system for natural rubber used in exported tyres led to excess remissions, which constitute a countervailable subsidy within the meaning of Article 3(1)(a)(ii) of the basic Regulation, as they result in an excess drawback of the import charges levied initially on the imported inputs for which drawback is being claimed.

(199)

These excess remissions are also specific, given that they are contingent upon export performance within the meaning of Article 4(4)(a) of the basic Regulation.

(200)

The benefit was calculated as the difference between the amount of import duties due during the IP, and the actual amount of import duties paid during the review investigation period.

(201)

The amount of subsidy established with regard to this type of subsidies during the review investigation period for the sampled exporting producers was as follows:

Import duty drawback on natural rubber

(202)

The total subsidy amount established with regard to all indirect tax and import tariff schemes during the review investigation period for the sampled exporting producers was as follows:

Indirect tax exemptions and reductions

(203)

In the original investigation, the Commission found that some sampled companies benefited from a variety of grants related to environmental protection and the reduction of emissions and from grants related to R&D, technological upgrading and innovation.

(204)

Similar as in the original investigation, both sampled exporters benefited from several ad hoc grants.

(205)

The vast majority of the programmes reported by the sampled exporting producers was based on the notices issued by local authorities. Moreover, it was established that these programmes reflect the general policies set up, inter alia, in the following acts:

(206)

Considering the lack of the cooperation from the GOC, the Commission based its findings as regards grant programs on the facts available, including the information provided in the expiry review request and information submitted by the sampled exporting producers. The Commission concluded that the exporting producers continued to benefit from similar programmes during the review investigation period, as found in the original investigation.

(207)

The applicant in the request claimed that tyres exporters from the PRC benefit from these programmes. For instance, that in May 2022, the Ministry of Finance released the Fiscal Support for the work of Carbon Neutral Peak to "achieving the goal of carbon neutrality, strengthening financial support policies and the national '14th FYP'." This document hence aims at implementing governmental financial policies to "support regions and industries to accelerate green and low-carbon transformation." The tyre industry, as well as the whole Chinese economy, thus benefits from the environmental policies. As a view to promote a greener industry, the MIIT issued the Industrial Green Development Plan for the years 2016-2020. It targeted key polluting technologies used for the manufacture of tyres, i.e. petrochemical, rubber, steel and textile (70).

(208)

Moreover, the applicant claimed that the 14th FYP provides support for "R&D expenses and tax incentives for high-tech enterprises." The 14th FYP includes in the R&D provisions scientific and technological projects. (71)

(209)

These programs are considered subsidies within the meaning of Article 3(1)(a)(i) and Article 3(2) of the basic Regulation because they transfer of funds from the GOC in the form of grants to the producers of the product concerned.

(210)

The Commission also determined that these subsidies are specific within the meaning of Article 4(2)(a) of the basic Regulation because only companies operating in key areas or technologies as listed in the guidelines, administrative measures and catalogues that are published on a regular basis are eligible to receive them. The tyres and/or the (petro)chemical sector are listed among the eligible sectors.

(211)

The benefit was calculated as the amount received in the review investigation period, or allocated to the review investigation period, where the amount was depreciated over the useful life of the fixed asset to which the grant was related similarly to the original investigation.

(212)

The amount of subsidy established with regard to this type of subsidy during the investigation period for the sampled exporting producers was as follows:

Energy saving, conservation and emission grants

(213)

The Commission calculated the amount of countervailable subsidies in accordance with the provisions of the basic Regulation for the sampled companies by examining each subsidy or subsidy programme, and added these figures together to calculate a total amount of subsidisation for each exporting producer for the review investigation period. To calculate the overall subsidisation below, the Commission first calculated the percentage subsidisation, being the subsidy amount as a percentage of the company's total turnover. This percentage was then used to calculate the subsidy allocated to exports of the product concerned to the Union during the review investigation period. The subsidy amount per tonne of product concerned exported to the Union during the review investigation period was then calculated, and the margins below calculated as a percentage of the Costs, Insurance and Freight (‘CIF’) value of the same exports per tonne.

(214)

Subsidy rates expressed as a percentage of the CIF Union frontier price, duty unpaid, averaged at the level of [4 – 8]% countrywide. It was therefore concluded that the subsidy schemes investigated were in force during the review investigation period.

(215)

Further to the finding of the existence of subsidisation during the review investigation period, the Commission investigated, in accordance with Article 18(2) of the basic Regulation, the likelihood of continuation of subsidisation, should the measures be repealed.

(216)

In this context, the Commission investigated the following elements: the production capacity and spare capacity in the PRC, the relation between export prices to third countries and the price level in the Union, and the attractiveness of the Union market.

(217)

The Commission examined whether the subsidised imports from the PRC to the Union would be made in significant volumes should the measures be allowed to lapse. In the absence of cooperation from the GOC, the Commission established production capacity and spare capacity in the PRC on the basis of publicly available information and information provided in the expiry review request.

(218)

In the request, CRIA reported a production output of 122,39 million tyres in the PRC in 2021, for an estimated production capacity of 141,76 million tyres in the same year, which marks an increase in tyres produced of 2,72 million with the preceding year. Capacity utilisation rates derived from these figures would stand at around 86 %. In 2022, at least 1,5 million units of additional tyre production capacities had already been added, as reported by the CRIA. This puts the total tyre production capacity at around 143,25 million units for 2022. If the same capacity utilisation rates are taken as for the year 2021, this would bring output at around 123,67 million tyre produced. The available unused capacity in China in 2022 therefore amounted to almost 20 million units, which was almost equivalent to the total consumption on the EU market (which is around 20 million units, as set out in recital (232) below).

(219)

Chinese tyre producers, in line with the GOC's and CCP's industrial policies outlined above, have continued to increase their already overdeveloped production capacities since the original IP (which was around 110 million). The Brazilian antidumping investigation, in 2021, already highlighted the existence of significant production capacities in the PRC, with evidence of several investments in production capacities by major Chinese tyre producers. (72) The South African antidumping investigation of 2022 similarly established the significant excess production capacity of Chinese tyre producers (at least 30% of spare capacity) that would likely lead to increased exports of the product under investigation. (73)

(220)

The Commission examined whether it was likely that Chinese exporting producers would continue their export sales at subsidised prices on the Union market should measures be allowed to lapse. The Commission first analysed the price level of Chinese exports to third country markets and compared them to the price level of Chinese exports to the Union market, to determine whether the Union market was attractive in terms of price levels.

(221)

The Commission examined the level of prices reported by the sampled exporting producers and found that for comparable transactions (i.e. commercial invoice set on FOB incoterms) the unit price of truck tyres exported to third countries represented around 80 % of their unit price in the EU. Moreover, the attractiveness of the Union market was demonstrated by the fact that despite the measures in force, Chinese export volumes to the Union remained at around 30% of the volume of imports observed during the original investigation.

(222)

Statistics show that the Union market, the second largest after the United States, is attractive to Chinese exports in terms of prices. In 2023, the price level of Chinese exports to the Union was up to 20% higher compared to the Chinese average export prices to other destinations, such as the United States Mexico, UAE, Indonesia, Malaysia, Saudi Arabia, Nigeria, Algeria, Egypt and Kenya.

(223)

Based on the above, the Commission concluded that the Union market constituted an attractive market for Chinese exporting producers of truck tyres both in terms of its prices and its size.

(224)

It is unlikely that the spare capacity of Chinese exporting producers would be used to increase exports to third countries other than the EU. The Commission found that trade defence measures on imports of the product concerned from the PRC are in force in Armenia, Botswana, Brazil, Egypt, Eswatini, Kazakhstan, Kyrgyz Republic, Lesotho, Namibia, Russian Federation, South Africa, Türkiye, the United Kingdom and the United States of America (74). As a consequence, these third country markets, which are significant consumers of truck tyres, are less attractive for the Chinese exporting producers.

(225)

In view of the above considerations, the Commission concluded that there was a continuation of subsidisation. The investigation showed that the imports from the PRC continued to enter the Union market in high volumes (compared to the size of the market) at subsidised prices during the review investigation period.

(226)

In addition, during the review investigation period, the Commission found that the excess spare capacity in the PRC was significant in comparison with the Union consumption. The attractiveness of the Union market in terms of size and sales prices also indicated that Chinese exports would likely be directed towards the Union market, should the countervailing measures lapse.

(227)

As such, the Commission found it likely that Chinese exporting producers will increase their exports of tyres at subsidised prices to the Union market if the countervailing measures are allowed to lapse.

(228)

The like product was manufactured by more than 400 producers in the Union during the period considered. They constitute the ‘Union industry’ within the meaning of Article 9(1) of the basic Regulation.

(229)

The total Union production during the review investigation period was established at around 18 million tyres. The Commission established the total Union production figure on the basis of the information provided by European Tyre & Rubber Manufacturers Association (‘ETRMA’), the applicant and Eurostat statistics. As indicated in recital (26), five Union producers in the final sample represent more than 25% of Union production and sales of the like product. Therefore, the microeconomic indicators were examined on the basis of data obtained from the replies of those five Union producers.

(230)

Some of the sampled producers were found to import and resell the product concerned on the Union market from the PRC. However, by comparison to their overall sales, the imports remain marginal (less than 1% of their overall sales) and do not affect their qualification as Union producers.

(231)

The Commission established the Union consumption on the basis of information provided by the ETRMA and Eurostat.

(232)

Union consumption developed as follows:

Table 1

Union consumption (in items)

(233)

Consumption on the Union market increased by 11% over the period considered. There was a notable increase from 2020 to 2022. This is likely to be linked with the recovery from the Covid crisis and is explained by the fact that consumption of tyres is intrinsically linked to kilometres travelled by the fleets which, in turn, is very dependent on the overall economic activity and notably of the volume of goods transported by road. The increase in consumption peaked in 2022 and slowed down during the review investigation period.

(234)

The Commission established the volume of imports on the basis of Eurostat. The market share of the imports was established on the basis of the Union consumption in Table 1.

(235)

Imports into the Union from the country concerned developed as follows:

Table 2

Import volume (in items) and market share

(236)

The Commission established the volume of imports on the basis of Eurostat. The market share of the imports on the basis of the Union consumption is found in Table 2.

(237)

Import volumes from the PRC increased by 22 % during the period considered, from around 900 thousand tyres in 2020 to around 1,1 million tyres in the investigation period. The increase of Chinese imports was particularly significant in 2022 when the original measures were partially annulled by General Court of the European Union as described in recital (4). The import volumes remained at the same level also during the review investigation period despite the decrease in demand. This resulted in an increase of the market share of Chinese imports from 4,9 % to 5,4 % during the period considered.

(238)

The Commission established the prices of imports on the basis of Eurostat.

(239)

The weighted average price of imports into the Union from the country concerned developed as follows:

Table 3

Import prices (EUR/item)

(240)

Over the period considered, the average Chinese import prices into the Union (all tiers) increased by 61 %.

(241)

As the sampled exporting producers exported predominantly Tier 1 and Tier 2 tyres, the Commission lacked detailed information about Chinese exports in Tier 3, where the primary injury occurred during the original investigation, subsequently causing a reverse cascade effect into the other two tiers.

(242)

For that reason, the Commission estimated the price undercutting for the totality of imports on the basis of import statistics.

(243)

The Commission thus made a comparison between:

(244)

This comparison showed that for the remaining imports the average Chinese landed import price (270 EUR/item) was below the Union industry’s average selling price (281 EUR/item) and only slightly above the Union industry’s average cost of production (260 EUR/item). Should the landed price be established without the anti-dumping and countervailing duties, it would amount to 251 EUR/item, which would significantly undercut the Union industry’s average selling price and would be also below the Union industry’s cost of production.

(245)

The Commission thus concluded that, overall, the prices of Chinese imports were lower than the average selling price of the Union industry.

(246)

Following final disclosure, Hankook Group claimed that the Commission had incorrectly changed its undercutting calculation methodology compared to the original investigation. Hankook Group claimed that instead of estimating the price undercutting for the totality of imports on the basis of import statistics the Commission should have carried out an analysis on a type-by-type or tier-by-tier basis. In the sensitive version of its submission Hankook Group also brought forward data on its export volumes and prices and claimed that by using this data the Commission could have deduced the import prices for all tiers and carried out a tier-by-tier undercutting analysis.

(247)

The Commission disagreed with these claims. First, due to non-cooperation of the Chinese exporting producers operating in tier 3 and as stated in the recital (241), the Commission lacked detailed information about Chinese exports especially in tier 3 and was unable to carry out a tier-by-tier undercutting analysis. Thus, there was a change in the underlying data available to the Commission. Second, the data brought forward by Hankook Group on its own export volumes and prices was insufficient for carrying out any further undercutting analysis. Even according to this data, it remains that there are other operators in tier 1, 2 and 3 on which there is no detailed information available and, in contrary to what Hankook Group claims, this data is not sufficient to bring any further information on the undercutting on tier-by-tier level or to invalidate any of the results of the undercutting analysis made by the Commission. Therefore, this claim is rejected.

(248)

The imports of tyres from third countries other than China were mainly from Thailand, Türkiye and Vietnam.

(249)

The volume of imports into the Union as well as the market share and price trends for imports of tyres from other third countries developed as follows:

Table 4

Imports from third countries

(250)

During the period considered, imports from other third countries increased by around 2 million items, i.e. by 41 %. This is faster than the progression of the Union consumption and resulted in the market share increase from 26,5% to 33,5%.

(251)

The main increase took place from imports from Thailand (856 thousand items), Türkiye (590 thousand items) and Vietnam (486 thousand items). For other third countries the increase was only modest (53 thousand items).

(252)

The price level of imports from other third countries, especially from Thailand and Vietnam, was markedly below the Union industry selling prices.

(253)

The assessment of the economic situation of the Union industry included an evaluation of all economic indicators having a bearing on the state of the Union industry during the period considered.

(254)

As mentioned in recitals (15) to (17), sampling was used for the assessment of the economic situation of the Union industry.

(255)

For the injury determination, the Commission distinguished between macroeconomic and microeconomic injury indicators. The Commission evaluated the macroeconomic indicators on the basis of data contained in the review request, Eurostat statistics and submissions from ETRMA. The data related to all Union producers. The Commission evaluated the microeconomic indicators on the basis of data contained in the questionnaire replies from the sampled Union producers. The data related to the sampled Union producers. Both sets of data were found to be representative of the economic situation of the Union industry.

(256)

The macroeconomic indicators are: production, production capacity, capacity utilisation, sales volume, market share, growth, employment, productivity, magnitude of the subsidy margin, and recovery from past subsidisation.

(257)

The microeconomic indicators are: average unit prices, unit cost, labour costs, inventories, profitability, cash flow, investments, return on investments, and ability to raise capital.

(258)

The original investigation conducted analysis of the economic situation of the Union industry on an aggregated basis and, in certain microeconomic indicators, also at the level of tiers given the Union market segmentation. In the current investigation the Commission first analysed the economic situation of the Union industry on an aggregated basis.

(259)

The Commission also conducted the analysis of certain indicators at the tier level. As shown in recitals (301) to (308), this analysis confirms that the trends for the product concerned considered as a whole in general correspond to those for the tiers considered separately.

(260)

In the original investigation, the Commission weighted the results of the sampled Union producers in accordance with their share in the total Union sales of the Union producers to ensure that the SMEs were represented according to their share in the total Union sales in all micro-indicators. As SMEs are active only in tier 3 segment, this adjustment had as a direct consequence to increase the share of tier 3 sales within the set of data originating from the sampled Union producers.

(261)

In the current investigation, the Commission considered that the original weighting was not needed in order to make an objective assessment of the state of the Union industry in the context of the expiry review. Indeed, the investigation found that the injury picture of the SMEs operating only in Tier 3 was even worse than the injury picture of the Tier 3 overall. Moreover, the Commission found that, even without weighting the data of the sampled Union producers, the Union industry suffered injury in all tiers (see recitals (301) to (308)). Thus, logically, any weighting would only increase the negative trends currently observed in the overall injury picture.

(262)

The total Union production, production capacity and capacity utilisation developed over the period considered as follows:

Table 5

Production, production capacity and capacity utilisation

(263)

Along with the growth of the market and the sales in the Union market, the production volumes increased from 2020 to 2021. After that, the production declined in 2022 and decreased even further in the review investigation period. The decrease of the production volumes was attributable to the decreased sales volumes, which in turn was linked to the decrease of Union consumption and resulted in the loss of market share of the Union industry. In the review investigation period, the Union industry’s production volumes returned to the same level as in 2020. The Union industry was however able to adapt its capacity to the changes in production volumes, tempering the fluctuations of the capacity utilisation rate - which even improved slightly (by 3 %) over the whole period considered.

(264)

The Union industry’s sales volume and market share developed over the period considered as follows:

Table 6

Sales volume and market share

(265)

In the growing market, the Union industry’s sales volumes increased from 2020 to 2021. During 2022, the sales volumes of the Union industry declined despite the growth of the market and decreased further in the review investigation period. In the review investigation period, the Union industry’s sales volumes had returned to the same level as 2020. Because the sales of the Union industry lagged behind the increase of the market in 2022 and deteriorated faster than the market in the review investigation period, the market share fell from 69% to 61% during the period considered.

(266)

In its comments on initiation Hankook Group claimed that the sales of the Union industry as well as its market share remained essentially stable across the period considered and that the slight decrease from 2022 to the review investigation period could be explained by the decrease in consumption.

(267)

The findings of the investigation do not support this claim. Albeit the sales of the Union industry were on the same level in the review investigation period compared to 2020, there was an important decrease (13 %) from 2022 to the review investigation period. Also, the Union industry’s market share decreased from 69% to 61% during the period considered.

(268)

Therefore, this claim was rejected.

(269)

The Union consumption first increased from 2020 to 2022 in line with the increase of economic activity after the Covid. The increase in consumption peaked in 2022 and slowed down during the review investigation period, resulting in an overall increase of 11% during the period considered. Only during 2021 the Union industry sales could follow the positive trend of the market. In 2022 the Union industry’s sales did not increase in the same pace as the market and they deteriorated faster than the market in review investigation period. This resulted in decrease of 8 percentage points of market share (from 69% to 61%) during the period considered.

(270)

Employment and productivity developed over the period considered as follows:

Table 7

Employment and productivity

(271)

During the period considered the Union industry lost over 2 700 direct jobs. When the Union industry’s production volumes increased from 2020 to 2021 also the employment increased. However, as the Union industry was also able to improve its productivity, the employment did not increase at the same rate as the production volumes. The falling production volumes from 2021 to the review investigation period resulted in decrease of jobs and also some loss of productivity.

(272)

During the review investigation period, the individual subsidy margins found for the cooperating exporting producers were still substantial (see recital (214) above).

(273)

However, despite the fact there was still subsidisation from China the analysis of the injury indicators shows that the measures in place had a positive impact on the Union industry at the beginning of the period considered. This positive situation however reversed in 2022 when the situation of the Union industry deteriorated again.

(274)

The average unit sales prices of the sampled Union producers to unrelated customers in the Union developed over the period considered as follows:

Table 8

Sales prices and cost of production in the Union (EUR/item)

(275)

Sales prices of tyres to unrelated customers in the Union market increased by 25% during the period considered. From 2020 to 2021 the increase of prices coincided with an increase of demand. In this situation the Union industry was able to increase its sales prices more (by 7%) than the cost of production increased (by 4 %).

(276)

This favourable situation changed in 2022, after which the Union industry was unable to pass-on the cost increases to its selling prices. Although the sales prices increased by 18 percentage points between 2021 and the review investigation period these price increases were not in line with the increase of cost of production.

(277)

Overall, the cost of production increased by 40 % during the period considered. The most significant increase took place from 2021 to 2022 when the cost of production increased by 30 %.

(278)

The key injury indicators were also analysed for the three tiers.

(279)

In tier 1, the average unit selling price increased by 55 EUR while unit costs increased by 75 EUR over the same period. The average selling price increased by 24 % while the cost of production increased by 39% over the period considered.

Table 9

Sales prices and cost of production in the Union (EUR/item) – Tier 1

(280)

In tier 2, the average unit selling price increased by 60 EUR while unit costs increased by 68 EUR over the same period. The average selling price increased by 29% while the cost of production increased by 39% over the period considered.

Table 10

Sales prices and cost of production in the Union (EUR/item) – Tier 2

(281)

In tier 3, the average unit selling price increased by 40 EUR while unit costs increased by 58 EUR over the same period. The average selling price increased by 24 % while the cost of production increased by 34 % over the period considered.

Table 11

Sales prices and cost of production in the Union (EUR/item) – Tier 3

(282)

The average labour costs of the sampled Union producers developed over the period considered as follows:

Table 12

Average labour costs per employee

(283)

The average labour cost per employee increased by 9% from 2020 to 2021 and then by 20 % from 2021 to 2022, remaining on the same level in the review investigation period.

(284)

Stock levels of the sampled Union producers developed over the period considered as follows:

Table 13

Inventories

(285)

Compared to the production, the closing stock remained on the same level from 2020 to 2022 (being 14 % – 16% of the production volume). An increase (to 21% of the production volume) was observed when comparing the closing stock at the end of the investigation period (30 June 2023) with the year-end stock levels in 2020 – 2022. This increase is however largely explained by seasonality. Higher volumes of tyres are sold during the second half of the year compared to the first half, whereas the production is less seasonal. Due to this seasonality, the stock volumes are usually higher at end June compared to end December. Therefore, as such, the apparent increase of stock levels during the review investigation period is not indicative of the financial situation of the Union producers.

(286)

Profitability, cash flow, investments and return on investments of the sampled Union producers developed over the period considered as follows:

Table 14

Profitability, cash flow, investments and return on investments

(287)

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.

(288)

The overall profitability first improved from 2020 to 2021 when the demand of tyres increased following the recovery of road transports from the Covid crisis and when overall imports had not yet increased to the same extent as afterwards. As explained in the recital (275), the Union industry was able to increase its sales prices in 2021 more than the increase of cost of production which contributed to increased profit margins from 7,9% to 13,4 %.

(289)

The situation changed in 2022, when the Union industry was unable to increase its prices in line with the cost increases. As a consequence, the Union industry’s profitability dropped to low levels (1,8% in 2022 and 1,3 % in the review investigation period).

(290)

The net cash flow is the ability of the Union producers to self-finance their activities. The trend in net cash flow was declining during the whole period considered. It was influenced by two main factors. On one hand, the overall profitability of the Union industry contributed positively to the cash flow at the beginning of the period considered. This contribution was practically exhausted after the drop in profitability in 2022. On the other hand, the increase of production volumes and closing stock levels absorbed working capital and had thus a negative impact to cash flow already from 2021. Overall, the cash flow decreased from positive 96 million EUR to negative 95 million EUR during the period considered.

(291)

Over the period considered, investments increased from 50 million EUR to 66 million EUR, i.e. by 32 %. Overall, their level remained below 10 % of the total turnover during the whole period considered.

(292)

The return on investments is the profit in percentage of the net book value of investments. It first increased from –2,1 % to 3,9 % from 2020 to 2021, in line with the improved profitability. Thereafter, when the overall profitability of the Union industry deteriorated, the return of investments decreased to –15,2 % in 2022 and –16,3 % in the review investigation period.

(293)

The Union industry is fragmented between large groups of multi-national companies and over 400 SMEs throughout the Union and heterogeneous in relation to their ability to raise capital.

(294)

A separate analysis on the same methodology as described was made for profitability in the three tiers.

(295)

Development of the profitability in tier 1 during the period considered was similar to the fluctuation of the profitability of the Union industry considered as a whole. It first improved from 2020 to 2021 and then dropped to low levels (1,9% in 2022 and 1,3 % in the review investigation period).

(296)

In tier 1, the net cash flow decreased from positive 85 million EUR to negative 56 million EUR during the period considered. The return of investment first increased from 1,1% to 7,6% and then decreased to –14,0 % in the review investigation period.

Table 15

Profitability, cash flow, investments and return on investments – Tier 1

(297)

Development of the profitability in tier 2 during the period considered first improved from 2020 to 2021, then dropped to 3,5% in 2022 and further to 2,5% in the review investigation period.

(298)

In tier 2, the net cash flow decreased from positive 5,5 million EUR to negative 34,5 million EUR during the period considered. The return of investment decreased from 15,8% in 2020 to –28,0 % in the review investigation period.

Table 16

Profitability, cash flow, investments and return on investments – Tier 2

(299)

Tier 3 was unprofitable during the whole period considered. During the period considered the situation worsened and the negative profitability of –1,6% in 2020 decreased to –3,5% in the review investigation period. The situation was even worse for the SMEs operating in tier 3 for which the profitability fluctuated between 4,6% and –7,0% during the period considered. The slight “improvement” between 2022 and the review investigation period showed the limited success of the efforts of the industry to adapt to the difficult situation.

(300)

In tier 3, the net cash flow decreased from positive 5,3 million EUR to negative 4,2 million EUR during the period considered. The return of investment was negative during the whole period considered, decreasing from –5,9% to –20,0 % during the period considered.

Table 17

Profitability, cash flow, investments and return on investments – Tier 3

(301)

The investigation found that the Union industry as a whole showed recovery from past subsidisation during 2021. Between 2022 and the review investigation period, there was a reverse of this recovery.

(302)

This is particularly evident in the Union industry’s decreased profitability, loss of market share and inability to increase prices in line with rising costs. In addition, indicators related with the profitability, such as cash flow and return of investment, also deteriorated. This was especially observed among tier 3 producers, who are particularly exposed to price pressure from low-priced imports, which in turn adversely affects the higher tiers through the reverse-cascading effect described in the original investigation (75).

(303)

Based on the above, the Commission concluded that the Union industry suffered material injury within the meaning of Article 8(5) of the basic Regulation during the review investigation period.

(304)

During the period considered the Union industry lost its market share to imports from other countries, notably Thailand, Vietnam, Türkiye and also China.

(305)

The deterioration of Union industry’s the market share was partly attributable to the increase of Chinese imports following the partial annulment of the anti-dumping duties and more importantly due to increase of imports from other countries at low prices. The lower price imports have made it difficult for the Union industry to increase its prices and maintain its market share in the environment of increased costs.

(306)

Following the start of Russian war of aggression against Ukraine, prices of input materials and energy increased considerably resulting in rapid increase of cost of production. At the same time, import volumes increased and from 2022 the Union industry was unable to pass-on the cost increases to its selling prices. Although the sales prices increased by 18% between 2021 and the review investigation period, these price increases were insufficient to compensate the increase of cost of production.

(307)

As a result, the Commission also notes that the injurious situation in which the Union industry is found comes at a time when other factors such as significant cost increases and substantial increase of low-priced imports from other countries, especially Thailand, Vietnam and Türkiye took place. As shown in recitals (248) to (252) above, the imports from Thailand and Vietnam increased substantially and their price levels were markedly below the Union industry’s prices.

(308)

For this reason, the Commission concluded that the subsidised imports from China contributed to the material injury to the Union industry during the review investigation period; however, other factors in particular the cost increase and imports from other countries, were capable of putting into question the genuine relationship between the subsidised imports and the effects on the Union industry. Thus, the Commission decided to further assess whether injury caused by the subsidised imports from China would likely recur if measures were allowed to lapse.

(309)

Following final disclosure, Hankook claimed that injury suffered by Union industry is not caused by Chinese imports. Hankook claimed that the Chinese imports do not undercut the Union industry prices in tier 3 nor in tier 1. To support its claim, Hankook submitted sensitive data on its export prices and volumes.

(310)

The Commission disagrees with this claim. As stated in recital (247) the data provided by Hankook is insufficient for carrying out any further undercutting analysis as it does not contain sufficient information on other operators active in tier 1, 2 and 3. Consequently, this data could not invalidate any of the results of the undercutting analysis made by the Commission. The Commission therefore considers that the premise of this claim, i.e. that there is no undercutting in tier 1 or tier 3, is incorrect, and therefore, this claim is rejected.

(311)

Following final disclosure Hankook also claimed that the injury suffered by the Union industry is not caused by Chinese imports but by tyres imported from other third countries.

(312)

As stated in the recital (308), the Commission concluded that dumped imports from China contributed to the material injury to the Union industry but also other factors, in particular the cost increase and imports from other countries, were capable of putting into question the genuine relationship between the dumped imports and the effects on the Union industry. Therefore, the Commission considers that this claim does not invalidate the conclusion above and is therefore rejected.

(313)

The Commission assessed, in accordance with Article 18(2) of the basic Regulation, whether there would be a likelihood of recurrence of injury originally caused by the subsidised imports from China if the measures against were allowed to lapse.

(314)

In this respect the following elements were analysed by the Commission: the production capacity and spare capacity in China, attractiveness of the Union market and export prices to third country markets and relationship between prices in the Union and China, possible absorption capacity of third country markets, likely price levels of imports from China in the absence of anti-subsidy measures, and their impact on the Union industry, including undercutting and injurious level and increase of Chinese imports following temporary annulment of the anti-dumping duties.

(315)

As set out in recitals (217) - (219), there is substantial production capacity and spare capacity in China to increase exports to the Union market rapidly in the event that the anti-subsidy measures are allowed to expire. As established in recital (218) the available unused capacity in China in 2022 amount to almost 20 million units, almost equivalent to the total consumption on the EU market.

(316)

As set out in recitals (220) - (223), the Union market, which is the second largest market in the world after the United States, is an attractive market both in terms of its prices and its size. In 2023, the price level of Chinese exports to the Union was significantly higher compared to the Chinese average export prices to other main destinations, including the USA. Moreover, despite the anti-subsidy measures in force, Chinese imports into the Union remained at around 30 % of the volume of imports during the initial investigation.

(317)

As set out in recital (224) trade defence measures on exports of the like product from PRC are in force in most of the third country markets which are significant consumers of truck tyres. This makes these markets less attractive for the Chinese exporting producers. This is an additional element which supports the finding that PRC’s current production capacity would most likely end in the Union market, should measures be repealed.

(318)

As shown in Table 3, import prices into the Union from China during the review investigation period were 218 EUR/item which is materially lower than the average sales price of the Union industry 283 EUR/item shown in Table 8, and also below their cost of production 260 EUR/item.

(319)

Therefore, it is likely that without anti-subsidy duties, the Chinese imports would materially undercut the Union prices.

(320)

As shown in Table 2 and set out in recital (237), the increase of Chinese imports was particularly significant in 2022 when the original measures were partially annulled by General Court of the European Union.

(321)

This indicates that the Chinese exporting producers remain interested in the Union market and imports would be likely to increase again, should the measures be repealed.

(322)

In its comments upon initiation, the Hankook group claimed that import trends indicate that there is no threat of continuation or recurrence of injury. According to Hankook group the current market share of the Chinese imports could not have significant impact in the future of the Union industry. Also, the Hankook group claimed that the increased Chinese production capacity was not dedicated to the Union market but to other markets.

(323)

The Commission disagreed with this view. Even if, to certain extent, the current duties somewhat shield the Union industry from the subsidised imports from the PRC, Chinese imports were still able to increase their market share during the period considered. Given Chinese price levels without duties and the spare capacity available in China, it is likely that the market share of the Chinese imports would increase substantially should measures be allowed to lapse. Also, the claim that the increased Chinese capacity has been mainly directed to other markets during the period considered was not substantiated. Even if correct, the Commission considers that the Union market remains attractive to Chinese imports.

(324)

Therefore, these claims were rejected.

(325)

Following final disclosure Hankook claimed that there is no sufficient evidence of likelihood of recurrence of injury. In particular, Hankook claimed that the increase of imports in 2022 cannot be linked to the partial annulment of measures in 2022 and is not indicative of behaviour of the Chinese exporting producers. Hankook also claimed that there was no undercutting in tier 3, that the Chinese producers would rather increase their profits than lower their prices should the measures be allowed to lapse and, that given that Union market represented only 4% of the total Chinse export volume, the Union market cannot be considered attractive.

(326)

The Commission disagreed with these claims. First, the partial annulment of the measures by the General Court did send a signal to the market on the possibility of partial cancellation and subsequent reimbursement of duties, making the imports potentially more attractive. Second, as explained in the recitals (247) and (310) above, the premise of the claim that there is no undercutting in tier 3 is incorrect. Third, Hankook did not submit any evidence to support its claim that the Chinese producers would rather increase their profits than lower their prices should the measures be allowed to lapse. Finally, the current level of Chinese exports to the Union when duties are in force, cannot invalidate the fact that Union market remains attractive for the reasons listed in the recitals (220) - (223) and (316) above. Therefore, this claim is rejected.

(327)

In view of the above, the Commission concluded that should the measures lapse, it is likely that this will result in a significant increase of subsidised imports from China at injurious price levels, and therefore further aggravating the injurious situation of the Union industry.

(328)

In accordance with Article 31 of the basic Regulation, the Commission examined whether maintaining the existing anti-subsidy measures would be against the interest of the Union as a whole. The determination of the Union interest was based on an appreciation of all the various interests involved, including those of the Union industry, importers and end users.

(329)

Union producers representing more than 25% of the Union production volume cooperated with the investigation.

(330)

The investigation showed that the Union industry was in a vulnerable situation where it was not able to fully pass-on the cost increases to its selling prices and its profit margins had diminished.

(331)

The Commission concludes that given that the Union industry is already suffering injury and in case of lapse of the measures there is a strong likelihood of increase of subsidised imports from China at injurious price levels this would lead to increasing price pressure on the Union market and would further aggravate the injury suffered by the Union industry.

(332)

The continuation of the measures is therefore clearly in the interest of the Union industry.

(333)

No importers or users cooperated with the investigation.

(334)

The original investigation concluded that while the measures were not in the interest of importers that predominantly rely on the import of very cheap tyres from China, importers with broader portfolio are unlikely to be severely affected by the restoration of fair competition.

(335)

In the absence of new evidence, the Commission therefore concluded that, like in the original investigation, the continuation of measures will not affect importers or users to any significant extent.

(336)

The original investigation found that measures protecting the Union industry’s premium tyre manufacturers producing new high-quality tyres which are designed to have along life cycle and can be retreaded, and also the retreaders active in the tier 3 market, are in the interest of the Union's policy to reduce waste and to manage raw materials in a sustainable way. Moreover, given that it is mostly SMEs which are active in the retreading business, the imposition of measures would also be in line with the important Commission objective to support SMEs (76) .

(337)

In the original investigation treads suppliers had made submissions supporting the imposition of anti-subsidy measures alleging such measures are essential for the survival of the retreading industry and stating that without retreading activities, their business will be severely affected. Subsequently, the Commission concluded that measures would be in the interest of treads suppliers.

(338)

In the absence of new evidence, the Commission therefore concluded that, like in the original investigation, the measures would be in the interest of treads suppliers.

(339)

On the basis of the above, the Commission concluded that there were no compelling reasons under Article 31 of the basic Regulation that it would not be in the interest of the Union to maintain the existing measures on imports of tyres originating in the People’s Republic of China.

(340)

On the basis of the conclusions reached by the Commission on continuation of subsidisation, recurrence of injury and Union interest, the anti-subsidy measures on tyres from China should be maintained.

(341)

To minimise the risks of circumvention due to the difference in duty rates, special measures are needed to ensure the application of the individual anti-subsidy duties. The application of individual countervailing duty is only applicable upon presentation of a valid commercial invoice to the customs authorities of the Member States. The invoice must conform to the requirements set out in Article 1(3) of this regulation. Until such invoice is presented, imports should be subject to the countervailing duty applicable to ‘all other companies’.

(342)

While presentation of this invoice is necessary for the customs authorities of the Member States to apply the individual rates of countervailing duty to imports, it is not the only element to be taken into account by the customs authorities. Indeed, even if presented with an invoice meeting all the requirements set out in Article [1(3)] of this regulation, the customs authorities of the Member States must carry out their usual checks and may, like in all other cases, require additional documents (shipping documents, etc.) for the purpose of verifying the accuracy of the particulars contained in the declaration and ensure that the subsequent application of the lower rate of duty is justified, in compliance with customs law.

(343)

Should the exports by one of the companies benefiting from lower individual duty rates increase significantly in volume after the imposition of the measures concerned, such an increase in volume could be considered as constituting in itself a change in the pattern of trade due to the imposition of measures within the meaning of Article 23(3) of the basic Regulation. In such circumstances and provided the conditions are met an anti-circumvention investigation may be initiated. This investigation may, inter alia, examine the need for the removal of individual duty rate(s) and the consequent imposition of a country-wide duty.

(344)

The individual company countervailing duty rates specified in this Regulation are exclusively applicable to imports of the product under review originating in the People’s Republic of China and produced by the named legal entities. Imports of the product under review produced by any other company not specifically mentioned in the operative part of this Regulation, including entities related to those specifically mentioned, should be subject to the duty rate applicable to ‘all other companies’. They should not be subject to any of the individual countervailing duty rates.

(345)

A company may request the application of these individual countervailing duty rates if it changes subsequently the name of its entity. The request must be addressed to the Commission (77). The request must contain all the relevant information enabling to demonstrate that the change does not affect the right of the company to benefit from the duty rate which applies to it. If the change of name of the company does not affect its right to benefit from the duty rate which applies to it, a regulation about the change of name will be published in the Official Journal of the European Union.

(346)

All interested parties were informed of the essential facts and considerations on the basis of which it was intended to recommend that the existing measures be maintained. They were also granted a period to make representations subsequent to this disclosure.

(347)

In view of Article 109 of Regulation (EU, Euratom) 2024/2509 of the European Parliament and of the Council (78) when an amount is to be reimbursed following a judgment of the Court of Justice of the European Union, the interest to be paid should be the rate applied by the European Central Bank to its principal refinancing operations, as published in the C series of the Official Journal of the European Union on the first calendar day of each month.

(348)

The measures provided for in this regulation are in accordance with the opinion of the Committee established by Article 25(1) of Regulation (EU) 2016/1037 of the European Parliament and of the Council (79)