THE COUNCIL OF THE EUROPEAN UNION,

Whereas:

HAS ADOPTED THIS DIRECTIVE:

THE COUNCIL OF THE EUROPEAN UNION,

Whereas:

HAS DECIDED AS FOLLOWS:

THE COUNCIL OF THE EUROPEAN UNION,

Whereas:

HAS DECIDED AS FOLLOWS:

THE COUNCIL OF THE EUROPEAN UNION,

Whereas:

HAS DECIDED AS FOLLOWS:

THE COUNCIL OF THE EUROPEAN UNION,

Whereas:

HAS DECIDED AS FOLLOWS:

THE EFTA SURVEILLANCE AUTHORITY (1),

Whereas:

I.   FACTS

1.   Procedure

By letter dated 1 February 2005 (Event No 307555) the Authority received a complaint (the ‘Complaint’) from a trade association for the Norwegian masonry and concrete industry, ‘ byggutengrenser.no ’ (the ‘Complainant’). In the Complaint, which was both received and registered by the Authority on 3 February 2005, the Complainant alleges that the Norwegian State is granting State aid to the wood construction industry on the basis of ‘ Verdiskapningsprogrammet for tre ’, also referred to as ‘ Treprogrammet ’ (hereinafter referred to as the ‘Wood Scheme’).

By letter dated 17 May 2006 and following various exchanges of correspondence (7), the Authority informed the Norwegian authorities that it had decided to initiate the procedure laid down in Article 1(2) of Part I of Protocol 3 to the Surveillance and Court Agreement in respect of the Wood Scheme.

By letter dated 3 July 2006 from the Mission of Norway to the European Union, forwarding letters from the Ministry of Government Administration and Reform and the Ministry of Agriculture and Food, both dated 26 June 2006, the Norwegian authorities submitted comments. The letters were received and registered by the Authority on 4 July 2006 (Event No 380386, hereinafter referred to as ‘Comments by the Norwegian authorities on the Decision to open the formal investigation procedure’).

Decision No 147/06/COL to initiate the formal investigation procedure was published in the Official Journal of the European Union and the EEA Supplement thereto (8). The Authority called on interested parties to submit their comments. The Authority received no comments from interested parties.

Finally, during the autumn of 2007, the Authority and the Norwegian authorities had informal contact via both telephone and electronic mail regarding the Wood Scheme. Information received by the Authority in this context has been consolidated by the Norwegian authorities in a letter submitted electronically on 10 December 2007 by the Ministry of Government Administration and Reform (Event No 456845).

2.   Description of the proposed measure

2.1.   Objective and administration of the Wood Scheme described in preparatory legislative works

The White Paper of 1998-99

The aim of the Wood Scheme is set out in a White Paper from the Government to the Parliament on the creation of value and opportunities within the forest sector (St. meld. nr. 17 (1998-99 ‘ Verdiskapning og miljø — muligheter i skogssektoren ’) — hereinafter referred to as the ‘White Paper’).

The aim of the White Paper was to establish a general policy for a rational and sustainable utilisation of forest resources and to increase the forest sector’s contribution to the national economy and the general development of Norwegian society. The White Paper proposed the introduction of various measures in order to achieve this goal — one of which was the Wood Scheme. In this respect the White Paper proposed the establishment of a 5-year scheme aimed at creating value within the sector of woodwork and the (wood) processing business. More specifically, the White Paper stipulated that the aim of the Wood Scheme should be to increase the creation of value in forestry and the (wood) processing business as well as to increase the contribution of the forest sector to achieving more sustainable production and consumption patterns (9). In that respect, the focus of the Wood Scheme should be on (i) improving the processing of woodwork; (ii) increasing the use of woodwork; and (iii) improving relations on different levels of trade between the forest sector and the market (10). The White Paper also stated that the new scheme should focus on identifying possibilities in the areas of product development and design and architecture and that the scheme should pave the way for enabling woodwork to be considered as an attractive building material with a wide range of uses (11). Finally, on a more general level, the White Paper pointed out that the aim of increasing value in the processing business for woodwork should be achieved domestically (12).

Recommendation (1998-1999) and Working Group Report

The framework for the establishment of the Wood Scheme was laid down in further detail in a recommendation from a Parliamentary standing committee addressed to the Parliament (Innst. S. nr. 208 (1998-1999)), dated 3 June 1999 (hereinafter referred to as the ‘Recommendation’). The Recommendation suggests that a working group be established in order to identify the strategies as well as the implementation and financing needs of the new scheme.

Shortly afterwards in July 1999 a ‘Working Group’ was established, composed, notably, of representatives from the Ministry of Agriculture, trade associations for forest owners and producers of timber, research and development institutions as well as representatives from the retail trade sector. The Working Group issued a report (the ‘Working Group Report’) on 14 April 2000 on the content, organisation and financing of the Wood Scheme.

The Working Group Report recalls the aims and objectives of the Wood Scheme referred to in the White Paper. The Working Group Report further specifies that the scheme should be limited to the processing chain between the forest sector and the mechanical wood processing industry but should also include the supply of raw material to the wood processing industry (e.g. to improve quality, precision and steady deliveries) (13). The Working Group Report also states that it is an objective that the Wood Scheme is focused on Norwegian wood resources and that improvements are achieved within the Norwegian (wood) processing business.

The Working Group Report proposes that the responsibility for administration and implementation of the Wood Scheme lie with (i) ‘ Statens nærings- og distriktsutviklingsfond ’, generally referred to as ‘SND’ (which was reorganised and renamed ‘ Innovasjon Norge ’ as of 1 January 2004); and (ii) a management group (the ‘Management Group’), composed of representatives from various ministries and market operators, appointed by the Ministry of Agriculture (14).

According to the Working Group Report, on a practical level, the tasks of the Management Group should focus on evaluating and developing the scheme (including ensuring engagement from the value chain and verifying that activities correspond to the aim and strategies of the scheme), whereas Innovasjon Norge should be the body responsible for implementing the scheme (15). To that end, Innovasjon Norge was authorised to approve and allocate all funding under the scheme.

During the formal investigation procedure the Norwegian authorities made it clear that the principles underlying the general working routines of Innovasjon Norge (for purposes of administering other aid schemes) were applied in the context of implementing the Wood Scheme (16). Innovasjon Norge therefore awarded grants under the Wood Scheme on the basis of (i) the ‘Superior Policy’ of Innovasjon Norge (17); (ii) the Internal EEA Guidelines of Innovasjon Norge; (iii) the first annual letter of allocation from the Ministry of Agriculture (18); (iv) general procedures in the Instruction Book for case handlers of Innovasjon Norge; and (v) the State Aid Guidelines of the Authority (19). From a practical point of view the most important of these are the principles laid down in the Internal EEA Guidelines, which also form the basis for the vast majority of the comments forwarded by the Norwegian authorities.

The Internal EEA Guidelines have been developed by Innovasjon Norge on the basis of existing Norwegian aid schemes administered by it. They contain an explanation of the concept of State aid within the meaning of Article 61(1) of the EEA Agreement, extracts from the State Aid Guidelines and the rules on de minimis aid as well as a table setting out aid intensities for existing schemes (20). The Internal EEA Guidelines have been continuously updated and five different versions have therefore been submitted to the Authority (21).

The Norwegian authorities have stated that while the Working Group Report does not contain conditions which must be met in order for projects to be eligible for support, such conditions were developed in the Internal EEA Guidelines. While there is no explicit reference in the Working Group Report to the Internal EEA Guidelines, the Norwegian authorities have stated that the reference in the Working Group Report to establishing ‘principles and practices’ (within the limits of EEA law) for the purposes of implementing the Wood Scheme is to be understood as a reference to the Internal EEA Guidelines (22). According to the Norwegian authorities the Internal EEA Guidelines have, in this manner, been made an integral part of the Wood Scheme (23). Case handlers of Innovasjon Norge are instructed to assess applications on the basis of the specific set of rules in the EEA Internal Guidelines which they consider to be appropriate. If they consider that no State aid is involved at all, the project may be 100 % financed (24).

2.2.   Legal basis and annual budgets

It appears from the State budget for the relevant years that the Wood Scheme is financed by the Ministry of Agriculture and Food via annual awards directly from the State budget. Financing for the Wood Scheme was provided for in the Government proposal to the Parliament containing the State budget for the year 2000 (St. prp. nr. 1 (1999-2000)), where funding for the Wood Scheme was included in Chapter 1142 as item 71 (25). The State budgets for subsequent years each earmarked amounts for the Wood Scheme (26).

The first annual allocation letter from the Ministry of Agriculture to Innovasjon Norge allocates funding to Innovasjon Norge and authorises its disbursement in line with the objective, sector and target groups as laid down in the Working Group Report (27).

By letter dated 29 September 2005, updated by letter dated 3 July 2006, the Norwegian authorities informed the Authority that the budgets for the Wood Scheme for the financial years from 2000 to 2005 were as follows:

Annual budget

Year	Budget (mill. NOK)	Consents (mill. NOK)
2000	17	8,8
2001	25	25,7
2002	20	18,2
2003	36	39,3
2004	35	28,4
2005	33	39,5
Total	166	159,9

Grants were paid out within 3 years of the year in which a consent (tilsagn) was given and upon completion of the project by the recipient. If the budget for a particular year was not fully spent the remaining amount was carried over to the subsequent year. Hence the total value of consents in any given year may be higher than the budgeted amount for the same year.

2.3.   Recipients of support under the Wood Scheme

The Working Group Report provides that the Wood Scheme should be aimed at companies and other operators with concrete projects falling within the strategies and work areas of the scheme and which contribute to increased value creation (28).

The Norwegian authorities have further specified that the Wood Scheme is open to all relevant industries (referred to as ‘mechanical wood-based industries’) and industries which can contribute to goal achievement under the Wood Scheme, such as industries exploring the use of wood in combination with other materials (29). Within these parameters the scheme is open to ‘private persons, companies, authorities and unions, regardless of the company structure or organisation’ as well as ‘research and educational institutions’, irrespective of their country of establishment (30).

2.4.   Eligible costs and aid intensity

Eligible costs

The Norwegian authorities have stated that grants under the Wood Scheme are awarded to projects that ‘… contribute to goal achievement within the strategies and work areas of the program’ and which trigger innovation. It appears from the Working Group Report that the following three strategies should be employed in order to achieve the objectives of the Wood Scheme. Each of the strategies should be implemented by means of the activities specified below each strategy (31). The costs of such activities are therefore eligible for funding under the Wood Scheme.

(i)

Profile making and communication strategy (that is, to create engagement and willingness to develop the value chain, attract competence, people and capital, increase the visibility and active profiling of the forest and woodwork and focus on the advantages of wood as a material and disseminate information). Measures to be used to implement this strategy include campaigns which represent the forest/wood business in a positive manner, information dissemination via design/architecture journals with wood as a profile and the provision of information to professional users, universities and teaching institutions and consumers. Other measures include the establishment of an Internet portal and a network for the purposes of channelling information throughout the value chain while also functioning as a general information resource as well as the establishment of meeting points both nationally and regionally to cater for research and development groups, architects, designers, IT oriented groups, trend researchers, innovators and investors etc.

(ii)

Product development and novelties strategy (covering the realisation of new possibilities, ideas and initiatives, contributing to innovation and new creations). Measures to be used include structural development programmes, the establishment of business fora directed at small companies, innovation projects connected to different teaching institutions, design/architecture competitions, development of new products within new market segments (such as the recreation market; facilities/infrastructure for ‘public areas’; wood products for health care etc.) and development projects which focus on generating profits in the value chain (such as raw materials, side products, wood trade and electronic trade). Other measures include the establishment of a forum and structures for developing novelties and innovation, student projects for innovation and architecture and design competitions to increase the use of specific wood materials.

(iii)

Cooperation and efficiency strategy (covering improvement in the channelling of goods and processes in the value chain and in cost efficiency, value creation and profitability as well as the optimal use of human resources and infrastructure). Measures include the development of an integrated system of logistics to improve the timing for distribution of goods and the quality and price of products, information technology to save costs on the sale/distribution level and the development of IT systems for communicating throughout the value chain to improve quality. Other measures include competitions, preparatory studies on the development of an integrated IT system and the digitalisation of information on goods throughout the value chain, competence programmes on cost efficiency in value development and (measures for) the generation of profits in the field of forest, wood industry and trade.

The Internal EEA Guidelines specify eligible costs for SMEs, training activities and research and development, as well as for ‘investments’ (by SMEs and in regional areas). A translated version of the eligible cost descriptions in the Internal EEA Guidelines is attached hereto as Annex I (32).

Aid intensities

While the Internal EEA Guidelines specify aid intensities for SMEs (33), aid intensities for other types of aid are indicated only by reference to a table, entitled ‘Maximum funding rates for schemes administered by Innovasjon Norge — size of undertaking and areas eligible for aid’. The table, which does not include a reference to the Wood Scheme, is reproduced in a translated version in Annex II hereto.

Since the table refers to two different aid intensities with respect to preparatory studies for research and development under the schemes entitled ‘OFU/IFU’ and ‘ Omstilling og nyskapning ’, the authorities have explained that it is the aid intensity set out for the ‘OFU/IFU’ scheme which has been applied to the Wood Scheme. The difference between the aid intensities is that the aid intensity for technical feasibility studies carried out by large undertakings in the context of pre-competitive research (for large undertakings) may amount to 55 % under the ‘ Omstilling og nyskapning ’ scheme while the corresponding aid intensity under the ‘OFU/IFU’ scheme is only 50 %.

Aid intensities in the context of co-financing and 100 % funding of costs

Grants under the Wood Scheme are, in principle, conditional upon contributions by the recipients in the form of financing and work force (34). However, there is no minimum requirement for co-financing; rather the share of it differs depending on the objectives and character of the project. In this context the Norwegian authorities have stated that aid under the Wood Scheme is granted in accordance with the aid intensities set forth in the Internal EEA Guidelines, such that, de facto, there is always some co-financing.

Nonetheless, the authorities have also explained that they implement a practice under the Wood Scheme whereby certain projects receive funding for 100 % of the costs — in which case there is no co-financing. In this regard the authorities have referred to the Working Group Report which provides that: ‘The share of funding under the scheme vary according to the objective and character of the projects. The scheme may finance the entire project [costs] in case it is difficult to identify anyone who can benefit directly from the project, for example, in pure study projects or preparatory studies. The share of financing under the scheme may be correspondingly low in case of projects which are expected to be of important and direct use for the project participants. The EEA State aid rules must be applied. Within the limits set by such rules principles and administrative practices are to be developed for the scheme.’  (35)

The authorities have further explained that the practice of awarding 100 % funding has been used in cases where it has been difficult to identify stakeholders that would benefit directly from the projects (or where individual undertakings are considered to receive a modest benefit only) such as in the case of preliminary studies and reports in special target areas. An example of this, which has been referred to by the authorities, is the grant of NOK 125 000 to Norsk Treteknisk Institutt to a project for the product development of planed panels for internal use (36). The Norwegian authorities stated that the results (of the project) are accessible for its member companies, and that, in any event, much of Norsk Treteknisk Institutt’s information is generally accessible via its library.

2.5.   De minimis aid

The Norwegian authorities have submitted that grants awarded on the basis of specific provisions under the Wood Scheme fulfil the conditions for qualifying as de minimis aid. The authorities have explained that when de minimis aid has been granted, the ‘consent letter’ sent to the aid recipient contains a reference to the de minimis threshold and time frame as well as to the obligation of the aid recipient to inform the authorities of aid received from other sources within 3 years from the point in time at which the consent to be granted aid was given (37).

In addition, the authorities have explained the existence of an administrative practice whereby aid granted for, for example, research and development, may be ‘topped up’ with de minimis aid. This practice is specifically provided for in the Internal EEA Guidelines in the versions dated September 2004 and July 2005 (38).

2.6.   Duration

The Norwegian authorities have stated that the Wood Scheme was operational as of 1 July 2000 (i.e. the date as of which applications for support could be made) and remained in force for 5 years, until the end of 2005 (the last consent was given on 30 December 2005) (39).

2.7.   Trade in wood products

It appears from the White Paper from the Government to the Parliament on the creation of value and opportunities within the forest sector that Norway exports its wood products to the EU. In this regard it is specifically stated in Section 4.3 of the White Paper that ‘Norway exports approximately 85-90 % of the wholesale production of wood and paper products and approximately 35 % of the timber production. Supplies to EU countries amount to 70 % and 90 % respectively of total exports. Any strategies or political interventions within the EU which can affect the EU’s import of forest industry products could have significant consequences for the Norwegian forest sector’  (40). Moreover, it appears from Eurostat statistics that wood products are extensively traded in the EU (41). Finally, it appears from statistics produced by ‘Statistics Norway’ (Statistisk sentralbyrå) that Norway also imports substantial amounts of timber, processed wood and wood products (Tømmer, trelast og kork …) from the EU (42).

2.8.   Scope of EEA Agreement

Article 8(3) of the EEA Agreement provides that:

‘Unless otherwise specified, the provisions of this Agreement shall apply only to:

(a)	products falling within Chapters 25 to 97 of the Harmonized Commodity Description and Coding System, excluding the products listed in Protocol 2;

(b)	products specified in Protocol 3, subject to the specific arrangements set out in that Protocol.’

Wood and articles of wood are covered by Chapter 44.

2.9.   Grounds for initiating the procedure

The Authority opened the formal investigation procedure on the basis of the preliminary finding that the Wood Scheme involves State aid which would not qualify for any of the exemptions provided for in the EEA Agreement. Consequently the Authority had doubts that the Wood Scheme could be considered to be compatible with the functioning of the EEA Agreement. Reference was made to the fact that the documents submitted by the Norwegian authorities on the Wood Scheme did not contain specific definitions of the eligible projects, eligible costs or ceilings on the maximum amount of aid which could be granted.

The Norwegian authorities were invited to submit information on the existence of any internal instructions dictating that the scheme should be implemented in compliance with the State Aid Guidelines and/or the block exemption Regulations. The Authority pointed out, however, that even if such an administrative practice could be demonstrated, the Authority might still consider the scheme not to be compatible with the functioning of the EEA Agreement in view of the existence of the practice under the Wood Scheme of granting 100 % support to projects where the grant is assumed by the administering authority not to qualify as aid because the activity cannot be attributed to individual undertakings and is considered to result in a modest benefit only.

With respect to whether grants awarded on the basis of specific provisions on de minimis aid under the Wood Scheme fulfil the conditions for qualifying as de minimis aid under the State Aid Guidelines or the subsequent de minimis Regulation (which replaced the State Aid Guidelines in this respect as of 1 February 2003) (43) the Authority took the view that the relevant provisions did not appear to comply with the rules on the grant of de minimis aid.

3.   Comments by the Norwegian authorities

3.1.   Procedure

The Norwegian authorities acknowledge that the scheme should have been formally notified to the Authority but argue that the mere fact that the Wood Scheme has not been notified does not mean that the Authority can conclude, on that basis alone, that it is incompatible with the functioning of the EEA Agreement.

3.2.   Substance

Existence of internal instructions or authoritative orders

The Norwegian authorities argue that the material State aid rules of the EEA Agreement have been complied with in practice. First, the Superior Policy of Innovasjon Norge dictates that all financing should be granted within the limits set by international agreements to which Norway is a party. Secondly, case handlers of Innovasjon Norge have (via the Working Group Report) been instructed to implement the Wood Scheme in compliance with the EEA Agreement. The Internal EEA Guidelines were developed with a view to facilitating compliance with the EEA Agreement. Thirdly, the case handlers are experienced with the State Aid Guidelines and participate in courses on the subject. If in doubt they can seek advice from the legal department of Innovasjon Norge.

Cases of no aid

As regards the practice of financing 100 % of project costs, the Norwegian authorities have argued that this practice involves projects not falling within the scope of the EEA Agreement either because there is no State aid involved within the meaning of Article 61(1) of the EEA Agreement or because aid has been granted as de minimis aid. The authorities have provided a table setting out how all funding awarded under the Wood Scheme has been allocated.

The authorities argue that in eight cases (represented by two examples) aid has been granted to projects involving products (such as ‘standing timber’) which are not listed in Chapters 25-97 Harmonised Commodity Description and Coding System and hence do not come within the scope of the EEA Agreement.

The authorities further state that 114 beneficiaries under the Wood Scheme do not qualify as ‘undertakings’ within the meaning of Article 61(1) of the EEA Agreement because the beneficiaries are not pursuing an economic activity. 15 cases are considered to be ‘Education and Research Establishments’; 25 cases of ‘Public entities’ involve support to municipalities; and 74 cases concern support to ‘Branch organisations’.

As regards the ‘Education and Research Establishment’ cases (represented by two examples, one of which involves a not-for-profit organisation) the authorities consider that they fall outside the scope of Article 61(1) of the EEA Agreement on the basis of section 2.2 in the previous Chapter 14 of the State Aid Guidelines on research and development according to which ‘non-profit-making higher education research establishment is normally not covered by Article 61(1) of the EEA Agreement’ and which states that ‘where the results of publicly financed R&D projects carried out by such establishments are made available to European industry on a non-discriminatory basis, the EFTA Surveillance Authority will assume that State aid within the meaning of Article 61(1) of the EEA Agreement is not normally involved’.

The Norwegian authorities argue that aid to ‘Branch organisations’ (consisting of not-for-profit interest organisations involved in information dissemination) does not involve State aid because the funding is not directed (directly) to undertakings but is channelled via the branch organisations which are not considered to be undertakings. Reference is made to the Commission’s decision regarding Asetra which, according to the Norwegian authorities, was cleared because Asetra was not an undertaking within the meaning of Article 87(1) of the EC Treaty (44). It is also argued that the Court of Justice has interpreted ‘the concept of “economic advantage” ’ in several cases and that in Case C-143/99 Adria Wien the reasoning of the Court indicates that a line must be drawn between abstract advantages (i.e. costs that would normally not be ‘included in the budget’ of the undertaking) and those that would (45).

The authorities also argue that in a further 31 cases (of which several examples are given) the beneficiaries did not receive an economic advantage as they provided a service in return and hence the cases are not within the scope of Article 61(1) of the EEA Agreement.

De minimis aid

The Norwegian authorities refer to the consent letter which states that the recipient must provide information ‘on aid received on the basis of potentially new applications for public aid … This obligation has a duration of three years from the time of the letter of consent. The receiver of aid cannot receive de minimis aid exceeding a total of EUR 100 000 (approximately NOK 815 000) over any period of three years’.

The authorities argue that the reference to ‘any period of three years’ makes it clear that the receiver of aid is not in a position to receive de minimis aid during any period of 3 years whether prior to or after the letter of consent. The obligation to submit information on aid received 3 years counted from the time of the letter of consent must be read in context with the text regarding the obligation not to receive aid over ‘any’ period of 3 years. According to the authorities this ensures compliance with the de minimis Regulation. The authorities state, moreover, that in any event, most aid awards are below the de minimis limit.

The authorities have, however, also explained that ‘the [procedural] framework of de minimis aid has, however, in [certain] cases not been complied with as the aid [was] deemed to comply with the substantial rules and block exemptions on aid to SMEs, R&D and training aid’. The authorities have subsequently explained that the reference to a lack of compliance with ‘procedural rules’ means that in 10 cases aid was awarded up to the permitted aid intensity but topped up with de minimis aid without informing the recipient of the de minimis element of the aid.

Compatibility of the aid

The Norwegian authorities argue that the Authority has not paid sufficient attention to the practices and procedures followed by Innovasjon Norge in assessing the compatibility of the aid.

The authorities basically state that no aid has been granted as regional aid under the Wood Scheme and that the overview (attached to Internal EEA Guidelines), setting out maximum aid intensities (including on regional aid) may have lead to this misunderstanding. Immediately afterwards the authorities state that there are, however, examples in which aid has been granted up to the maximum aid intensities permitted for research and development aid but topped up with a 5 % regional aid bonus. Aid to Trysil Skog AS is referred to as an example.

As regards 78 cases of research and development (of which three examples are mentioned) the authorities argue that aid has been granted in compliance with the material principles in the State Aid Guidelines. Account has been taken of the extent to which a project foresees the development of new technology, knowledge or methods and priority has been given to the most innovative projects. Account has also been taken of whether the project is eligible for funding from other sources, such as under the ‘ Skattefunn ’ scheme.

The authorities argue that although the title and publication reference to the block exemption Regulations on SMEs and training aid are not cited in the Internal EEA Guidelines, the regulations are, ‘to a large extent, incorporated’.

II.   ASSESSMENT

1.   The presence of State aid within the meaning of Article 61(1) of the EEA Agreement

Article 61(1) of the EEA Agreement provides that:

To constitute State aid within the meaning of Article 61(1) of the EEA Agreement, a measure must meet the following four cumulative criteria: the measure must (i) confer on recipients an economic advantage which is not received in the normal course of business; (ii) the advantage must be granted by the State or through State resources; (iii) the measure must be selective by favouring certain undertakings or the production of certain goods; and (iv) it must distort competition and affect trade between the Contracting Parties.

1.1.   Economic advantage

The measure must confer on recipients an economic advantage which is not received in the normal course of business.

Under the Wood Scheme the Norwegian authorities award financial grants to companies, authorities, business associations, unions, etc. which can contribute to the objectives of the scheme. The undertakings benefiting from such grants receive an economic advantage, i.e. the grant, which they would not have received in their normal course of business.

1.2.   Presence of State resources

The advantage must be granted by the State or through State resources.

The grants awarded under the Wood Scheme are financed by the Ministry of Agriculture and Food and come directly from the State budget.

1.3.   Favouring certain undertakings or the production of certain goods

The measure must favour certain undertakings or the production of certain goods.

It appears from various legislative preparatory works (such as the White Paper, the Recommendation and the Working Group Report) leading up to the establishment of the Wood Scheme, that the scheme is aimed at improving (i) value in the wood processing business, and (ii) the relations on different levels of trade between the forest and the market (which includes the supply of raw material to the wood processing industry), along with a general aim of increasing the actual use of woodwork.

Thus grants under the Wood Scheme are awarded only where it is considered that they may benefit the wood processing sector and related wood industries as well as the supply of raw material to such industries. The Wood Scheme therefore favours undertakings within the wood industry sector to the exclusion of other sectors and is hence selective in nature. In this respect the EFTA Court has held that a measure may be selective even if it covers (undertakings in) an entire sector (46).

It should be noted that although grants under the Wood Scheme may also be awarded to undertakings in other industries (for example where industries explore the use of wood in combination with other materials), this option is open only for industries which can contribute to the overall aim of the Wood Scheme of generally improving value in the wood processing business. The Authority therefore considers that even this option is ultimately aimed at favouring undertakings in the wood processing industries and related wood industries.

1.4.   Distortion of competition and effect on trade between Contracting Parties

The measures must distort competition and affect trade between the Contracting Parties.

Under the Wood Scheme the Norwegian authorities award grants to undertakings in the wood processing (and related) industries. Norwegian industry exports a large share of its wholesale timber and refined wood products (up to 90 %) to other EEA countries where wood products are extensively traded. In addition, Norway also imports timber, processed wood and wood products from the EU. In such circumstances, the grant of support to undertakings under the Wood Scheme will strengthen the position of recipients compared to other undertakings which are located in Norway or in other EEA countries and competing in the wood processing (and related) businesses. Moreover, since wood is merely one of the raw materials used in the construction business, grants received by construction companies under the Wood Scheme will strengthen their position compared to other undertakings competing in the construction business (47).

On this basis, the Authority considers that the grant of financial support to undertakings under the Wood Scheme will distort competition and affect trade.

1.5.   Conclusion and existence of an aid scheme

In the light of the above, the conclusion of the Authority is that the Wood Scheme satisfies the test in Article 61(1) of the EEA Agreement and hence constitutes State aid. However, the Norwegian authorities have argued that certain of the individual grants awarded under the Wood Scheme do not fall within the scope of the EEA Agreement or do not qualify as State aid.

The Authority has taken the view (which is not disputed by the Norwegian authorities) that the Wood Scheme is an act on the basis of which, without further implementing measures being required, individual aid awards may be made to undertakings defined within the act in a general and abstract manner. The Scheme therefore qualifies as an aid scheme within the meaning of Article 1(d) of Part II of Protocol 3 to the Surveillance and Court Agreement. In this regard the Authority recalls that in Case C-310/99, the European Court of Justice stated that: ‘There was no need for the contested decision to include an analysis of the aid granted in individual cases on the basis of the scheme. It is only at the stage of recovery of the aid that it is necessary to look at the individual situation of each undertaking concerned.’  (48). In line with that case law, the Authority has assessed the Wood Scheme on the basis of the characteristics of the scheme (as opposed to the specifics of the individual awards under the scheme). The arguments of the Norwegian authorities cannot affect that assessment but will only come into play if and when recovery is discussed. The conclusion as to the compatibility or not of the scheme with the functioning of the EEA Agreement does not prejudge the question of recovery in individual instances of aid having been granted. As noted in the judgment quoted above, that is a second step and recovery will only be ordered in those instances in which the substantive provisions on State aid have in fact been breached.

The Authority observes that the Norwegian authorities have not disputed that the Wood Scheme enables the grant of funding to recipients in respect of products covered by the EEA Agreement, such as wood. Nor have the Norwegian authorities disputed that the Wood Scheme includes the possibility to fund entities which qualify as undertakings within the meaning of Article 61(1) of the EEA Agreement. Finally, it is undisputed that the Wood Scheme did not exclusively fund beneficiaries which provided a service in return.

In other words, the scheme itself envisaged the granting of State aid. The possibility that certain recipients under the Wood Scheme may not come within the scope of the EEA Agreement (by reference to the fact that their products are not covered by the Agreement, or that they themselves are not undertakings within the meaning of Article 61(1) of the EEA Agreement) does not change the qualification of the Wood Scheme as an aid scheme within the meaning of Article 61(1) of the EEA Agreement.

2.   Procedural requirements

Pursuant to Article 1(3) of Part I of Protocol 3 to the Surveillance and Court Agreement, ‘the EFTA Surveillance Authority shall be informed, in sufficient time to enable it to submit its comments, of any plans to grant or alter aid (…). The State concerned shall not put its proposed measures into effect until the procedure has resulted in a final decision’.

The Authority first observes that in view of the fact that Chapter 44 of the Harmonized Commodity Description and Coding System (on wood and articles of wood) is covered by the EEA Agreement, the Wood Scheme must be assessed on the basis of the Agreement. The Norwegian authorities did not notify the Wood Scheme prior to its implementation and have therefore not respected their obligation pursuant to Article 1(3) of Part I of Protocol 3 to the Surveillance and Court Agreement. State aid granted under the Wood Scheme therefore constitutes ‘unlawful aid’ within the meaning of Article 1(f) of Part II of Protocol 3 to the Surveillance and Court Agreement.

3.   Compatibility of the aid

As a preliminary point, the Authority notes that while the Wood Scheme contained details on, for example, objectives and eligible costs, it did not appear to contain any conditions according to which aid was to be granted. A scheme without any specific limitations on the granting of aid (e.g. as regards aid intensity) is not something that could be authorised by the Authority as compatible with the functioning of the EEA Agreement. The fact that, in practice, the Authority’s State Aid Guidelines may have been respected in individual instances does not alter this position but, as noted above at point I-1.5, merely has an effect on whether recovery is necessary.

However, the Authority observes, in this context, that the Norwegian authorities have stated that the reference in the Working Group Report to implementing the scheme on the basis of ‘principles and practices’ within the limits of EEA law is an implicit reference to the Internal EEA Guidelines. The Authority understands the argument to be that those Guidelines, which set out, for example, maximum aid intensities allowed under EEA law in various situations, were to be regarded as the rules of the Scheme and the conditions on which aid under the Wood Scheme would be granted. In other words, the Scheme did contain an identifiable set of rules limiting the granting of aid thereunder.

To the extent that the Norwegian authorities note that ‘the guidelines are continuously revised’ it is recalled that the compatibility of unlawful State aid with the functioning of the EEA Agreement shall be assessed in accordance with the substantive criteria set out in the instrument in force at the time when the aid was granted or, in the case of a scheme, when the scheme was established. In addition, each revisal of the rules of a scheme must be assessed in order to determine whether it constitutes an alteration to the scheme within the meaning of Decision 195/04/COL (49). The assessment below therefore analyses whether the Internal EEA Guidelines of Innovasjon Norge, including subsequent changes thereto, could, as the rules of the Wood Scheme, have been considered compatible with the functioning of the EEA Agreement and in particular with the Authority’s State Aid Guidelines and the block exemption Regulations as they were applicable at each of those points in time.

3.1.   Compatibility with Article 61(2) of the EEA Agreement

None of the exceptions in Article 61(2) of the EEA Agreement apply in this case as the Wood Scheme is not aimed at the objectives listed in those provisions.

3.2.   Compatibility with Article 61(3) of the EEA Agreement

A State aid measure is considered to be compatible with the functioning of the EEA Agreement pursuant to Article 61(3)(a) of the EEA Agreement when it is designed to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment. However, as there are no such areas defined by the Norwegian regional aid map, this provision is not relevant (50).

Moreover, the exception in Article 61(3)(b) of the EEA Agreement does not apply since the State aid granted under the Wood Scheme is not intended to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of Norway.

However, the exception laid down in Article 61(3)(c) of the EEA Agreement which provides that State aid may be considered compatible with the common market where it facilitates the development of certain economic activities or of certain economic areas and does not adversely affect trading conditions to an extent contrary to the common interest, may be applicable. This is so if the measure complies with the State Aid Guidelines or any applicable block exemption Regulations.

Regional aid

Undertakings become eligible for regional aid when they are established in certain regions defined by reference to the Norwegian regional aid map, mentioned above, and when the conditions set out in the State Aid Guidelines on regional aid are met (51).

The Norwegian authorities have argued that aid under the Wood Scheme has not been granted in the form of regional aid. However, the Authority observes that the Wood Scheme has been implemented on the basis of the Internal EEA Guidelines which provide for the possibility to grant regional (investment) aid (52). Moreover, the authorities have referred to cases in which research and development aid has been topped up with a 5 % regional aid bonus (Trysil Skog AS being one example).

The Authority observes that the conditions set out in the State Aid Guidelines on the grant of regional aid must be fulfilled also in cases where the regional aid bonus is granted. However, neither the Working Group Report nor the Internal EEA Guidelines refer to the conditions which must be met for regional aid to be granted, such as the identification of regional benefits (in the form of productive investment or job creation), nor do they include a reference to the regional aid map of Norway. In such circumstances the Authority cannot reassure itself that the provisions on regional aid under the Wood Scheme are in accordance with the State Aid Guidelines on regional aid.

Aid for research and development

State aid for research and development may be regarded as compatible with the functioning of the EEA Agreement when the relevant conditions in the State Aid Guidelines are met (53). The State Aid Guidelines set out the definitions of different types of research and development, namely ‘fundamental research’, ‘industrial research’ and ‘pre-competitive development activity’ and the respective aid intensities which apply to each of these categories.

The Authority observes that the eligible research, eligible costs and aid intensities set out in the Internal EEA Guidelines correspond to those set out in the State Aid Guidelines on research and development except with respect to technical preparatory studies. While the table on aid intensities in the Internal EEA Guidelines refer to two different aid intensities for technical preparatory studies carried out by large undertakings in the context of pre-competitive research, namely 50 % and 55 % (54), the State Aid Guidelines explicitly provide that the combination of bonuses may not result in an aid intensity exceeding 50 % for pre-competitive research (55).

Given that one of the aid intensities set forth in the Internal EEA Guidelines is not in line with the State Aid Guidelines and that there is no evidence of the existence of an instruction on case handlers to apply the aid intensity for the OFU/IFU scheme, which is in line with the State Aid Guidelines, it would appear that the rules of the Wood Scheme envisage a possible aid intensity in excess of the maximum set forth in the State Aid Guidelines. Moreover, the Authority has not received any arguments for accepting a higher aid intensity than the one set forth in the State Aid Guidelines.

Aid for SMEs and training aid

Aid granted in compliance with the block exemption Regulations on SMEs and/or on training aid is considered compatible with the functioning of the EEA Agreement provided that the scheme fulfils all the conditions of the relevant block exemption Regulation and contains an express reference to it (by citing its title and publication reference in the Official Journal of the European Union) (56). However, neither the State budgets nor the Working Group Report or any of the other legislative preparatory works regarding the Wood Scheme include a reference to the application of the block exemption Regulation on SMEs or to the block exemption Regulation on training aid. Moreover, the Authority has not received any information from the Norwegian authorities on the application of any of the block exemption Regulations for publication in the Official Journal of the European Union. The Norwegian authorities have therefore not complied with the requirements in the block exemption Regulations and the Wood Scheme therefore cannot be considered to be in compliance with the block exemptions.

Nonetheless the Wood Scheme may be considered to be compatible with the functioning of the EEA Agreement on the basis of Article 61(3)(c) of the EEA Agreement in the light of the material principles established in the block exemption Regulations on SMEs and training aid. In this regard the Authority observes that all definitions, eligible costs and aid intensities on training aid in the Internal EEA Guidelines (57) correspond to the block exemption Regulation on training aid. Moreover, the definitions, eligible costs and applicable aid intensity for consultancy services and fairs for SMEs in the Internal EEA Guidelines (58) correspond to the block exemption Regulation on SMEs.

However, according to section 4.3.2 of the Internal EEA Guidelines, aid for SMEs may be granted for ‘network and cooperation’ which is a purpose clearly falling outside the scope of the material provisions in the block exemption Regulation on SMEs. The question is therefore whether funding for such purposes may be considered compatible on the basis of the State Aid Guidelines on SMEs or on the basis of the material principles established therein directly pursuant to Article 61(3)(c) of the EEA Agreement (59).

The State Aid Guidelines state that funding for ‘cooperation’ to SMEs may be granted provided competition is not affected to an extent contrary to the common interest. On this basis the Authority considers that the possibility in the Internal EEA Guidelines to fund SMEs for the ‘identification of work partners, strategies and formalisation of cooperation during the establishment phase’ could be acceptable.

By contrast, the Authority considers that the possibility to fund unidentified ‘extraordinary joint actions’  (60) during the ‘operational phase’ opens up for the possibility to fund a wide range of measures, at any time, which would not necessarily be within the scope of cooperation between SMEs and may therefore affect competition to an extent contrary to the common interest. Upon questioning the Norwegian authorities on this matter the authorities argued that funding under this provision is aimed only at consultancy services. However, in the same context the authorities stated that the provision also opened up for the possibility to fund ‘related services’ in the context of network assistance.

The Authority considers that on the basis of such vague and open-ended provisions it cannot reassure itself that the rules of the scheme in respect of funding for SMEs are in accordance with the State Aid Guidelines on SMEs or the material principles therein and therefore cannot be approved pursuant to Article 61(3)(c) of the EEA Agreement as compatible with the functioning of the EEA Agreement.

Practice of funding 100 % of project costs

The Working Group Report provides that the scheme may finance the entire project costs in case it is difficult to identify anyone who can benefit directly from the project. The authorities have explained that 100 % funding of project costs takes place, for example, in cases where it is difficult to identify direct beneficiaries, or recipients are considered to receive a modest benefit only (i.e. preliminary studies and reports in special target areas), on the basis that no aid is present in these cases (61).

With regard to this practice, the following two comments must be made: 1) although the Norwegian authorities refer to preliminary studies and reports as examples of cases in which no aid is involved, the State Aid Guidelines on research and development set out maximum aid intensities for technical feasibility studies showing that funding for studies (even of a preparatory character) may involve State aid (62); and 2) unless the amount of aid involved is below the de minimis threshold the receipt of a modest benefit does not, in and of itself, exclude the presence of State aid.

On this basis the Authority considers that the practice of funding 100 % of the costs of a project is not based on criteria which would ensure that the presence of State aid is excluded and since 100 % funding is not acceptable under any section of the State Aid Guidelines, nor has it been argued in this case that such an aid intensity is justified directly pursuant to Article 61(3)(c) of the EEA Agreement, the Authority considers that a scheme which allows such a practice is not compatible with the functioning of the EEA Agreement.

Conclusions

As appears from the above, on several accounts the Wood Scheme is not in compliance with the State Aid Guidelines and does not qualify for the exception directly pursuant to Article 61(3)(c) of the EEA Agreement. The Authority therefore considers that the Wood Scheme cannot be considered compatible with the functioning of the EEA Agreement.

3.3.   De minimis aid

According to the Norwegian authorities the Wood Scheme contains provisions setting out conditions which, when they are met, ensure that grants qualify as de minimis aid. The Authority considers that the relevant provisions under the Wood Scheme do not comply with the de minimis rules.

The grant of aid may qualify as de minimis under the State Aid Guidelines or the subsequent de minimis Regulation with the consequence that the measure does not constitute State aid within the meaning of Article 61(1) of the EEA Agreement and that there is no obligation to notify. As the Wood Scheme was implemented between 1 July 2000 and the end of 2005 both sets of de minimis rules are relevant for the assessment of the scheme (63).

Both the de minimis Regulation and the State Aid Guidelines provide that the national authorities can only grant de minimis aid after first having verified that the total amount of de minimis aid received by the company is not raised by virtue of other de minimis aid having been received during the previous 3 years. Under both the de minimis Regulation and the State Aid Guidelines an acceptable manner of verifying the de minimis threshold is by obtaining information from the recipient on this matter (64).

When de minimis aid is granted under the Wood Scheme, reference is made to the de minimis rules and recipients are informed of an obligation to inform the authorities of other de minimis aid received 3 years after the consent to receive de minimis aid was given.

In the decision opening the formal investigation procedure the Authority took the view that since this information obligation only concerns de minimis aid received after aid has been received under the Wood Scheme recipients have not been required to submit information on whether any de minimis aid has been received prior to receiving de minimis aid under the Wood Scheme. However, the Norwegian authorities have argued that the consent letter also refers to the rule that aid received over ‘any period of three years’ may not exceed the de minimis threshold.

The Authority observes that the requirement on the recipient to inform of aid granted ‘from the time of the letter of consent’ contradicts the reference to the rule that aid received during ‘any period of three years’ may not exceed the de minimis threshold. In such circumstances the Authority cannot reassure itself that a recipient would clearly perceive this message as an obligation to inform of aid received during ‘any period of three years’. The Authority therefore maintains its initial position that, in so far as the provisions in question are to be viewed as part of the rules of the scheme, it cannot be concluded that they ensure ex ante that the provisions on de minimis aid are complied with (65).

Aside from this the Authority observes that, at least in the versions of the Internal EEA Guidelines dated September 2004 and July 2005, the Wood Scheme has provided for a practice whereby State aid approved for, for example, research and development, could be topped up with further aid granted as de minimis aid (66). In line with the Commission Decision in Kahla Porzellan GmbH, the Authority considers that if aid exceeds the de minimis threshold — as a result of total funding granted to the same undertaking within 3 years — the total amount must be considered as State aid (67). On this basis the Authority considers that a practice whereby the de minimis threshold is respected only for a part of the aid granted to an undertaking implies, by definition, that the total amount granted may exceed the de minimis threshold (68).

In view of the above the Authority considers that the relevant provisions under the Wood Scheme do not comply with the de minimis rules and that the Scheme therefore cannot be approved as compatible with the functioning of the EEA Agreement.

4.   Conclusion

Based on the information submitted by the Norwegian authorities, the Authority takes the view that the Wood Scheme involves the grant of State aid within the meaning of Article 61(1) of the EEA Agreement that is not compatible with the Agreement. However, in line with the Commission’s practice in this regard, the Authority considers that although the Wood Scheme, viewed as a scheme, is incompatible with the functioning of the EEA Agreement, individual aid grants awarded under the Wood Scheme which fulfil the criteria laid down in the State Aid Guidelines on SMEs and/or research and development, or with the material rules in the block exemption Regulations on aid to SMEs and training can be declared compatible with the functioning of the EEA Agreement (69).

As the Wood Scheme has not been notified to the Authority, any aid within the meaning of Article 61(1) of the EEA Agreement granted under the Wood Scheme constitutes unlawful aid within the meaning of Article 1(f) of Part II of Protocol 3 to the Surveillance and Court Agreement. It follows from Article 14 of Part II of Protocol 3 to the Surveillance and Court Agreement that the Authority shall decide that unlawful aid which is incompatible with the State aid rules under the EEA Agreement must be recovered from the beneficiaries. This is, however, without prejudice to (i) individual aid awards fulfilling the conditions for de minimis aid pursuant to the State Aid Guidelines or the de minimis Regulation; and (ii) individual awards being found to be compatible on the basis of compliance with the State Aid Guidelines on SMEs and/or research and development, or with the material rules in the block exemption Regulations on aid to SMEs and training, and which fulfil the relevant aid intensities set forth therein,

HAS ADOPTED THIS DECISION:

THE COUNCIL OF THE EUROPEAN UNION,

Whereas:

A.   PROCEDURE

1.   Measures in force

(1)

In October 2003, the Council, by Regulation (EC) No 1905/2003 (2), imposed definitive anti-dumping measures in the form of a specific duty on imports of furfuryl alcohol (FA) originating in the People’s Republic of China (China). The specific duty amounts ranged from EUR 84 to EUR 160 per ton for four cooperating Chinese producers, while the country-wide duty was set at EUR 250 per ton (the original investigation).

2.   Request for an expiry review

(2)	Following the publication, in May 2008, of a notice of impending expiry of the anti-dumping measures applicable to imports of FA originating in China (3), the Commission received on 30 July 2008 a request for a review pursuant to Article 11(2) of the basic Regulation.

(3)

The request was lodged by International Furan Chemicals BV (the applicant) on behalf of the sole producer in the Union representing 100 % of the Union production of FA. The request was based on the grounds that the expiry of the measures would be likely to result in a continuation of dumping and recurrence of injury to the Union industry.

(4)

Having determined, after consultation of the Advisory Committee, that sufficient evidence existed for the initiation of an expiry review pursuant to Article 11(2) of the basic Regulation, the Commission published a notice of initiation of this review in the Official Journal of the European Union (4).

3.   Investigation

3.1.   Procedure

(5)

The Commission officially advised the applicant Union producer, the exporting producers in China, the Chinese authorities, the producer in the suggested analogue country, United States of America, the importers/traders and users in the Union known to be concerned, of the initiation of the review. Interested parties were given the opportunity to make their views known in writing and to request a hearing within the time limit set out in the notice of initiation.

(6)	Questionnaires were sent to all the parties that were officially advised of the initiation of the review and to those who requested a questionnaire within the time limit set out in the notice of initiation.

(7)	Replies to the questionnaire were received from the applicant Union producer, two traders, ten users, two associations of users, one exporting producer in China and the producer in the analogue country.

3.2.   Interested parties and verification visits

(8)

The Commission sought and verified all the information it deemed necessary for the purpose of the determination of the likelihood of continuation or recurrence of dumping and injury and for the determination of the Union interest. Verification visits were carried out at the premises of the following companies: — Union producer and related companies: — TransFurans Chemicals BVBA, Geel, Belgium, — International Furan Chemicals BV, Rotterdam, the Netherlands, — Central Romana Corporation, LTD, La Romana, Dominican Republic, — Exporting producers in China: — Zhucheng Taisheng Chemical Co. Ltd, — Producer in the analogue country: — Penn Speciality Chemicals Inc., United States of America (USA), — Unrelated importers/traders: — S. Chemicals, the Netherlands, — Users: — Kiilto OY, Finland, — Mazzon Flli., Italy, — SATEF Hüttenes-Albertus, Italy, — Ashland Sudchemie Kernsfest, Germany, — Hüttenes-Albertus, Germany,

3.3.   Review investigation period and period under consideration

(9)	The investigation regarding the continuation or recurrence of dumping and injury covered the period from 1 October 2007 to 30 September 2008 (‘RIP’ or ‘Review Investigation Period’).

(10)	The examination of the trends relevant for the assessment of a likelihood of a continuation or recurrence of injury covered the period from 1 January 2005 up to the end of the RIP (‘period considered’ or ‘period under consideration’).

B.   PRODUCT CONCERNED AND LIKE PRODUCT

1.   The product concerned

(11)	The product concerned is the same as in the original investigation, i.e. FA originating in China, currently falling within CN code ex 2932 13 00.

(12)

FA is a chemical product. It is a colourless to pale yellow liquid that is soluble in many common organic solvents. The raw material for the production of FA is furfural (FF), which is a chemical liquid obtained by processing different types of agricultural waste such as sugar cane, corncobs and rice hulls among others.

(13)	FA is a commodity product. The main use of FA is the production of synthetic resins, used in the production of foundry moulds which are used to make metal castings for industrial purposes.

2.   Like product

(14)

As in the previous investigation, this investigation has shown that the basic physical and technical characteristics of FA produced and sold by the Union industry in the Union, FA produced and sold on the domestic Chinese market, FA imported into the Union from China as well as FA produced and sold in the USA are the same and that they have the same use.

(15)	It was therefore concluded that all these products constitute one like product within the meaning of Article 1(4) of the basic Regulation.

C.   LIKELIHOOD OF CONTINUATION OF DUMPING

(16)	In accordance with Article 11(2) of the basic Regulation, it was examined whether the expiry of the measures would be likely to lead to a continuation or recurrence of dumping.

(17)

In accordance with Article 11(9) of the basic Regulation, the same methodology was used as in the original investigation. As an expiry review does not provide for any examination of changed circumstances, no further consideration was given to whether or not producers should be granted market economy treatment (MET).

1.   Preliminary remarks

(18)

It is recalled that in the original investigation a total of four Chinese exporting producers cooperated with the investigation and requested MET pursuant to Article 2(7)(b) of the basic Regulation. However, none of these Chinese exporting producers fulfilled all of the required conditions for granting MET and therefore all claims for MET had to be rejected. All of them were granted individual treatment (IT) since the investigation revealed that they fulfilled the required criteria. It is noted that the only Chinese exporter which cooperated with the present expiry review was granted IT in the original investigation.

(19)

The only cooperating Chinese exporting producer accounted for 23,1 % of imports into the Union during the RIP. No reliable information on imports of the product concerned to the Union during the RIP could be gathered directly from the other exporting producers. Under these circumstances, and in accordance with Article 18 of the basic Regulation, for total import quantities and prices the Commission had to use facts available, i.e. Eurostat and the documentation submitted by the applicant in the request for the initiation of the review.

(20)	The existing anti-dumping duties, ranging from EUR 84 to EUR 160/tonne, with a country-wide residual duty of EUR 250/tonne, correspond to the level of injury established during the previous investigation.

2.   Dumping in the investigation period

2.1.   Analogue country

(21)

In the original investigation the United States of America (the USA) was used as an appropriate market economy country for the purpose of establishing the normal value for China. In the notice of initiation of the current investigation the Commission indicated its intention to use the USA as analogue country. Interested parties were invited to comment on this intention. The USA was considered appropriate in view of the size and openness of its domestic market and the fact that one US producer had agreed to cooperate fully in the investigation.

(22)

An importers’ association opposed the choice of the USA as analogue country, arguing that there was only one main producer in the USA and that domestic prices were extremely high. One Chinese exporting producer claimed that the level of competition in the USA was lower than that on the Chinese domestic market and therefore the markets were not comparable. It was found, however, that while there was only one producer on the market in the USA, imports also played a role which ensured a sufficient level of competition on this sizeable market. Furthermore, none of the known producers contacted in other possible analogue countries, including Thailand, Turkey and South Africa, agreed to cooperate.

(23)	Based on the above, it was concluded that the USA was the most appropriate and reasonable analogue country in accordance with Article 2(7) of the basic Regulation.

2.2.   Normal value

(24)	Pursuant to Article 2(7)(a) of the basic Regulation normal value was established on the basis of verified information received from the producer in the USA.

(25)	The Commission first established that the total domestic sales of the US producer were made in sufficient quantities and could thus be considered representative within the meaning of Article 2(2) of the basic Regulation.

(26)

It was subsequently examined whether the product concerned sold in representative quantities on the analogue country’s domestic market could be considered as being sold in the ordinary course of trade pursuant to Article 2(4) of the basic Regulation. It was found that the sales volume on a per type basis, sold at a net sales price equal to or above the cost of production, represented 80 % or more of the total sales volume and the weighted average price of that type was equal to or above the cost of production. Therefore the actual domestic prices, calculated as a weighted average of the prices of all domestic sales made during the RIP, irrespective of whether these sales were profitable or not, could be used.

(27)	Normal value was thus determined, as set out in Article 2(1) of the basic Regulation, on the basis of prices paid or payable, in the ordinary course of trade, by independent customers on the domestic market of the analogue country.

2.3.   Export price

(28)

The only Chinese exporting producer which cooperated was granted IT in the original investigation. In accordance with Article 2(8) of the basic Regulation the export price of the product concerned for this company was established on the basis of the export prices actually paid or payable to the first independent customer located in the Union.

(29)	Given that cooperation from China was very low, the countrywide dumping margin applicable to all other exporters in China was calculated using the Chinese export statistics.

2.4.   Comparison

(30)

In order to ensure a fair comparison of the normal value and the export price, due allowance, in the form of adjustments, was made for differences affecting prices and price comparability in accordance with Article 2(10) of the basic Regulation. Appropriate adjustments concerning transport, insurance, and credit costs were granted in all cases where they were found to be reasonable, accurate and supported by verified evidence.

2.5.   Dumping margin

(31)

In accordance with Article 2(11) of the basic Regulation the weighted average normal value established for the USA was compared with the weighted average export price of the cooperating Chinese exporting producer on an ex-works basis. This comparison showed the existence of significant dumping, the dumping margin amounting to more than 40 %.

(32)	Based on Eurostat and Chinese statistics, for all other Chinese exports to the Union the margin of dumping was also found to be substantial, in the same range as above.

3.   Development of imports should measures be allowed to lapse

3.1.   Preliminary remark

(33)	It is recalled that measures have been in force since October 2003.

3.2.   Evolution of production and capacity utilisation in China

(34)	In the absence of meaningful cooperation by the Chinese exporting producers during the current investigation no verifiable data was available on their capacity and capacity utilization.

(35)	According to the applicant’s estimate, the total production capacity in China in 2006 amounted to around 364 900 tonnes of FA per year.

(36)

According to the China National Chemical Information Center (5), ‘China’s production capacity for furfural and furfuryl alcohol has undergone unduly rapid expansion in recent years. The overall slackness of downstream consumption sectors such as furan resins has led to a serious oversupply in the furfural and furfuryl alcohol market’(.) ‘Furfural and especially furfuryl alcohol production in China still has to depend on exports’. This source also states that there were more than 300 FA producers in China in 2005. The total annual production capacity of FA was 240 000 tonnes and the output was around 140 000 tonnes.

(37)	According to the estimation of the sole cooperating Chinese exporting producer, total production of FA in China in 2008 amounted to 200 000 tonnes.

(38)	In any event, Chinese production capacity continues to be substantial. Furthermore, despite the measures in place, Chinese exports to the Union continued to increase. Whatever the source of information it is clear that Chinese production capacity largely exceeds Union consumption.

(39)

The Union market is a large and stable market for FA and given the existence of high anti-dumping measures in the USA (ranging from 43 % to 50 % and renewed in July 2006) on imports from China, it is expected that if existing measures are allowed to lapse Chinese producers would have every incentive to ship spare capacities to the Union.

(40)	On the basis of the above it may be concluded that, in the light of the huge capacity available in China and the existence of anti-dumping duties in another important market, the USA, there is a strong likelihood of increased dumped imports into the Union should measures be allowed to lapse.

3.3.   Volume and price of imports from China to the Union

(41)

During the RIP imports of the product concerned from China amounted to approximately 21 000 tonnes. The unit price was EUR 1 210 per tonne on average (see recital (57)). During the same period the average Union unit selling price was far above this price making the Union market very attractive to Chinese exporters should the measures be allowed to lapse.

3.4.   Volume and prices of Chinese exports to third countries

(42)	Based on the data provided by the cooperating Chinese exporting producer it was found that this company exported larger quantities to third countries than to the Union and at prices significantly below those of Union producers on the Union market and also below Chinese export prices to the Union.

(43)

This is confirmed by publicly available Chinese statistics which showed that for most of the investigation period Chinese companies exported mainly to Asian countries at prices far below those of their exports to the Union market. In these circumstances, if measures are allowed to lapse, Chinese exporting producers may re-direct these sales to the higher priced Union market but still at dumped prices that would undercut those of the Union industry.

(44)	Limited information is available on the domestic prices in China.

(45)	However, based on the questionnaire reply from the sole cooperating Chinese company, this company sold the product concerned on its domestic market at a price far below that of its exports to third countries and to the Union.

3.5.   Conclusion

(46)	The investigation showed that, whilst the import volumes of the product concerned in the RIP were relatively high, the level of dumping found for these imports was significant.

(47)

In view of the spare capacity available in China, which largely exceeds total Union consumption, the significant difference in prices charged to the Union and third countries and the resulting attractiveness of the Union market, as showed in recital (41) above, to the Chinese exporting producers, it is concluded that there is a strong likelihood of increased dumped imports into the Union should measures be allowed to lapse.

D.   DEFINITION OF THE UNION INDUSTRY

(48)	As in the original investigation, there is only one producer of FA in the Union: TransFurans Chemicals, Belgium (TFC). Accordingly, the production of TFC constitutes the total Union production within the meaning of Article 4(1) of the basic Regulation.

(49)	The Union production is fully integrated in a single economic entity which consists of three companies and operates as follows:

(50)

TFC transforms the raw material, furfural, delivered by the mother company Central Romana Corporation (CRC), Dominican Republic, into the product concerned. International Furan Chemicals (IFC) situated in the Netherlands acts as the worldwide sales agent for the product concerned produced by TFC. TFC, IFC and CRC are related through common ownership.

(51)

Based on the above, TFC and its related company IFC constitute the Union industry within the meaning of Articles 5(4) and 4(1) of the basic Regulation. It should be noted, that in order to make a meaningful assessment of certain injury indicators, it was necessary to take into account also certain data from CRC.

E.   SITUATION ON THE UNION MARKET

1.   Preliminary remark

(52)

Given that the Union industry comprises only one company, specific data relating to the Union industry, as reported in the verified questionnaire replies, consumption and the market share of the Chinese exporting producers as well as other third countries’ imports have been ed in order to preserve the confidentiality of the data submitted in accordance with Article 19 of the basic Regulation.

2.   Union consumption

(53)	Union consumption was calculated on the basis of the combined volume of sales by the Union industry in the Union of its own produced FA, imports from China as well as imports from other third countries.

(54)

With regard to the import volumes from the country concerned, and as during the original investigation, Chinese official export statistics were used rather than Eurostat import statistics, since the former appeared to be more accurate in view of the fact that certain data in Eurostat concerning this product were classified as ‘secret’ and therefore not publicly available. As far as the import volumes of other third countries are concerned Eurostat statistics were used since no other more reliable information was available. Table 1   Union consumption (based on sales volume)   2005 2006 2007 RIP Index 100 108 158 166 Y/Y trend   8  % 47  % 5  % Source: verified questionnaire reply of the Union industry, Eurostat, Chinese official export statistics

(55)	On this basis and as shown in table 1 above, Union consumption increased significantly during the period under consideration, i.e. by 66 %.

(56)	It is noted that the above development may be affected by the possible existence of secret data concerning imports of Thailand as mentioned below in recital (61).

3.   Volume, market share and prices of imports from China

Table 2   Imports from China in volume, market share and import price

	2005	2006	2007	RIP
Imports in tonnes	16 010	10 635	19 245	21 002
Index	100	66	120	131
Market share (index)	100	62	76	79
CIF Import price EUR/tonnes	887	738	893	1 210
Index	100	83	101	136
Source: Chinese official export statistics

(57)

The import volume from China increased by 31 % during the period considered, from 16 010 tonnes in 2005 to 21 002 tons in the RIP, while market share decreased by 21 % during the period considered. This development has to be seen against the background of the significant increase of Union consumption by 66 % during the same period.

(58)

It should be noted that the Union industry was itself importing between 5 000 and 9 000 tons during the RIP of the product concerned from China which it re-sold on the Union market. The Union industry was therefore also the main importer of the product concerned from China. Imports were done by the Union industry because, producing already at full capacity (see recitals (64) and (65) below), it was not able to meet the demand in the Union market.

(59)	Average import prices from China increased over the period considered by 36 %, i.e. from 887 EUR/ton in 2005 to 1 210 EUR/ton during the RIP.

(60)

The comparison of the CIF import price at Union frontier charged to independent customers, including post-importation costs, with the Union industry’s ex-works prices, for the same product types, revealed that Chinese import prices were not undercutting the Union industry’s sales price during the RIP.

4.   Volume, market share and prices of imports from other third countries

Table 3   Imports from other third country markets

	2005	2006	2007	RIP
Thailand
Tonnes	673	208	10 660	11 450
Index	100	31	1 584	1 701
Market share indexed	100	28	1 017	1 044
Import price in EUR/tonne	1 059	822	1 086	1 302
Index	100	78	103	123
South Africa
Tonnes	890	0	123	2 695
Index	100	0	14	303
Market share indexed	100	0	8	183
Import price in EUR/tonne	682	0	930	1 301
Index	100	0	136	191
Other third countries
Tons	160	11	193	239
Index	100	7	120	149
Market share indexed	100	0	75	100
Import price in EUR/ton	1 790	7 500	3 051	3 368
Index	100	419	170	188
Source: Eurostat

(61)

It is noted that Eurostat data for Thailand show an increase in import volume from insignificant quantities in 2005 and 2006 to 10 660 tonnes in 2007 and 11 450 tonnes during the RIP, with a significant increase in its market share from an index of 100 to 1 044 during the period under consideration. However, it is noted that Eurostat data contained some secret data with regard to Thai imports during 2005 and 2006 and the increase in imports and market share was in fact lower as shown above. Import prices from Thailand increased by 23 % over the period considered and were above Chinese prices as well as above the Union industry’s prices during the RIP.

(62)	Although imports from South Africa increased during the period considered, they remained at a relatively low level with price levels similar to the Thai imports.

(63)	Imports from other third countries did not represent significant volumes.

5.   Economic situation of the Union industry

5.1.   Production, production capacity and capacity utilisation

(64)	The Union industry’s production increased by 8 % during the period under consideration. The production capacity of the Union industry remained stable during this period.

(65)

Capacity utilisation increased by 8 % during the period considered, as such reaching full capacity. The Union industry was from 2006 onwards producing above its theoretical installed capacity. Table 4   Union production   2005 2006 2007 RIP Index 100 104 106 108 Y/Y trend   4  % 1  % 2  % Source: verified questionnaire reply of the Union industry Table 5   Union production capacity   2005 2006 2007 RIP Index 100 100 100 100 Y/Y trend   0  % 0  % 0  % Source: verified questionnaire reply of the Union industry Table 6   Capacity utilisation   2005 2006 2007 RIP Index 100 104 106 108 Y/Y trend   4  % 1  % 2  % Source: verified questionnaire reply of the Union industry

5.2.   Inventories

(66)

Stocks decreased by 50 % during the period considered which was due to the high demand during this period, in particular during the RIP, and the Union industry’s insufficient capacity to supply the Union market. As a consequence, stocks were continuously reduced. Table 7   Inventories   2005 2006 2007 RIP Index 100 81 89 50 Y/Y trend   –19  % 10  % –44  % Source: verified questionnaire reply of the Union industry

5.3.   Sales, market share and prices

Table 8   Sales volumes and values

	2005	2006	2007	RIP
Sales in volume — index	100	151	147	134
Y/Y trend		51  %	–2  %	9  %
Sales in value — index	100	127	156	175
Y/Y trend		27  %	23  %	12  %
Source: verified questionnaire reply of the Union industry

(67)

The Union industry sales volume increased by 51 % from 2005 to 2006, reaching a peak in 2006, but then continuously decreased. At the same time, the market share of the Union industry decreased by 19 %. This is due to the fact that demands to the Union industry increased more than the overall increase in sales volume. As mentioned above, since the Union industry already produced at full capacity it was not able to increase its sales volume to the same extent as the increase in consumption. Table 9   Union industry’s market share   2005 2006 2007 RIP Index 100 140 93 81 Y/Y trend   40  % –34  % –13  % Source: verified questionnaire replies of the Union industry, Eurostat, Chinese export statistics

(68)

Unit selling prices of the Union industry first decreased by 16 % from 2005 to 2006, and increased afterwards continuously. Over the total period considered, average prices of the Union industry increased thus by 31 %. Table 10   Union industry sales prices   2005 2006 2007 RIP Index 100 84 106 131 Y/Y trend   –16  % 26  % 23  % Source: verified questionnaire reply of the Union industry

5.4.   Factors affecting Union prices

(69)	The pressure from demand throughout the period considered led to, as a consequence, a significant increase in prices. The high demand during the RIP even caused temporary shortages on the Union market.

(70)

Price levels on the Union market were generally high throughout the period considered. The dumped imports from China did not exert any significant price pressure during this period. Thus, the same increasing trend can also be observed for the Chinese imports and the imports from the other third countries, with the exception of 2006, when both volumes and prices dropped.

(71)

The sales margins were less influenced by the full cost of production, and the price increases were mainly due to market developments. This is also evidenced by the exceptional increase in cost in 2006 (due to an exceptional increase in the fuel oil costs for the production of FF) which did not have a direct impact on the Union industry’s sales price which decreased during this same year.

5.5.   Employment, productivity and wages

(72)

Employment remained overall stable during the period considered, while productivity increased by 6 % during the same period which is due to the increase in production volume. The processing of FF into FA is a rather simple process and therefore not very labour intensive. The average wages decreased by 4 % during the period considered. Table 11   Employment   2005 2006 2007 RIP Index 100 106 105 102 Y/Y trend   6  % –1  % –3  % Source: verified questionnaire reply of the Union industry Table 12   Productivity   2005 2006 2007 RIP Index 100 98 100 106 Y/Y trend   –2  % 2  % 6  % Source: verified questionnaire reply of the Union industry Table 13   Wages   2005 2006 2007 RIP Index 100 102 95 96 Y/Y trend — 2  % –6  % 1  % Source: verified questionnaire reply of the Union industry

5.6.   Profitability

(73)

The profitability of the Union industry increased overall significantly from 2005 to the RIP, i.e. by 43 % and reached a very high level during the RIP, exceeding by far the target profit set during the original investigation (15,17 %). It is noted that the profitability of the Union industry reached high levels throughout the period considered with the exception of 2006. In 2006, the exceptional high costs for fuel oil, which is one of the main cost factors for the production of FF, combined with low sales prices resulted in losses for the Union industry. Table 14   Profitability   2005 2006 2007 RIP Index 100 –27 125 143 Y/Y trend — – 127  % 562  % 14  % Source: verified questionnaire reply of the Union industry

5.7.   Investments, return on investments and ability to raise capital

(74)

Investments increased during the period under consideration although the total amount was not significant, being equivalent to only a small percentage of the profits obtained. The Union industry did not invest in new capacities but these investments were rather in repairs and maintenance. The investigation also showed that the return on investments, i.e. pre-tax net profit of the like product expressed as a percentage of the net book value of fixed assets allocated to the like product, increased notably during the period considered. Table 15   Investments   2005 2006 2007 RIP Index 100 116 150 187 Y/Y trend   16  % 29  % 25  % Source: verified questionnaire reply of the Union industry Table 16   Return on investments   2005 2006 2007 RIP ROI 4,3  % –6,1  % 8,3  % 18,4  % Source: verified questionnaire reply of the Union industry

(75)	The investigation did not bring into light any evidence that the Union industry has major problems in raising capital.

5.8.   Cash flow

(76)	Cash flow followed a similar trend as profitability, increasing significantly during the period under consideration. Table 17   Cash flow   2005 2006 2007 RIP Index 100 – 167 294 661 Y/Y trend   – 267  % 276  % 125  % Source: verified questionnaire reply of the Union industry

5.9.   Growth

(77)

The Union industry did not directly benefit from the growth of the market during the period considered, since, while it increased its sales volume it lost overall market share. However, this situation is due to the Union industry’s decision to maintain its production capacity at the same levels throughout the period considered. Indeed, although profitability was high, and demand was increasing, no investments were made to increase capacity.

5.10.   Magnitude of the dumping margin

(78)	During the RIP, despite the measures in force substantial dumping continued albeit at lower levels than established in the original investigation, based both on the data obtained from the sole cooperating exporting producer and the calculations based on facts available (Chinese statistics).

5.11.   Recovery from the effects of past dumping

(79)	Even if the Union industry has had the chance to recover from past dumping, in particular in terms of sales volume, sales prices and profitability, dumping margins are still significant.

5.12.   Export activity of the Union industry

Table 18   Export volume of the Union industry

	2005	2006	2007	RIP
Index	100	82	78	96
Y/Y trend	—	–18  %	–5  %	23  %
Source: verified questionnaire reply of the Union industry

(80)

The Union industry’s main export market is the USA. Although decreasing in 2006 and 2007, export levels of 2005 were almost reached in RIP. It should be noted that the volume exported to the USA was significant, i.e. it corresponded to 25 % of its total production volume during the RIP, while on the other hand large volumes of the product concerned were also imported by the Union industry from China to satisfy the demand of their customers in the Union. The Union industry own production of FA was exported to the more lucrative USA market where prices were at even higher levels than on the Union market.

6.   Conclusion on the situation of the Union industry

(81)

The anti-dumping measures had a clear positive impact on the situation of the Union industry. All main injury indicators, such as production (+ 8 %) and sales volume (+ 34 %), sales value (+ 75 %), average sales price (+ 31 %), investments (+ 87 %), profitability (+ 43 %), cash flow (+ 561 %), stocks (– 50 %) and productivity (+ 6 %) have shown positive developments. In particular, profit levels of the Union industry were high throughout the period considered with the exception of 2006.

(82)

As far as the market share of the Union industry is concerned, the decreasing trend could not be considered as pointing to injury. Indeed, the Union industry, already producing at maximum capacity, could not supply the increasing demand, which had, despite increasing sales volumes, a negative effect on its market share.

(83)

In conclusion, in view of the positive development of the indicators pertaining to the Union industry, it is considered to be in a good situation and it could not be established that material injury has continued. Therefore, it was examined whether there is a likelihood of recurrence of injury should measures be allowed to lapse.

F.   LIKELIHOOD OF RECURRENCE OF INJURY

1.   Summary of the analysis of the likelihood of the continuation of dumping and the recurrence of injurious dumping

(84)	It is recalled that even with the measures in force, the exporting producers in China were still dumping at significant levels, as explained in recital (31) above. Removal of the measures could, if the export prices were reduced commensurately, lead to even higher dumping margins.

(85)

As mentioned above, the incentive to increase export volumes to the Union is considerable, since the other major export market for China, i.e. the USA has high anti-dumping measures in place against China with prohibitive character and this market is therefore practically not accessible for Chinese exports.

(86)	Furthermore it was found that the Chinese producers had significant spare capacities due to a structural overcapacity in China caused by a decrease of domestic demand in China due to a shrinking market after the Olympic Games in 2008 and the effect of the global economic crisis.

(87)	It was also found that Chinese export prices to third countries were at lower levels than those to the Union.

(88)	It was therefore concluded that there was a likelihood of continuation of dumping and a risk of an increase of the volume of imports exerting a downward pressure on prices in the Union, at least in the short term, if measures were repealed.

(89)	It is normally the case that an increase of dumped imports would exercise a downward pressure on the sales price level and would negatively affect the Union industry’s profitability as well as its financial recovery that was observed during the RIP.

2.   Impact of the dumped imports on the Union industry — indications and likely development during the post RIP period

(90)

The market share of the Union Industry went down already as from 2006, and this during a period of increasing consumption, whilst from the same year onwards the market share of the Chinese imports increased. In view of these mixed indicators (i.e. overall recovery by the Union Industry, but loss of market share), the post-RIP developments were examined to get a clearer picture of likely future trends. It should also be recalled that the likelihood of recurrence of injury caused by a downward pressure on prices may also be influenced or accentuated by the evolution of the global economy and its effects on demand and consumption.

(91)

Additional information was collected in order to determine whether the conclusions drawn on the basis of the analysis of the period considered and more in particular the RIP, remain valid after the RIP. In this regard, the Union industry submitted information on the development of their sales prices in the Union covering the period from October 2008 to April 2009 as well as on Chinese import volumes and average import prices during the same period.

(92)

On this basis, a clear and continuous downward trend of the Union industry’s sales prices on the Union market could be observed, i.e. sales prices in April 2009 decreased by 35 % as compared to the average sales price during the RIP. As far as sales volumes of the Union industry are concerned, while there is no continuous downward trend, sales in April 2009 were 33 % lower than in March 2009. There were indications that orders to the Union industry have been decreasing.

(93)

As far as the Union industry’s profitability is concerned, the negative development has been significant. Thus, profit levels shrank continuously and dropped by almost 80 % in April 2009 when compared to the profit level reached during the RIP. Thus, the Union industry’s profit levels have not reached the target profit set during the original investigation since March 2009 and fell in April 2009 far below it.

(94)

As far as the Chinese imports are concerned, Chinese import prices followed a continuous downward trend, however less accentuated than the decrease in import volumes and the decrease in the Union industry sales prices on the Union market. The Chinese import prices, while mostly still slightly above the Union industry’s sales price, were in some months undercutting them, which shows that the price pressure on the market from these imports has increased. Similarly at the end of this period the Chinese prices were found to be underselling the Union industry prices.

(95)	On the basis of the above, and given the clear downward trend of the Union industry’s financial situation, it was concluded that a recurrence of injury is likely should measures be allowed to lapse.

(96)

It is noted that due to the global economic crisis, demand in the Union has decreased significantly which has had a negative impact on the sales volumes, sales prices and profitability on the Union market. The financial position of the Union industry has deteriorated, making the Union industry particularly vulnerable and thus more easily affected by dumped imports from China. This situation will likely further deteriorate in case of a surge of such imports should measures be allowed to lapse.

3.   Conclusions on the likelihood of recurrence of injury

(97)	In summary it is considered that in case measures were repealed, there is a short-term likelihood of a significant increase of dumped imports from China to the Union with downward pressure on prices as a consequence and a recurrence of injury to the Union industry.

(98)

It is noted, however, that in general the situation of the Union industry during the period considered was positive – whereby it was on the whole able to recover from past dumping and made substantial profits towards the end of the period. It is thus considered that less time than the standard five years may be needed for the Union industry to be able to recover from the current precarious situation, which may in any event be a temporary phenomenon, and to prevent injury from recurring should measures be allowed to lapse. In the medium term, demand on the Union industry may increase again. Should this be the case, and on the basis of the specifics of the Union market and in particular the need for the Union users of a fast and reliable source of supply, it is considered that the Union industry may in the medium term recover from any injury suffered or that a recurrence of injury would no longer be likely. The situation could thereafter be reviewed.

G.   UNION INTEREST

1.   Preliminary remark

(99)

In accordance with Article 21 of the basic Regulation it was examined whether the continuation of the existing anti-dumping measures would be against the interest of the Union as a whole. The determination of Union interest was based on an appreciation of all the other various interests involved, i.e. those of the Union industry, those of the importers/traders as well as the users of the product concerned.

(100)

It should be recalled that in the original investigation, the imposition of measures was not considered to be against the Union interest. Furthermore, the present investigation is an expiry review, thus analysing a situation in which anti-dumping measures are in place.

(101)

On this basis it was examined whether there are compelling reasons which would lead to the conclusion that it is not in the Union interest to maintain measures in this particular case, despite the above conclusions on the likelihood of continuation of dumping and recurrence of injury.

2.   Interest of the Union industry

(102)

It is recalled that dumping during the RIP was still present and that there exists a likelihood of continuation of dumping of the product concerned originating in China and the likelihood of recurrence on injury to the Union industry.

(103)

The Union industry has proven to be a viable and competitive industry, confirmed by the positive development of all main injury indicators during the period considered. The previously imposed anti-dumping measures have contributed to the price level as established during the RIP which allowed the Union industry to restore its profitability.

(104)

Therefore it is in the interest of the Union industry to maintain measures against the dumped imports from China.

3.   Interest of unrelated importers/traders

(105)

The Commission sent questionnaires to all known unrelated importers/traders. Only one importer/trader cooperated with the investigation.

(106)

The investigation showed that the volumes traded by the cooperating unrelated importer during the period under consideration were not significant, and sales of the product concerned represented only a small part of its total sales.

(107)

It is considered that continuation of the measures will not change the current situation of the importers/traders. It is clear that the importers may also rely on other sources of supply, as can be seen from the market share held by other third countries, in particular Thailand which showed that competition on the Union market is ensured.

(108)

On the basis of the above, it was considered that the continuation of the measures would not significantly affect the importers/traders.

4.   Interest of users

(109)

The Commission sent questionnaires to all known unrelated users. Eight users cooperated with the investigation, representing 44 % of the total imports from China. The investigation showed that these users were importing directly the product concerned from China. Additionally two user associations replied submitting their comments.

(110)

The main industrial users of FA in the Union are the furan resin manufacturers. The investigation showed that despite measures in force, at least some of the users reached still quite high profit margins during the RIP.

(111)

The users also pointed out that the Union industry should remain an important source of supply in order to grant short term availability of the product concerned and a certain reliability and consistency of the supply.

(112)

Considering the above, it was considered that the continuation of the measures would not have a significantly negative effect on the industrial users.

5.   Conclusion on Union interest

(113)

Given the above, it is concluded that there are no compelling reasons, on the grounds of Union interest, against the prolongation of the anti-dumping measures.

H.   ANTI-DUMPING MEASURES

(114)

All 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 submit comments and claims subsequent to disclosure.

(115)

It is clear that the Union industry was able to profit from the measures in force and its situation improved significantly over the period considered with respect to most injury indicators. The Union industry realised high profit margins during the RIP and sales and production volumes reached their maximum levels. On the basis of the positive economic development of the Union industry during the period considered, it could not be established that material injury continued.

(116)

Nevertheless, the investigation showed on one hand that, despite an increase in consumption, the Union industry lost market share while the Chinese imports increased their market share. On the other hand the investigation also revealed that spare capacities exist in China and that high dumping continued during the RIP.

(117)

In addition, the investigation on the likelihood of recurrence of injury showed that the situation of the Union industry deteriorated after the RIP and lead to injury towards the beginning of the second quarter of 2009. It also revealed that there were significant spare capacities available in China and the incentive to direct these spare capacities to the Union should measures be allowed to lapse was high. This expected surge of dumped imports is likely to increase the price pressure in the Union with a negative effect on the Union industry’s price and profit levels. It was therefore established that there was a likelihood of recurrence of injury, should measures be allowed to lapse, at least on the short term.

(118)

This would have an even more negative impact in the context of the current economic crisis, which has lead to a contraction in consumption after the RIP. In this scenario the impact of increased dumped imports would multiply its negative effects on the Union industry.

(119)

Finally, it is considered that should the economy recover in the medium term, demand for FA in the Union will increase. Under these circumstances, the Union industry will be able to increase its sales volume accordingly.

(120)

Therefore it follows from the above that as provided in Article 11(2) of the basic Regulation, the anti-dumping measures applicable on imports of FA from China, imposed by Regulation (EC) No 1905/2003 should be maintained for an additional period of two years without prejudice to the other provisions of Article 11 of the basic Regulation.

(121)

Following disclosure, the Union industry claimed that the definitive measures should be extended for five years arguing that the sudden change in market conditions after the RIP would show that any future developments in the market are uncertain and highly difficult to predict. Thus, the assessment of the Union Institutions, i.e. that the economy may recover in the medium term and that the demand for FA in the Union may consequently improve would not be sufficiently accurate. However, as mentioned above in recitals (117) to (119), it was considered that the developments after the RIP, including the effects of the economic crisis, are likely to be of a short term nature warranting the imposition of measures for no more than two years. Therefore, the claims of the Union industry in this respect had to be rejected.

(122)

In order to minimise the risks of circumvention due to the high difference in the duty rates, it is considered that special measures are needed in this case to ensure the proper application of the anti-dumping duties. These special measures include the following: The presentation to the Customs authorities of the Member States of a valid commercial invoice, which shall conform to the requirements set out in the Annex to this Regulation. Imports not accompanied by such an invoice shall be made subject to the residual anti-dumping duty applicable to all other exporters.

(123)

Should the exports by one of the four 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 13(1) 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 rates and the consequent imposition of a country-wide duty,

HAS ADOPTED THIS REGULATION:

THE EUROPEAN COMMISSION,

Whereas:

HAS ADOPTED THIS REGULATION:

THE EUROPEAN COMMISSION,

Whereas:

HAS ADOPTED THIS REGULATION: