(1)

Regulation (EC) No 1272/2008 was amended by Commission Regulation (EU) 2017/542 (2) to add certain requirements for the submission of information relating to emergency health response and for the inclusion of a ‘unique formula identifier’ (UFI) in the supplemental information provided on the label of a hazardous mixture. Importers and downstream users are required to start complying with the requirements in stages, according to a series of compliance dates depending on the use for which a mixture is placed on the market.

(2)

The paints sector has raised a specific concern regarding the workability of the emergency health response requirements in the case of paints formulated in limited amounts on a tailor-made basis for an individual consumer or professional user at the point of sale. In order to satisfy customer demand for very specific paint shades, formulators can be asked to formulate and supply paints with an almost unlimited number of different compositions. Compliance with the emergency health response requirements would therefore require formulators either to submit information and create UFIs in advance for an extremely large number of paints of all possible colour combinations, many of which may never be supplied in reality, or else to postpone each supply at the point of sale until the information had been submitted and the UFI had been created. Either approach would place a disproportionate burden on the bespoke paints industry.

(3)

In order to avoid disproportionate administrative burden, in particular for small and medium-sized enterprises, for bespoke paints, the requirements are to be amended by Commission Delegated Regulation (EU) 2020/1677 (3) to provide for the possibility to exempt bespoke paints from the notification obligations in Annex VIII to Regulation (EC) No 1272/2008 and from the obligation in that Annex to create a UFI. However, in that case, in order to allow poison centres to formulate a suitable emergency health response, the individual mixtures contained in bespoke paints are to remain subject to all the requirements of Annex VIII.

(4)

In the light of that, it is appropriate to amend Article 25 of Regulation (EC) No 1272/2008 in order to lay down a rule for bespoke paints for which no information is notified and no corresponding UFI created requiring the UFIs of all the mixtures contained in the bespoke paint to be indicated on the label of the bespoke paint. In addition, if the concentration of a mixture with a UFI contained in the bespoke paint exceeds 5 %, the concentration should be included in the supplemental information indicated on the label of the bespoke paint, since mixtures in bespoke paints of such concentration are more likely to be relevant for emergency health responses.

(5)

Considering that the compliance date for mixtures for consumer and professional use of 1 January 2021 laid down in Annex VIII to Regulation (EC) No 1272/2008 is approaching, and that this Regulation enables all sectors to comply with that Annex, this Regulation should enter into force as early as possible.

(6)

Regulation (EC) No 1272/2008 should therefore be amended accordingly,

(1)

Regulation (EC) No 1272/2008 was amended by Commission Regulation (EU) 2017/542 (2) to add certain requirements for the submission of information relating to emergency health response and for the inclusion of a ‘unique formula identifier’ in the supplemental information provided on the label of a hazardous mixture. The requirements were amended by Commission Delegated Regulation (EU) 2020/11 (3). Importers and downstream users are required to start complying with the requirements in stages, according to a series of compliance dates depending on the use for which a mixture is placed on the market

(2)

Concerns have been raised by various industry sectors regarding the workability of the emergency health response information requirements in certain cases, notably with regard to the difficulty of knowing the exact composition of mixtures in cases where raw materials with a highly variable or unknown composition are used in the manufacture of the mixture, in cases where toxicologically very similar components supplied by multiple, different suppliers are used together in the same production line, or in cases involving complex supply chains. Concerns have also been raised, in the case of bespoke mixtures, about the impossibility of knowing in advance which exact bespoke mixtures are to be placed on the market.

(3)

It is necessary to address the situation where different but toxicologically very similar components are used in a mixture, and where it is unknown which component is present in a particular mixture placed on the market at a given time. To ensure that the emergency health response requirements can be complied with properly in practice, importers and downstream users should be allowed to group toxicologically similar components of a mixture together in an interchangeable component group and provide information on the total concentration of those components present in the mixture, without having to specify their separate concentrations. In order to allow poison centres to formulate a suitable emergency health response, components should only be grouped in an interchangeable component group if their classification for health and physical effects is identical and if the hazards identification and the additional hazard information are identical for all possible combinations of the resulting final mixture incorporating those components. For components classified for certain hazard classes, it should also be necessary for them to have the same technical function and the same toxicological properties in order to be grouped.

(4)

In order to address particular difficulties encountered by the gypsum, ready-mixed concrete and cement sectors and to allow them to comply with the emergency health response requirements without reducing the level of safety, it should be possible for emergency health response information relating to certain standardised mixtures within those three sectors to be submitted by reference to a standard composition. However, in order to allow poison centres to formulate a suitable emergency health response, this option should only be available in cases where the mixture classification does not change according to the mixture’s composition within the concentration ranges specified in the standard formula, and where the information on composition is at least as detailed as the information contained in the mixture’s safety data sheet, drawn up in accordance with Article 31 of Regulation (EC) No 1907/2006 of the European Parliament and of the Council (‘safety data sheet’) (4). In the event that the information contained in the safety data sheet is more detailed than the information on the composition in the standard formula, importers and downstream users should be required to notify the information in the safety data sheet instead.

(5)

In order to address particular difficulties anticipated for certain fuels, and taking into account the facts that fuels placed on the market normally conform to a technical standard and that poison centres have communicated a low number of poisoning incidents with fuels, it should be possible, until a more suitable solution is found, to submit emergency health response information by reference to the information contained in the safety data sheet, as well as any other known information on the products’ chemical composition.

(6)

In order to satisfy customer demand for very specific paint shades, formulators are sometimes asked to formulate and supply paints on a bespoke basis at the point of sale. These bespoke paints could have an almost unlimited number of different compositions. Therefore, without any mitigating measures, compliance with the emergency health response requirements in Annex VIII to Regulation (EC) No 1272/2008 would require formulators of bespoke paints either to submit information and create unique formula identifiers (UFIs) in advance for an extremely large number of paints of all possible colour combinations, many of which might never be supplied in reality, or to postpone each supply until the information had been submitted and the UFI had been created. Either approach would place a disproportionate burden on the bespoke paints industry, in particular small and medium-sized enterprises, without improving the level of safety significantly.

(7)

Poison centres have not communicated a significant number of accidents related to paints. In light of the apparently lower risks compared to other mixtures, it is justified to allow a more flexible approach, as this would not be reducing the current level of safety.

(8)

It is therefore appropriate to provide for the possibility to exempt bespoke paints from the notification obligations in Annex VIII and from the requirement to create a UFI. However, in that case, in order to allow poison centres to formulate a suitable emergency health response, the individual mixtures contained in bespoke paints should remain subject to all the requirements of that Annex. Alongside this Regulation, Commission Delegated Regulation (EU) 2020/1676 (5) amends Article 25 of Regulation (EC) No 1272/2008 to add a new rule, in the case of bespoke paints for which no submission in accordance with Annex VIII has been made and no corresponding UFI has been created, requiring the UFIs of all the individual mixtures contained in the bespoke paint to be indicated on the label of the bespoke paint, together with the specific concentration of each such mixture with a UFI that is present in a concentration exceeding 5 %.

(9)

Given the number of changes to Annex VIII to Regulation (EC) No 1272/2008, it is appropriate to replace the whole Annex for the sake of legal clarity.

(10)

Considering that the compliance date for mixtures for consumer and professional use of 1 January 2021 laid down in Annex VIII to Regulation (EC) No 1272/2008 is approaching, and that this Regulation enables all sectors to comply with that Annex, this Regulation should enter into force as early as possible.

(11)

Regulation (EC) No 1272/2008 should therefore be amended accordingly,

(1)

The Commission has examined the application for the approval of amendments to the specification for the Protected Designation of Origin ‘Rioja’, forwarded by Spain in accordance with Article 105 of Regulation (EU) No 1308/2013.

(2)

The Commission has published the application for the approval of the amendments to the specification in the Official Journal of the European Union, as required by Article 97(3) of Regulation (EU) No 1308/2013 (2).

(3)

No statement of objection has been received by the Commission under Article 98 of Regulation (EU) No 1308/2013.

(4)

The amendments to the specification should therefore be approved in accordance with Article 99 of Regulation (EU) No 1308/2013.

(5)

The measures provided for in this Regulation are in accordance with the opinion of the Committee for the Common Organisation of the Agricultural Markets,

(1)

In accordance with Article 97(2) and (3) of Regulation (EU) No 1308/2013, the Commission has examined the application to register the name ‘Soltvadkerti’ forwarded by Hungary and has published it in the Official Journal of the European Union (2).

(2)

No statement of objection has been received by the Commission under Article 98 of Regulation (EU) No 1308/2013.

(3)

In accordance with Article 99 of Regulation (EU) No 1308/2013, the name ‘Soltvadkerti’ should be protected and entered in the register referred to in Article 104 of that Regulation.

(4)

The measures provided for in this Regulation are in accordance with the opinion of the Committee for the Common Organisation of the Agricultural Markets,

(1)

In accordance with Article 97(2) and (3) of Regulation (EU) No 1308/2013, the Commission has examined the application to register the name ‘Friuli’/‘Friuli Venezia Giulia’/‘Furlanija’/‘Furlanija Julijska krajina’ forwarded by Italy and has published it in the Official Journal of the European Union (2).

(2)

No statement of objection has been received by the Commission under Article 98 of Regulation (EU) No 1308/2013.

(3)

In accordance with Article 99 of Regulation (EU) No 1308/2013, the name ‘Friuli’/‘Friuli Venezia Giulia’/‘Furlanija’/‘Furlanija Julijska krajina’ should be protected and entered in the register referred to in Article 104 of that Regulation.

(4)

The measures provided for in this Regulation are in accordance with the opinion of the Committee for the Common Organisation of the Agricultural Markets,

(1)

Annex I to Regulation (EC) No 1334/2008 lays down a Union list of flavourings and source materials approved for use in and on foods and their conditions of use.

(2)

Commission Implementing Regulation (EU) No 872/2012 (3) adopted the list of flavouring substances and introduced that list in Part A of Annex I to Regulation (EC) No 1334/2008.

(3)

Annex I to Regulation (EC) No 1334/2008 may be updated in accordance with the common procedure referred to in Article 3(1) of Regulation (EC) No 1331/2008, either on the initiative of the Commission or following an application submitted by a Member State or by an interested party.

(4)

The Union list of flavourings and source materials laid down in Annex I to Regulation (EC) No 1334/2008 contains, among others, a number of flavouring substances for which, at the time of adoption of the list by Regulation (EU) No 872/2012, the European Food Safety Authority (‘the Authority’) had not been able to rule out a safety risk to the health of the consumer on the basis of the data available and had, therefore, considered that additional data was necessary to complete their evaluation. Those substances were included in the Union list of flavouring substances but on the condition that safety data addressing the concerns expressed by the Authority was submitted before the expiry of specific deadlines established in Part A of Annex I to Regulation (EC) No 1334/2008. These substances and their deadlines were identified by footnotes numbered from 1 to 4.

(5)

Among the substances included in the Union list of flavourings and source materials but identified by way of a footnote reference requiring additional scientific data to be submitted by 31 December 2012, there were the following five substances alpha-Damascone (Fl No 07.134) (representative substance of the group), delta-Damascone (Fl No 07.130), cis-1-(2,6,6-trimethyl-2-cyclohexen-1-yl)but-2-en-1-one (Fl No 07.225), trans-1-(2,6,6-trimethyl-2-cyclohexen-1-yl)but-2-en-1-one (Fl No 07.226) and alpha-Damascenone (Fl No 07.231) (‘the concerned substances’). These substances are part of the subgroup 2.4 of substances from Flavouring Group FGE.19, and were included in the Flavouring Group FGE 210. As regards these substances, the Authority had indicated in its opinion on the Flavouring Group Evaluation 210 of 2009 (4) that they contain a structural alert for genotoxicity in their molecular structure as they are alpha, beta-unsaturated ketones, and that additional genotoxicity data was needed to rule out the concern on their genotoxicity in accordance with the Authority’s document on the ‘Genotoxicity test strategy for substances belonging to subgroups of the Flavouring Group FGE.19’ (5).

(6)

On 28 December 2012, data was submitted concerning subgroup 2.4 of substances from Flavouring Group FGE.19.

(7)

The Authority evaluated the submitted data in revision 1 of the Opinion on the genotoxic potential of the substances of Flavouring Group FGE 210 from chemical group 2.4 of Flavouring Group FGE 19 published on 19 February 2014 (6). However, the Authority considered the submitted data was still insufficient to rule out the genotoxic potential of the concerned substances and it requested further additional data on genotoxicity on the substances representative for this subgroup.

(8)

New data was submitted in 2014. The Authority evaluated the new data in revision 2 of its Opinion, published on 10 July 2015 (7). However, the Authority considered that the new data was insufficient to rule out the genotoxic potential of the concerned substances and requested once more further scientific data to be submitted on the genotoxicity of the concerned substances.

(9)

Further data was submitted in 2016 on the concerned substances. Following this submission, the Authority requested further information and specific studies to be performed by letters of 8 November 2016, 9 February 2017, 29 June 2017 and 8 February 2019. However, the new data provided did not always correspond to the studies requested by the Authority and were not suitable to answer properly the Authority’s concerns. Taking into account all that additional data submitted, the Authority evaluated again the genotoxic potential of the concerned substances in revision 3 of the Opinion on FGE.210 (8) published on 22 May 2019. The Authority concluded that the concern for genotoxicity cannot be ruled out for the five concerned substances.

(10)

In view of the fact that neither the data submitted within the initial deadline nor the data submitted following the Authority’s successive requests after that deadline had allowed the Authority in 2019 to rule out the concerns expressed in its Opinion of 2009, the Commission considers that it is not established that the concerned substances do not pose a safety risk to the health of the consumer. Therefore, on the basis of the scientific evidence submitted within the framework set out in Part A of Annex I to Regulation (EC) No 1334/2008 for the substances pending the completion of their evaluation, the use of the concerned substances does not comply with the general conditions of use for flavourings set out in Article 4 of Regulation (EC) No 1334/2008.

(11)

Consequently, the concerned substances should be removed from the Union list in order to protect human health.

(12)

Part A of Annex I to Regulation (EC) No 1334/2008 should therefore be amended accordingly.

(13)

Due to technical reasons, transitional periods should be provided for concerning food to which any of the five flavouring substances have been added and which have been placed on the market or dispatched from third countries to the Union and were en route prior to the entry into force of this Regulation. The transitional period should not apply to preparations to which any of these five flavouring substances have been added and which are not intended to be consumed as such as the composition of these preparations are known by their manufacturers when they prepare them.

(14)

The measures provided for in this Regulation are in accordance with the opinion of the Standing Committee on Plants, Animals, Food and Feed,

(1)

The substances 2-hydroxyethyl methacrylate (HEMA) and 11,14-Dioxa-2,9-diazaheptadec-16-enoic Acid, 4,4,6,16-tetramethyl-10,15-dioxo, 2-[(2-methyl-1-oxo-2-propenyl)oxy]ethyl ester (Di-HEMA Trimethylhexyl Dicarbamate or Di-HEMA TMHDC) are currently not subject to prohibition or restriction pursuant to Regulation (EC) No 1223/2009.

(2)

On 2 July 2014, the Swedish Medical Products Agency, which is the Swedish competent authority for the purposes of Regulation (EC) No 1223/2009, adopted and communicated a decision under Article 27 of Regulation (EC) No 1223/2009 introducing provisional restrictive measures on a nail cosmetic product that had caused a high number of undesirable effects. The substances identified as likely to cause those undesirable effects were HEMA and Di-HEMA TMHDC.

(3)

According to Article 27(2) of Regulation (EC) No 1223/2009, the Swedish Medical Products Agency communicated immediately to the Commission and the competent authorities of the other Member States the measures taken and any supporting data.

(4)

The Scientific Committee on Consumer Safety (SCCS) concluded in its opinion of 21-22 June 2018 (2) that ‘HEMA and di-HEMA-TMHDC, when applied appropriately to the nail plate (…) as part of an artificial nail modelling system, are not likely to pose a risk of sensitisation, provided that their use is restricted to the nail plate only and contact with the adjacent skin is avoided’. The SCCS further concluded that ‘[b]oth HEMA and di-HEMA-TMHDC are weak to moderate sensitisers and pose a risk of sensitisation from misuse of the products or from inappropriately carried out application or from unintentional contamination of the skin adjacent to the nails under normal and reasonably foreseeable conditions of use’.

(5)

According to Article 3 of Regulation (EC) No 1223/2009, cosmetic products made available on the market must be safe for human health when used under normal or reasonably foreseeable conditions of use.

(6)

When assessing ‘normal or reasonably foreseeable conditions of use’, account has to be taken of possible misuse, inappropriate or unintentional use. In the case of products requiring high level of precision, it is necessary to take into account situations of insufficient precision in their application.

(7)

Cases of sensitisation to nail products containing HEMA and Di-HEMA TMHDC reported in some Member States lead the Commission to the conclusion that there is a risk that such products may be applied with insufficient precision, causing contact with the skin adjacent to the nail plate.

(8)

A distinction should be made between professional and consumer use of cosmetic products. Higher safety standards are expected from professionals. In particular, a professional is expected to have more skills, experience and knowledge on the use of a cosmetic product compared to the consumer.

(9)

Possible health and safety risks for professionals are regulated by certain Union Directives laying down minimum requirements, in particular Council Directives 89/391/EEC (3) and 98/24/EC (4). Additional professional safety rules may apply.

(10)

As regards consumers, since the SCCS opinion considers the substances HEMA and Di-HEMA TMHDC safe in nail products only when applied on the nail plate and since ‘normal or reasonably foreseeable conditions of use’ should take into account the possibility of application on the skin adjacent to the nail plate, there is a potential risk to human health from the use of HEMA and Di-HEMA TMHDC in nail products.

(11)

As the use of nail products containing HEMA and Di-HEMA TMHDC by professionals is expected to be safer for the consumer, such products should be used only by professionals and therefore the warning ‘for professional use only’ should be added on the package of such products.

(12)

To draw attention of both professionals and consumers to the potential health risk, the warning ‘can cause an allergic reaction’ should be added on the package of nail products containing HEMA and Di-HEMA TMHDC.

(13)

Therefore, the safeguard measure taken by Sweden should be considered as justified. Consequently, it is necessary to impose a restriction on the use of HEMA and Di-HEMA TMHDC in nail products.

(14)

Annex III to Regulation (EC) No 1223/2009 should therefore be amended accordingly.

(15)

It is appropriate to provide for a reasonable period of time in order for the industry to adapt to the new requirements.

(16)

The measures provided for in this Regulation are in accordance with the opinion of the Standing Committee on Cosmetic Products,

(1)

Following the publication of a scientific study in 2001, entitled ‘Use of permanent hair dyes and bladder cancer risk’, the Scientific Committee on Cosmetic Products and Non-Food Products intended for Consumers, subsequently replaced by the Scientific Committee on Consumer Products (SCCP) pursuant to Commission Decision 2004/210/EC (2), concluded that the potential health risks of the use of hair dyes were of concern.

(2)

The SCCP further recommended an overall safety assessment strategy for hair dye substances including the requirements for testing substances used in hair dye products for their potential genotoxicity or carcinogenicity.

(3)

Following the opinions of the SCCP, the Commission agreed with Member States and stakeholders on an overall strategy to regulate substances used in hair dye products according to which the industry was required to submit files, containing updated scientific data on the safety of hair dye substances, for a risk assessment by the SCCP.

(4)

Having succeeded the SCCP pursuant to Commission Decision 2008/721/EC (3), the Scientific Committee on Consumer Safety (SCCS) assessed the safety of individual hair dye substances for which updated files had been submitted by the industry.

(5)

As a result of the assessement by the SCCS, in order to ensure the safety of hair dye products for human health it is necessary to prohibit the use of three hair dye substances, 1,2,4-Trihydroxybenzene (4), 2-[(4-Amino-2-nitrophenyl)-amino]-benzoic acid (5) and 4-Amino-3-hydroxytoluene (6), based on the final opinions given by the SCCS on their safety. In addition, in light of the final opinions by the SCCS on other six hair dye substances, Dimethylpiperazinium Aminopyrazolopyridine HCl (7), Methylimidazoliumpropyl p-phenylenediamine HCl (8), HC Orange No 6 (9), Acid Orange 7 (10), Tetrabromophenol Blue (11) and Indigofera Tinctoria (12), it is appropriate to limit their maximum concentrations for use in hair dye products.

(6)

The definition of a hair product laid down in point (1)(c) of the Preamble to Annexes II to VI to Regulation (EC) No 1223/2009 excludes the application of hair dye substances on eyelashes, based on a different level of risk of applying a cosmetic product on the hair on the head as compared to applying the same product on eyelashes. A specific safety assessment was therefore needed for the application of hair dye substances on eyelashes.

(7)

The substance 2-Methoxymethyl-p-Phenylenediamine and its sulfate are listed under entry 292 in Annex III to Regulation (EC) No 1223/2009. Taking into account the conclusions of the latest SCCS opinion (13) on the use of those substances on eyelashes, the field of application of the restriction to which they are subject should be extended to products intended for colouring eyelashes.

(8)

In order to avoid any risk related to self-application by consumers of products intended for colouring eyelashes that contain 2-Methoxymethyl-p-Phenylenediamine and its sulfate, those products should be allowed for professional use only.

(9)

In order to inform consumers and professionals about possible adverse effects of the use of hair dyes and products intended for colouring eyelashes with the aim to lower the risk of skin sensitisation to those products, appropriate warnings should be printed on their labels.

(10)

Regulation (EC) No 1223/2009 should therefore be amended accordingly.

(11)

It is appropriate to provide for reasonable periods of time in order for the industry to adapt to the new requirements and to phase out cosmetic products which do not comply with those requirements.

(12)

The measures provided for in this Regulation are in accordance with the opinion of the Standing Committee on Cosmetic Products,

(1)

The Scientific Committee on Consumer Safety (SCCS) concluded in its opinion of 13 December 2019 (2) (‘the SCCS opinion’) that the use of Methoxypropylamino Cyclohexenylidene Ethoxyethylcyanoacetate as a UV filter in cosmetic products at a maximum concentration of 3 % is safe. Inhalation toxicity was not assessed in the SCCS opinion because no data were provided. Hence, the SCCS opinion is not applicable to any cosmetic product in form of spray that could lead to exposure of the end-user’s lungs by inhalation.

(2)

The SCCS also concluded in its opinion that Methoxypropylamino Cyclohexenylidene Ethoxyethylcyanoacetate is a secondary amine, and thus is prone to nitrosation and formation of nitrosamine. It should not be used in combination with nitrosating substances. The nitrosamine content should be less than 50 ppb.

(3)

In light of the SCCS opinion and in order to take into account technical and scientific progress, the use of Methoxypropylamino Cyclohexenylidene Ethoxyethylcyanoacetate as a UV filter in cosmetic products should be authorised at a maximum concentration of 3 %, except in applications that may lead to exposure of the end-user’s lungs by inhalation.

(4)

Annex VI to Regulation (EC) No 1223/2009 should therefore be amended accordingly.

(5)

The measures provided for in this Regulation are in accordance with the opinion of the Standing Committee on Cosmetic Products,

(1)

Article 17 of Regulation (EC) No 470/2009 requires that the maximum residue limit (‘MRL’) for pharmacologically active substances intended for use in the Union in veterinary medicinal products for food-producing animals or in biocidal products used in animal husbandry is established in a Regulation.

(2)

Table 1 of the Annex to Commission Regulation (EU) No 37/2010 (2) sets out the pharmacologically active substances and their classification regarding MRLs in foodstuffs of animal origin.

(3)

The substance bupivacaine is not included in that table.

(4)

An application for the establishment of MRLs for bupivacaine for cutaneous and epilesional use only in porcine, for piglets up to 7 days of age, and in bovine, for calves up to 2 months of age, has been submitted to the European Medicines Agency (‘Agency’).

(5)

The Agency, based on the opinion of the Committee for Medicinal Products for Veterinary Use, has concluded that the establishment of an MRL for bupivacaine in porcine and bovine, within those age limitations, is not necessary for the protection of human health and recommended a ‘no MRL required’ classification.

(6)

According to Article 5 of Regulation (EC) No 470/2009, the Agency is to consider using MRLs established for a pharmacologically active substance in a particular foodstuff for another foodstuff derived from the same species, or MRLs established for a pharmacologically active substance in one or more species for other species.

(7)

The Agency has considered that the extrapolation of the ‘no MRL required’ classification for bupivacaine in porcine and bovine to other food-producing species is not appropriate at this time due to insufficient data.

(8)

Regulation (EU) No 37/2010 should therefore be amended accordingly.

(9)

The measures provided for in this Regulation are in accordance with the opinion of the Standing Committee on Veterinary Medicinal Products,

(1)

On 14 May 2020, the European Commission (‘the Commission’) announced, by a notice published in the Official Journal of the European Union (2) (‘the Notice of Initiation’), the initiation of an anti-dumping proceeding (‘the anti-dumping proceeding’) with regard to imports into the Union of certain hot-rolled flat products of iron, non-alloy or other alloy steel originating in Turkey following a complaint lodged on 31 March 2020 by Eurofer (‘the complainant’) on behalf of producers representing more than 25 % of the total Union production of certain hot-rolled flat products of iron, non-alloy or other alloy steel.

(2)

The products subject to registration (‘the product concerned’) are flat-rolled products of iron, non-alloy steel or other alloy steel, whether or not in coils (including ‘cut-to-length’ and ‘narrow strip’ products), not further worked than hot-rolled, not clad, plated or coated. These products are currently falling under CN codes 7208 10 00, 7208 25 00, 7208 26 00, 7208 27 00, 7208 36 00, 7208 37 00, 7208 38 00, 7208 39 00, 7208 40 00, 7208 52 10, 7208 52 99, 7208 53 10, 7208 53 90, 7208 54 00, 7211 13 00, 7211 14 00, 7211 19 00, ex 7225 19 10 (TARIC code 7225191090), 7225 30 90, ex 7225 40 60 (TARIC code 7225406090), 7225 40 90, ex 7226 19 10 (TARIC code 7226191090), 7226 91 91 and 7226 91 99. The CN and TARIC codes are given for information only.

(3)

Not subject to registration are: (i) products of stainless steel and grain-oriented silicon electrical steel; (ii) products of tool steel and high-speed steel; (iii) products, not in coils, without patterns in relief, of a thickness exceeding 10 mm and of a width of 600 mm or more; and (iv) products, not in coils, without patterns in relief, of a thickness of 4,75 mm or more but not exceeding 10 mm and of a width of 2 050 mm or more.

(4)

On 17 September 2020, the complainant submitted a registration request pursuant to Article 14(5) of the basic Regulation. The complainant requested that imports of the product concerned be made subject to registration so that measures may be applied against those imports retroactively from the date of such registration.

(5)

The following interested parties submitted comments in reaction to the request: the Government of Turkey, the Consortium of Users (users), Colakoglu and Erdemir Groups and Habas (exporting producers), the Turkish Steel Exporters’ Association (‘ÇİB’) and the Turkish Steel Producers Association (‘TCUD’).

(6)

According to Article 14(5) of the basic Regulation, the Commission may direct the customs authorities to take the appropriate steps to register imports, so that measures may subsequently be applied against those imports from the date of such registration, provided all conditions set out in the basic Regulation are met. Imports may be made subject to registration following a request from the Union industry, which contains sufficient evidence to justify such action.

(7)

The complainant alleged that, on the basis of the most recent available statistics, there had been a substantial rise in imports following the initiation of the investigation which was likely to seriously undermine the remedial effect of definitive duties. Moreover the complainant argued that there was a history of dumping from Turkey over an extended period and that importers were, or should have been, aware of the dumping practices from Turkey.

(8)

The Commission examined the request in the light of Article 10(4) of the basic Regulation. The Commission verified whether the importers were aware, or should have been aware, of the dumping as regards the extent of the dumping and the injury alleged or found. It also analysed whether there was a further substantial rise in imports which, in the light of its timing as well as volume and other circumstances, was likely to seriously undermine the remedial effect of an eventual definitive anti-dumping duty to be applied.

(9)

At this stage, the Commission has at its disposal sufficient evidence that imports of the product concerned from Turkey are being dumped. The complaint provided sufficient evidence of dumping based on a comparison of the normal value thus established with the export price (at ex-works level) of the product concerned when sold for export to the Union. As a whole, and given the extent of the alleged dumping margins ranging from 4 % to 8 %, this evidence provided sufficient support that the exporting producers practice dumping.

(10)

The complaint also provided sufficient evidence of alleged injury to the Union industry, including a negative development of key performance indicators of the Union industry.

(11)

That information was contained both in the non-confidential version of the complaint and in the Notice of Initiation published on 14 May 2020. By its publication in the Official Journal of the European Union, the Notice of Initiation is a public document accessible to all importers. Furthermore, as interested parties in the investigation, importers have access to the non-confidential version of the complaint and the non-confidential file. Therefore, the Commission considered that, on this basis, importers, were aware, or should have been aware, of the dumping, the extent thereof and the alleged injury (3).

(12)

As stated in recital 5 several interested parties submitted comments to the request for registration. With regard to the first criterion, the Government of Turkey, Habas, CIB and the Colakoglu and Erdemir Groups highlighted that the mere initiation of an anti-dumping investigation does not automatically mean that dumping is actually taking place, as certain investigations (some concerning Turkey) are terminated without the imposition of duties. Rather it would be only a ‘one-sided allegation’. Thus, an importer cannot be aware of something (‘dumping practices’) that the investigation has not yet established. The Government of Turkey, Habas and CIB also contested certain additional evidence provided by Eurofer in the request, including the claim that the CEO of a Turkish exporting producer was aware of the upcoming anti-dumping investigation and the information that imports of the product concerned are subject to trade defence measures in third countries. Lastly, TCUD noted that some of the claims made by Eurofer regarding anti-dumping measures against Turkish imports of the product concerned were not truthfully described in the submission. In this respect, TCUD argued that one company was exempted from the US measures following a challenge before the relevant courts and that another third country (Morocco) removed the anti-dumping duties against Turkey following the ruling of a WTO panel.

(13)

Article 14(5) of the basic Regulation stipulates that, as of the initiation of the investigation and having informed the Member States in due time, the Commission may direct the customs authorities to take the appropriate steps to register imports, so that measures may subsequently be applied against those imports from the date of such registration. The main objective of registration in this case is to allow the possibility to retroactively impose provisional measures up to 90 days preceding their application in accordance with Article 10(4) of the basic Regulation. In light of this provision, the Commission cannot register imports after a provisional duty has already been imposed.

(14)

If, as suggested by some parties, registration is only possible after a finding of dumping has been made by an investigation, then by definition it could never take place prior to the imposition of provisional duties. Such approach would completely deprive the registration tool of its effet utile (4). Therefore, the Commission needs to take a decision on whether to register imports or not before any provisional duty is in place. In this respect the Commission noted that at the stage when the complainant filed the request for registration the best information available was that of the complaint, on the basis of which, as provided in the Notice of Initiation, the Commission initiated the anti-dumping investigation, and which indicated the existence of evidence tending to show injurious dumping. Therefore, the Commission rejected these claims as unfounded. Moreover, in view of this finding, the Commission did not need to assess the additional evidence referred to above regarding imports of the Turkish exporting producers to third countries and the related arguments.

(15)

The Commission thus concluded that the first criterion for registration was met.

(16)

The Commission analysed this criterion based on the statistical data for the product concerned available in the Surveillance 2 database. For assessing whether a further substantial increase had taken place since the initiation of the investigation, the Commission first defined the periods of time to be compared. On the one hand, it assessed the import data from Turkey following the initiation of the anti-dumping investigation (i.e. the point in time as of when importers were aware, or should have been aware, of dumping practices) until the most recent period, i.e. the period June-mid-October 2020. On the other hand, the Commission calculated Turkish imports for the same period during the investigation period (5) (i.e. June-mid-October 2019) and the monthly average import volumes in the full investigation period.

(17)

The Commission considered that, in this case, a comparison between the post-initiation average monthly import volumes with the average monthly Turkish import volumes in the entire investigation period would not be sufficient to assess whether there was a substantial increase in imports in view of the market developments and stockpiling effect derived from the ongoing safeguard measures affecting the product concerned. Thus, the Commission considered it appropriate to base its determination on the comparison between the post-initiation average monthly import volumes with the same period in the investigation period in order to better reflect the potential influence of the ongoing safeguard measures on the behaviour of import flows from Turkey in the period assessed (6). Comparing the post-initiation import volumes with import volumes in the same period of the previous year would, in addition, take due account of possible seasonality effects, if any (7).

(18)

Regarding the influence of the safeguard measures on the Turkish import flows, the Commission noted that throughout the whole year 2019 (the investigation period), Turkey’s imports of the product concerned were affected by numerous adjustments to the functioning of the safeguard measures that impacted the export behaviour from Turkey.

(19)

First, January 2019, by far the best-performing month of Turkish imports of the product concerned, coincided with the last month of provisional safeguard measures. In this respect, there was uncertainty in the market as to the shape definitive measures would take. The Commission noted that any volume of free-of-duty Tariff-Rate Quota (‘TRQ’) not sold by the end of that month would not have been carried over to the next period, i.e. volumes of free-of-duty TRQ would have been ‘lost’. A similar situation, i.e. last month(s) prior to a new period of the measures, occurred in the quarter February-March 2019. Second, in February, April, July and October of the year 2019 there were openings of new free-of-duty TRQ batches. Under the safeguard measures on certain steel products, every opening of TRQ has generally lead to large volumes being imported in the early stages of each of the quarters. Last, the Commission announced in August 2019, in the framework of the first review investigation of the steel safeguard measures, that it would make Turkish imports of the product concerned subject to a 30 % cap over the TRQ available under the relevant product category, thus also leading to an increase in imports ahead of such change in the TRQ administration.

(20)

The Commission further highlighted that the above events impacted the flow of import volumes as shown in the statistics. Notably, the months of January, March and September rank first, second and fourth in terms of volumes exported monthly by Turkey in 2019 (in some cases being substantially higher than any other month in that year) (8). Hence the Commission concluded that all these regulatory actions in the framework of the steel safeguard measures influenced significantly the behaviour of market operators and the trend of import flows across the year.

(21)

The situation in a substantially shorter period (between June and mid-October) was less affected by regulatory changes in the management of the TRQs. Thus, the Commission compared the monthly average Turkish import volume in the period June-mid-October 2020 with the monthly average volume of imports in the same period of the preceding year, 2019.

(22)

The comparison shows that the monthly average import volume from Turkey in this period increased by 6 %.

Source: Surveillance 2 database.

(23)

The Commission further examined the import trends in the selected period and the respective period within the investigation period in order to determine whether that 6 % increase constituted a substantial increase in imports in this case. In particular, the Commission observed that negligible import volumes from Turkey took place in the month of September 2020. Such exceptionally low volume of imports was largely due to the fact that under the steel safeguard measures, Turkey had virtually exhausted its country-specific TRQ in that month in product category 1 (where the product concerned belongs) and therefore it would have been only able to export any meaningful amounts of the product concerned subject to a 25 % duty (10). This exceptionally low import volume in September 2020 reduced to a large extent the monthly average import volumes in the relevant period chosen by the Commission to carry out the comparison (June-mid-October 2020). At the same time, the Commission noted that precisely in the same month of the preceding year, in September 2019, there was a very high volume of imports due to the fact that in October 2019 the adjustments following the first review investigation of the safeguard measures would take effect. Therefore, in anticipation of this event, Turkish producers exported very large amounts during the month of September 2019.

(24)

In light of the considerations in the previous recital, the Commission considered that the imports of the months of September of, respectively 2019 and 2020 were not representative and assessed also the import levels without including that month in both years. Such comparison confirmed that the increases of import volumes in comparison with the same months during the investigation period had been very significant. For example, when comparing the period June-August in 2020 and the same period in 2019 there was an increase by 44 %. A significant increase by 49 % would also take place when comparing the period June-mid-October 2020 with the same period in 2019, in the absence of the month of September. In light of these considerations, the Commission concluded that the increase of imports in this case is substantial.

(25)

Regarding this criterion, the Government of Turkey, Habas, CIB, the Colakoglu and Erdemir Groups and the Consortium of HRFS users contested the period proposed by the complainant to assess whether a substantial rise in imports took place. Instead, these parties proposed different periods to carry out such comparison that in their view would show that this criterion was not met. Habas and the Consortium of HRFS users suggested that comparing on a quarterly basis the same periods of 2019 and the first half of 2020, i.e. the first two quarters of each year, would show a decrease in imports. CIB and the Colakoglu and Erdemir Groups argued that the period chosen by Eurofer, namely June-July 2020, was too short, and thus not representative. Moreover, CIB and the Consortium of HRFS users alleged that the reasons for any increase in imports would have nevertheless been the consequence of the relaxation of the lockdown measures in the Union related to the COVID-19 pandemic, which coincided with the early stages of the post-initiation period. CIB argued that the Commission must compare the volume of imports that occurred after initiation of the investigation with the volume of imports that occurred during the investigation period. This party further argued that Turkey’s imports would have shown a steady decline in January-May 2020 and that in the months of June and July 2020, they would have just increased to return to ‘their normal level’. Moreover, CIB concluded that the Commission should disregard the post-initiation data of June 2020 because of the impact of the alleged particular ‘post-quarantine’ situation. In such case the comparison with the monthly average in the investigation period would show an increase of 12 %, which could not qualify as ‘further substantial increase’, but rather as a ‘very modest’ increase. Other parties proposed to assess the import trends in the first seven months (January-July) of the periods 2017-2020, the import trends throughout the years 2017 to 2020 (annualised) (11), the monthly average in the years 2018 and 2019 with the monthly average in the period January-July 2020, the monthly average of the period January-July 2018 and 2019 with the same period in the year 2020, and the monthly average in the investigation period with the import volume in the month of July 2020 (12), to show that there would have been a decline in imports. The Colakoglu and Erdemir Groups also took issue with the fact that the request did not include any import data between the end of the investigation period and the initiation of the investigation, despite the time lapsed between the two.

(26)

Furthermore, the Consortium of HRFS users additionally claimed that registration would reduce the level of imports and cause a shortage of supply which would be threatening the operations of certain users’ production facilities established in the Union. This would allegedly disrupt the market and cause irreparable damage to independent users of the product concerned.

(27)

All interested parties that reacted to the registration request from Eurofer concurred in arguing that because of the impact of the steel safeguard measures on Turkey, it would not be able to rise further its exports in the coming months (i.e. those prior to the imposition of provisional anti-dumping measures), and that therefore the Commission should disregard the request for registration.

(28)

With regard to the different periods proposed by the parties, the Commission refers to the reasoning and explanations it laid out in section 3.2 above. Nevertheless, there are a number of claims in this respect that warrant a specific rebuttal. In the first place, the Commission notes that while it usually also compares the monthly average imports of a post-initiation period with the average import levels in the investigation period, such comparison may not always be appropriate. In this case, the Commission has found and explained in recitals 16 to 20 above that, in view of the particular market circumstances with regard to the imports under investigation, using the average imports of the year 2019 is not the most appropriate basis for comparison.

(29)

Second, the Commission notes that one of the proposals referred to trends from a period prior to the initiation of the anti-dumping investigation. This would be inconsistent with the finding that the awareness of dumping practices from Turkey stems from the publication of the Notice of Initiation. Thus, the trend in imports from a period prior to the point where an importer could have been aware of the existence of dumping, is not to be taken into consideration for assessing the merits of a registration request.

(30)

Third, the Commission further notes that, while Eurofer’s request constitutes the starting point for the analysis, the Commission nevertheless also has to carry out a comprehensive analysis of its own. In this regard, the Commission has at its disposal a set of data for a more recent period than that provided by Eurofer in the request (namely, until mid-October 2020) (13). Moreover, the Commission also deemed it more appropriate to compare this set of data with the same period in the investigation period, for the reasons developed above.

(31)

Thus, the Commission does not consider that the different proposals have shown any compelling reasons that would render them more apt to assess the import trends than that developed in section 3.2. Therefore, the Commission rejected these claims.

(32)

Regarding the claims that because of the safeguard measures in place, there would in any event be no risk of a further substantial rise in imports, the Commission disagreed for the following reasons.

(33)

First, the registration does not prejudge a decision on retroactive collection of the provisional anti-dumping duties. Whether safeguards measures will prevent an increase of imports until the imposition of provisional measures should be assessed in the context of a possible retroactive collection of duties (14).

(34)

In any event, the Commission acknowledges that, as a result of the changes introduced by the safeguard measures as of 1 July 2020, Turkey has become subject to a country-specific TRQ whose quarterly volumes are set out in Annex II of Commission Implementing Regulation (EU) 2020/894 (15). If these volumes are exhausted, Turkey is nevertheless still allowed to continue exporting into the Union (16).

(35)

However, the Commission does not agree that this fact alone would automatically prevent Turkish imports from rising substantially before the imposition of provisional anti-dumping duties, if any. This is so because by the time provisional duties may be imposed at the latest, this is by mid-January 2021, two batches of free-of-duty country-specific TRQ would have been released for Turkey (17). Moreover, any eventual comparison between import volumes to assess whether retroactive collection of duties is warranted could also cover a period prior to that when Turkey became subject to a country-specific TRQ as explained in recitals 18 and 19 above. Therefore, at this stage, there is no evidence that the overall volumes that Turkey could export free-of-duty (and under the 25 % duty) until an eventual imposition of provisional anti-dumping measures could not qualify as a further substantial rise. The Commission will any event only be able to conclude on this matter in case definitive anti-dumping duties were imposed at the end of the ongoing investigation.

(36)

Therefore the Commission rejects the claims that because of the safeguard measures in place a further substantial rise in imports should be ruled out.

(37)

Lastly, the Commission notes that the comment made by the Consortium of users regarding the impact of registration on the supply of the product concerned and on independent users does not fall under the legal requirements that are to be assessed when deciding on the registration of imports. Therefore the Commission does not address it at this stage of the proceeding.

(38)

In view of the above considerations, the Commission found that the second criterion for registration was also met.

(39)

The Commission has at its disposal sufficient evidence that additional injury would be caused by a continued rise in imports from Turkey at further decreasing prices.

(40)

As established in section 3.2 there is sufficient evidence of a substantial rise in imports of the product concerned.

(41)

In addition, there is evidence of a decreasing trend in the import prices of the product concerned. In this regard import prices from Turkey into the Union in the period June-mid-October 2020 have decreased, on average, by 13 % when compared to the same period in 2019 and by 14 % when compared to the monthly average in the investigation period.

Source: Surveillance 2 database.

(42)

The further rise in imports following the initiation of the case is thus likely, in light of its timing, volume and other circumstances, such as the pricing behaviour of exporting producers, to seriously undermine the remedial effect of any definitive duty, unless such duty would be applied retroactively.

(43)

The Commission therefore concluded that the third criterion for registration was also met.

(44)

The Commission has concluded that there is sufficient evidence to justify making imports of the product concerned subject to registration in accordance with Article 14(5) of the basic anti-dumping Regulation.

(45)

All interested parties are invited to make their views known in writing and to provide supporting evidence. The Commission may hear interested parties, provided that they make a request in writing and show that there are particular reasons why they should be heard.

(46)

Under Article 14(5) of the basic Regulation imports of the product concerned should be made subject to registration for the purpose of ensuring that, should the investigation result in findings leading to the imposition of anti-dumping duties, those duties can, if the necessary conditions are fulfilled, be levied retroactively on the registered imports in accordance with the applicable legal provisions.

(47)

Any future liability would emanate from the findings of the anti-dumping investigation.

(48)

The allegations in the complaint resulting in the initiation of an anti-dumping investigation estimate dumping margins from 4 % to 8 % and injury elimination levels ranging from 10 % to 25 % for the product concerned. The amount of possible future liability can be estimated at the level of the highest dumping margin estimated on the basis of the complaint, namely 8 % as a proportion of the CIF import value of the product concerned.

(49)

Any personal data collected in the context of this registration will be treated in accordance with Regulation (EU) 2018/1725 of the European Parliament and of the Council (18),

(1)

A risk assessment report on the new psychoactive substance N,N-diethyl-2-[[4-(1-methylethoxy)phenyl]methyl]-5-nitro-1H-benzimidazole-1-ethanamine (isotonitazene) was drawn up in compliance with Article 5c of Regulation (EC) No 1920/2006 of the European Parliament and of the Council (2) by the Scientific Committee of the European Monitoring Centre for Drugs and Drug Addiction (EMCDDA; the Centre), extended following the procedure laid down in Article 5c(4) of the same Regulation, on 26 May 2020. The Centre submitted the risk assessment report to the Commission and to the Member States on 29 May 2020.

(2)

Isotonitazene is a synthetic opioid analgesic and is closely related to etonitazene and clonitazene, both of which are under international control under the 1961 United Nations Single Convention on Narcotic Drugs, as amended by the 1972 Protocol.

(3)

Isotonitazene has been available in the Union since at least April 2019 and has been detected in five Member States as well as in the United Kingdom. 24 seizures in total were reported by four Member States; in addition, one Member State reported a collected sample and the United Kingdom reported post-mortem biological samples. Isotonitazene in general is likely to be under-detected since the substance is not routinely screened for due to its novelty on the market. In most cases, the substance was seized as powder, but it was also identified in liquid form. The detected quantities are relatively small. However, they should be seen within the context of the high potency of isotonitazene.

(4)

Two deaths have been reported so far by Germany and the United Kingdom where isotonitazene was involved. The deaths occurred in 2019. No detailed information is available for the death case in Germany. In the case reported by the United Kingdom, several other substances were identified in the postmortem biological samples (3). No acute intoxications with confirmed exposure to isotonitazene were reported so far. It is likely that naloxone works as an antidote to poisoning caused by isotonitazene as for other synthetic opioids. Both intoxications and deaths are likely to be under-detected and under-reported as they are not routinely screened for and as the substance appeared very recently on the Union market.

(5)

There is no direct evidence showing the involvement of organised crime in the manufacture, distribution (trafficking) and supply of isotonitazene within the Union. The available information suggests that isotonitazene is produced by chemical companies based outside the Union.

(6)

Isotonitazene appears to be sold online in small and wholesale amounts, mainly as a powder; it is also sold as ready to-use nasal sprays. Information from seizures suggests that isotonitazene may have also been sold on the illicit opioid market. Due to this, users may not be aware that they are using isotonitazene.

(7)

Isotonitazene has no recognised human or veterinary medical use in the Union nor, it appears, elsewhere. There are no indications that the substance may be used for any other purpose aside from as an analytical reference standard and in scientific research.

(8)

The risk assessment report reveals that many of the questions related to isotonitazene that are posed by the lack of data on the risks to individual health, risks to public health and social risks could be answered through further research. There is no specific information on the social risks posed by isotonitazene. However, the available evidence and information on the health risks that the substance poses, given also that the substance is relatively unknown, provides sufficient ground for including isotonitazene in the definition of ‘drug’.

(9)

Isotonitazene is not listed for control under the 1961 United Nations Single Convention on Narcotic Drugs, as amended by the 1972 Protocol, or under the 1971 United Nations Convention on Psychotropic Substances. Isotonitazene is not currently under assessment by the United Nations system.

(10)

Given that four Member States control isotonitazene under national drug control legislation and one Member State as well as the United Kingdom and Norway control isotonitazene under other legislation, including this substance in the definition of ‘drug’ and thereby covering it by provisions on the criminal offences and sanctions as defined in Framework Decision 2004/757 would help avoid the emergence of obstacles in cross-border law enforcement and judicial cooperation, and would help protect from the risks that its availability and use can pose.

(11)

Article 1a of Framework Decision 2004/757/JHA confers the power to adopt delegated acts upon the Commission with a view to giving a quick and expertise-based response at Union level to the emergence of new psychoactive substances detected and reported by the Member States, by amending the Annex to that Framework Decision to include those substances in the definition of ‘drug’.

(12)

The available information would suggest that the consumption of isotonitazene causes harm to health associated with its acute toxicity and abuse liability or dependence producing potential. This harm to health is considered life-threatening. In addition, there is a potential for severe physical and mental impairment and a significant spread of diseases, including the transmission of blood-borne viruses. These effects, including dependence, are comparable to other opioid analgesics that are under international control.

(13)

As the conditions and procedure for triggering the exercise of the powers to adopt a delegated act have been met, a delegated directive should be adopted in order to include isotonitazene in the Annex to Framework Decision 2004/757/JHA and, as a consequence thereof, subject that substance to the Union criminal law provisions on illicit drug trafficking.

(14)

Ireland is bound by Framework Decision 2004/757/JHA, as amended by Directive (EU) 2017/2103 of the European Parliament and of the Council (4), and is therefore taking part in the adoption and application of this Decision.

(15)

Denmark is bound by Framework Decision 2004/757/JHA as applicable until 21 November 2018, but is not bound by Directive (EU) 2017/2103. It is therefore not taking part in the adoption and application of this Directive and is not bound by it or subject to its application.

(16)

In accordance with the Joint Political Declaration of 28 September 2011 of Member States and the Commission on explanatory documents (5), Member States have undertaken to accompany, in justified cases, the notification of their transposition measures with one or more documents explaining the relationship between the components of a directive and the corresponding parts of national transposition instruments.

(17)

Framework Decision 2004/757/JHA should therefore be amended accordingly,

(1)

Decision ECB/2014/40 of the European Central Bank (1) established the third covered bond purchase programme (CBPP3) and has been recast in Decision (EU) 2020/187 of the European Central Bank (ECB/2020/8) (2). Alongside the asset-backed securities purchase programme, the secondary markets public sector asset purchase programme and the corporate sector purchase programme, the CBPP3 is part of the expanded asset purchase programme (APP) of the European Central Bank (ECB). The APP aims to enhance the transmission of monetary policy, facilitate the provision of credit to the euro area economy, ease borrowing conditions for households and firms and contribute to returning inflation rates to levels below but close to 2 % over the medium term, consistent with the ECB’s primary objective of maintaining price stability.

(2)

On 5 March 2020, the Governing Council decided, in principle, to automatically limit an eligible counterparty’s access to Eurosystem monetary policy operations in certain pre-defined circumstances. Consequently, the Governing Council also decided that where and for as long as such an automatic limitation or a suspension or exclusion applies pursuant to Guideline (EU) 2015/510 of the European Central Bank (ECB/2014/60) (3), a corresponding automatic exclusion of purchases of covered bonds under the CBPP3 issued by that counterparty should also apply. The Governing Council further decided that amendments to reflect these decisions should apply from the date from which the annual amendment of Guideline (EU) 2015/510 (ECB/2014/60) applies.

(3)

Therefore, Decision (EU) 2020/187 (ECB/2020/8) should be amended accordingly,

(1)

With Decision (EU) 2020/525, ESMA required natural or legal persons with net short positions in relation to the issued share capital of companies whose shares are admitted to trading on a regulated market to notify the competent authorities details of any such position reaching, exceeding or falling below 0,1 % of the issued share capital in accordance with point (a) of Article 28(1) of Regulation (EU) No 236/2012.

(2)

The measure imposed by Decision (EU) 2020/525 addressed the necessity for national competent authorities and ESMA to be able to monitor the net short positions that market participants have entered into in relation to shares admitted to trading on a regulated market, on account of exceptional circumstances present in financial markets.

(3)

With Decision (EU) 2020/1123, ESMA renewed the temporary requirement since, notwithstanding a partial recovery of the EU financial markets from the losses registered since the outbreak of the pandemic, the outlook for a future recovery remained uncertain and threats to the orderly functioning and integrity of financial markets and the stability of the financial system were still present.

(4)

In accordance with Article 28(10) of Regulation (EU) No 236/2012, ESMA has to review this measure at appropriate intervals and at least every three months.

(5)

ESMA performed this review based on an analysis of performance indicators, including prices, volatility, credit default swaps spread indices, as well as the evolution of net short positions, especially those between 0,1 and 0,2 %. Pursuant to the conducted analysis, ESMA has decided that it should renew the measure for an additional three months.

(6)

The COVID-19 pandemic continues to have an adverse impact on the real economy with the overall outlook for a future recovery remaining uncertain, particularly in light of recent developments in the EU and beyond. ESMA notes that the number of COVID-19 cases has significantly increased in several jurisdictions over the last few weeks, raising concerns about the possibility of a second wave of COVID-19 infections exacerbating the uncertainty of any future outlook.

(7)

Equity markets in the EU, as demonstrated by the Eurostoxx 50 Index, lost 14 % in the period between 20 February and 3 September 2020, compared to a loss of value of 13 % between 20 February and 4 June (Figure 1). There was a significant improvement of the Eurostoxx 50 Index with respect to the levels reached in March (where the drop was of approximately 30 %, compared to February 2020, as indicated in Decision (EU) 2020/525) but without recovering to pre-COVID-19 levels.

(8)

The volatility measured by the VSTOXX (6) also remains relatively elevated compared to February 2020. The level measured in September (+ 15 %) is slightly higher than the one in June (+ 13 %). The same is also true, and even to a larger extent, for the VIX (7) (+ 18 % in September against + 9 % in June) (Figure 1 and Figure 2).

(9)

The level of credit default swaps (CDS) has decreased between 17 % and 28 % from 4 June to 3 September (Figure 1). However, to better understand the informative power of CDSs at this moment, the data has to be assessed in the context of the European Central Bank’s (ECB) decision on the Pandemic Emergency Purchase Programme (PEPP). From the beginning of March, the CDS spreads started to be highly volatile and indicative of a high financial risk. The renewal by ESMA of Decision (EU) 2020/525, based on data up to 4 June, was also based on the fact that CDS spreads were high and volatile at that time and were considered as an indication of the perception of risk in the market.

(10)

However, the increase of the PEPP by a further EUR 600 billion decided on 4 June brought the ECB’s total announced monetary stimulus to EUR 1,35 trillion, reducing the informative value of CDS spreads in relation to the risk perception of the market.

(11)

Similar considerations can be made in relation to the informative value of the sovereign bond markets, which, as in the case of CDS spreads, are affected by the monetary policy of the central banks. As it appears in Figure 1, the 10Y government bonds yields of DE, FR, GB and IT show a decrease with respect to June levels on average by 22 basis points.

(12)

As a consequence, ESMA considers that the evolution of stock markets, which is significantly less impacted by the central banks’ monetary policy, should provide better insights to the current level of risk in EU financial markets.

(13)

Similar to the Eurostoxx 50, the STOXX EUROPE 800 excluding Switzerland Index lost approximately 17 % since 20 February 2020, compared to a drop of 16 % in June. The STOXX Europe Total Market Banks (ref. European banks) decreased by 37 % since February, while in June the loss was of approximately 30 %.

(14)

As mentioned in ESMA’s Report on Trends, Risks and Vulnerabilities No 2 of September 2020 (TRV), in Q2 2020 there were signs of differentiation across sectors, affecting in particular credit institutions. As of end-June, EU airlines and banking sector indices were still 36 % and 30 %, respectively, below their early January levels. Furthermore, Figure 3 shows that the banking and the insurance sectors have been rather stable since June, but the performance between 20 February and 3 September compared to the one between 20 February and 4 June shows a deterioration: – 38 % v – 33 % for the banking sector and – 21 % v – 20 % for the insurance sector. On the contrary, the performance of the non-financial (8) sectors has improved to a small extent: – 9 % v – 11 %.

(15)

The price recovery of certain sectors took place in the context of a further deteriorating macroeconomic environment and a deep and globally synchronized recession. As indicated in the TRV, the current apparent decoupling of financial market performance from underlying economic activity raises a question about the sustainability of the market rebound going forward.

(16)

Considering the aggregated national or EU level, the price recovery does not seem to have materialised: Figure 5 shows that price decreases are widespread across the Union, from June to September there were no significant improvements and the stock indices performance for 22 EU markets indicates that the drop from 20 February to 3 September was worse than the drop from 20 February to 4 June. Furthermore, the stock markets of 25 jurisdictions, compared to 24 in June, lost at least 10 % of their value when comparing the prices of 3 September to those of 20 February 2020. Over the same period, the share prices of European credit institutions have lost between 10 % and 59 %, compared to losses in value between 9 and 48 % recorded in the period from February to June.

(17)

The percentage of shares with a net short position between 0,1 and 0,2 % steadily increased over the period from 16 March until 11 June 2020 and then remained stable until 4 September 2020 (9) at an average of 13 % over the total net short positions (Figure 6). Furthermore, lower reporting threshold had demonstrated that, in some countries, net short positions between 0,1 % and 0,2 % represented up to approximately 50 % of the total positions reported. In conclusion, the percentage of net short positions between 0,1 and 0,2 %, which had to be reported due to the temporary lower notification threshold, remains a relevant portion of the total net short positions and has strong informative value for regulators in the current context.

(18)

Overall, significant price decreases in key sectors, relatively high volatility, the potential decoupling of financial market performance and underlying economic activity and a steadily high level of net short positions, coupled with the uncertainty about the evolution of the COVID-19 pandemic and its impact on the real economy, signal that the EU financial markets remain in a fragile state. Such state makes it more likely that short selling pressures could initiate or exacerbate negative developments in the coming months which, in turn, can negatively affect market confidence or the integrity of the price determination mechanism.

(19)

ESMA therefore considers that the combination of the circumstances described above constitutes a serious threat to the orderly functioning and integrity of the financial markets.

(20)

As explained by the ECB in its Financial Stability Review (10), financial stability is a condition in which the financial system – which comprises financial intermediaries, markets and market infrastructures – is capable of withstanding shocks and the unravelling of financial imbalances.

(21)

The COVID-19 pandemic continues to have a severe impact on the real economy in the Union. As reported in ESMA’s TRV, notwithstanding the market rebound, the market environment remains fragile and ESMA sees, going forward, a ‘prolonged period of risk to institutional and retail investors of further – possibly significant – market corrections and (…) very high risks across the whole of the ESMA remit’ (11). In that respect, ESMA alerted the public to a potential decoupling of financial market performance and underlying economic activity.

(22)

Section 2(a) above contains further information on the performance of banking, insurance sectors and financial markets.

(23)

These widespread price decreases have put the majority of EU shares across all sectors into a situation of fragility in which further price declines not triggered by additional fundamental information could have highly detrimental consequences.

(24)

In the still uncertain situation, ESMA considers that substantial selling pressure and unusual volatility in the price of shares could be triggered by different factors, including by an increasing number of market participants engaging in short selling and building up significant net short positions.

(25)

In particular, ESMA notes that the widespread price losses for credit institutions, which constituted one of the parameters for the renewal decision taken in June, have not improved. This indicates that credit institutions, which in certain cases are systemically important, remain potentially vulnerable to short selling strategies and to the building up of significant net short positions, regardless of whether these strategies and positions are supported by fundamental information.

(26)

The risk remains that the accumulation of short selling strategies and the building up of significant net short positions could lead to disorderly downward price spirals for certain issuers, with potential spill over effects within the same Member State or across the EU, that in turn, could eventually put the financial system of one or several Member States at risk.

(27)

Notwithstanding the partial recovery observed in certain sectors of European financial markets, ESMA considers that the current market circumstances continue to seriously threaten the stability of the financial system in the Union.

(28)

Within the limit of ESMA’s mandate, the intended renewal of the measure obliges natural or legal persons who have a net short position in shares admitted to trading on a regulated market to report to national competent authorities at a lower threshold than the one established in Article 5 of Regulation (EU) No 236/2012.

(29)

The renewed measure should maintain the improved capacity of national competent authorities and ESMA to assess the evolving situation adequately, differentiate between market movements led by fundamental information from those that might be initiated or exacerbated by short selling and react if the integrity, orderly functioning and stability of the markets require more stringent actions.

(30)

Another condition for ESMA to be able to take this measure is that the identified threats have cross-border implications.

(31)

As described above, equity markets across the EU, considering both national and pan-European indices, have not fully recovered from the severe price decreases observed in March.

(32)

Given the fact that the financial markets of most EU Member States are affected by these threats, albeit to different degrees, the cross border implications remain particularly serious as the interconnectedness of EU financial markets raise the likelihood of potential spill over or contagion effects across markets in case of short selling pressure.

(33)

ESMA therefore considers that the threats to market integrity, orderly functioning and financial stability described above have cross-border implications. Due to the nature of the COVID-19 crisis, they actually have a pan-EU and global character.

(34)

Another condition for ESMA to adopt the measure in this Decision is that a competent authority or competent authorities have not taken action to address the threat or the actions that have been taken do not adequately address the threat.

(35)

The market integrity, orderly functioning and financial stability concerns described in Decision (EU) 2020/525, which remain valid for this Decision, have led some national competent authorities to take national actions aimed at restricting the short selling of shares in Spain, France, Austria, Belgium, Greece and Italy (12) that expired on 18 May.

(36)

Following the expiration or lifting of those temporary measures, no further measures based on Regulation (EU) No 236/2012 have been taken in the EU, and as of the date of this Decision there are no such measures in force.

(37)

At the time of adoption of this Decision, no competent authorities have adopted measures to increase their visibility of the evolution of net short positions through the establishment of lower reporting thresholds, as they can rely on Decision (EU) 2020/1123.

(38)

The necessity of having increased visibility of net short positions is even more acute in a context where the above mentioned restrictions imposed under Article 20 of Regulation (EU) No 236/2012 are no longer in place and the uncertainty in relation to the prolonged COVID-19 impact remains. As short selling and transactions with equivalent effect are no longer subject to other external constraints, national competent authorities across the EU need to be able to identify in advance whether net short positions are being built up to an extent which may lead to the threats to financial markets and financial stability described above manifesting themselves and being exacerbated by short selling pressure.

(39)

In light of the abovementioned pan-EU threats, it remains evident that the information received by national competent authorities under the ordinary reporting threshold set out in Article 5(2) of Regulation (EU) No 236/2012 is not sufficient under the current stressed market conditions. ESMA considers that maintaining the lower reporting threshold should ensure that all national competent authorities across the EU and ESMA have the best possible data set available to monitor market trends and prepare themselves and ESMA to take further measures, if necessary.

(40)