Transnational subsidies in the China-Egypt Suez Economic and Trade Cooperation Zone
Sara Notario , 6 décembre 2024
On 28th November 2024, the Court of Justice delivered the judgment Hengshi Egypt Fiberglass Fabrics and Jushi Egypt for Fiberglass Industry v Commission in Joined Cases C-269/23 P and C-272/23 P, adding another piece to the complex puzzle concerning the application of Regulation 2016/1037 on protection against subsidised imports from countries not members of the European Union (also known as, basic Anti-Subsidy Regulation) to transnational subsidies, which are subsidies granted by the public authorities of a third country to producers in another third country exporting to the EU (for further discussion on this issue, see Droit et contentieux de la politique commerciale commune, “Annuaire de droit de l’Union européenne”, 2022).
Hengshi and Jushi are two undertakings active in manufacturing, marketing and export of glass fibre products, in particular to the European Union, and are established in the geographical area known as the China-Egypt Suez Economic and Trade Cooperation Zone. Hengshi and Jushi are subsidiaries of parent undertakings established in China. Both parent undertakings are wholly owned and controlled by China National Building Materials Co. Ltd, which is indirectly wholly owned and controlled by the Chinese government. According to a cooperation agreement between China and Egypt, Egypt grants certain tax exemptions to undertakings owned by Chinese or China-Egypt entities established in that area. In turn, China makes available to those undertakings, directly or indirectly, financial resources in the framework of the ‘Belt and Road’ initiative.
In May and June 2019, following complaints lodged by the undertaking Tech-Fab Europe eV and the European Glass Fibre Producers Association, the European Commission initiated two investigation procedures concerning subsidies benefiting imports of glass fibre products into the EU, pursuant to Articles 10 and 11 of the basic Anti-Subsidy Regulation. In June 2020, considering that Hengshi and Jushi benefited from subsidies granted by Egypt (some of which result from the cooperation with China), the Commission adopted Commission Implementing Regulation (EU) 2020/776 and Commission Implementing Regulation (EU) 2020/870 imposing countervailing duties on the glass fibre products imported into the EU by Hengshi and Jushi.
After failing to have the Commission Implementing Regulation (EU) 2020/776 annulled before the General Court in Case T-480/20, Hengshi and Jushi brought an appeal (Case C-269/23 P) against the GC’s judgment. In Case C-272/23 P, Jushi also aimed at setting aside the GC’s judgments T-540/20 and T-480/20 (for a commentary on these cases, see here), by which the GC dismissed Jushi’s annulment action against Commission Implementing Regulation (EU) 2020/870.The appellants submitted, inter alia, that the Commission interpreted incorrectly Regulation 2016/1037 by considering, first, that certain financial contributions granted by China should also be regarded as subsidies granted by Egypt and, second, that certain financial contributions granted by China constituted specific subsidies under the Regulation. Moreover, the appellants argued that the Commission did not take into account the Agreement on Subsidies and Countervailing Measures for the purpose of interpreting that regulation.
On the plea concerning the misunderstanding of the legal relationship between the Regulation 2016/1037 and the Agreement on Subsidies and Countervailing Measures included in the Agreement establishing the World Trade Organisation (WTO) by the GC, the Court of Justice recalled that, for their nature and purpose, the Agreement establishing the WTO and the agreements annexed to it “do not, in principle, constitute rules in the light of which the Court is to review the legality of acts of secondary EU legislation” (Commission v Rusal Armenal, C‑21/14 P; C & J Clark International and Puma, C‑659/13 and C‑34/14; Changmao Biochemical Engineering v Commission, C‑123/21 P). However, this does not apply in two exceptional cases: first, when the EU intended to implement a particular obligation assumed through those WTO agreements in its secondary law; second, when the secondary law refers explicitly to those agreements (Commission v Rusal Armenal, C‑21/14 P;C & J Clark International and Puma, C‑659/13 and C‑34/14;Changmao Biochemical Engineering v Commission, C‑123/21 P). In the present case, none of the relevant provisions of Regulation 2016/1037 concerns one of the two exceptions mentioned above. Therefore, the GC erred in law when it held that the said regulation was intended to implement a particular obligation stemming from WTO agreements.
Nonetheless, the Court added that, since it is settled case-law that the primacy of international agreements concluded by the EU over EU secondary acts requires a consistent interpretation between the two (Philips Lighting Poland and Philips Lighting v Council, C‑511/13 P; Commission v Hubei Xinyegang Special Tube, C‑891/19 P) and, in absence of interpretation of those agreements by the WTO Dispute Settlement Body (DSB), it is for the Court to interpret the Agreement on Subsidies and Countervailing Measures in accordance with rules of customary international law binding upon the EU (Commission v Hungary (Higher education), C‑66/18; Commission v Hubei Xinyegang Special Tube, C‑891/19 P). In its interpretation, the Court considered that the GC did not err in law in holding that Article 2(a) and (b) and Article 3(1)(a) of Regulation 2016/1037 must be interpreted as allowing the Commission “to apply the legal classification of ‘subsidy’ to a financial contribution coming from, in whole or in part, the government of a third country other than the country of origin or export of a given product, where it is shown that that financial contribution may be considered to have been granted by the government of that country of origin or export, having regard to its own conduct.”
Moreover, the Court confirmed the interpretation of the GC, which held that Egyptian authorities could be classified by the Commission as authorities granting the subsidies at issue within the meaning of the Article 4 of the Regulation.
The Court also confirmed that the GC relied on a correct assessment in finding that the measure at issue was de facto specific and the existence of a subsidy of a specific nature conferring a benefit on Hengshi and Jushi, within the meaning of Article 3(2) and 4(2)(c) of Regulation 2016/1037.
In conclusion, the Court of Justice dismissed the appeals brought by Hengshi and Jushi confirming the interpretation made by the GC of Regulation 2016/1037. This case provides further clarifications on the application of the Regulation to transnational subsidies, in a manner that is consistent with international agreements to which the EU is party, in an evolving geopolitical scenario affecting directly the conduct of the Common Commercial Policy of the European Union.
Reproduction autorisée avec la référence suivante : Sara Notario, Transnational subsidies in the China-Egypt Suez Economic and Trade Cooperation Zone, actualité n° 33/2024, publiée le 6 décembre 2024, par le Centre d’études juridiques européennes, disponible sur www.ceje.ch;