(1)

Directive (EU) 2021/338 of the European Parliament and of the Council (2) sets out amendments to Article 57 of Directive 2014/65/EU as regards position management controls.

(2)

In accordance with those amendments to Article 57 of Directive 2014/65/EU, trading venues which trade commodity derivatives have to have in place and apply effective position management controls to prevent and address disorderly trading, support orderly pricing and settlement conditions and ensure the efficiency of markets.

(3)

Effective position management controls include for example legal arrangements to obtain and use data of end position holders and parent undertakings as well as technical arrangements, such as reports and metrics to construct for example a position dashboard. Therefore, effective position management controls should be closely intertwined with and rely on the ongoing monitoring by the trading venue.

(4)

In order to ensure that the price discovery process is not unduly influenced by the existence of a position and to identify the build-up of concentrations of positions that could result in price distortion, market manipulation or other abusive trading practices, trading venues should be aware of large positions held by end position holders and parent undertakings in physically settled commodity derivatives and the reasons for holding those positions. As the actual supply of the underlying physical commodity is restricted to a finite supply, physically settled commodity derivatives are more susceptible to disorderly trading practices such as market squeezes or market cornering where counterparties would make use of a dominant position to secure the price of a commodity derivative, or of the underlying commodity, at an artificial level. Therefore, large positions should be identified in commodity derivatives that are physically settled by design as well as in commodity derivatives that can be physically settled at the option of the buyer or the seller.

(5)

The determination of what constitutes a large position should be made by trading venues taking into account the size and composition of the market in question. For that purpose, trading venues should establish qualitative or quantitative criteria that are used to identify such large exposures and should have procedures in place to identify all positions held by any person which exceed such pre-determined accountability levels. Quantitative and qualitative criteria could be, amongst others, the size of the total open interest in the commodity derivative, the share of the position of the position holder, the volatility of the markets and the characteristics of the underlying commodity market. Where such levels are exceeded, the trading venue should seek to understand the rationale for the build-up of that large position. To that end, the trading venue should assess whether it needs to request additional information from the person holding that large position, considering in particular how frequently the positions held by that person exceed the accountability levels and the extent to which the accountability levels are exceeded. Such information could include, amongst other, positions in related products, the economic reason for the open position and the activity in a related underlying commodity market. Based on the information already available or gathered through the request for information, the trading venue should take appropriate actions where necessary.

(6)

It is important that the accountability levels set remain adequate and effective to serve their intended purpose and that the competent authority is informed of the methodology used for setting and updating those accountability levels.

(7)

This Regulation is based on the draft regulatory technical standards submitted to the Commission by the European Securities and Markets Authority.

(8)

The European Securities and Markets Authority has conducted open public consultations on the draft regulatory technical standards on which this Regulation is based, analysed the potential related costs and benefits and requested the advice of the Securities and Markets Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1095/2010 of the European Parliament and of the Council (3),

(1)

Directive (EU) 2021/338 of the European Parliament and of the Council (2) sets out amendments to Article 58 of Directive 2014/65/EU as regards position reporting.

(2)

In accordance with those amendments to Article 58 of Directive 2014/65/EU, position reporting is no longer to apply to securities referred to in Article 4(1), point 44, point (c), of that Directive, which relate to a commodity or an underlying as referred to in Section C.10 of Annex I to that Directive. Therefore, references to those categories of derivatives in the implementing technical standards laid down in Commission Implementing Regulation (EU) 2017/1093 (3) should be deleted.

(3)

Implementing Regulation (EU) 2017/1093 should therefore be amended accordingly.

(4)

This Regulation is based on the draft implementing technical standards submitted to the Commission by the European Securities and Markets Authority.

(5)

The European Securities and Markets Authority has conducted open public consultations on the draft implementing technical standards on which this Regulation is based, analysed the potential related costs and benefits and requested the advice of the Securities and Markets Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1095/2010 of the European Parliament and of the Council (4),

(1)

Commission Delegated Regulation (EU) 2020/1226 (2) specifies the information that securitisation parties have to provide to the European Securities and Markets Authority (ESMA) in accordance with the simple, transparent and standardised (STS) notification requirements for traditional true sale securitisations laid down in Articles 19 to 22 and Articles 23 to 26 of Regulation (EU) 2017/2402.

(2)

Regulation (EU) 2021/557 of the European Parliament and of the Council (3) amended Regulation (EU) 2017/2402 by extending the STS securitisation framework to on-balance-sheet synthetic securitisations. Accordingly, it is necessary to specify the information that originators have to submit to ESMA to comply with the STS notification requirements for on-balance-sheet synthetic securitisations.

(3)

To provide investors, potential investors and competent authorities with a comparative overview of all types of STS securitisations, it is appropriate to ensure consistency across all the STS notifications. Therefore, the information that originators must submit regarding compliance with the STS requirements set out in Articles 26b to 26e of Regulation (EU) 2017/2402 should follow similar standards and level of detail as those set forth in Annexes I, II and III to Delegated Regulation (EU) 2020/1226. In particular, a simple confirmation of compliance is sufficient for some criteria, while others require additional information. It is therefore necessary to distinguish between those STS criteria for which a simple confirmation is sufficient and those for which a concise explanation or a detailed explanation is necessary.

(4)

On-balance-sheet synthetic securitisations where no prospectus must be drawn up in accordance with Regulation (EU) 2017/1129 of the European Parliament and of the Council (4) allow parties to enter into securitisation transactions without disclosing sensitive commercial information. It is therefore appropriate to restrict the information to be published of the STS notifications of such securitisations to non-sensitive commercial information.

(5)

To facilitate access to information relevant to the STS requirements, originators should be allowed to refer to any relevant prospectus drawn up for an on-balance-sheet synthetic securitisation in accordance with Regulation (EU) 2017/1129 or other relevant underlying documentation as referred to in Article 7(1), point (b) of Regulation (EU) 2017/2402. Additionally, originators should be allowed to refer to any other document relating to the investors and originators, the credit protection agreement, the third-party verification agent and, where available, the transaction documentation backing the credit linked notes.

(6)

In order to improve the transparency and consistency of information between interrelated fields and to clarify specific features of certain securitisations, including master trust securitisations, it is necessary to clarify the information to be reported under the columns ‘Field name’ and ‘Content to be reported’ for certain fields in Annexes I, II and III to Delegated Regulation (EU) 2020/1226.

(7)

Delegated Regulation (EU) 2020/1226 should therefore be amended accordingly.

(8)

This Regulation is based on the draft regulatory technical standards submitted to the Commission by ESMA.

(9)

ESMA has conducted open public consultations on the draft regulatory technical standards on which this Regulation is based, analysed the potential related costs and benefits and requested the advice of the Securities and Markets Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1095/2010 of the European Parliament and of the Council (5),

(1)

Directive (EU) 2021/338 of the European Parliament and of the Council (2) provides for amendments to Article 57 of Directive 2014/65/EU as regards, among other things, position limits, which also include new related empowerments.

(2)

In order to improve the stability and integrity of financial markets in the Union, a methodology should be specified for calculating position limits to commodity derivatives in a harmonised manner. The methodology should prevent regulatory arbitrage and promote consistency whilst providing competent authorities with sufficient flexibility to take into account the variations among different commodity derivatives markets and the markets in the underlying commodities. The methodology for calculating the limits should allow competent authorities to balance the objectives of setting limits at a level sufficiently low to prevent persons holding positions in those commodity derivatives from abusing or distorting the market against the objectives of supporting orderly pricing and settlement arrangements, developing new commodity derivatives and enabling commodity derivatives to continue to support the functioning of commercial activities in the underlying commodity market.

(3)

A number of concepts stemming from Directive 2014/65/EU and technical terms used in this Regulation should be defined to ensure a uniform understanding.

(4)

Long and short positions of market participants in a given commodity derivative should be netted off against each other to determine the effective size of a position a market participant controls at any point in time. The size of a position held through an option contract or a commodity derivative traded on the same trading venue that is a sub-set of the principal contract should be calculated on a delta equivalent basis. To allow for a comprehensive, centralised and representative overview of a person’s activity, and to prevent circumventing the objective of the position limit set for the principal contract, the aggregate position held by a person in a commodity derivative traded on a trading venue should also include the position resulting from the disaggregation of the components of a spread contract admitted to trading as a single tradable instrument on the same trading venue and the positions in commodity derivatives traded on the same trading venue that are a sub-set of the principal contract with regards to their size (so-called minis), or pricing period maturity, such as balance-of-the-month (so-called balmos) contracts.

(5)

Directive 2014/65/EU requires that any positions held by third parties on behalf of a person is to be included in the calculation of that person’s position limit and for position limits to be applied at both an entity level and at a group level. It is therefore necessary to aggregate positions at a group level. It is appropriate to only provide for aggregation at the group level if a parent undertaking can control the use of positions. Accordingly, parent undertakings should aggregate positions held by their subsidiaries with any positions that the parent undertaking holds directly, in addition to the subsidiaries aggregating their own positions. Such aggregation can lead to positions calculated at the level of the parent undertaking which are larger or, due to a netting of long and short positions held by different subsidiaries, lower than at individual subsidiary level. Positions should not be aggregated at the level of the parent undertaking if the positions are held by collective investment undertakings which hold those positions on behalf of their investors rather than on behalf of their parent undertakings in cases where the parent undertaking cannot control the use of those positions for its own benefit.

(6)

The amendments set out in Directive (EU) 2021/338 require that position limits apply to critical or significant commodity derivatives that are traded on trading venues, and to their economically equivalent OTC (‘EEOTC’) contracts. Critical or significant derivatives are commodity derivatives with an open interest of at least 300 000 lots on average over a one-year period. Due to the critical importance of agricultural commodities for citizens, agricultural commodity derivatives and their EEOTC contracts remain under the position limit regime below 300 000 lots. The liquidity threshold from which position limits start to apply to agricultural commodity derivatives is to be specified in this Regulation and should only be considered as trading in significant volume on a trading venue if they exceed the liquidity threshold for a sufficient period of time.

(7)

Where an over-the-counter (‘OTC’) contract is valued on the same underlying commodity that is deliverable at the same location and with the same contractual conditions and if it is having a highly correlated economic outcome to a contract traded on a trading venue, it should be deemed economically equivalent regardless of small differences in the contractual specifications concerning the lot sizes and the date of delivery. Differences in post-trade risk management arrangements, such as clearing arrangements, should not be barriers to declaring such contracts as economically equivalent. In order to prevent inappropriate netting of potentially dominant positions traded on a trading venue by the use of bilateral arrangements in OTC contracts and to ensure an efficient operation of the position limits regime in practice, it is necessary for commodity derivatives traded OTC to be considered economically equivalent to trading venue contracts only in limited circumstances. To deter avoidance of position limits and to enhance the integrity of the position limit regime it is necessary that a definition of an economically equivalent OTC contract is narrowly framed so that it does not permit a person to net an OTC position against multiple other positions. Furthermore, discretion in the consistent choice of positions against which an OTC position is netted should be limited to the specific circumstances where such an OTC contract is economically equivalent to more than one commodity derivative traded on a trading venue in the Union.

(8)

In order to establish which positions in commodity derivatives are objectively measurable as reducing risks directly relating to commercial activity, certain criteria should be provided, including the use of the accounting definition of a hedging contract based on International Financial Reporting Standards (IFRS) rules. That accounting definition should be also available to non-financial entities even though they do not apply IFRS rules at an entity level.

(9)

Additionally, non-financial entities should be able to use risk management techniques to mitigate the overall risks arising from their commercial activity or that of their group including risks arising from several geographic markets, products, time horizons or entities (that is, macro or portfolio hedging). Likewise, financial entities within predominantly commercial groups should be able to use risk management techniques to mitigate the overall risks arising from the commercial activity of the non-financial entities of the group. When a non-financial entity or a financial entity uses macro or portfolio hedging, it may not be able to establish a one-to-one link between a specific position in a commodity derivative and a specific risk arising from the commercial activity that the commodity derivative is intended to hedge. A non-financial entity or a financial entity may also use a non-equivalent commodity derivative to hedge a specific risk arising from commercial activity of the non-financial entity where an identical commodity derivative is not available or where a more closely correlated commodity derivative does not have sufficient liquidity (that is, proxy hedging). In such cases, risk management policies and systems should be able to prevent non-hedging transactions from being categorised as hedging and should be able to provide for a sufficiently disaggregate view of the hedging portfolio so that speculative components are identified and counted towards the position limits. Positions should not qualify as reducing risks related to commercial activity solely on the grounds that they have been included as part of a risk-reducing portfolio on an overall basis.

(10)

A risk may evolve over time and, in order to adapt to the evolution of the risk, commodity derivatives initially executed for reducing risk related to commercial activity may have to be offset through the use of additional commodity derivative contracts that close out those commodity derivative contracts that have become unrelated to the commercial risk. Additionally, the evolution of a risk that has been addressed by the entering into of a position in a commodity derivative for the purpose of reducing risk should not subsequently give rise to the re-evaluation of that position as not being a privileged transaction from the beginning.

(11)

Financial and non-financial entities should be able to apply for the exemption in relation to hedging of commercial activities before entering into a position. The application should give the competent authority a clear and concise overview of the commercial activities of the non-financial entities in respect of an underlying commodity that are intended to be hedged, the associated risks and how commodity derivatives are utilised to mitigate those risks. Position limits apply at all times to agricultural commodity derivatives and to critical or significant commodity derivatives, and should the exemption ultimately not be granted by the competent authority, the financial or the non-financial entity, as the case may be, should reduce any position in excess of a limit accordingly and could face supervisory measures in respect of a breach of a limit. Financial and non-financial entities should re-assess their activities periodically to ensure that the continued application of the exemption is justified.

(12)

Financial and non-financial entities should be able to apply for the exemption in relation to positions resulting from the mandatory provision of liquidity on trading venues before those transactions are undertaken. The application should give the competent authority a clear and concise overview of the mandatory liquidity provision framework under which those persons operate, the person’s activities in the trading of commodity derivatives in accordance with the written agreement entered into with the trading venue and of the resulting open positions. Position limits apply at all times to agricultural commodity derivatives and to critical or significant commodity derivatives, and should the exemption ultimately not be granted by the competent authority, the non-financial or financial entity should reduce any position in excess of a limit accordingly and could face supervisory measures in respect of a breach of a limit. Non-financial and financial entities should re-assess their activities periodically to ensure that the continued application of the exemption is justified.

(13)

The spot month period, which is the time period immediately before delivery at expiry, is specific to each commodity derivative and may not correspond to exactly one month. Spot month contracts should therefore refer to the contract that is the next contract in that commodity derivative to mature. Restricting the positions a person may hold in the period during which delivery of the physical commodity is to be made limits the quantity of the underlying deliverable supply each person may make or take delivery of, thereby preventing the accumulation of dominant positions by individuals which may enable them to squeeze the market through restricting access to the commodity. The standard baseline for the spot month position limit for both physically and cash settled commodity derivatives should therefore be computed as a percentage of the deliverable supply estimate. Competent authorities should be able to implement a schedule of decreasing position limits ranging from the point in time when a contract becomes a spot month contract until maturity in order to more precisely ensure that position limits are adequately set throughout the spot month period and to ensure orderly settlement.

(14)

Where there is relatively little derivative trading compared with the deliverable supply of a commodity, open interest will be smaller in comparison with deliverable supply. In such circumstances, even using the lowest percentage of the deliverable supply in the methodology may not allow the competent authorities to set a spot month limit that is consistent with the objective of ensuring orderly pricing and settlement conditions and preventing market abuse. To ensure that those objectives are met in all circumstances, when the deliverable supply for a commodity derivative is substantially higher than the total open interest to such extend that the spot month limit based on deliverable supply would deprive the requirement for competent authorities to apply position limits of any effect, competent authorities should, as a fall back methodology, determine the baseline figure for the spot month limit in that commodity derivative as a percentage of the total open interest in that commodity derivative and then proceed with the relevant adjustment factors.

(15)

Crops in agricultural products can be subject to high volatility due to weather conditions. It is therefore appropriate that the reference period for the determination of deliverable supply in agricultural commodity derivatives extends beyond the reference period used for the determination of deliverable supply in other commodity derivatives.

(16)

The other months’ position limit is applied across all maturities other than the spot month. The standard baseline for the other months’ position limits for both physically and cash settled commodity derivatives should be computed as a percentage of the total open interest. The distribution of positions across the other months’ of a commodity contract is often concentrated in the months closest to maturity. Therefore, total open interest provides a more appropriate baseline for setting position limits than using a figure averaged across all maturities. As open interest may change significantly over a short period of time, the open interest should be calculated by the competent authorities over a period of time that adequately reflects the commodity derivative trading characteristics. That reference period should notably account for seasonality of trading of a contract.

(17)

To ensure that the position limits established by competent authorities are based on a comprehensive representation of the overall open positions held in a commodity derivative, the open interest calculated by the competent authority should include both the outstanding positions on the trading venue where the commodity derivative is traded and the outstanding positions in economically equivalent OTC contracts reported to the competent authority.

(18)

The standard baseline of 25 % of deliverable supply and of open interest has been set with reference to the experience of other markets and other jurisdictions. The baseline should be adjusted by competent authorities to enable it to be reduced to 5 % of deliverable supply and open interest, or 2,5 % in the case of some agricultural commodity derivatives, and to be increased up to 35 % of deliverable supply and open interest should the characteristics of the market require it in order to support the orderly settlement and functioning of the contract and its underlying market. Since any adjustment to the baseline figure applies only where, and for so long as, objective characteristics of the market require it, temporary adjustments to the baseline should be therefore possible. Competent authorities should ensure that an adjustment downwards of the baseline is effected whenever it is necessary to prevent dominant positions and to support orderly pricing in the commodity derivative and in the underlying commodity. For derivatives without a tangible underlying the deliverable supply cannot be used to establish a position limit. Therefore, competent authorities should be able to enhance or adjust the methodologies to determine position limits for these commodity derivatives based on different parameters like the use of open interest also for the spot month.

(19)

There may be circumstances where a commodity derivative newly admitted to trading on a trading venue was formerly traded on one or more trading venues in the Union or in third countries. In order to allow for the smooth transfer of the commodity derivative the open interest in the commodity derivative formerly traded on the other trading venue(s) should be taken into account by the competent authority when establishing the initial position limits for the newly admitted to trading commodity derivative. Other circumstances may arise, for example, where two commodity derivatives are traded on the same trading venue and due to a slight difference in their characteristics, such as a change in the underlying index or bidding zone, the open interest in the older contracts is expected to quickly move to the more recent contract. When establishing the position limits for the more recent contract, the competent authority should take into account the open interest in the older contract to allow for the smooth development of the more recent contract.

(20)

Certain commodity derivatives, in particular based on power and gas, provide that the underlying be delivered constantly over a specified period of time such as day, month, or year. Moreover, certain contracts with longer delivery periods such as year or quarter may be automatically substituted by related contracts of shorter delivery periods such as quarter or month (so-called cascading contracts). In those cases, a spot month position limit for the contract to be substituted prior to delivery would be inappropriate, as such limit would not cover the expiry and physical delivery or cash settlement of the contract. To the extent that delivery periods of contracts for the same underlying overlap, a single position limit should apply to all the related contracts in order to properly take into account the positions across those contracts which may potentially be delivered. To facilitate that, related contracts should be measured in units of the underlying and aggregated and netted accordingly.

(21)

For certain agricultural commodity derivatives, which have a material impact on consumer food prices, the methodology should enable a competent authority to set a baseline and position limit beneath the minimum of the general range, where it finds evidence of speculative activity impacting significantly on prices.

(22)

The competent authority should assess whether the factors listed under Article 57(3) of Directive 2014/65/EU necessitate adjustment of the baseline in order to set the final level of the position limit. The assessment should take into account those factors as relevant for the particular commodity derivative in question. The methodologies should provide a direction of how to set the limit without taking away the ultimate decision on an appropriate position limit for a commodity derivative from the competent authority in order to prevent market abuse. The factors should give important indications to the competent authorities and to the European Securities and Markets Authority, to facilitate forming their opinions and ensuring an adequate alignment of position limits across the Union.

(23)

Position limits should not create barriers to the development of new agricultural commodity derivatives and should not prevent less liquid sections of the agricultural commodity derivative markets from working adequately. The methodology should take into account the time required to develop and attract liquidity to both new and existing commodity derivatives and, in particular, for agricultural commodity derivatives that may support risk management in bespoke or immature markets or seek to develop new hedging arrangements in new commodities. Equally, there are agricultural commodity derivative contracts which may never attract sufficient participants or liquidity to enable the effective application of position limits without the risk of participants regularly and inadvertently breaching the limit and consequently disrupting the pricing and settlement of those commodity derivatives. In order to address those risks to the efficient functioning of markets, the position limit for the spot month and for other months should be set at a fixed level of 10 000 lots until the open interest in the agricultural commodity derivative exceeds a threshold of 20 000 lots.

(24)

The number, composition and role of market participants in a commodity derivative can influence the nature and the size of positions that certain market participants hold in the market. For some commodity derivatives, certain market participants might hold a large position which reflects their role in the buying and selling of, and the delivery of, the commodity when they are on the opposite side of the market to the majority of other market participants providing liquidity or risk management services for the underlying commodity market.

(25)

The supply, use, access to, and availability of the underlying commodity are characteristics of the underlying commodity market. Through the assessment of more granular components of those characteristics, such as perishability of the commodity and method of transportation, the competent authority should be able to determine the flexibility of the market and adjust position limits appropriately.

(26)

There may be a large discrepancy between open interest and deliverable supply for some commodity derivatives. That may occur where there is relatively little derivative trading compared with the deliverable supply, in which case open interest will be smaller in comparison with deliverable supply, or, for example, where a particular commodity derivative is widely used to hedge many different risk exposures and deliverable supply is therefore smaller in comparison with open interest. Such significant discrepancies between open interest and deliverable supply justify adjustments from the baseline applicable to the other months’ limit upwards or downwards, in order to avoid a disorderly market when the spot month approaches. More specifically, when open interest is significantly higher than deliverable supply, the other months’ limit should be adjusted downwards to avoid a cliff-edge effect with the spot month limit that is based on deliverable supply. It would not be appropriate to adjust the spot month limit upward in such circumstances considering the risk of market cornering. When deliverable supply is significantly higher than open interest, the other months’ limit should be adjusted upwards to avoid the risk of unduly constraining trading. As deliverable supply is significantly higher than open interest, the spot month limit based on deliverable supply that results from the baseline is expected to exceed the open positions held by market participants in the spot month. To ensure that the spot month limit does prevent market participant to build a dominant position and that the objectives of preventing market abuse and ensuring orderly pricing, as required by Article 57(1) of Directive 2014/65/EU, are effectively achieved, the spot month limit should, on the contrary, be adjusted downwards when based on deliverable supply.

(27)

With the same objective of limiting disorderly markets as the spot month approaches because of large discrepancies between calculations of deliverable supply and open interest, deliverable supply should be defined to include any substitute grades or types of a commodity that can be delivered in settlement of a commodity derivative contract under the terms of that contract.

(28)

Article 57(1), (3) and (12) of Directive 2014/65/EU empowers the Commission to adopt the methodology for the calculation and application of position limits in order to establish a harmonised position limits regime across commodity derivatives traded on trading venues and EEOTC contracts. Article 57(1) requires a methodology for calculation that competent authorities are to apply in establishing position limits for commodity derivatives. Article 57(1) also requires the determination of a procedure for applying for the liquidity provision exemption and for the risk reducing exemption for financial entities, that are part of a predominantly commercial group. Article 57(3) requires the specification of how competent authorities should take into account factors when establishing the spot month position limits and other months’ position limits for physically settled and cash settled commodity derivatives. Article 57(12) requires the determination of how the position limits methodology should be applied, for example, in the aggregation of positions within a group, when a position may be qualified as reducing risk or when a firm may use a hedging exemption. The content of the rules is substantively linked, since they are closely related to the methodology for establishing position limits. In the interests of simplicity and transparency, as well as to facilitate the application of the rules and avoid duplication, they should be laid down in a single act rather than in a number of cross-referenced separate acts.

(29)

This Regulation is based on the draft regulatory technical standards submitted to the Commission by the European Securities and Markets Authority.

(30)

The European Securities and Markets Authority has conducted open public consultations on the draft regulatory technical standards on which this Regulation is based, analysed the potential related costs and benefits and requested the advice of the Securities and Markets Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1095/2010 of the European Parliament and of the Council (3).

(31)

Commission Delegated Regulation (EU) 2017/591 (4) supplements Directive 2014/65/EU with regard to regulatory technical standards for the application of position limits to commodity derivatives. This Regulation replaces that Delegated Regulation, taking into account the amendments of Directive 2014/65/EU brought by Directive (EU) 2021/338, which set out new provisions regarding hedging exemptions for liquidity provisioning and for financial entities that are part of a predominantly non-financial group, empowering the Commission to adopt a delegated act specifying the criteria for liquidity provision exemption and for the risk-reducing exemption for financial entities. Furthermore, the notion of ‘same commodity contract’ was deleted and securities derivatives no longer in scope. Finally, the calculation of open interest was clarified and the methodology for new and less liquid agricultural commodity derivative contracts was simplified. Therefore, Delegated Regulation (EU) 2017/591 should be repealed and replaced by this Regulation,

(1)

Article 5 of Regulation (EU) 2019/787 provides for the definition of and the requirements for ethyl alcohol of agricultural origin, also referred to by the industry as agricultural alcohol, neutral alcohol or rectified alcohol. That technical definition and those requirements have been carried over without any substantial change from those laid down in point 1 of Annex I to Regulation (EC) No 110/2008 of the European Parliament and of the Council (2).

(2)

The definition and the requirements for ethyl alcohol of agricultural origin provided for in Article 5 of Regulation (EU) 2019/787 result however partly outdated from a technical and scientific point of view. In particular, the maximum levels of certain residues need to be brought in line with the technical parameters currently used by the industry and by most laboratories of analysis. The technological progress in this field justifies thus the need for an amendment of that definition and those requirements.

(3)

The references to ‘total acidity’, ‘volatile bases containing nitrogen’ and ‘dry extract’ provided for in Article 5, point (d)(i), (vi) and (vii), of Regulation (EU) 2019/787 are no longer relevant as they are not normally used as process technical parameters, since the presence of such residues in an alcohol with a strength of 96 % by volume is negligible and it is unlikely to be found in an ethyl alcohol of agricultural origin.

(4)

Concerning ‘esters’, ‘aldehydes’ and ‘higher alcohols’, the maximum levels provided for in Article 5, point (d)(ii), (iii) and (iv), of Regulation (EU) 2019/787 lack specificity and require currently wet chemistry methods, which are not defined in Union law. A more precise definition of the substances to which the residue limits apply would improve the results of the analyses to be carried out on ethyl alcohol of agricultural origin with methods such as gas chromatography and would be beneficial for analysts since many of the older analysis techniques require the use of dangerous chemicals.

(5)

In particular, it is appropriate to limit esters to ‘ethyl acetate’ only. While many esters can be formed in the fermentation process, the one that exists in the highest concentration is ethyl acetate, while any other esters potentially present in ethyl alcohol of agricultural origin are unlikely to be detectable by employing standard analytical techniques and contribute in a negligible way to the total amount of esters. The measurement of ethyl acetate should be based on the reference method set out in Commission Regulation (EC) No 2870/2000 (3) as this is an established method currently used for the analysis of a number of spirit drinks.

(6)

Similarly, the main contributing aldehyde to the total aldehydes is ‘acetaldehyde’. It is therefore appropriate to only use acetaldehyde as the parameter in this determination. Since acetaldehyde is in equilibrium with 1,1 diethoxyethane, that is the two molecules are both present and they convert one into each other due to the chemical physical conditions, it is also necessary to count the fraction of acetaldehyde contained in the acetal. The measurement of acetaldehyde should be based on the reference method set out in Regulation (EC) No 2870/2000 as this is an established method currently used for the analysis of a number of spirit drinks.

(7)

Higher alcohols are present in substantial amounts after fermentation. However, only a small amount of higher alcohols is present in ethyl alcohol of agricultural origin since higher alcohols are easily distilled because of the higher boiling points. The measurement of the higher alcohol should be based on the reference method set out in Regulation (EC) No 2870/2000 as this is an established method currently used for the analysis of a number of spirit drinks.

(8)

Concerning ‘furfural’, the current requirement that it is not detectable refers to a wet chemistry method that is no longer used in most Member States, thus preventing uniform and defined analysis methods and results. Since currently there is no defined reference method for the analysis of furfural in ethyl alcohol of agricultural origin, it is appropriate to define a threshold that can be achieved with the different methods that are currently used in most laboratories in the Member States, that are more precise since the original inclusion of that requirement. The measurement of furfural should be based on the liquid chromatography method for wood compounds set out in Regulation (EC) No 2870/2000.

(9)

Moreover, for the sake of completeness and in line with the definition of distillate of agricultural origin laid down in Article 4, point (7), of Regulation (EU) 2019/787, it is appropriate to provide that ethyl alcohol of agricultural origin is the result of the distillation, after alcoholic fermentation, of agricultural products.

(10)

Regulation (EU) 2019/787 should therefore be amended accordingly,

(1)

Pursuant to the first subparagraph of Article 53(1) of Regulation (EU) No 1151/2012, the Commission has examined Czechia’s application for the approval of amendments to the specification for the protected geographical indication ‘Valašský frgál’, registered under Commission Implementing Regulation (EU) No 1263/2013 (2).

(2)

Since the amendments in question are not minor within the meaning of Article 53(2) of Regulation (EU) No 1151/2012, the Commission published the amendment application in the Official Journal of the European Union (3) as required by Article 50(2)(a) of that Regulation.

(3)

As no statement of opposition under Article 51 of Regulation (EU) No 1151/2012 has been received by the Commission, the amendments to the specification should be approved,

(1)

Anti-dumping measures on imports of molybdenum wire from the People’s Republic of China (the ‘PRC’ or ‘China’ or ‘the country concerned’) were originally imposed in 2010 by Council Implementing Regulation (EU) No 511/2010 (2) (‘the original measures‘). The investigation leading to the original measures is referred to as ‘the original investigation’. The original measures took the form of an ad valorem duty rate of 64,3 %.

(2)

In 2012 and 2013, following two anti-circumvention investigations, the original measures were first extended to imports of molybdenum wire consigned from Malaysia (3) and, secondly, to imports of molybdenum wire from the PRC containing by weight at least 97 % of molybdenum, of which the maximum cross-sectional dimension exceeds 1,35 mm but does not exceed 4,0 mm (4). On 30 October 2015, following a third anti-circumvention investigation, the measures were extended to molybdenum wire containing by weight at least 97 % of molybdenum, with a maximum cross-sectional dimension that exceeds 4,0 mm but does not exceed 11,0 mm (5).

(3)

The measures currently in force were imposed on 30 June 2016, by Commission Implementing Regulation (EU) 2016/1046 (6) following an expiry review (‘previous expiry review’).

(4)

Following the publication of a notice of impending expiry (7), the European Commission (‘the Commission’) received a request for a review pursuant to Article 11(2) of the basic Regulation.

(5)

The request was submitted on 23 March 2021 by Plansee SE (‘the applicant’), that represents more than 25 % of the total Union production of certain molybdenum wires, on behalf of the Union industry of molybdenum wire, in the sense of Article 5(4) of the basic Regulation. The request for review was based on the grounds that the expiry of the measures would be likely to result in continuation or recurrence of dumping and recurrence of injury to the Union industry.

(6)

Having determined, after consulting the Committee established by Article 15(1) of the basic Regulation, that sufficient evidence existed for the initiation of an expiry review, on 28 June 2021 the Commission initiated an expiry review with regard to imports into the Union of molybdenum wire originating in the PRC on the basis of Article 11(2) of the basic Regulation. It published a Notice of Initiation in the Official Journal of the European Union (8) (‘the Notice of Initiation’).

(7)

The investigation of continuation or recurrence of dumping covered the period from 1 January 2020 to 31 December 2020 (‘review investigation period’). The examination of trends relevant for the assessment of the likelihood of a continuation or recurrence of injury covered the period from 1 January 2017 to the end of the review investigation period (‘the period considered’).

(8)

In the Notice of Initiation, interested parties were invited to contact the Commission in order to participate in the investigation. In addition, the Commission specifically informed the applicant as well as the second known Union producer, known users and the authorities of the PRC, about the initiation of the expiry review and invited them to participate.

(9)

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

(10)

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

(11)

In the Notice of Initiation, the Commission did not apply sampling but invited the two known Union producers, namely Plansee SE and Osram GmbH, to provide questionnaire replies within the specified period.

(12)

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

(13)

No importers came forward to provide the information requested in the Notice of Initiation.

(14)

To decide whether sampling was necessary and, if so, to select a sample, the Commission asked all known producers of molybdenum wire in the PRC to provide the information specified in the Notice of Initiation. In addition, it asked the Mission of the People’s Republic of China to the European Union to identify other producers, if any, that could be interested in participating in the investigation. However, no response was provided.

(15)

Consequently, the Commission informed the authorities of the PRC that absent cooperation it intended to resort to the use of facts available under Article 18 of the basic Regulation when examining the continuation or recurrence of dumping. The authorities of the PRC did not respond.

(16)

Questionnaires for Union producers, as well as those for importers, users and producers in the PRC were made available online on the day of the initiation.

(17)

The Commission sent a questionnaire concerning the existence of significant distortions in the PRC within the meaning of Article 2(6a)(b) of the basic Regulation to the Government of the People’s Republic of China (‘GOC’).

(18)

A questionnaire reply was received from one Union producer, Plansee SE, which is also the applicant and represents [86-94 %] of the total sales of the Union industry on the Union market.

(19)

On 24 June 2021, the sole other Union producer expressed the wish to remain neutral in the investigation and did not provide a reply to the questionnaire.

(20)

Neither the GOC nor any producer in the PRC provided a questionnaire reply.

(21)

A macroeconomic questionnaire was also sent to Plansee SE on 15 November 2021, to which the reply was received by the Commission on 29 November 2021.

(22)

The Commission sought and verified all the information deemed necessary for the determination of likelihood of continuation or recurrence of dumping and injury and of the Union interest. One verification visit pursuant to Article 16 of the basic Regulation was carried out at the premises of the Union producer Plansee SE, Austria.

(23)

On 9 June 2022, the Commission disclosed the essential facts and considerations on the basis of which it intended to maintain the anti-dumping duties in force.

(24)

All parties were granted a period within which they could make comments on the disclosure. No comments were received.

(25)

The product under review is the same as in in the original investigation and previous expiry review, namely molybdenum wire, containing by weight at least 99,95 % of molybdenum, of which the maximum cross-sectional dimension exceeds 1,35 mm but does not exceed 4,0 mm, falling under CN code ex 8102 96 00 (‘product under review’).

(26)

The product under review originating in the PRC, not consigned from Malaysia, currently falls under TARIC code 8102960019. The product under review consigned from Malaysia, whether declared as originating in Malaysia or not, currently falling under TARIC code 8102960011, was not investigated as it was not part of the product definition in the original investigation.

(27)

Molybdenum wire is mainly used in the automotive industry, for example in synchronising rings of cars with manual gearboxes.

(28)

As established in the original investigation, the product under review and the like product are identical in terms of physical, chemical and technical characteristics, as well as in the previous expiry review. This expiry review investigation confirmed that the following products have the same basic physical, chemical and technical characteristics as well as the same basic uses:

(29)

These products are therefore considered to be like products within the meaning of Article 1(4) of the basic Regulation.

(30)

During the review investigation period, imports of molybdenum wires from the PRC continued albeit at lower levels than in the review investigation period of the previous expiry review.

(31)

As mentioned in recital (20), no producer from the PRC cooperated in the investigation.

(32)

Therefore, on 16 July 2021 the Commission informed the authorities of the PRC that due to the absence of cooperation, the Commission may apply Article 18 of the basic Regulation concerning the findings with regard to the PRC. The Commission did not receive any comments concerning its intention to resort to the use of facts available under Article 18 of the basic Regulation.

(33)

Consequently, in accordance with Article 18(1) of the basic Regulation, the findings in relation to the likelihood of continuation or recurrence of dumping were based on facts available, in particular the information contained in the request for the expiry review combined with other sources of information, such as statistics on imports and exports (Comext (Eurostat)), Dun & Bradstreet (9), Global Trade Atlas (‘GTA’) (10).

(34)

Given the sufficient evidence available at the initiation of the investigation tending to show with regard to the PRC the existence of significant distortions within the meaning of point (b) of Article 2(6a) of the basic Regulation, the Commission initiated the investigation on the basis of Article 2(6a) of the basic Regulation.

(35)

In order to obtain information, it deemed necessary for its investigation with regard to the alleged significant distortions, the Commission sent a questionnaire to the GOC. In addition, in point 5.3.2 of the Notice of Initiation, the Commission invited all interested parties to make their views known, submit information and provide supporting evidence regarding the application of Article 2(6a) of the basic Regulation within 37 days of the date of publication of the Notice of Initiation in the Official Journal of the European Union.

(36)

No questionnaire reply was received from the GOC and no submission on the application of Article 2(6a) of the basic Regulation was received within the deadline. Subsequently, on 16 July 2021 the Commission informed the GOC that it would use facts available in accordance with Article 18 of the basic Regulation for the determination of the existence of the significant distortions in the PRC.

(37)

In point 5.3.2 of the Notice of Initiation, the Commission specified that, in view of evidence available at the time of initiation, a possible representative country for the purpose of determining the normal value based on undistorted prices or benchmarks pursuant to Article 2(6a)(a) of the basic Regulation for the PRC was Turkey. The Commission further stated that it would examine other possibly appropriate representative countries in accordance with the criteria set out in Article 2(6a)(a) fist indent of the basic Regulation.

(38)

On 10 March 2021, the Commission issued the first note for the file (‘the First Note’) and informed interested parties on the relevant sources it intended to use for the determination of the normal value. In that note, the Commission provided a list of all factors of production such as raw materials, labour and energy used in the production of molybdenum wires. With regard to the choice of a representative country the Commission noted that the product under review was only produced in a handful of countries worldwide (11) and that only Thailand was identified as a country with the same level of economic development as the PRC. However, with regard to Thailand, sufficient information on company level necessary to establish selling, general and administrative expenses (SG&A) and profit was not readily available.

(39)

Given that neither the Commission, nor the applicant, could identify a representative country with the same level of economic development as the PRC where the product under review was produced and for which all necessary information was readily available, the Commission attempted to find a suitable representative country with the same level of economic development as the PRC where there was production of a similar product, in the same general category or sector, but was unable to identify any such product. In addition, no interested party had suggested a suitable representative country with the same level of economic development as the PRC where there was production of the product under review, or production of a similar product. The Commission therefore exceptionally suggested in the First Note, in addition to Thailand, also India as a possible source to establish undistorted prices and costs and invited interested parties to comment. Only the applicant commented on this note.

(40)

On 29 October 2021, by a second note (‘the Second Note’), the Commission informed the interested parties on the relevant sources it intended to use for the determination of the normal value, with India as an appropriate source and invited interested parties to comment. No comments were received.

(41)

According to Article 2(1) of the basic Regulation, “the normal value shall normally be based on the prices paid or payable, in the ordinary course of trade, by independent customers in the exporting country”.

(42)

However, according to Article 2(6a)(a) of the basic Regulation, “in case it is determined […] that it is not appropriate to use domestic prices and costs in the exporting country due to the existence in that country of significant distortions within the meaning of point (b), the normal value shall be constructed exclusively on the basis of costs of production and sale reflecting undistorted prices or benchmarks”, and “shall include an undistorted and reasonable amount of administrative, selling and general costs and for profits”

(43)

As further explained below, the Commission concluded in the present investigation that, based on the evidence available, and in view of the lack of cooperation of the GOC and the producers, the application of Article 2(6a) of the basic Regulation was appropriate.

(44)

In recent investigations concerning the tungsten sector in the PRC (12), the Commission found that significant distortions in the sense of Article 2(6a)(b) of the basic Regulation were present. Most producers of molybdenum products also process tungsten in their plants. Moreover, tungsten and molybdenum have similar chemical properties and industrial uses. As further discussed below, in addition to the systemic significant distortions affecting all factors of production in the PRC, the investigation revealed that in the Chinese planning and guidance documents tungsten and molybdenum are usually mentioned together. The Commission concluded in this investigation that, based on the evidence available, the application of Article 2(6a) of the basic Regulation was appropriate.

(45)

In those recent investigations on tungsten, the Commission found that there is substantial government intervention in the PRC resulting in a distortion of the effective allocation of resources in line with market principles. (13) In particular, in addition to the systemic distortions affecting the Chinese economy, the Commission concluded that in the tungsten sector, not only does a substantial degree of ownership by the GOC persists in the sense of Article 2(6a)(b), first indent of the basic Regulation (14) but the GOC is also in a position to interfere with prices and costs through State presence in firms in the sense of Article 2(6a)(b), second indent of the basic Regulation. (15) The Commission further found that the State’s presence and intervention in the financial markets, as well as in the provision of raw materials and inputs, have an additional distorting effect on the market. Indeed, overall, the system of planning in the PRC results in resources being concentrated in sectors designated as strategic or otherwise politically important by the GOC, rather than being allocated in line with market forces (16). Moreover, the Commission concluded that the Chinese bankruptcy and property laws do not work properly in the sense of Article 2(6a)(b), fourth indent of the basic Regulation, thus generating distortions in particular when maintaining insolvent firms afloat and when allocating land use rights in the PRC. (17) In the same vein, the Commission found distortions of wage costs in the tungsten sector in the sense of Article 2(6a)(b), fifth indent of the basic Regulation, (18) as well as distortions in the financial markets in the sense of Article 2(6a)(b), sixth indent of the basic Regulation, in particular concerning access to capital for corporate actors in the PRC. (19)

(46)

Like in the previous investigation concerning the tungsten sector in the PRC, the Commission examined in the present investigation on molybdenum whether it was appropriate or not to use domestic prices and costs in the PRC, in view of the existence of significant distortions within the meaning of point (b) of Article 2(6a) of the basic Regulation. The Commission did so on the basis of the evidence available on the file, including the evidence contained in the request, as well as in the Commission’s report on significant distortions in China (20) (the Report), which relies on publicly available sources. That analysis covered the examination of the substantial government interventions in the PRC’s economy in general, but also the specific market situation in the relevant sector including the product under review. The Commission further supplemented these evidentiary elements with its own research on the various criteria relevant to confirm the existence of significant distortions in the PRC as also found by its previous investigations in this respect.

(47)

The request in this case referred to the Report, in particular to the influence of the Chinese state into the non-ferrous metals including the molybdenum industry via the 13th 5-Year Plan for the Economic and Social Development of the People’s Republic of China (13th 5-Year General Plan) and the 13th 5-Year Plan for the Non-Ferrous Metals Industry (13th 5-Year Non-Ferrous Plan). Moreover, the request mentions that based on the Made in China 2025 initiative, the molybdenum industry is eligible to receive considerable state funding. The request mentions specific financial funds created by the Chinese state to support the molybdenum industry (China Development Bank, the National Integrated Circuit Fund, the Advanced Manufacturing Fund, different local funds established by the local governments and funding to support and restructure manufacturers provided by China Reform Holdings). The request further lists as an example two companies in the molybdenum industry that benefitted from state funding: Jiduicheng Molybdenum and Xiamen Tungsten, the mother company of Xiamen Honglu Tungsten.

(48)

In the molybdenum sector, a substantial degree of ownership and control by the GOC persists in the sense of Article 2(6a)(b), second indent of the basic Regulation. Many of the largest producers are owned by the State. Since there was no cooperation from Chinese producers of the product under review, the exact ratio of the private to state-owned molybdenum wire producers could not be determined. However, the investigation revealed that in the molybdenum wire sector a number of large producers are state owned enterprises (‘SOEs’). These include Jinduicheng Molybdenum, Xiamen Honglu Tungsten. Chengdu Hongbo Industrial and Luoyang Hi-tech Molybdenum & Tungsten Material.

(49)

As to the GOC being in a position to interfere with prices and costs through State presence in firms in the sense of Article 2(6a)(b), second indent of the basic Regulation, the Commission established during the investigation the existence of personal connections between producers of the product under review and the Chinese Communist Party (‘CCP’), such as CCP members among the senior management or members of the board of directors in a number of companies manufacturing the product under review. As an example, in Jinduicheng Molybdenum, the Chairman of the Board of Administrators is at the same time Party Committee Secretary, General Manager is also Party Committee Deputy Secretary and the Secretary to the Discipline Commission serves at the same time as Party Committee Deputy Secretary (21). In Xiamen Honglu Tungsten, the chairman of the board of the holding company SOE Xiamen Tungstene is a CCP member (22). Both public and privately owned enterprises in the molybdenum wire sector are subject to policy supervision and guidance.

(50)

The following examples illustrate the above trend of an increasing level of intervention by the GOC in the molybdenum wire sector. Many producers of the product under review explicitly emphasise Party building activities on their websites, have party members in the company management and underline their affiliation to the CCP. The investigation revealed Party building activities in a number of molybdenum wire producers, including Chengdu Hongbo Industrial. Another manufacturer, Jinduicheng Molybdenum, states the following on their website on the subject of party building (23): “The meeting pointed out that in 2019, the company’s Party committee conscientiously implemented the various requirements of the Party Committee of Shaanxi Non Ferrous Metals Group. (…) [the Company’s Party Committee] focussed on central work and the political leadership promoted high quality development; [and] continued to strictly control management.”

(51)

Xiamen Honglu Tungsten is another molybdenum wire producer with a Party Committee. According to the articles of association of the holding company SOE Xiamen Tungsten, Article 96: “[t]he Company establishes the Committee of the Communist Party of China of Xiamen Tungsten Industry Co., Ltd. (hereinafter referred to as the Party Committee of the Company) and the Disciplinary Inspection Committee of the Communist Party of China Xiamen Tungsten Industry Co., Ltd. (hereinafter referred to as the Disciplinary Committee of the Company).” According to Article 98 of the articles of association, “[t]he Party Committee of the company shall perform its duties in accordance with the "Party Constitution" and other intra-party regulations: (1) Ensure supervision of the principles and policies of the Party and the State, and implement the decisions and arrangements of the Party Central Committee, the State Council, the Provincial Party Committee and the Provincial Government in the company; (2) Further combine the principles of the Party’s management of cadres with the compliance with law of the selection of business managers by the board of directors […]; (3) Study and discuss the company’s reform, development and stability, major business management matters and major issues concerning the personal interests of employees, and put forward opinions and suggestions; […] (5) Strengthen the building of grass-roots Party organizations and Party members teams in the enterprise;” (24).

(52)

Furthermore, policies discriminating in favour of domestic producers or otherwise influencing the market in the sense of Article 2(6a)(b), third indent of the basic Regulation are in place in the molybdenum sector. The molybdenum industry is mentioned in a number of guiding documents, demonstrating that the companies producing molybdenum wire are subject of GOC’s support (25) This is confirmed in the numerous plans, directives and other documents focused on molybdenum, which are issued at national, regional and municipal level. Molybdenum is mentioned for example in the following documents:

Guiding Opinions on Expanding Investment in Strategic Emerging Industries and Cultivating and Strengthening New Growth Points and Growth Poles, No 1409 [2020] of the National Development and Reform Commission (27), stipulating: “Implement an action plan for innovation and development of new materials, improve the technological level of mining, smelting and deep processing of rare earths, vanadium-titanium, tungsten-molybdenum, lithium, rubidium-cesium, graphite and other specific resources”.

Molybdenum is furthermore subject to local regulation, at the provincial or municipal level. For example:

(53)

As can be seen from the above examples, the GOC guides the development of the molybdenum sector in accordance with a broad range of policy tools and directives and controls virtually every aspect in the development and functioning of the sector. Thus, the molybdenum wire industry benefits from governmental guidance and intervention concerning the main raw material, namely molybdenum oxide.

(54)

In addition to the above, the molybdenum wire producers are also beneficiaries of state subsidies, which clearly indicates the interest of the state in this sector. During the investigation, the Commission established that a number of molybdenum wire producers benefited from direct state subsidies. These include Xiamen Honglu Tungsten (31) and Luoyang Hi-tech Molybdenum & Tungsten Material (32).

(55)

In sum, the GOC has measures in place to induce operators to comply with the public policy objectives of supporting encouraged industries, including the production of molybdenum as the main raw materials used in the manufacturing of the product under review. Such measures impede market forces from operating freely.

(56)

The present investigation has not revealed any evidence that the discriminatory application or inadequate enforcement of bankruptcy and property laws according to Article 2(6a)(b), fourth indent of the basic Regulation in the sector referred to above in recital (45) would not affect the manufacturers of the product under review.

(57)

The molybdenum sector is also affected by the distortions of wage costs in the sense of Article 2(6a)(b), fifth indent of the basic Regulation, as also referred to above in recital (45). Those distortion affect the sector both directly (when producing the product under review or the main inputs), as well as indirectly (when having access to capital or inputs from companies subject to the same labour system in the PRC).

(58)

Moreover, no evidence was submitted in the present investigation demonstrating that the molybdenum sector is not affected by the government intervention in the financial system in the sense of Article 2(6a)(b), sixth indent of the basic Regulation, as also referred to above in recital (45). Therefore, the substantial government intervention in the financial system leads to the market conditions being severely affected at all levels.

(59)

Finally, the Commission recalls that in order to produce the product under review, a number of inputs is needed. When the producers of the product under review purchase or contract for these inputs, the prices paid (and which are recorded as their costs) are exposed to the same systemic distortions mentioned before. For instance, suppliers of inputs employ labour that is subject to the distortions; they may borrow money that is subject to the distortions on the financial sector/capital allocation; and they are subject to the planning system that applies across all levels of government and sectors.

(60)

As a consequence, not only the domestic sales prices of the product under review are not appropriate for use within the meaning of Article 2(6a)(a) of the basic Regulation, but all the input costs (including raw materials, energy, land, financing, labour, etc.) are also affected because their price formation is affected by substantial government intervention, as described in Parts A and B of the Report. Indeed, the government interventions described in relation to the allocation of capital, land, labour, energy and raw materials are present throughout the PRC. This means, for instance, that an input that in itself was produced in the PRC by combining a range of factors of production is exposed to significant distortions. The same applies for the input to the input and so forth.

(61)

No evidence or argument that would contradict the above-mentioned findings has been adduced by the GOC or the exporting producers in the present investigation.

(62)

In sum, the evidence available showed that prices or costs of the product under review, including the costs of raw materials, energy and labour, are not the result of free market forces because they are affected by substantial government intervention within the meaning of Article 2(6a)(b) of the basic Regulation as shown by the actual or potential impact of one or more of the relevant elements listed therein. On that basis, and in the absence of any cooperation from the GOC, the Commission concluded that it is not appropriate to use domestic prices and costs to establish the normal value in this case. Consequently, the Commission proceeded to construct the normal value exclusively on the basis of costs of production and sale reflecting undistorted prices or benchmarks in accordance with Article 2(6a)(a) of the basic Regulation, as discussed in the following section.

(63)

The choice of the representative country shall, where appropriate, be based on the following criteria pursuant to Article 2(6a) of the basic Regulation:

(64)

As explained in recitals (38)-(40) the Commission issued two notes for the file on the sources for the determination of the normal value. These notes described the facts and evidence underlying the relevant criteria, and addressed the comments received by the parties on these elements and on the relevant sources. In the Second Note, the Commission informed interested parties of its intention to consider India as an appropriate source in the present case if the existence of significant distortions pursuant to Article 2(6a) of the basic Regulation would be confirmed.

(65)

In the First Note on production factors, the Commission identified India and Thailand. Thailand is classified by the World Bank as an upper-middle income country and at the same level of economic development as the PRC according to the World Bank. However, the Commission could only identify one producer of molybdenum wire in Thailand and the necessary information on company level was not readily available. India is classified as a lower-middle income country by the World Bank. The Commission found at least 18 Indian companies with partial production of molybdenum wire and decided therefore to further assess whether, exceptionally, India could be used as a source for establishing undistorted cost and prices.

(66)

Only the applicant commented on that Note and, whilst not objecting to the use of India to establish undistorted costs and prices, claimed that also Austria, Germany and USA could be appropriate countries. However, the Commission noted that those countries are qualified by the World Bank as high-income countries. India, on the other hand is qualified as a low-middle income country and has thus a level of economic development inferior to the one of the PRC in low-middle income countries, such as India, factors of production are likely to be cheaper than in countries with a higher level of economic development, such as the PRC. This is likely to result in a normal value and therefore a dumping margin that is understated. However, since the current investigation is an expiry review where the question is whether dumping is likely to continue or recur irrespective of the actual level, the Commission considered that India could exceptionally be considered an appropriate source for the undistorted costs and prices although the ensuing calculation of normal value would likely be underestimated. In this respect, the Commission noted that the normal value established on the basis of this very conservative approach already showed significant dumping as concluded in recital (87) below. The Commission concluded that it was therefore not necessary to explore other alternatives.

(67)

The Commission carefully analysed all relevant data available in the file for the factors of production in India and noted the following:

(68)

In view of the above analysis, India was exceptionally considered as an appropriate source within the meaning of Article 2(6a)(a) of the basic Regulation for undistorted costs and prices. The Company WebFill Ltd was selected as an appropriate source for the necessary financial data. Furthermore, the Commission decided that, in order to construct the normal value, to use GTA to establish the undistorted cost for molybdenum oxide, which is the raw material necessary to produce the product under review. In addition, the Commission stated that it would use the Indian official data for establishing undistorted costs of labour (37) and energy (38)

(69)

Considering all the information based on the request and subsequent information submitted by the applicant and interested parties, the following factors of production and their sources have been identified in order to determine the normal value in accordance with Article 2(6a)(a) of the basic Regulation:

Table 1

Factors of production of molybdenum wires

(70)

In order to establish the undistorted price of raw materials as delivered at the gate of an Indian producer, the Commission used as a basis the weighted average import price to India as reported in the GTA. An import price in India was determined as a weighted average of unit prices of imports from all third countries excluding the PRC and countries that are not members of the WTO, listed in Annex 1 of Regulation (EU) 2015/755 of the European Parliament and the Council (40). The Commission decided to exclude imports from the PRC into the appropriate country as it concluded that it is not appropriate to use domestic prices and costs in the PRC due to the existence of significant distortions in accordance with Article 2(6a)(b) of the basic Regulation. Given that there is no evidence showing that the same distortions do not equally affect products intended for export, the Commission considered that the same distortions affected export prices.

(71)

Similarly, import data on imports in India from non-WTO members listed in Annex 1 of Regulation (EU) 2015/755 were also excluded. Article 2(7) of the basic Regulation considers that domestic prices in those countries cannot be used for the purpose of determining normal value and, in any event, such import data was negligible. After excluding the PRC, the imports from other third countries remained representative.

(72)

In order to establish the normal value according to the Commission’s methodology, the import duties of the factors of production and other materials imported into India, as well as the domestic transport costs should normally be added to these import prices. Considering the nature of this expiry review investigation, which is focused on finding whether dumping continued during the review investigation period rather than finding its exact magnitude, the Commission decided that adjustments for import duties and domestic transport were unnecessary, as such adjustments would only result in increasing the normal value and hence of the dumping margin which is already significant.

(73)

The Indian Labour Bureau (41) publishes detailed information on wages in different economic sectors across India. The Commission used the available statistics and according to the latest available published analysis (2017) of labour data in India, the yearly minimum average earnings in Industrial sector NIC code 25 “Manufacture of fabricated metal products, except machinery and equipment” according to the Annexure-A of the report were 118 191 INR/year. The Periodic Labour Force Surveys by the Ministry of Statistics show that the yearly average wage in India during the closest period preceding the review investigation period was some 207 780 INR/year (see regular wage/salary employee data on page A-265 and A-266 (372-373) of the “Annual Report, PLFS, 2018-19” (42). In light of the above, the Commission considered a labour cost of 207 780 INR/year as established above. This amount is equivalent to 2 800 USD/year and is higher than the average salary in India including the agricultural sector (43), which holds around half of the employment, and is in which amounted to 2 130 USD/year in 2019 according to the World Bank data (44).

(74)

India is composed of 28 States and 8 Union Territories (45), out of which seven States host more than 70 % of Indian factories and industrial manufacturing industry. Amongst the seven States with more industries, Maharashtra is a representative State for the purpose of this investigation because it is one of the States hosting overall a bigger share of factories. On this basis, the Commission used the electricity price statistics published by the Maharashtra Electricity Regulatory Commission (46). During the review investigation period in Maharashtra, the industrial electricity tariff amounted to 8,50 INR/kWh, i.e. 0,10 EUR/kWh as shown in the Maharashtra Electricity Regulatory Commission’s publication (47).

(75)

According to Article 2(6a)(a), second subparagraph of the basic Regulation, ‘the constructed normal value shall include an undistorted and reasonable amount for administrative, selling and general costs and for profits’. In addition, a value for manufacturing overhead costs needs to be established to cover costs not included in the factors of production referred to above.

(76)

In order to establish an undistorted value of the manufacturing overheads and given the absence of cooperation from the Chinese exporting producers, the Commission used facts available in accordance with Article 18 of the basic Regulation. Therefore, based on the data of the request, the Commission established the ratio of manufacturing overheads to the total manufacturing and labour costs. This percentage was then applied to the undistorted value of the cost of manufacturing to obtain the undistorted value of manufacturing overheads, depending on the model produced.

(77)

For establishing an undistorted and reasonable amount for manufacturing overheads, SG&A, profit and depreciation, the Commission relied on the financial data for 2020-2021 for WebFill Ltd as extracted from Dun & Bradstreet and details of financial statement available on the same company website (48). According to Article 2(6a)(a) of the basic Regulation, “the constructed normal value shall include an undistorted and reasonable amount for administrative, selling and general costs and for profits”. In addition, a value for manufacturing overhead costs needs to be established to cover costs not included in the factors of production referred to above.

(78)

On the basis of the above, the Commission constructed the normal value of the product under review on an ex-works basis in accordance with Article 2(6a)(a) of the basic Regulation.

(79)

First, the Commission established the undistorted manufacturing costs. In the absence of cooperation by the exporting producers, the Commission relied on the information provided by the applicant in the review request on the usage of each factor (materials and labour) for the production of molybdenum wire. These consumption rates provided by the applicant were verified during the verification. The Commission then multiplied the usage factors by the undistorted costs per unit as observed in India as the source for determining the normal value under Article 2(6)(a) of the basic Regulation.

(80)

Once the undistorted manufacturing cost established, the Commission applied the manufacturing overheads, SG&A, profit and depreciation. They were determined based on the financial statements of WebFill Ltd (see Section 3.2.3.1). The Commission added the following items to the undistorted cost of manufacturing:

(81)

As a consequence of non-cooperation, export prices were established on the basis of the facts available in accordance with Article 18 of the basic Regulation. The Commission used import data on Chinese imports reported in the database established pursuant to Article 14(6) of the basic Regulation (‘Article 14(6) database’) to determine export prices.

(82)

Given the relatively low volumes of Chinese imports (less than 1 % of Union consumption) the Commission analysed whether those prices could be considered reliable and representative. In this respect the Commission noted that the Chinese average export price to the Union was within the same price range as Chinese exports to other main third country destinations (see recital (92) below). Furthermore, whilst prices to the Union were at the lower end of the price Therefore, the Commission considered that those prices, albeit based on low volumes, were sufficiently reliable and representative to form the basis for establishing an export price for the purpose of a dumping calculation.

(83)

As these prices are reported on a Cost, Insurance, Freight (‘CIF’) basis, they were adjusted to an ex-works level by deducting an appropriate amount for transportation and insurance costs between the PRC and the Union border. In the absence of cooperation from the Chinese exporting producers, the Commission used the same percentage for adjustment as in the original anti-dumping investigation (49) (1,84 %).

(84)

The Commission compared the constructed normal value established in accordance with Article 2(6a)(a) of the basic Regulation and the export price on an ex-works basis as established above.

(85)

Given the lack of cooperation from the Chinese exporting producers, the product types exported from the PRC could not be determined. Therefore, a comparison per product type was not possible.

(86)

The Commission recalled that the dumping margin was established by comparing a constructed normal value based on data from India as appropriate source under Article 2(6a) of the basic Regulation with the average statistical Chinese export prices to the Union, adjusted back to ex-works level.

(87)

The Commission calculated a dumping margin based on the data available of 44,98 %.

(88)

The Commission therefore concluded that dumping continued during the review investigation period.

(89)

Further to the finding of the existence of dumping during the review investigation period, the Commission investigated, in accordance with Article 11(2) of the basic Regulation, the likelihood of continuation of dumping, should the measures be allowed to lapse. The following additional elements were analysed:

(90)

According to the request Chinese producers have production capacity of approximately 3 500 tonnes per year, i.e. over 19 times the entire Union consumption.

(91)

In the absence of cooperation from the PRC the Commission estimated the spare production capacity in China on the basis of its finding in the previous expiry review investigation. In that investigation the Commission found that the capacity utilisation rate was approximately 20-25 %. In the absence of any indication to the contrary the Commission assumed that the capacity utilisation remains similar for this review investigation period. Given that the estimated production capacity of molybdenum wire in the PRC is around 3 500 tonnes, the Commission estimated that the spare capacity amounts to at least 2 500 tonnes which is more than fifteen times the consumption in the Union.

(92)

Absent cooperation from Chinese producers the Commission analysed Chinese pricing behaviour on the basis of trade statistics. The Chinese prices to the main export destinations, other than the Union, i.e., India, Korea and Vietnam, ranged from 28 to 41 euro/kg, whilst Chinese export prices to the EU was 33,80 euro/kg during the review investigation period (see recital (107) below). These prices are significantly lower than the prices on the Union market during charged by the Union industry the review investigation period. In fact, the average sales price of Chinese exporting producers to all countries other than the Union was 40 euro/kg, which is around [25-35]% lower than the average price on the Union market.

(93)

As explained in recitals (150) – (152) the Union market is attractive in terms of size and prices.

(94)

In 2012 and 2013 two anti-circumvention investigations found circumvention being carried out either by transhipment or by a slight modification to the product. First, imports of molybdenum wire consigned from Malaysia (50) and, secondly, imports of molybdenum wire from the PRC containing by weight at least 97 % of molybdenum, of which the maximum cross-sectional dimension exceeds 1,35 mm but does not exceed 4,0 mm (51). On 30 October 2015, following a third anti-circumvention investigation, the measures were extended to molybdenum wire containing by weight at least 97 % of molybdenum, with a maximum cross-sectional dimension that exceeds 4,0 mm but does not exceed 11,0 mm (52). These efforts to circumvent the measures in force show how attractive the Union market is for the Chinese producers of the product under review.

(95)

The investigation has shown dumping in the review investigation period and that this dumping is likely to continue if the measures are allowed to lapse. If the measures lapse, dumped imports would likely enter the Union market in significant quantities given the available spare capacities in China and possible re-direction of sales from other third countries to the Union given the higher prices on the Union market.

(96)

The Union industry did not undergo major structural changes since the original investigation and the last expiry review. The like product was manufactured by two producers in the Union during the period considered. They constitute the ‘Union industry’ within the meaning of Article 4(1) of the basic Regulation.

(97)

The total Union production during the review investigation period was established at around [198 000-232 000] kg. The Commission established the figure based on the macroeconomic questionnaire filled in by the applicant.

(98)

As the data relating to the injury assessment was primarily derived from the sole cooperating Union producer, or, where applicable, estimated by it for the non-cooperating other Union producer, some figures are given in an indexed form or as ranges due to the confidential nature of the data that they are based on.

(99)

The total Union consumption during the review investigation period was established at [148 000-174 000] kg. The Commission established the figure on the basis of all the available information concerning the Union industry: i) taking into account the total EU sales of the Union Industry as given by the applicant in its response to the macroeconomic questionnaire and ii) adding the import volumes into the EU as shown in Article 14(6) database.

(100)

Union consumption developed as follows:

Table 2

Union consumption (in kg)

(101)

Throughout the period considered the Union consumption recorded a pronounced drop of 28 % in comparison with 2017. More specifically, it dropped 1 percentage point in 2018 and then lost 23 percentage points in 2019 and a further 4 percentage points in the review investigation period.

(102)

The decrease in Union consumption of molybdenum wire, noted since the original investigation as well as during the period considered, can be mainly explained by the technological developments in the automotive industry and the gradual domination of automatic gears over manual gears, which is the main application for molybdenum wires.

(103)

The Commission established the volume of imports from the PRC into the Union on the basis of data available in the Article 14(6) database. The market share of the imports was established on the basis of said volume of imports as percentage of the total Union consumption.

(104)

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

Table 3

Import volume (kg) and market share

(105)

Although the import volumes from the PRC into the EU increased by 171 % throughout the period considered, the volumes of the product under review are low and the market share of Chinese imports remained below 1 % in the review investigation period.

(106)

Due to the non-cooperation of the Chinese exporting producers, the Commission established the prices of imports on the basis of the volumes and values of the product under review concerning the PRC as reported in the Article 14(6) database.

(107)

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

Table 4

Import prices (EUR/kg)

(108)

Between 2017 and 2019, the average import price of the product under review from the PRC into the Union decreased continuously and sharply, dropping by 57 %, then remaining at the same level for the review investigation period. Though the volumes are low, the trend is consistent through a number of years and also contrary to the trend of the raw material price, the increasing prices of molybdenum oxide especially between 2017 and 2018-2019 (53).

(109)

The average import price undercut the Union industry average price by [52-67 %] during the review investigation period.

(110)

Due to the lack of cooperation from the Chinese exporting producers, the product types exported from the PRC to the Union could however not be determined, therefore, a comparison on a per-type basis was not possible.

(111)

The (aggregated) volume of imports into the Union as well as the market share and price trends for imports of molybdenum wire from other third countries developed as follows:

Table 5

Imports from third countries