The General Court backs the European Commission against Chinese foreign subsidies to Egypt as part of the New Belt and Road Initiative… Is Morocco next?

By its two judgments dated March 1st, 20231 , the General Court has, for the first time, provided
important clarifications on the accountability of foreign subsidies on a product subject to countervailing
measures.


In this case, Hengshi and Jushi, companies incorporated under Egyptian law, produce and export woven
and/or sewn glass fiber fabrics to the EU (“GFF”). Their shareholders are Chinese companies. They are
located in the Sino-Egyptian economic and trade cooperation (“SEETC”) zone created within the
framework of the Suez Canal corridor development plan between China and Egypt. As such, they enjoy
the benefits, including financial, granted by the Chinese government to Chines companies in this area.
Following a first complaint of April 1st, 2019, by Implementing Regulation (EU) n°2020/776, the
Commission decided to adopt (countervailing duties on the imports of GFFs originating in China and
Egypt. Following a second complaint filed on April 24th, 2019, the Commission adopted Implementing
Regulation (EU) n°2020/870 imposing countervailing duties on imports of continuous filament glass
fiber (“CFGF”) products, the main raw material of GFFs, originating in Egypt.


The two companies brought actions for annulment of the contested Regulations, based on the violation
of Article 3(1)(a) of the basic anti-subsidy Regulation2, which provides that a subsidy shall be deemed to
exist if there is a financial contribution by the government of the country of origin or export. They argued
that since the products covered by the Commission’s Regulations originate in and are exported from
Egypt, and since the financial contributions are made by the Chinese government, Egypt cannot be
countervailed by reason of the Chinese contributions.


In its judgments, the General Court rejects the Egyptian companies’ requests for annulment and
confirms the Commission’s interpretation of the accountability of the subsidies.
The General Court found that the financial contributions that gave rise to the subsidies could either be
enacted by a public body or be attributable to that body without it even being the direct source of the
subsidies. Moreover, for the anti-subsidy measures to be applicable, the financial contributions must be
granted by the public authorities “within the territory of a country”3. Therefore, there is nothing to exclude the attribution to the Egyptian government of financial contributions granted by the Chinese
government, especially in the context of a free trade zone, such as SEETC.


Furthermore, the General Court notes that such an interpretation does not contravene Article 1 of the
Agreement on Subsidies and Countervailing Measures 4 , which defines a subsidy as a financial
contribution by a government within the territorial jurisdiction of “a” member of the World Trade
Organization. Contrary to the European Regulations, it is not specified that the financial contribution at
the origin of the subsidy must come from the country of origin or export.


The General Court has thus adopted a particularly broad interpretation of the concept of “public
authorities” in the area of subsidies, allowing the Commission to sanction subsidies provided not by the
country of origin or export but by the country of the shareholders of the companies in the country of
origin or export.


Finally, even if reference is made to the Chinese ownership of the Egyptian companies to justify the
accountability of Chinese financial contributions to the Egyptian public authorities, it does not appear
that this is a necessary condition for such accountability. Indeed, the Tribunal considers that financial
contributions from a third country to the country of origin or export that have the effect of subsidizing
companies in the country of origin or export may give rise to countervailing duties, regardless of the
strength of the relationship between the countries.


At a time when the Union is in the process of adopting new Regulations on foreign subsidies5, the
solution adopted by the General Court extends the Union’s power to impose sanctions, this time from
the perspective of trade defense instruments. One can rightly ask whether other African countries,
currently benefiting from Chinese subsidies, will not follow the fate of Egypt…

1 Judgments of the General Court in cases T-480/20 and T-540/20, Hengshi Egypt Fiberglass Fabrics and Jushi Egypts for Fiberglass Industry v. Commission. Both judgments may be appealed to the Court of Justice within two months and ten day of their notification.
2 Regulation (EU) 2016/1037 of the European Parliament and of the Council of the 8th of June 2016 on protection against subsidized imports from non-EU countries.
3 Recital 5 of the basic anti-subsidy Regulation