EU Subsidy Raids on Nuclear Tech
Chinese Company were Legal, Local Court Rules
Landmark decision
rejects firm’s assertion that complying with bloc’s regulation put it on collision
course with mainland criminal laws
Chinese company
Nuctech’s claims that the European Commission’s dawn raids
of its premises seeking evidence of state subsidies were illegal have been thrown
out by a court in Luxembourg.
In April, the commission
joined local authorities in unannounced inspections of Nuctech’s
premises in the Netherlands and Poland in the most high-profile use of its foreign
subsidies regulation (FSR) to date.
Nuctech, a maker of body and baggage scanners for
airports and ports, sued the commission in June.
It claimed the raids
forced it to unlawfully provide information located outside the European Union and
that complying with the FSR probe would force it to violate Chinese criminal laws.
Nuctech further argued there was no evidence of
market distortion caused by its subsidies and that the raids, having generated headlines
across Europe, caused the company reputational harm and financial damage.
On Monday, the Luxembourg-based
General Court, the EU’s second-highest court, dismissed the case on all grounds
in a landmark ruling expected to send shock waves through Chinese businesses operating
in Europe.
The FSR bestows
broad powers on the commission to investigate companies suspected of receiving undeclared
state subsidies enabling them to undercut EU competitors.
It can be used when
non-EU firms bid for procurement contracts or attempt mergers or acquisitions.
The commission can
also launch an investigation of its own volition, when – as in the case of Nuctech – it has been tipped off that market operators possessed
subsidies that were disadvantaging local rivals.
Nuctech had been flagged as a security risk in some
European capitals.
During an investigation,
the EU’s executive branch can request an extensive amount of corporate information
on tight deadlines, making it difficult for Chinese subsidiaries in Europe to comply.
The regulation is
particularly complicated for state-linked companies such as Nuctech,
whose parent company is the state-owned enterprise Tsinghua Tongfang
Co, an entity under the China National Nuclear Corporation.
Such companies fear
they could be forced to hand over internal documents considered sensitive to authorities
in Beijing.
Four of the five
uses have involved mainland firms, putting businesses on high alert. On two occasions,
the Chinese firms withdrew from lucrative procurement tenders rather than comply
with the commission’s requests.
In a lengthy verdict,
the court found that the commission must “be entitled to request information” held
outside the EU to assess whether “their conduct infringes EU law and is likely to
produce a substantial effect on the internal market”.
Otherwise it would not be able to “hold non-EU entities
liable for conduct substantially affecting the internal market”, thus encouraging
companies to store their information outside the EU, the ruling found.
Nuctech had argued it lacked access to information
stored on servers in China, claims the court ruled were “neither explained nor substantiated”.
The court observed
that it was Nuctech’s parent company that did not reply
to the commission’s request for information stored in China and that the parent
company had deemed that the information would put it in conflict with local laws
there.
“The applicants
have not only failed to state the reason why they have no access to the requested
information, but they also do not explain how Chinese law could prevent them, as
entities established in the EU, from responding to the commission’s requests and
why the provisions of Chinese law are relevant to them,” the ruling read.
Nuctech had argued it could be in breach of Chinese
criminal laws, including Articles 31 and 36 of the Data Security Law, Article 41
of the Personal Information Protection Law and Article 28 of the Law on Safeguarding
State Secrets.
The court determined
the firm had “failed to demonstrate” that any of the mailboxes the commission sought
access to “actually contain state secrets” or that, if they did, Nuctech had tried to obtain authorisation to disclose the information.
And while Nuctech argued it incurred and would incur reputational damage
because of the raids, the court noted the commission had not named the firm.
Moreover, the ruling
said statements by the China Chamber of Commerce to the EU “and by the applicants
themselves … made it possible to make the link with the inspection”.
In a statement on
Tuesday, Nuctech denied that it had received state subsidies.
“Nuctech has not received any subsidies from the Chinese state
and will continue defending its reputation as an independent business operator,”
it said.
“What’s more striking
is the court’s insistence on Nuctech breaking the Chinese
laws to illegally share data stored in China.
“Nuctech has repeatedly informed the commission and the court
that we are prohibited from providing such data as it violates … PRC [People’s Republic
of China] law. Such [a] stance raises questions on the legal and political impartiality
of the case.”
The ruling will
buoy regulators who have vowed to crack down on what they describe as market-distorting
subsidies received by Chinese companies.
The FSR is a competition
tool and is being used alongside traditional trade instruments meant to stop subsidised
goods from landing at European ports below market price.
Last week, Beijing
lodged a request for consultations at the World Trade Organization over Brussels’
anti-subsidy investigation into Chinese-made electric vehicles.
The provisional
results of the investigation slapped duties on the imports ranging from 17.4 per
cent to 37.6 per cent.