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.
The provisional results of the investigation slapped duties on the imports ranging from 17.4 per cent to 37.6 per cent.