Safeguard Duty investigation against imports of Epichlorohydrin into India under Rule 5 of the Customs Tariff (Identification and Assessment of Safeguard Duty) Rules, 1997 (hereinafter referred to as the SGD Rules) read with Section 8B of the Customs Tariff Act 1975) final findings.

REGD. NO. D. L.-33004/99 The Gazette of India

EXTRAORDINARY

PART II—Section 3—Sub-section (i)

PUBLISHED BY AUTHORITY

No. 304] NEW DELHI, FRIDAY, JULY5, 2002/ASADHA 14,1924

2121 GI/2002

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10 THE GAZETTE OF INDIA: EXTRAORDINARY [PART II—SEC. 3(i)]11 12 THE GAZETTE OF TNDIA: EXTRAORDINARY [PART JI—SEC. 3(i)113 14 THE GAZETTE OF INDIA: EXTRAORDINARY [PART II—SEC. 3(i)]15 \6 THE GAZETTE OF INDIA: EXTRAORDINARY [PART II—SEC. 3(i)l17 18 _ _ _ _^ THE GAZETTE OF INDIA: EXTRAORDINARY [PART II—SEC 3(I)]19 2() „_____„ THE GAZETTE OF INDIA: EXTRAORDINARY

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OFFICE OF THE DIRECTOR GENERAL (SAFEGUARDS)

NOTIFICATION

New Delhi, the 25th June, 2002

Sub: Safeguard Duty investigation against imports of Epichlorohydrin

into India under Rule 5 of the Customs Tariff (Identification and

Assessment of Safeguard Duty) Rules, 1997 (hereinafter

referred to as the SGD Rules) read with Section 8B of the

Customs Tariff Act 1975} - final findings.

G.S.R 471(E).—Having regard to the Customs Tariff Ad, 1975 and the Customs Tariff (Identification and Assessment of Safeguard Dun) Rules, 1997 thereof.

A. PROCEDURE

The Notice of initiation of safeguard duty investigation concerning imports of Epichlorohydrin into India was issued on 14.03.2002 and was published in the Gazette of India, Extraordinary on 21.03.2002. A copy of the Notice alongwith copy of Application and a questionnaire was sent to all known interested parties to make their views known by 26th April 2002 namely:-

Domestic Producers

(i) Tamilnadu Petroproducts Limited (TPL), Chennai

Importers/User Industries

(i) Dr Beck &co( India ) Ltd, Pune (ii) Atul limited, Valsad, Gujarat (iii) Synthetics & Polymer Industries, Ahmedabad (iv) Parikh Resins Ltd (Resinova Chernie Ltd), Kanpur (v) Resins and Plastics Ltd, Raighad (vi) Petro Araldite Pvt. Ltd, Chennai (vii) Parikh Resins and Polymers Ltd. Unnao, UP. (viii) Bharat General Textile Industries, Calcutta (ix) Bengal Poly Resins Pvt Ltd, Calcutta (x) Delta Industrial Resin Pvt Ltd, Mumbai (xi) Pragati Chemicals Ltd, Mumbai25 (xii) Kemwell Pvt., Ltd, Bangalore (xiii) IPCA Laboratories Limited , Mumbai (xiv) Easy Term Enterprise, Mumbai (xv) Ratanchand & Co. Mumbai (xvi) CJ.Shah & Company, Mumbai (xvii) Manali Chemicals, Mumbai (xviii) Urmi Chemicals, Mumbai (xix) Rasiklal & Co., Mumbai (xx) Alfa Chemical Corporation , Mumbai (xxi) Paresh Chemical Corporation , Mumbai (xxii) Rashmi Trading Company, Mumbai (xxiii) Beekay Enterprises, Baroda/ Mumbai

Exporters

(i) Daiso Co. Ltd., Japan (ii) Dow Chemical Company,U.S.A. (iii) Solvay SA, Belgium (iv) Hanwha Chemical Corp., Korea

Associations

(i) Chemical Industries Association, Chennai (ii) Indian Resin Manufacturers Association , Mumbai

2. A copy of the notice of initiation alongwith the application and questionnaire was also sent to the governments of exporting countries through their High Commissions/Embassies in New Delhi namely Belgium, China , Germany, Japan, Korea RP, U.K., USA and to the European Union, Delegation of the European Commission in India, New Delhi.

3. Request for extension of time to submit their reply was made by Dow Chemical Company.U.S.A.and Solvay SA, Belgium. The extension of time, prayed for, was acceded to and the parties concerned were informed accordingly.

4. Replies to the Notice dated 14.03.2002 and to the questionnaire were received from the following parties: -

Domestic Producers

Tamilnadu Petroproducts Limited (TPL), Chennai26 THE GAZETTE OF INDIA . EXTRAORDINARY |PAKI II—Si-v. 3(i)|

Importer/User Industries

(i) Atul Limited, Valsad, Gujarat* (ii) Synthetics & Polymer Industries, Ahmedabad* (iii) Parikh Resins Ltd (Resinova Chemie Ltd), Kanpur (iv) Bharat General Textile Industries, Calcutta* (v) Petro Araldite Pvt. Ltd, Chennai* (vi) Bengal Poly Resins Pvt Ltd, Calcutta* (vii) Delta Industrial Resin Pvt. Ltd, Mumbai* (viii) Pragati Chemicals Ltd, Mumbai* (ix) Kemwell Pvt., Ltd, Bangalore (x) Beekay Enterprises, Baroda

* Through Counsel

Exporters

(i) Daiso Co Ltd., Japan (ii) Dow Chemical Company,U.S.A. (iii) Solvay SA, Belgium (iv) Hanwha Chemical Corp., Korea

Associations

Chemical Industries Association, Chennai

5 Verification of the information considered necessary for the investigation was done and to this end a team of officers visited the premises of domestic producer. The outcome of the investigations was conveyed to the domestic producer and a copy of the verification report was also placed in Public File.

6. A Public Hearing was given to all interested parties on 31st May 2002, notice for which was sent on 26.04.2002. During the Public Hearing the interested parties were requested to file their written submission of oral arguments made by them by 06.06 2002 collect replies filed by others on 07 06.2002 and to file rebuttals, if any, by 14 06.2002. The following parties attended the Public Hearing;

(i) Tamilnadu Petroproducts Limited (TPL), Chennai (ii) Atul Limited, Valsad, Gujarat (iii) Synthetics & Polymer Industries, Ahmedabad (iv) Pankh Resins Ltd (Resinova Chemie Ltd), Kanpur (v) Petro Araldite Pvt. Ltd, Chennai (vi) Delta Industrial Resin Pvt. Ltd, Mumbai (vii) Solvay SA, Belgium27 (viii) Hanwha Chemical Corp., Korea (ix) Delegation of European Commission (European Union),

New Delhi

Some of the interested parties requested for another Public hearing on the ground that TPL has not effectively replied to their queries during the Public Hearing held on 31.05.2002, which has prevented them from effectively dealing with various issues. In this regard, it is observed that under the procedure followed, it is not mandatory for the domestic producers to provide on the spot clarification to the queries raised by other parties. The purpose of providing the opportunity of seeking clarification at the time of public hearing is to remove doubts in understanding of the submissions made by other parties. TPL had mentioned and it was agreed that they wouid provide additional information sought by other parties at the time of filing v/ntten submissions. Accordingly, TPL has provided the necessary clarification in their submissions. Further, only that information is taken into consideration, which is reduced in writing. All the information so received was placed in public file, besides handing over copies to the interested parties, who could rebut the same at the time of filing their rebuttals, if any. Some of the main points that were sought to be clarified by the interested parties related to capacity of TPL, increased imports, unforeseen developments, accelerated depreciation policy of TPL, feasibility of adjustment plans etc.. All these issues have been appropriately dealt with in the findings and I find no justification for any further public hearing in the matter.

Another request has also been made on 20 June, 2002 for providing a copy of the rejoinder (rebuttals) filed by the petitioners and for permission to file comments on the same. This request does not merit consideration, both on ground that it is made after completion of all procedure on 14.6.2002 and as per the procedure parties are at liberty to file rebuttals after collection of written submissions. The procedure does not envisage further submissions after filing of rebuttals. If such a request is allowed, it will be an unending process, leading to no finality at any stage. The request, therefore, could not be acceded to.

Domestic Industry

The application for imposition of safeguard duty on ECH has been filed by Tamilnadu Petroproducts Ltd (hereinafter referred to as TPL for the sake of brevity). In India, ECH is produced by only TPL and they account for the entire domestic production. The application is, therefore, considered to have been made by the domestic industry producing ECH.

Product under Investigation

The product under investigation is Epichlorohydrin (ECH). ECH is a basic organic chemical with chemical formula CH2-CH-CH-CH2CL, classified under2X T HE G A Z E T TE OF INDIA E X T R A O R D I N A RY [PART I I —S E C, 3(i)] sub-heading No.2910.30 of the First Schedule to the Customs Tariff Act 1975 and under 29103000 of the Indian Trade Classification (ITC) based on the Harmonised Commodity Description. This classification of Epichlorohydrin under the Customs Tariff Act, 1975 and the ITC has been indicated for the purpose of convenience and in no way restricts the scope of the coverage of the product under investigation. ECH is produced by Chlorine addition to Propylene, which is akin to international standard of manufacturing. ECH is produced by obtaining Allyl Chloride by direct Chlorination of Propylene and Chlorine in gaseous phase at elevated temperatures. Chlorohydrination of Allyl Chloride is carried out in aqueous medium using Chlorine to obtain Dichlorohydrin. Further Hydrolysis of Dichlorohydrin is carried out at boiling temperature of water using lime as saponifying agent. Hydrolysing reaction is accomplished in a stripping tower where ECH is stripped. The raw ECH is rectified in fractionation system. ECH is a Petrochemical used as key raw material in the manufacture of Epoxy Resins, Pesticides and certain Pharmaceutical formulations. Both, the imported ECH and the domestically produced ECH are alike.

Commitments undertaken and the applicable rate of duty

ECH falling under Tariff heading No.2910.30 has been bound at 40% ad- valorem, with no quantity restrictions imposed on the imports. The applicable rate of import duty (basic + surcharge, if any) on ECH was 65% ad-valorem in 1994-95, which was gradually brought down to 42% in 1995-96, 32% in 1996-97, 25% in 1997-98 and 1998-99, increased to 27.5% in 1999-2000 and 2000-01, before restoring to 25% ad-valorem in 2001-02.

Increased imports

ECH is imported into India mainly from Belgium, Germany, Japan, Korea (RP) and USA. The import and domestic production of ECH during last five years were as under:

Table 1

Year

Imports as a %age of Domestic Production

21.17 82.20 308.41 485.17 118.61 16587

1996-97 M997-98 - 1998-99 1999-00 2000-01 2001-02f Jan)

* As verified from fhe Customs authorities.

The import of ECH during the period between 1996-97 has increased in absolute terms from 761MT in 1996-97 to 4294 MT in 2000-01. During the year 2001-02, for which the data has been verified with the Commissioners of Customs at the ports of imports upto January 2002, the import of ECH was 4971 MT On pro-rata basis the import of ECH during the current year 2001-02 works out to 5965 MT.

On a comparison of end point to end point it is observed that the import of ECH has increased to more than 6 times from 761 MT in 1996-97 to 4971 MT in 2001-02 (upto January). It is important to note that the import of ECH peaked to 4614 MT in 1999-2000, before declining to 4294 MT in 2000-01 and again rising to 4971 MT in 2001-02 (upto January). The year wise increase in the import was 154% in 1997-98 over 1996-97; 52% in 1998-99 over 1997-98; 57% in 1999-2000 over 1998-99, a decline of 7% in 2000-01 as compared to 1999-00 and again an increase of 40% in 2001-02 (on pro-rata basis) over 2000-01. In absolute terms, therefore, the imports of ECH have increased over the years, except in the year 2000-01 when the imports declined by 7% as compared to the immediately preceding year. However, on an average, during the last three years i.e. 1999- 2002 the imports of ECH on an average was 4958 MT per annum, which is 164% higher than the average imports of 1875 MT during the preceding three years i.e. 1996-99.

As regards increase in imports of ECH compared to domestic production, it is observed that the domestic production of ECH in 1996-97 was 3595 MT, which increased marginally to 3620 MT in 2000-01 and to 2997 MT in 2001-02 (upto January) i.e. to 3596 MT in 2001-02 (for the whole year) on a pro-rata basis.

The imports of ECH as a percentage of domestic production were 21.17% in 1996-97 which increased rapidly to 485.17% in 1999-2000 and thereafter declined to 118.61% in 2000-01 but increased again by about 47 percentage points to 165.87% in 2001-02. As compared to the initial figures of 21.17% in 1996-97, the imports show a substantially higher percentage - 165.87% of domestic production in 2001-02 which is almost eight times that of 1996-97. Even as compared to 1997-98, when the imports were 82.2% of domestic production, the-imports percentage in 2001-02 has doubled as compared to the domestic production. The imports have thus increased both in absolute terms as well as relative to domestic production.

It has been submitted by some of the interested parties that 'safeguard measures' being 'emergency measures', the imports must show a sudden increase in a short span. To this end, they suggest that imports of ECH should be • considered only during the last three years i.e. 1999-2000 to 2001-02. During this period, the imports of ECH have stagnated, being 4614 MT in 1999-2000, 4294 Mt in 2000-01 and 3846 MT in 2001-02 (upto January) and therefore there is no 'increased imports' of ECH. I, however, find no support to this submission, either on the basis of facts or from the law. On facts, the imports in the current year i.e. 2001-02 (up to January) have increased by 40% over 2000-01. As regards the legal provisions, neither the domestic safeguard law nor the Agreement on Safeguards support this contention. In practice also most of the Members of WTO W

THE GAZETTE OF INDIA EXTRAORDINARY [PAKTII—Sir J(i)j have been analysing imports over a period of five years or more. Looking to the peculiar facts of this case, as discussed below, I hold that consideration of imports, as well as other parameters for the period 1996-97 onwards to be fully justified in this case.

Unforeseen Developments.

The domestic producers have submitted that the production of ECH was conceived in the year 1992 as an import substitute to spoxy manufacturers, who had an installed capacity of about 9000 MT pa and the rate of duty on the import of ECH was 115% and that on epoxy resins 65% for general use and 20% for use in electronic industry. By the time the ECH plant came into production, the customs duties came down substantially and went on declining further Some of their buyers could not bear the onslaught of increased imports of epoxy resins and finally closed down in the year 1998-99. Besides, the exporters reduced the prices of both ECH and epoxy resins and thereby captured the market, forcing the domestic producers to cut-down their production as they could not sell their products even at a price much below their variable cost.

It has been argued by some of the interested parties that there is no unforeseen development in the market place which could justify imposition of safeguard duty. According to them unforeseen developments shall normally include such of those developments which were not foreseen by the negotiators of a Member-country at the time of extending the concession or undertaking the said obligation under the aegis of WTO.

As regards the 'unforeseen developments' it is observed that the Appellate Body in US-Lamb (WT/DS177/AB/R, WT/DS178 AB/R, adopted 16th May 2001) - stated that "unforeseen developments" is a circumstance whose existence must be demonstrated as a matter of fact for a safeguard measure to be applied consistently with Article XIX.

In this context, it is observed that it is a matter of fact that the import duty has been brought down sharply on ECH, between the period the production of ECH was conceived and the production actually was made available, which has coincided with sharp reduction in import prices of ECH during the period 1996-97 to 1999-2000. The CIF imports prices during the period declined from US $ 1528 per Mt to US $ 1059 per MT. However, the most pertinent fact in this regard is the lack of an internationally competitive manufacturing support , The domestic producers conceived the production of ECH on the basis that Propylene, the most important raw material for ECH production will be available to them from the Chennai Petroleum Corporation Ltd. (CPCL) but this did not come through, as their (CPCL) supplies were enough only for their existing customers. The alternative domestic source of Propylene supply was Indian Oil Corporation, Mathura, which is far away and involves high transportation cost besides being hazardous. IOC has also suspended the credit facility due to demand/supply gap. Efficient production of ECH thus depended on imported Propylene. Here again, the Chennai Port Trust does not allow imports of Propylene through Chennai Port31 being hazardous. The domestic producers, therefore, created a small terminal facility at Cuddalore, 200 Kms from South of Chennai for facilitating imports through barges, which is quite cumbersome and costly. Besides the poor infrastructural facilities, high cost of power and financing make the domestic production of ECH further in-competitive compared to imported ECH. These unforeseen developments have resulted in increased imports of ECH coupled with the fact of reduction in import duty and imports being allowed without any quantitative restrictions.

Serious Injury

The determination of serious injury requires evaluation of all relevant factors of an objective and quantifiable nature having a bearing on the situation of the domestic industry, in particular, the rate and amount of the increase in imports of the article concerned in absolute and relative terms, the share of domestic market taken by increased imports, changes in the level of sales, production, productivity, capacity utilisation, profits and losses, and employment.

While the rate and amount of the increase in imports of ECH in absc.jte terms as well as in relative terms has already been analysed under the heading 'increased imports', other aspects are discussed below:

(a) Domestic Production

An analysis of various factors attributing to the present status of domestic industry reveals that the only domestic producer of ECH namely M/s. Tamilnadu Petroproducts Ltd., commissioned their production in the last week of March 1995, producing only 5MT in 1994-95. During the period under consideration, TPL produced 3595 MT of ECH in 1996-97, 2349 MT in 1997-98, 951 Mt in 1998-99 and in 1999-2000 and 3620 MT in 2000-01. They produced 2997 MT of ECH in 2001-02 (upto January, 2002) which on pro-rata basis works out to 3596 MT for the whole of 2001-02. The domestic production thus declined from a peak of 3595 MT in 1996-97 to a bare 951 MT in 1998-99 and 1999-2000. Thereafter the domestic production of ECH went upto 3620 MT in 2000-01 and. to 3596 MT (on pro-rata basis) in 2001-02.

Some of the parties have argued that the domestic producers had made an application for safeguard investigation against increased imports of ECH in 1998- 99, when all the essential parameters for imposition of safeguard duty were manifold more in favour of the petitioner at that point of time, which was rejected by the Director General !f the petitioners did not have any case for imposition of safeguard duty on ECH then, they have no case now.

In this regard, it is observed that TPL had filed an application for imposition of safeguard duty.on imported ECH in the year 1998-99 on 12.06.1998. It is a matter of fact. The more important fact, however, is, as mentioned above, that TPL commenced their production of ECH in the last week of March, 1995. Thus,32 T HE G A Z E T TE OF I N D IA • E X T R A O R D I N A RY [ P A RT I I — S " \ 3 ( i )] when TPL made the application on 12.06.98, they had a track record for the just three years immediately after commencing the production and the figures of production of ECH during the three years i.e. 1995-96, 1996-97 and 1997-98 were 3134 MT, 3595 MT and 2349 MT respectively and that of import as 2374 Mt, 761 MT and 1931 MT respectively. An analysis of those figures did not support a prima facie case for initiation of a safeguard investigation against 'increased imports' of ECH causing serious injury to domestic producers of ECH and accordingly it was not considered appropriate to initiate a safeguard investigation at 'that' point of time,

As apprehended in 1998-99 by the domestic producers, however, the imports of ECH increased in the subsequent years. In 1998-99 the imports of ECH increased to 2933 MT from 1931 MT in 1997-98. The imports further increased to 4614 MT in 1999-2000; 4294 MT in 2000-01 and to 4971 MT (upto January) in 2001-02. The domestic production of ECH in 1998-99 and in 1999¹- 2000 declined to a mere 951 MT. In 2000-01 and 2001-02 the domestic production increased to 3620 MT and 3596 MT (on pro-rata basis) respectively. This increase in domestic production in the last two years has, however, to be seen in the proper perspective. To meet with the competition from imports, in their application dated 12.06.98, TPL envisaged an alliance with Ciba Geigy for setting up a Joint Venture Company for manufacture of epoxy resins, thereby providing a venue for supply of ECH manufactured by them to this new company. Accordingly, a new company in the name of Petro Araldite Pvt. Ltd. was set up, which was commissioned in 1999. PAPL are into epoxy resins business and are one of the largest consumers of ECH in the country, sourcing their requirement of ECH exclusively from TPL, which explains the increase in domestic production of ECH by TPL in the years 2000-01 and 2001-02. But for this development, TPL would have not been able to find a reason to achieve higher productions. It is also pertinent to observe that the apparent domestic consumption from 1996-97 to 2001-02 (upto January, 2002) increased from 2546 MT to 6797 MT i.e. by 206% but the domestic production of ECH has remained almost stagnant at around 3600 MT per annum, which was the level of production in 1996-97 itself.

(b) Capacity Utilisation

TPL have stated their installed capacity of ECH as 10,000 MT per annum. Accordingly, they achieved capacity utilisation of 35,.95% in 1996-97, which kept on falling to 23.49% in 1997-98, 9.51% in 1998-99 and also in 1999-2000. Keeping in line with the increased production in 2000-01 and 2001-02, as discussed above, the capacity utilisation also has shown improvement over 1998- 2000 to 36.2% and 35.96% (on pro-rata basis) for the years 2000-01 and 2001-02 respectively The capacity utilisation, however, remained at a low of about 36% at best during the period considered.

(b) Sales

TPL has considered sales of ECH to PAPL as captive consumption, but in view of the fact that PAPL is a separate joint venture entity, which is engaged in33 the business of production of epoxy resins both for the domestic market, as well as for exports, it is not appropriate to consider sales of ECH by TPL to PAPL as captive consumption. In any case, whether used captively or sold in the market, it does not make any difference for the purpose of safeguard investigations. However, ECH used by PAPL in the export production of epoxy resins was sold by TPL on deemed exports basis under DEEC scheme. These sales of ECH are not being considered as a part of domestic sales.

TPL sold a total of 3753 MT of ECH in 1996-97, out of which 1785 MT were sold in the domestic market and balance 1968 MT were exported. In 1997-98, both the domestic sales and exports declined to 1389 MT and 19 MT respectively. In 1998-99 the domestic sales further declined to 1241 MT and exports were marginally improved to 118 MT. In 1999-2000, the domestic sales, including export sales in the domestic market on deemed export basis to PAPL were 1656 MT, out of which the sale to PAPL were 1196 MT for domestic consumption, 360 MT for use in export production on deemed export basis and 100 MT were sold to other buyers. In 2000-01, the total sales by TPL were 3221 MT, which included exports of 401.57 MT of ECH, 626 MT sales in the domestic market to buyers other then PAPL and the balance to PAPL including 1080 MT for export production on deemed export basis. In 2001-02, the total sales of ECH were 3326 MT, including 516 MT to domestic buyers other than PAPL and balance 2810 MT to PAPL including 1500 MT on deemed exports basis.

The table below gives details of Production, sales and closing stock of domestically produced ECH

Table 2

It is observed from the data tabulated above that the domestic producers sold a total of 1785 MT of ECH in the domestic market in 1996-97, which gradually declined to 1389 MT in 1997-98 and to 1241 MT in 1998-99. Their domestic sales improved subsequently only after PAPL commenced their production and started lifting ECH from TPL. The sales to PAPL resulted in total eWy^-jr !U

THE GAZETTE OF INDIA EXTRAORDINARY

|PART II—ST-T, 3(i)] domestic sales improving to 1296 MT in 1999-00, 1739 MT in 2000-01 and to 1826 MT in 2001-02 (upto January). It is observed that the apparent domestic consumption (ADC) increased by about 167% from 1996-97 to 2001-02 (on pro- rata basis). Year wise the ADC increased over the previous year by about 30% in 1997-98; 26% in 1998-99; 42% in 1999-2000; 2% in 2000-01 and 13% in 2001- 02. The domestic sales should have also increased accordingly, which is not the case. The domestic sales (excluding quantity supplied on deemed export basis) was 1826 MT till January in 2001-02 i.e. only 22% higher than 1996-97 on a pro- rata basis.

(d) Stocks

The closing stocks of ECH of the domestic producers was 278 MT in 1996- 97, 1219 MT in 1997-98, 811 MT in 1998-99, 106 MT in 1999-00, 505 MT in 2000- 01 and 176 MT at the end of January 2002. The closing stock gradually reduced from a high of 1219 MT in 1997-98 to 106 MT in 1999-00 before rising to 505 MT in 2000-01 and then again declining to 176 MT at the end of January 2002.

(e) Employment

The domestic producers have submitted that at no point of time the plant could be operated at more than 36% plant capacity, which has led to a sense of insecurity and loss of employment of around 270 personnel - 160 officers and about 110 from the staff cadre, over the last five years.

(f) Productivity

The productivity of TPL for ECH in MT per employee was 29.95 MT in 1996-97. It declined to 19.58 MT in 1997-98 and to a mere 7.93 MT during 1998- 99 and 1999-2000. However with the increase in production, the productivity has increased to 30.16 MT in 2000-01 and to 32.21 MT in 2001-02. As regards productivity per unit capital employed, it declined from 28.54MT/crore of Rs. in 1996-97 to 17.88 in 1997-98, 6.89 in 1998-99 and to 6.57 in 1999-2000. It increased to 24.84 MT/crore of Rs. In 2000-01 but again declined to 19.92 MT/crore of Rs. in 2001-02.

(9) • Profitability

TPL have been selling ECH at a loss. Their sale realisation is below the cost of production and hence they are incurring losses. Over the years their cost of production of ECH was as under:

Table 3

TPL has incurred losses on their ECH production. The year wise losses were Rs. 26.02 crores in 1996-97, Rs. 18.52 crores in 1997-98, Rs. 16.85 crores in 1998-99, Rs.21.02 crores in 1999-00, Rs.26.08 crores in 2000-01 and Rs.27.25 crores (un-audited) in 2001-02. The losses which initially declined in 1997-98 and 1998-99 as compared to previous year have started Increasing from the year 1999-2000 onwards and reached to a peak of Rs. 27.25 crores in the current year. Even with higher production and higher sales in 2000-01 and 2001-02, TPL have incurred higher losses in these years.

From the above analysis, it is observed that TPL suffered serious injury as reflected by a significant overall impairment in their performance in the years 1998-99 and 1999-2000, when their production dipped to a low of 951 MT consecutively for two years with domestic sales touching to the lowest of 1241 MT in 1998-99 and remaining at 1296 MT in the next year. Their capacity utilisation also dropped to a bare 9.51% during this period and they incurred heavy losses of about Rs. 38 crores during these years on their ECH operations. Apprehending the onslaught of imports, TPL had sought safeguard protection in the year 1998- 99 and had worked out an adjustment plan for itself involving various measures, including setting up of PAPL. These steps did improve their performance in the subsequent years i.e. 2000-01 and 2001-02 but as no safeguard protection was given to them, the imports of ECH continued unabated with 4294 MT landing into India in 2000-01 and 4971 MT upto January 2002. With the setting up of PAPL, TPL were able to increase their protection, capacity utilisation, productivity and domestic sales as compared to the previous year but the continued threat of serious injury loomed large on them in the shape of loss in productivity in terms of capital employed, stagnant domestic production, capacity utilisation and sales not keeping pace with the increase in apparent domestic consumption with increased losses of Rs.26.08 crores incurred in 2000-01 and Rs.27.25 crores (un-audited) in 2001-02, i.e. a total loss of Rs. 53.38 crores in 2000-01 and 2001-02 as compared to Rs. 37.87 crores in 1998-99 and 1999-2000.

Cause of injury

The table below shows domestic sales (excluding domestic sales for export production on deemed export basis) of ECH by TPL, imports of ECH and the shares of domestic production and imports in Apparent Domestic Consumption (domestic sales + imports):

Table 4

From the data tabulated above, it is observed that TPL had a market share of 70.1% in the Apparent Domestic Consumption (ADC) in 1996-97, which declined to 41.8%, 29.7% and to21.9% in 1997-98, 1998-99 and 1999-2000 respectively. The share lost by the domestic producers was captured by the imports, which increased from 29.9% in 1996-97 to 58.2% in 1997-98, 70.3% in 1998-99 and to a high of 78.1% in 1999-2000. With the setting up of the Joint Venture Company PAPL, the share of domestic producers of ECH improved marginally to 28.8% in 2000-01 before declining to 26.86% in 2001-02, with the share of imported ECH falling marginally to 71.2% and again rising to 73.14% respectively during this period.

It is observed that the injury to the domestic producers of ECH has more prominently manifested itself in the form of losses incurred by them, particularly so during the most recent period i.e. 2000-01 and 2001-02. In this regard it is observed that ECH was imported into India during the period 1996-97 to 2001-02 (upto January) at prices as mentioned below in the table;

Table 5

TPL has stated that they sell ECH in the domestic market keeping in view the landed price parity and that due to steady decline in import price, they were forced to reduce their selling prices resulting into financial losses to them. It is a matter of fact that TPL have been selling ECH at prices much below their cost, resulting in financial losses to them. ECH is importable into India without any quantitative restrictions. As such, the landed price of imported ECH governs the - domestic market price since it provides the comparative bench mark for the buyers to make their buying decisions.

It is also a matter of fact that the CIF import price of ECH have steadily declined. In 1996-97, the CIF import prices in US$/MT were on an average 1528, which thereafter declined to 1235, 1242 and 1059 in 1999-2000 before rising to 1318 USS/MT in 2000-01 and again declining to US$ 1090 per MT in 2001-02 (upto January). The increase in imports coincides with this decline in price. In 1996-97, the imports were 761 MT, which increased to 1931 MT, 2933 MT and peaked to 4614 MT in 1999-2000 with the lowest average CIF price of 1059 US$/MT. By the year 1998-99 and 1999-2000, the domestic production was r0duced to a bare 951 MT per annum. Having almost wiped out the domestic production, the import prices increased to 1318 US$/MT but as the domestic production was raised to 3620 MT in 2000-01, which was mainly on account of setting up of PAPL and their buying support extended to TPL, the import prices again have come down to almost their lowest level at 1090 US$/MT in 2001-02, threatening the domestic production of ECH.

It has been argued by some of the interested parties that CIF price of imported ECH in US$ is of no relevano© to TPL as their consumers have paid for the material in Indian rupees and, therefore, import price in Indian rupees alone is of relevance both to the consumers and TPL. In Indian rupees, the import price has increased by about 20% in 2001-02 as compared to Rs.45621 PMT in 1999- 2000. TPL were neither selling reasonable volume in the past nor intended to sell38 THE GAZETTE OF INDIA: EXTRAORDINARY . [PART II—SEC. 3(i)] even when the prices were very substantially higher, for instance in 2000. Such being the case, they submitted that decline in prices is not relevant to TPL.

I am afraid this argument is wholly untenable. The petitioners have set-up a plant with a capacity of 10,000 MT per annum for the manufacture of ECH at a huge investment. They have not set up this plant for idling. In fact no manufacturer can be expected to set-up the plant without any serious intention of supplying the material to its customers. The fact of the matter is that PAPL started buying material from TPL somewhere in 1999. Prior to that TPL was supplying ECH only to other domestic buyers but their sales to them kept on declining year after year i.e. from 1785 MT in 1996-97 to 1389 MT in 1997-98, 1241 MT in 1998- 99 and to a mere 100 MT in 1999-2000, coinciding with the decline in landed prices of imported ECH, which came down from Rs.71382/MT in 1996-97 to Rs.58167 per MT in 1999-2000. Both at the end of 1997-98 and 1998-99, they carried inventory of 1219 MT and 811 MT respectively. In the wake of these facts, it cannot reasonably be argued that TPL did not want to supply material to its buyers. They had all the reasons to explore all possibilities to sell off their material to buyers.

Some of the parties have stated that the quality of ECH manufactured by TPL was not upto the mark and that the imported ECH was of a better quality for manufacture of epoxy resins of different grades. In this regard it is observed that TPL is an ISO 9002 accredited company. They have claimed that their product conforms to international standards set for ECH. A copy of characteristics of EGH manufactured by TPL and the imported ECH was also produced by the applicants which revealed that their product is fully compatible with the imported ECH with regard to various quality parameters. TPL are in the business of ECH for the last six years and ECH manufactured by them undergoes stringent quality checks before it is sent to the customers. Samples are tested at every stage of production starting from raw materials to the finished product. They have been supplying ECH to PAPL who manufactures epoxy resins for export purposes and to the pharmaceutical industry who are extremely quality conscious. In view of this it is considered that the quality of ECH provided by TPL was not the cause for increased imports.

One factor that has been pointed out by some of the interested parties is the assertion of the Directors of TPL in their Balance Sheets that they restricted supplies of ECH to remunerative markets. I see nothing in this assertion that will support the claim that TPL refused supplies of ECH to their buyers. Obviously TPL could not have been expected to keep on producing ECH and sell it at heavy losses, when they were already carrying on inventories and were not able to sell even the small quality of ECH that they produced.

As observed above, the reason for the domestic buyers to source their requirements of ECH though imports appeared to' be the cheaper prices of imports. In this context it is also important to observe that in the year 2001-02, the imports of ECH have increase!from 1102 MT in the First Quarter at an average CIF price of RS.53935/MT to 1232 MT in the Second Quarter at an average CIF price of Rs.45098/- MT and to 1905.6MT in the Third Quarter at an average CIF39 price of Rs.38954/ MT. In January 2002, 731.5 MT of ECH was imported at an average CIF price of Rs. 38219/MT. It is thus observed that the quantum of ECH imports has been increasing with the declining prices.

It has been argued by some of the parties that landed price of ECH imported in India showed an upward trend in 2000-01, providing a better opportunity to TPL to recover their costs. In this regard, I observe that the factors that influenced the prices of imported ECH must have also impacted upon the domestic production of ECH and, therefore, an increased CIF price of imported ECH does not necessarily mean that it provided an opportunity to TPL to improve their sales. As a matter of fact, all along TPL's cost of production has been much higher than the landed price of imported ECH and they had been trying to sell ECH in domestic market keeping the landed price parity in view. -An important aspect tilting the decision to procure ECH in favour of the imported material, however, has been the long credit periods between 90-120 days associated with the imports. As a sequel TPL also was forced to extend such facility to their buyers affecting their liquidity position. The problem was compounded by suspension of credit terms by IOC, Mathura on Propylene supplies. Another aspect worth noting is that in a falling market regime the domestic buyers expect prices to be fixed based on expected landed price parity to prevent any further bookings. Besides, spot prices most often tend to be significantly lower than contractual prices, which has a direct bearing on domestic prices.

It has been argued by some parties that if the cause of injury to domestic producers was cheaper imports it does not hold good any longer as the import prices of ECH are likely to go up due to increase in the prices of raw materials Propylene and Chlorine and it has been suggested that decision to impose safeguard duty may be taken on the basis of prevailing international prices. In this regard it is observed that the current CIF prices of ECH cannot be the basis for arriving at a decision since post investigation price have no bearing on the prices prevailing during the period under consideration. The import prices may have increased due to various factors which would also influence the domestic cost of production. It is neither practicable nor desirable to base the findings on post investigation prices.

It has also been claimed that the reason for the woes .of TPL is loss of \ii export market that has declined and that*TPL made no serious efforts to improve their export performance and not the imports of ECH into the country. It has been further stated that since TPL has been exporting in the past rather than supplying the same to the Indian consumers the production of ECH to such an extent is not available to the domestic consumers. In this regard, it is observed that TPL has specifically mentioned in their application that in spite of the constraints they were forced to export ECH at low realisation to improve their capacity utilisation and to bring down cost. It is important to keep in mind that the production line of ECH is common to both domestic consumption and export market. A domestic industry that was not able to compete in the domestic market could hardly be expected to compete internationally. The injury caused by imports had its effect also on the export performance of TPL. However, TPL did supply 1500 MT of ECH to PAPL 40 THE GAZETTE OF INDIA: EXTRAORDINARY

|PART II—SEC. 3(i)1 in 2001-02 on deemed export basis under DEEC scheme, which are considered as exports without the goods leaving the Indian shore.

In conclusion it is observed that the domestic producer of ECH have suffered serious injury and face further threat of serious injury caused by increased imports of ECH.

Positive Adjustment

The domestic producer has submitted details of efforts being made by them for making a positive adjustment to meet with the situation of competition offered by the increased imports. The applicants have proposed to take the following measures to bring down their cost of production to improve their competitiveness over a period of 3 years namely :

(a) Build an international sized terminal at Ennore Satellite port to handle a variety of Petroleum products / other chemicals which will solve thfcir problem of high demurrage costs incurred by them for importing Propylene at Cuddalore and the high transportation cost for bringing the domestic Propylene over long distances. This they expect to be completed by the year 2004. The cost of demurrage and higher transportation cost which could be saved have been worked out by them to be approximately Rs 3000 - 5000 / MT on ECH. • (b) With a view to ensuring steady availability of Chlorine which is one;of the main raw materials for Epichlorohydrin manufacture they have acquired the Heavy Chemicals division of SPIC and further they have planned to set up captive power plant in the premises of the Heavy Chemicals Division with the sole intention of reducing Chlorine cost which in turn would help ECH unit achieve cost competitiveness. The Chlorine transfer price which is presently Rs 4500 /MT could be reduced to Rs 1500/ MT over the ne>ft 3 year period by way of installing the captive power plant.

' (c) Sourcing Lime which is one of the raw materials at lower cost and further interact with indigenous Lime producers for improving its purity to minimum of 90 % which would solve process related problems and reduce cost.

'

(d) The accelerated depreciation policy of TPL would ensure that t;he depreciation cost is written off by 2004-05 which would enable them to be highly competitive compared to that of the other developed nations. It has been stated that the overall Cost of Production of Rs 111,673 / MT during 2001-02 , shall over the four year period ( in the year 2005- 06) will get reduced to Rs 50,423 /MT.

^1 (e) Installation of new mixer for Allyl Chlonda production in ECH plant for reduced consumption of raw materials and for increasing the on stream efficiency.

Some of the interested parties have expressed doubts about the feasibility of the adjustment plans and the likely quantum of savings in cost of production of ECH. With regard to the accelerated depreciation of TPL it has been stated that the maintenance cost in a chemical plant that too in a fully depreciated plant would be quite high and such costs would more than off set the reduction in the form of lower depreciation. Some of the interested parties have stated that the adjustment plans envisaged by TPL neither quantified the associated investments nor quantifies the likely benefit. The adjustment plan are mere statements, unsubstantiated and unaccompanied with necessary evidence. Some of the interested parties have claimed since TPL has commissioned the captive power plant and it is already operational ,the cost of chlorine should have already come down and, therefore, this cannot form part of their future adjustment plan. Similarly with regard to Allyl mixer plant it has been argued that the same has already been installed and benefits must have started accruing and, therefore, this also needs to be ignored.

The adjustment plans furnished by the applicants have been examined. The cost reduction efforts on account of accelerated depreciation, though it may be in accordance with generally accepted accounting principles and the company may be entitled for such benefits but as the same cannot be recovered through product price, it needs to be excluded for the purpose of arriving at the cost o? production and only normal rate of depreciation is being allowed in working out the quantum of safeguard duty.

To reduce the power cost, steps have already been taken by TPL toward* setting up of captive power generation facility. The facility has already been installed and expected to be commissioned by June 2002 which would get • stabilised over a period of next two years. This would also bring down considerably the maximum demand charges gradually over a period of time , that are being paid by TPL to the Tamil Nadu Electricity Board, and as a sequel chlorine cost could be reduced considerably. The Allyl Chloride Mixer has been commissioned in March 2002 after the notice of initiation for safeguard investigation was issued. Efforts are being made by TPL to stabilise the reactor for efficienct consumption norms, which would depend to a considerable extent on the capacity utilisation. All this is an ongoing exercise, which would continue for increasing the efficiency and onstream factor to the optimum. As regards the terminal at Ennore, TPL has promoted a company Van Ommeren Mac Tank Terminals now known as Vopak Sical Terminal Limited with equity participation by Vopak (40%), Sical (5%), TPL (35%) and TIDCO (11%). TPL have proposed ' setting up of 32 tanks for handling a variety of petro-chemical products and have already acquired about 30 acres of land for the project. They have obtained necessary clearances from the Tamilnadu Pollution Control Board. The raw material and finished product traffic figures of the TPL project have been factored in the cvsrsii traffic figures of the first corpcratised port in the country. The port 42 THE GAZETTE OF INDIA: EXTRAORDINARY [PART II—SEC. 3(i)l has already started commercial operation since June 2001 handling Coal for the thermal power plant set up by TNEB. SICAL a sister company of TPL is the sole handling agency for coal. Phase II of the port envisages setting up of 4 berths, JB for liquid cargoes and one for coal. The port authorities have already obtained, in principle clearance from the Government of India for these projects. The.poft management have called for an expression of interest for a marine liquid terminal at Ennore. TPL have submitted their documents for the same which is expected to be finalised by end of September 2002. The Ennore port expects this to be operational by 2004. TIDCO has also proposed a petrochemical park adjacent to the port and have already acquired about 2500 acres of land and a number of prospective players are in talk with TIDCG. There is a possibility of a cc* . operative effort on this front between TPL & TIDCO. After due analysis of the restructuring plans and keeping in view the possibility of implementation of the plans , it is considered that the domestic producer would need protection for a period of three years to prevent occurrence of serious injury and to make positive adjustment to the competition offered by imports.

Public Interest

Some of the parties have argued that imposition of safeguard duty would not serve any public interest. On the contrary imposition of safeguard duty would severely prejudice the public interest as a number of end user industry may close down. In this regard, it is observed that the expression 'public interest¹ does not cover in its ambit consumer interest alone. It is a much wider term, which covers in its ambit the general social welfare taking into account the larger community interest. While the imposition of safeguard duty may result in increased cost of imported ECH in the hands of buyers and, therefore, it may aleo effect the end products manufactured therefrom, it is important to keep in mind the objective of imposition of safeguard duty. The purpose of imposition of safeguard duty is to provide time to the domestic industry to make positive adjustment to meet with the new situation of competition offered by the increased impprts. The imposition of safeguard duty, for the period and to the extent just adequate, would, therefore, not only minimise the adverse effect, if any, for the customers but also allow them a wider choice to source their requirements and at competitive prices. The domestic producers who have set up plants with huge public investments provide employment to a large number of people and make valuable contribution to the national economy. 'Safeguard duty', which would enable the domestic producers to survive in the face of competition offered by the increased imports, will, therefore, also be in the long-term interest of the buyers of ECH as well as of the buyers of products manufactured therefrom. It is, therefore, considered that imposition of safeguard duty on ECH will be in public interest.

Some of the parties have argued that the applicant being the sole producer of ECH, imposition of safeguard duty would lead to a monopolistic situation and TPL would exploit the domestic market. It is appropriate to observe here that the domestic producer has a total capacity of 10,000 TPA as compared to substantially higher capacity of exporters. The imports of ECH are allowed into India wiihGUi any quantity restrictions. In the light of unrestricted Imports it is not43 correct to presume that TPL enjoyed/enjoys any monopoly particularly when imports accounted for about 70%, on an average, of the apparent domestic consumption during the period 1998-99 to 2001-02 (upto January). The law also does not envisage that interest of a single producer should not be protected even if it rightly deserves to be protected. Imposition of safeguard duty is not aimed at encouraging monopolistic practices but at protecting the interests of domestic producers, if increased imports cause or threaten to cause serious injury to them so as to allow them time to make positive adjustment with the new situation of competition offered by the increased imports.

Some of the parties have argued that TPL is not capable of meeting with the domestic demand of ECH and hence any imposition of safeguard duty would benefit only PAPL, to whom TPL are committed to supply ECH. It has been claimed that the capacity created by TPL is never tested in terms of actual production on continuous basis and the maximum achieved production can only be considered as the capacity of TPL. In this regard, it is observed that the domestic producer has furnished documentary evidence of their capacity on ft confidential basis. They have stated that production can be stepped up in a short span of time if the opportunity is afforded to them to run the plant at higher load factor and meet the demand. I do not agree that in the circumstances of this case, where domestic producers were not able to sell the material to buyers only the quantity produced should be considered the capacity of the plant. In the absence of any evidence made available to the contrary, no ground exists to hold that they do not have adequate capacity to meet the domestic demand or to hold that the imports were necessitated because TPL was not in a position to cater.

Further, it is observed that TPL has set up a plant with installed capacity of 10,000 MT per annum. As verified, TPL achieved the highest production of 547 MTs in a month and 28.14 MT in a single day. Accordingly, there is no doubt that they can produce 6500 - 8500 MT per annum of ECH. As against this the Apparent Domestic consumption of ECH during the last three years i.e. 1999- 2000, 2000-01 & 2001 -02 (upto January) has been of the order of 6000 to 8000 MT per annum, including the requirement of PAPL. In view of the above, I observe that it will not be fair to hold that TPL are not able to cater to the domestic requirements of ECH.

It may also be pertinent to mention here that consequent to Ciba India Pvt. Ltd. (CIPL) divesting their status in PAPL in favour of Vantico Performance Polymers Pvt. Ltd., TPL had to agree to waive the right of first refusal in respect of shares sought to be sold, cessation of existing supply agreement for supply of ECH to PAPL to be superseded by a new supply agreement and release CIPL from its obligation and duties subsisting under various agreements. In consideration of this premature termination of the contracts and for surrendering the above rights a sum of Rs.630,248 thousands was settled by CIPL as compensation to be paid to TPL. Besides PAPL has opposed imposition of safeguard duty on ECH as a consumer of ECH and being the largest manufacturer of epoxy resins although PAPL is jointly owned by TPL alongwith M/s. Vantico International. There is, therefore, no ground to presume that interest of TPL and PAPL coincide in seeking safeguard duty imposition on ECH.

44 THE GAZETTE OF INDIA: EXTRAORDINARY [PART II—SEC. 3 (i)] It is, therefore, considered that imposition of safeguard duty on ECH will be in Public Interest.

Provisional Safeguard Duty

Since on completion of the investigation final findings have been made, it is not considered necessary to recommend any provisional measures in the present case.

Share of Countries in Export to India

As per verified information, the share of countries in export of ECH to India during 2001 -02 (upto January) was as under:

CONCLUSION AND RECOMMENDATION

In view of the findings above, it is concluded that increased imports of ECH into India have caused and further threatened to cause serious injury to the domestic producers of ECH and it will be in the Public interest, to impose safeguard duty for a period of three years on imports of ECH into India.

In arriving at the amount of safeguard duty that would be adequate to prevent serious injury to the domestic industry and facilitate positive adjustment, the peculiar circumstances of the domestic industry, particularly their low capacity utilisation has been kept in mind and accordingly two alternatives have been considered for working out the quantum of safeguard duty. One based on the cost of production for which the duly verified cost of production for ECH for the period 2000-01 (audited accounts) and for 2001-02 (un-audited), after making suitable45 adjustments and providing only normal depreciation as against accelerated depreciation and the probable cost of manufacture at optimum capacity (Confidential) being more reflective of the true cost has been taken into account. The domestic producers have claimed a certain amount of profit on the basis of expected return on capital employed etc. which is considered to be on the higher side and, therefore, a lower amount of profit (confidential) based on the weighted average cost of production has been considered appropriate and allowed. Similarly, the C.I.F. import prices of ECH also have been considered on verified weighted average basis for the year 2001-02 (upto January). Adjustments have been made in the C.I.F. import price for credit terms and landing charges on an average basis. Change in the applicable rate of customs duty, if any, has been taken into account in working out the landed price of imported ECH. The other calculation has been based on the extent of benefit flowing from the restructuring Qf domestic industry. The amount of safeguard duty so recommended has been restricted to the lower of the two being the minimum that would be adequate to remove injury to the domestic industry and to facilitate them to adjust to the import competition.

Considering the need to progressively liberalise the safeguard duty in order to facilitate positive adjustments by the domestic industry, it is recommended that safeguard duty be imposed on imports of ECH into India at the rates specified below on ad-valorem basis for a period of three years as under being the minimum necessary for the protection of the domestic industry from the serious injury caused and further threatened to be caused by the increased imports of ECH.

[F.No. SG/INV/1/2002]

R.K, GUPTA, Director General (Safeguards) Printed by the Manager, Govt. of India Press, Ring Road, Mayapuri, New Delhi-110064 and Published by the Controller of Publication^ Delhi-110054.