WORLD TRADE
ORGANIZATIONG/SG/N/8/IND/6/Suppl.1
29 May 2001
(01-2680)
Committee on Safeguards Original:  English
NOTIFICATION UNDER ARTICLE 12.1(B) OF THE
AGREEMENT ON SAFEGUARDS ON FINDING A SERIOUS INJURY
OR THREAT THEREOF CAUSED BY INCREASED IMPORTS
INDIA
Supplement
The following communication, dated 25 May 2001, has been received from the Permanent
Mission of India.
_______________
The Permanent Mission of India wishes to refer to their letter dated 10 January 2001,
enclosing therewith a copy of the Notice of review of Safeguard Duty imposition on imports of
Phenol into India (Notification No. SG/INV/2/98 (R ev) dated 1 January 2001), issued by the Director
General (Safeguards) Notification dated 1 January 2001, which is contained in WTO document
G/SG/N/14/IND/1 dated 11 January 2001.
The attached notification (No. SG/INV/2/98 (Rev) dated 16 May 2001) contains the final
findings of the Director General (Safeguards) concerning this review.G/SG/N/8/IND/6/Suppl.1
Page 2
OFFICE OF THE DIRECTOR GENERAL (SAFEGUARDS)
5TH FLOOR, `D' BLOCK, I.P.BHAWAN
NEW DELHI.
F.No.SG/INV/2/98(REV)
16 May 2001
Sub: Review of Safeguard duty imposition on im ports of Phenol into India under Rule 18 of
the Customs Tariff (Identification and Assessment of Safeguard Duty) Rules, 1997-
final findings.
NOTIFICATION
Having regard to the Customs Tariff Act, 1975 and the Customs  Tariff  (Identification and
Assessment  of Safeguard Duty) Rules, 1997 thereof.
A. INTRODUCTION
The notice initiating investigation concerning import of Phenol into India was issued on
02.02.99 under Rule 6 of the SGD Rules.  Final findin gs were issued under Rule 11(1) of the said
Rules, (published in the Gazette of India (Ext raordinary) Part II-Section-3-Sub-section (i)) on
11.06.99, recommending  safeguard duty to be imposed @ 22 per cent ad valorem during the 1st year
and  @ 15 per cent ad valorem during the 2nd year on imports of Phenol into India being the minimum
necessary for the protection of the domestic industry from the serious injury threatened to be caused
by the increased imports of Phenol.  In exercise of powers conferred by sub section (1) of section 8B
of the Customs Tariff Act, 1975(51 of 1975) read with Rules 12 and 14 of the SGD Rules and basedon the final findings of the Director General (Safeguards), the Central Government vide Notification
No.82/99-Customs dated 30
th June, 1999 imposed on Phenol, falling under sub-heading number
2907.11 of the First Schedule to the said Customs Tariff Act, when imported into India, a safeguard
duty at the rate of;
(a) 22 per cent when imported up to and inclusive of the 29th day of February, 2000; and
(b) 15 per cent when imported from the 1st of March, 2000 to 29th day of   June, 2001 (both days
inclusive).
B. PROCEDURE
The  Notice of Review to consider whether safe guard duty on imports of Phenol into  India
should be continued to be imposed to prevent serious injury was issued  on 01.01.2001 and was
published in the Gazette of India, Extraordinary on  08.01.2001.  A copy of the Notice was sent to all
known interested parties, namely:-
Domestic Producers
(i) Hindustan Organic Chemicals Ltd (HOCL), Mumbai
(ii) Herdillia Chemicals Ltd. (HCL), Mumbai
(iii) Neyveli Lignite Corporation, Tamilnadu.G/SG/N/8/IND/6/Suppl.1
Page 3
Importers/User Industries
(i) C.J.Shah & Company, Mumbai
(ii) Haresh Kumar & Company, Mumbai
(iii) PCL Industries, New Delhi.(iv) Kantilal Manilal & Company, Mumbai
(v) Vinmar International India Pvt. Ltd., Mumbai
(vi) Sonkamal Enterprises,Mumbai
(vii) Khetan Brothers, Mumbai
(viii) Shubham Dyes & Chemicals Ltd., Delhi
(ix) Xpro India, Mumbai
(x) Kesar Petroproducts Ltd., Mumbai(xi) Bakelite Hylam Ltd., Hyderabad
(xii) Greenply Industries Ltd., Distt. Ratnagiri, Maharashtra
(xiii) Gargi Huttenes Albertus Private Limited, Mumbai
(xiv) Alta Laboratories Ltd.,Dadar, Mumbai
(xv) United Phosphorus Limited, Mumbai(xvi) Colour Chem Limited, Balkum, Thane
(xvii) Kitply Industries, Calcutta
(xviii)  Romit Resins Pvt. Ltd., Panvel
(xix) Bilag Industries, Vapi
(xx) United Metachem, Pune
(xxi) Marvel Thermosets P. Ltd., Mumbai
(xxii)  Helm India Pvt. Ltd., Mumbai.
Exporters
(i) Phenolchemie GmbH, Germany
(ii) Enichem, Italy
(iii) Georgia Gulf Corporation, U.S.A.
(iv) Mitsui Chemicals, Tokyo
(v) Kumho Chemical Company, Seoul, Korea
(vi) Taiwan Prosperity Chemical Company, Taiwan
(vii) Merisol, South Africa, (Merichem Sasol)(viii) Kolmar Petrochemicals AG, Switzerland.
(ix) ICC Chemical Cor poration, New York,
(x) Tosoh Corporation, Tokyo
(xi) Formosa Plastics Corporation, Taiwan
(xii) Tricon Energy Ltd., U.S.A.
Overseas Associations
(i) Chemical  Safety Management Centre, Japan Chemical Industry Association-JCIA,
Tokyo 100, Japan.
(ii) Chemical  and Allied Industries Associ ation -(CAIA) Auckland Park 2006, South Africa.
(iii) Korean  Petrochemical Industry Association -(KPIA) Chongno-ku, Seoul, Korea.
(iv) Petrochemical  Industry  Association   of   Taiwan (PIAT) Section 4, Chutung, Hsinchu,
Chinese Taipei
(v) Chemical Manufacturers Association (CMA) Virginia-22209, USA(vi) Verband der Chemischen Industrie - VCL GermanyG/SG/N/8/IND/6/Suppl.1
Page 4
Indian Associations
(i) Society of Thermosetting Industries, Mumbai
(ii) Indian Laminates Manufacturers Association, Mumbai
(iii) Indian Chemical Manufacturers Association, Mumbai
2. A  copy  of the notice along with the  application and questionnaire  was  also sent to the
governments  of exporting countries  through their High Commissions/Embassies in New Delhi
namely Belgium, Chinese Taipei,  Germany,  Italy, Japan,  Korea  DPR, Korea RP, the  Netherlands,
Russia, Singapore, South Africa, U.K., USA and to the European Union, Delegation of the European
Commission in India, New Delhi.
3. Questionnaires  were also sent on the same day to  all known  domestic producers, exporters
and  importers who were asked to submit their response by 09.02.2001.
4. Request  for  extension of time to  submit  their reply was made by the following parties:
(i) Kesar Petroproducts Ltd., Mumbai
(ii) Alta Laboratories Ltd.,Dadar, Mumbai
(iii) Kitply Industries, Calcutta
(iv) Romit Resins Pvt. Ltd., Panvel
(v) Marvel Thermosets P. Ltd., Mumbai
(vi) Dujodwala Resins & Terpenes Ltd., Mumbai
(vii) The Institute of Indian Foundrymen, Calcutta
(viii) All India Association of Industries, Mumbai
However, as the requests for extension were made without proper justification, the extension
of time prayed for was not acceded to and the parties concerned were informed accordingly.
5. Replies  to the Notice dated 01.01.2001 and to  the questionnaire were received from the
following parties:-
Domestic Producers
(i) Hindustan Organic Chemicals Ltd., Mumbai
(ii) Herdillia Chemicals Ltd., Mumbai
(iii) Neyveli Lignite Corporation Ltd., Neyveli
Importers/User Industries
(i) Kesar Petroproducts Ltd., Mumbai
(ii) Alta Laboratories Ltd.,Dadar, Mumbai
(iii) Kitply Industries, Calcutta
(iv) Marvel Thermosets P. Ltd., Mumbai
(v) Xpro India Ltd., Mumbai
(vi) United Metachem Pvt. Ltd., Pune
(vii) Daurala Organics Ltd., New Delhi
(viii) Colour Chem Ltd., Thane
(ix) Schenectady Specialities Asia Ltd., Mumbai
(x) Gargi Huttenes – Albertus, Mumbai
(xi) Foseco India Ltd., Pune
(xii) Century Laminating Co. Ltd., CalcuttaG/SG/N/8/IND/6/Suppl.1
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Exporters
(i) Phenolchemie, Germany
(ii) ICC Chemical Corporation, USA
(iii) Mitsui Chemicals, Tokyo, Japan
Indian Associations
(i) Society of Thermosetting Industries, Mumbai
(ii) All India Association of Industries, Mumbai
(iii) Indian Chemical Manufactur ers’ Association, Mumbai
6. Verification of the information considered necessary for the investigation was done and to
this end a team of officers including Cost Accoun ts experts visited the premises of M/s. Hindustan
Organic Chemicals Ltd., Cochin; M/s. Herdillia Chemicals Ltd., Mumbai; M/s. Kesar Petroproducts
Ltd.,  Mumbai.  Th  outcome of investigations was conveyed to the concerned parties and a copy of
the investigation report was also placed in  the Public File.
7. A Public Hearing was given to all  interested parties on 12.04.2001 notice for which was sent
on 09.03.2001.  During the Public Hearing, the interested parties were requested to file their written
submission of oral arguments made by them by  19.04.2001, collect  replies filed by others on
23.04.2001 and to file rebuttals if any, by 30.04.2001.
The following parties attended the public hearing:
(i) Hindustan Organic Chemicals, Mumbai
(ii) Herdillia Chemicals Ltd., Mumbai(iii) Phenolchemie, Germany (through Counsel)
(iv) Schenectady Specialities Asia Ltd., Mumbai
(v)  Sumitomo Corporation, Japan
(vi) Mitsui & Co. Ltd., Japan
(vii) Beardsell Ltd.,
(viii) Foseco India Ltd., Pune. }  Through Counsel
(ix)  Kesar Petroproducts Ltd., Mumbai }(x)  Daurala Organics. Ltd., New Delhi }
(xi) Herman Bawa (P) Ltd. }
(xii) Shubham Dyes & Chemicals., Delhi
(xiii) Century Laminating Co. Ltd., Calcutta.
(xiv) Everest Plastics, New Delhi.
(xv) Paras Dyes & Chemicals, Delhi.
C. VIEWS OF EXPORTERS
The following main points have been made by the exporters:
(a) Phenol Chemie, Germany
(i) They are a global player selling phenol all ov er the world  Their average price in India was
US$ 630 per ton which was 20 per cent higher than prices prevailing in other Asian markets,
especially in South East Asia.G/SG/N/8/IND/6/Suppl.1
Page 6
(ii) They had a capacity of 1.2 million tons per annum in the year 2000 and presently their
capacity is 1.4 million tons per annum namely Gladbeck 639 Kt/Antwerp (Belgium)420 Kt/Mpbile
(US) 400 Kt.  Their capacity utilization was above 92 per cent.
(iii) They had exported to India 4579 MT of Phenol during the year 2000.(iv) Phenol besides being used as a pesticide is used to produce Phenol formaldehyde
condensation resins, which continue to account for more than 25 per cent of all uses of phenol
worldwide.  Phenol resins are used in many different applications: in decorative & industrial
laminates, drugs, moulds in the foundry industry, adhesives, as well as in a wide range of other
applications. In recent years the use of phenol for the production of Bisphenol-A has grown at above
average rates & this growth is expected to continue .  The most important reason for this growth is the
use of Bisphenol-A in products such as compact discs & CD ROMs for computer storage, aircraft
windows & structural parts in trucks.
(v) The impact of credit has no place in a non-injurious price calculation.  As exporter they would
like to put on record that any credit they grant is only against Letter of Credit. In India as far as theyare aware there is a cost for getting the Letter of Credit.  As all commercial transaction, credit has cost
which eventually reflects in the pricing of the goods.
(vi) There can be no basis for the continued imposition of Safeguard Duty since there have been
no increase in imports; the data that the applicants rely revealing increase in imports of Phenol have
already been taken into consideration and consequently is covered under the principle of Res Judicata
i.e. the same issue cannot be decided twice between the same parties.
(vii) There is no provision in the law that as a result of the imposition of Safeguard Duties the
domestic petitioners must make profit or that they must regain the lost market share.
(viii) The continued imposition of Safeguard Duty & even extension at a reduced level is unfair &
is contrary to Public Interest.
(b) ICC Chemical Corporation, USA
(i) Section 8B of the Customs Tariff Act, 1975 provides for levy of continuation of Safeguard
Duty and the three conditions for imposition of Safeguard Duty are namely Articles must be imported
into India in increased quantities; there must be a serious injury to the domestic industry; and Casual
link between imports in increased quantities and seri ous injury or thereby a serious injury to the
domestic industry.
(ii) For continuation of Safeguard Duty, the Central Government must be of the opinion that the
domestic industry has taken measures to adjust to such injury or the threat thereof.
(iii) The applicants have failed to establish the ingredients mentioned above which are required
not only for the levy of Safeguard Duty, but also the continuation thereof.
(iv) The total import of Phenol during the current year 2000-2001 is projected to be less than the
total imports during 1998-99 and 1999-2000.  It is estimated to be 25760 MTs.  The domestic industry
has achieved 97 per cent capacity utilization based on their installed capacity declared in their Balance
Sheets.  The domestic production was affected by factors related to the internal problems of thedomestic industry which have nothing to do with the import of Phenol.
(v) For both HOCL and HCL, Phenol is a prof it-making product.  HOCL and HCL appeared to
be seeking protection to recoup/recover the loss made by them on other products manufactured byG/SG/N/8/IND/6/Suppl.1
Page 7
them at the cost of the domestic industry usin g Phenol and manufacturers of other down-stream
products.
(vi) The closing stock of the two manufacturers of  Phenol, reflect an healthy sales in the local
market.  The closing stocks are equal to about 4 days production which is normal by any standards.
(vii) The sale price of Phenol has increased from Rs. 35,541/- per MT in 1998-99 to Rs. 45,810/-
per MT in 2000-2001.
(viii) The percentage of sale price to the cost of the raw material is about 260 per cent at the present
sale price of Phenol of the applicants.
(ix) The applicants have not made any adjustments in the past two years when SGD was imposed
to be more cost efficient and remedy the alleged injury caused or threaten to be caused by imports.
(x) The applicants are oversized in terms of manpower and the cost estimates for the proposed
expansion is excessive and exaggerated having regard to the International standards and norms.
(xi) They had exported to India approximately 5,000 MT of Phenol per year during the last three
years.
They had addressed a letter dated 27.04.2001 stating inter alia  that on the request of
M/s. Kesar Petroproducts, Mumbai they had forwarded a covering letter for submission of routine
paper work for the Public Hearing on 12.04.2001.  Subsequently they have been given to understand
that their covering letter was submitted along with certain documents  of which they have no
knowledge and are without their approval or permission.  They have requested that all documents
submitted under their covering letter be treated as null and void and not to be taken on record.
(c) Mitsui Chemicals, Tokyo, Japan
(i) Imports of Phenol into India have increased with internationally competitive price due to
insufficient quantity of production by Indian ma nufacturers against demands from Phenol Users.
(ii) Price levels in India set out by Indian manuf acturers is extremely high compared to that of
other Asian Countries, which compress profitability of Phenol derivatives manufacturers, and would
cause irreparable adverse effect on general economy in India.
(iii) Non-achievement of “Implementation of Adju stment Plan” for Indian manufacturers is not
caused by increment of imports of Phenol but by st ructural problems of Indian Phenol manufacturers.
(iv) It is not true that Phenol is being imported into India at prices much lower than that of second
half of the year 1998 (when adjusted for the increase in the raw material cost).  They admit that the
import prices of Phenol in India was at rather low level during the period of March 1999 to
October 99, and consequently, the margin from Phenol price and raw material cost was lower thanthat of 2
nd half of 1998.  However, it was not the specific issue in India but in all over the world
including other Asian countries, which was due to the sudden price increment of raw materials.  If the
average of cost adjusted Phenol from April, 2000 to December 2000 is taken, it works out to
US$437/MT, not for from that of Sept, 1998 US@ 450/MT which is the evidence that Phenol
manufacturers could have adjusted the export prices to India at least 9 month later than suddenincrement in price of raw materials.  The import price of Phenol into India has been in appropriate
range from the marginal point of view as of now.G/SG/N/8/IND/6/Suppl.1
Page 8
(v) Due to Force Majeure circumstances and cash crunch as stated by the applicants they were
obliged to stop production for certain period of time.  As a consequence, the quantity produced by
Indian Phenol producers could not satisfy the total demand of Phenol in India and Phenol users had to
procure Phenol from outside India even after the imposition of Safeguard Duty.  The increment of
imported Phenol was not the cause for lower production by Indian manufacturers, but  less productionby the Indian manufacturers has caused increased imports of Phenol in spite of imposition of
Safeguard Duty from July, 1999.
(vi) HOCL and HCL have requested for US $ 201.05/MT of Safeguard Duty in order to raise the
import price of Phenol to US$ 991/MT being claimed as the reasonable average survival selling price.
If one takes US$610/MT as CIF price, which was actual sales price of December 2000 in Phenol
producing countries in Asia, the landed cost after import duty (exclusive of Safeguard Duty) of eachcountry is as follows :
Country Import Duty Rate
Excluding Safeguard
DutyImport price
After Import
DutyDifference
From
US$ 777.75
People’s Republicof China9% US$664.90 -US$112.85
Japan 0% US$610.00 -US$167.75
Republic of Korea 8% US$658.80 -US$118.95
Chinese Taipei 1.25% US$617.63 -US$160.12
India 27.5% US$777.75 -US$0.00
(vii) Taking into account the other related cost for import such as Custom clearance fee, the price
of Phenol after import duty in India is already higher than those of other Asian countries due to high
quantum of Custom Duty in India even excl uding Safeguard Duty.  Requesting additional
US$201.05/MT or equivalent quantum of Safeguard duty is the evidence of high-cost structure of
Indian manufacturers compared to those of other Asian Countries.  They  understand that India
belongs to WTO, whose function is to ensure trad e flows between nations as smoothly, predictably
and freely as possible, and in that sense, US$201.05/MT of safeguard duty is against the policy of
WTO and unreasonable requirement  which no other country except India applies in the world.  Most
of the Phenol manufacturers other than HOCL and HCL actually exported with more or less the same
level of price stated as above, and no quantity of export by HOCL and HCL during year 2000 is theevidence of non-competitiveness of Indian Phenol manufacturers as well.
(viii) They have been requested by Phenol users in India to supply them Phenol at competitive price
with high quality which domestic Phenol manufacturers were unable to attain.  However, as long as
Safeguard Duty on Phenol is imposed in India, Phenol users in India are obliged to bear the said
additional duty, and consequently, the price of Phenol derivatives, which are used in various
industries from Plywood to electrical equipment industry or pharmaceutical industry, would lose
international competitiveness and would cause irreparable adverse effect on general economy in India.
(ix) The compression of Gross Margins of Indian manufacturers is due to structural failure of
procurement of raw materials, and no counter-measure have been made for that and for
“Implementation of Adjustment Plan Scheme”.
(x) They have a strong objection to the view of significant global over capacity in case of Phenol
expressed by HOCL and HCL since their  view is lateral from Phenol supply side only and demand
from users has not been taken into account.G/SG/N/8/IND/6/Suppl.1
Page 9
(xi) HOCL and HCL mentioned that Phenol producti on capacity has been or will be increased by
1.2 million TPA.  However, during the same period, Bisphenol-A, which is one of the biggest Phenol
derivatives, has been or will be increased its production capacity by 0.9 Million TPA (which is equal
to 0.8 Million TPA as Phenol) mainly from Bayer in USA (160,000 TPA), Bayer in Thailand
(160,000 TPA), Mitsui Chemicals in Singapore ( 140,000 TPA), Bayer in Europe (135,000 TPA) and
Nanya Plastics in Taiwan (100,000 TPA).  Considering the increased demand from other Phenol
derivatives, such as Phenolic Resins, Cyclohexanone, and Aniline, the worldwide relation between
supply and demand of Phenol is well-balanced.  In addition to that, further increment of production
capacity of Bisphenol-A is expected by Kumho P&B in Korea (100,000 TPA), Bayer in China
(100,000 TPA), and Mitsui Chemicals in Sing apore (70,000 TPA) during 2002-2003, while no Phenol
production capacity increment has been officially announced by them.
D. VIEWS OF THE INDIAN ASSOCIATIONS
The following main points have been made by them :
(a) All India Association of Industries, Mumbai.
The views expressed by them are on the same lines to that of domestic user industry.
(b) Indian Chemical Manufacturers Association
They wish to state that Hindustan Organic Chemicals Ltd. and HCL are members of ICMA
and they have requested for restoration of customs duty on Phenol to peak level duty on chemicals.
Their request was considered favourably in the Trade & Business Development Expert Committee
meeting and they have recommended in their pr oducts specific recommendations forwarded to the
Government of India that the customs duty on Phenol should be restored to peak level duty on
chemicals.
(c) Society of Thermosetting Industries, Mumbai
Safeguard Duty is intended to give sufficient time to the indigenous manufacturers so as to
make them competitive vis-à-vis imports.  No substantial change will take place in the working or
operation of both these manufacturers by continuing the duty.  While imposing or continuing the
Safeguard Duty, the Government should also consider the harm that may be caused to the consumingindustry.  A greater harm will be caused to the consuming industry by continuing it.
After imposition of the Safeguard Duty, the manufacturers frequently increased their basic
phenol price by almost 52 per cent which is ve ry steep i.e. from Rs. 31,000 per ton in July 1999 to
Rs. 47,000 per ton in October, 2000.  Phenolic  Resi n industry which is the main consuming industry
of Phenol cannot pass on the increased burden fully and have been able to pass on only a fraction of
added cost to their customers.  This has seriously affected the working of all the consuming industries
in the current financial year and many of them are under the verge of closure.
When the original application was made for imposition of safeguard duty, the international
price of Phenol was between US$395-420 per ton CIF Indi a.  At present, it has stabilized and is above
US$630 per ton and as such there is no reason for manufacturers to complain.
E. VIEWS OF  IMPORTERS/USER INDUSTRIES
They have made the following broad main points:G/SG/N/8/IND/6/Suppl.1
Page 10
(i) The Effective Phenol capacity (TPA ) by the applicants has been overstated for the year 1997-
1998 onwards.  As per their published Annual Re port Hindustan Organic Chemicals Ltd.(HOCL) the
installed capacity was 40000 TPA which has not increased till 1999-2000 . Even in the reports
submitted by HOCL to its controlling Administrative Ministry the target has been shown as 40,000
TPA in the years 1999-2000 and 2000-01.  Thus, the installed capacity for the year and capacityutilization mentioned in the application needs to be corrected.  The capacity has been overstated to
make out a case of under utilization of capacity.
(ii) As regards 2000-01 there is no basis to assume that the installed capacity has increased over
1999-2000, since the Annual Report of 1999-2000 of both the domestic manufacturers do not reflect
any such programme to increase their capacities.
(iii) If the Effective Phenol capacity of HOCL had really been increased in 1997-98, there can not
be any reason why the same would not have been included in the Company's Annual Report which is
the true and fair record of its performance duly audited by statutory authorities and in case of HOCL
by Government auditors also.  The Annual Report is a Company's authentic document made available
to the legal authorities and its shareholders and must contain the correct details.
(iv) If the correct figures are adopted, the capacity utilization for 1997-98 would be 104 per cent,
95 per cent in 1998-99,  97 per cent in 1999-2000 and 96 per cent during 2000-01.  This is despite the
fact that their plants were not operational on many occasions due to their internal problems not related
to market demand or imports.
(v) HOCL in their report to their Administrative Ministry reported loss of production of Phenol
of 5201 MT due to shortage of power, raw material, shutdowns etc. during the period from April 2000
to Dec 2000. HCL has also reported loss of production during April – June, 2000 to the extent of
5,300 MT.  Thus, the total potential loss of Phenol production is 10,501 MT which is not on accountof an increase in imports but due to other factors.
(vi) In the board meeting held on 27 July for declaring unaudited results for quarter ending
30 June 2000, HCL had mentioned that “the company’s operation were affected due to non-
availability of a key raw material because of extended shut down at the suppliers refineries”.  Hence
production loss was not due to imports or cash crunch but because of other reasons.
(vii) The capacity utilization ranged between 68 per cent to 78 per cent in respect of other products
manufactured by HCL vis-à-vis the capacity utilizat ion of Phenol which was much higher at 85 per
cent to 93 per cent.  Similar was the case in respect of HOCL where the capacity utilization ranged
between 79 per cent to 86 per cent in respect of other products as compared to the capacity utilization
of Phenol plant which was much higher between 89 per cent to 105 per cent.  The losses due to suchunder utilization of capacities in respect of other products should not be taken into account to reckon
the performance of the Phenol plant.
(viii) In their earlier submission, the domestic manufacturers had complained about very high
imports( 25048 Mt ) during 1998-99 (until Dec 98) as against 15352 Mt. during 1997-98.  Actually in1998-99 the domestic Phenol production up to Dec 98 was very low i.e. 48703 Mt. (i.e. 5411
Mt./month) as compared to the normal production of 69281 Mt. (5773 Mt/ /month).  This resulted in
higher imports up to Dec 1998.  The production in the last quarter was 17506 (i.e. 5835 MT/month)
and thus when the production increased the imports came down drastically and the imports in last
quarter of 1998-99 were only 1622 MT.  It is thus seen that imports increased in first three-quarters of1998-99 only because domestic manufacturers failed to produce adequate quantities.  Thus the
Safeguard Duty was recommended by Director General (Safeguard) on the apprehension that imports
in 1998-99 would go up to 33400 MT.  Actual import were however 26,670 MT and that too for
meeting the gap between market demand and domestic production.  The market share of importedG/SG/N/8/IND/6/Suppl.1
Page 11
material in 1998-99 was projected to be 36 per cent on the basis of statistics up to Dec. 1998 where as
it was actually 29 per cent.  It may be noted that the market share of imported material in 1997-98 was
23 per cent.  Thus even before imposition of Safeguard Duty, the increase in the market share of
imports was very moderate and that too because of increased market demand from 79708 MT in
1997-98 to 92073 MT in 1998-99 (16 per cent increase).
(ix) Imports are growing because the domestic consumption has been increasing whereas the
domestic production was not growing in the same proportion, which resulted in increased imports to
fill in the gap between domestic demand and supply.  As per working group set up by erstwhile
Department of Chemicals and Fertilisers, Govt. of India  the projected demand of Phenol for 9th Five
year plan is 1,45,000 MTA by 2001-02 and 2,49,000 TPA by 2006-07.  This shows there is a big
demand in India.  Therefore, the manufacturers can not claim falling market share as a reason forseeking protection.
(x) HCL consumes phenol for its captive requirement and has also imported Phenol.  HCL should
have produced extra quantity to meet its requirement and increase its capacity utilization, which only
shows that HCL can not produce more and its capacity utilization  is at its best.
(xi) The closing stocks of imported materials are not substantial, which shows that the imports are
resorted to only for actual requirements and the closing stock of domestic production is even less than
the closing stock of imported material as reflected in the application which shows that the domestic
production was being sold without any difficulty.  The domestic manufacturers are not sufferingbecause of increase in imports but on the other hand  the consumers are required to import Phenol
because of inability of the domestic manufacturers to supply the same.  Thus, the consumers of
Phenol have to import Phenol for their requirements  over and above the domestic supply and have to
unnecessarily pay higher price due to imposition of safeguard duty which makes their cost of
production non competitive in international markets and also makes their capacities remainingunderutilized and their operations non profitable.
(xii) The closing stock with the manufacturers is not high and the same works out to 7 days
production for the year 1999-2000 and 4 days production for the 8 months during the year 2000-01.
Even prior to the imposition of Safeguard Duty the closing stock for the year 1997-98 was 12 days
production and for the year 1998-99 it was 14 days production which is a normal stock level for bulk
chemicals.
(xiii) The total consumption of Phenol is steeply increasing from the year 1997-98 onwards.  In fact
the demand will be much more if the price of Phenol is at a reasonable level to enable the down
stream producers to use their full capacities which is not presently possible since their end products
are getting imported at a cheaper prices in India.
(xiv) There is a limit up to which the domestic manufacturers of Phenol can increase their
production under the existing capacities whereas the consumption will go on increasing and the
manufacturers should not have a grudge that their market share is going down.  There has been no
serious progress made in setting up new capacities by the domestic manufacturers.
(xv) Due to increased demand for Phenol in Indian market and non-increase of domestic
production the consumers have to import higher quantity of Phenol paying higher import duty due to
imposition of Safeguard Duty.  This, however, provided additional cover for the indigenous
manufacturers to increase their prices without taking steps to improve their efficiency for additionalproduction or reduction in cost of manufacture.  When the domestic manufacturers cannot meet the
market demand even after selling their entire mate rial they can not complain about increasing imports
and ask for continued protection by way of safeguard duty which is being used only as a cover to
increase their sales prices and make undue profits.G/SG/N/8/IND/6/Suppl.1
Page 12
(xvi) With the imposition of Safeguard duty, the domestic manufacturers of Phenol have gained
unintended benefit of Rs.5738/= PMT due to increase in price of Phenol and exchange rate escalation.
The depreciation of rupee coupled with an increase in the price of Phenol in last two years has
ensured sufficient protection to the applicants.
(xvii) It is seen that applicants have calculated the allocated raw material cost at different
consumption norms varying between 0.554 per MT to  0.723 per MT for Benzene and 0.255 per MT
to 0.394 per MT for Propylene as against applicant’s data of average consumption for Benzene of
0.606 and of Propylene 0.348.  This is not based on any recognized industry standards.  The average
consumption norms are higher than 0.538 per MT. and 0.300 per MT given by UOP (International
Technology supplier).  Thus the average consumption taken by the applicants is higher by 12.4 percent in case of Benzene and 16 per cent in case of Propylene.  The higher consumption ratio exposes
inefficient operating level of the applicants, which has prevented them from being more competitive
vis-à-vis Imports.  If the applicants improve the consumption ratios their average allocated raw
material cost will go down from US$306.95 to US$ 268.35 i.e. US$38.60.  The Cost Adjusted Phenol
price would correspondingly go up which will increase their profitability.  This shows that themanufacturers should concentrate on improving their efficiency instead of penalising the customers
by asking for safeguard duty protection.
(xviii) It will also be seen from the details of Raw material prices and Phenol sales prices from 1994-
95 to 2000-01 that both the manufacturers have recovered substantial contribution throughout thisperiod.  The contribution in case of HOCL ranged from Rs. 20440 to Rs. 28187/MT whereas in case
of HCL it was Rs. 19559 to Rs. 29890/MT.  The manufacturers have not only recovered fully the
increased cost of raw material but also increased their profitability margins.
(xix) The details of CIF price of imported phen ol, total import price with duty and HOCL’s and
HCL’s prices for the years 1994-95 to 2000-01 will reveal that the CIF prices went up from Rs.19614
to Rs.26825 (37 per cent) and correspondingly HOCL’s sales price also went up from Rs.32184 to
Rs.45810 (42 per cent) and HCL’s sales price from Rs.33008 in 1994 –95 to Rs.47513 (44 per cent) in
2000-2001.  Thus there was no loss to the manufacturers due to international prices.  Their prices
were always adjusted to the total import prices.
(xx) M/s. Phenol Chemie, Germany had stated earlier that there was price erosion of 50 per cent in
Phenol market due to continuous technology improvements which are making existing Phenol prices
substantially more cost effective.  Thus the corr ect way to face the international competition is to
achieve saving in cost of production by technology up-gradation.
(xxi) Both the manufacturers had committed in their earlier submission that they would be
achieving cost saving of Rs. 6000/= PMT.  They have however now stated that all the schemes have
not been implemented.  Thus, having failed to implement the adjustment plan there is no case for their
asking for further extension of Safeguard duty protection.
(xxii) Though the cost adjusted Phenol price has not gone up, the price in absolute terms has gone
up from US$450 to US$670 per MT.  This has given indirect benefit to the manufacturers due to
increased prices in form of additional quantum of duty as well as increased US Dollar rate in terms of
Indian Rupee.  When 22 per cent Safeguard Duty was introduced in June 99 the benefit accrued to
Phenol manufacturers was Rs. 3798 in form of Safeguard Duty  and Rs. 9744 in form of import duty
protection excluding CVD.  When the rate of Safeguard Duty was reduced from 22 per cent to 15 percent in March 2000, the benefit by way of Safeguard duty has actually gone up to Rs. 3811 and the
reduction in rate of safeguard duty did not affect the phenol manufacturers.  The import duty
protection excluding CVD increased from Rs. 9744 to Rs. 12476.  In Dec 2000 the safeguard duty
benefit worked out to Rs. 4729 against Rs. 3798 when the safeguard duty was introduced even thoughG/SG/N/8/IND/6/Suppl.1
Page 13
the rate has been brought down from 22 per cent to 15 per cent.  The import duty protection has
further gone up to Rs. 15,482 without CVD.
(xxiii) The Phenol manufactures, thus already got unintended additional cover of Rs.5738/MT
(Rs. 15482 - Rs. 9744) due to dollar escalation and increased international prices of Phenol.  If this isadded to the cost saving which was promised by Phenol manufacturers of Rs.6000/MT, then they
have already got much higher protection than the intended protection.  Even if the Safeguard duty is
removed, the import duty protection will still be Rs. 10534  (i.e. BCD +Surcharge @ 27.5 per cent
(8669) plus SAD @ 4 per cent (1865).
(xxiv) HOCL has been making profit in its Kochi Plant since inception, and when the earlier
safeguard duty application was made in 1998-99 there was no loss but a profit of Rs 18.3 crores whichhas increased to Rs. 36.5 crores in first 9 months of 2000-01.  The perofrmance of phenol plants of
HCL & HOCL should be counted as individual entiti es whose profits are eaten away by their other
inefficient plants wherein they have made substantial unproductive investments.  The sole intention of
asking the Safeguard Duty was to earn extra benefit at the cost of Phenol consumers.
(xxv) The domestic Phenol manufacturers have cited creation of additional Global capacity which
fact was known to them at time of their first application during 1998. Director General (Safeguards)
had suggested Safeguard Duty to meet the challenge of the new capacities as per their earlier
application.  Actually the increase in Phenol capacities was done to meet and match the increased
global demand of Bisphenol- A and other Phenol end products.
(xxvi) The crude oil prices have started coming down to the level of US$25/barrel.  Moreover the
increase in crude price has affected many industries the world over and such market forces are to be
faced for which no artificial protection like Safeguard Duty can be claimed.
(xxvii) The credit being given by domestic supplier is at cost since interest at 19  per cent is
recovered for delayed payment.  In fact the normal credit period is reduced from 90 days 60 days by
HOCL.  There is no increase in Debtors as a percentage of sales value.  It is seen that that average
sales price of HCL has gone up by 35.01 per cent and HOCL by 36.97 per cent in the year 2000-01 as
compared to 1999-2000  The Phenol manufacturers are imposing strict credit terms and insist on Bank
Guarantees for allowing credit.  They are in a sound financial position to dictate the terms of sale.
(xxviii) In the earlier application HOCL had mentioned that their credit period has increased to
69 days.  Presently HOCL does not supply Phenol to any of its customers with a credit period
extending 60 days, and if credit is given beyond 60 days it is with interest cost, this should have
improved their cash flow and solved their cash crunch.
(xxix) The manufacturers had given an Adjustment  plan to achieve cost reduction of Rs. 6000/=
PMT and they have confirmed that they have implemented the same.  They have also received
unintended benefit of increase in the international price and exchange rate fluctuations.  They cannot
thus have any valid reason to ask for an extension of Safeguard duty protection.
(xxx) Both the manufacturers have got sufficient experience and have built up substantial reserves
from past operations to withstand internati onal competition under normal duty protection by
technological innovations.  They have also got benefit of Safeguard Duty for 24 months.  Thus there
is no case to continue Safeguard duty benefit any further.
(xxxi) The schemes committed in the Adjustment Plan on the basis of which Safeguard Duty was
recommended by Director General (Safeguard) do not appears to have been implemented and if at all
they had implemented as vaguely stated by them the reduction in cost of production does not warrant
imposition of SGD.G/SG/N/8/IND/6/Suppl.1
Page 14
(xxxii) The flight of competent and skilled manpower can not obviously be due to performance of
Phenol plant but can be due to many other reasons since both the units are making substantial profits
in Phenol plant.  It is also seen from their appl ication that the reduction in manpower is only 5 per
cent in 8 months, which can be due to the trend in every industry to reduce its manpower cost tomaximise efficiency.  It may be mentioned that Mitsui operates its 200000 TPA plant with only
80 persons and Phenol Chemie operates it 400000 TPA plant with 125 persons.  On the same lines,
HCL has reduced its manpower costs and HOCL has planned its VRS scheme to reduce its manpower
cost from 9 per cent to 10 per cent of total cost to lower level since industry average is 5 per cent to
6 per cent and global average is 2 per cent to 4 per cent.
(xxxiii) A fair Phenol selling price of US$991 is totally unjustified when the average international
Phenol price for April 2000 to Nov 2000 was US$624.  It is requested that the details of this US$991
price may be made available to all the affected parties so that the same can be examined in a
transparent manner.  The Plants of the two manufacturers have been fully depreciated and they have
achieved substantial profit on these plants in the past.  They are thus in a position to achieve full
capacity utilization with maximum efficiency to face international competition with normal dutyprotection. The manufacturers have also got unintended additional benefit of Rs.5738/- PMT due to
increase in international prices of Phenol and dollar rate escalation.  Thus further extension of the
Safeguard Duty is not at all justified.  If such extension is granted, it will only result in price hikes by
Phenol manufacturers and under utilization of capacities of Phenol user plants.
(xxxiv) The ability to borrow and the share prices depend upon the overall performance of the
Company and since Phenol was being sold at a profitable price, the losses made by the Company were
on account of other products and not due to Phenol.
(xxxv) The claim of increase in effective Phenol capacity can not be accepted as the capacity shown
in latest Annual report of HOCL continues to be 40000 TPA.  The adjustment plans submitted for
continued imposition of safeguard duty is absolutely vague, without any realistic time frame and
commitment.  There is no provision in HOCL's A nnual budget estimates for the capital expenditure
involved. Similarly no convincing details have been supplied regarding technology up-gradation. It is
not known whether any Feasibility Report duly suppor ted by their Licensors or well known consultant
has been prepared in absence of which the achievement of targeted saving could be assessed.
(xxxvi) The Annual Report of HCL for the year 1997-98 contains a statement by its Directors that the
project of co-generation has been nearly completed during 1998 and the Gas turbine generation has
commenced smooth operation.  In the findings of Director General (Safeguard) also it was mentioned
that the facility of co-generation has been installed and would get established in 1999.  It is not
understood how HCL is showing the scheme under the Adjustment Plan to be carried out during theperiod of Safeguard Duty protection when it was already implemented before the hearing of the first
application. It is seen from HCL's Annual report of 1999-2000 that the cost of power per KWH as per
own generation is Rs. 4.23 for  DG set and Rs. 3.34 for Gas turbine based on naphtha against Rs. 6.37
for purchased power.  This shows that major savings were achieved by captive power generation.  In
fact saving could have been much more if costlier fuel naphtha had been substituted by cheaper fuelas has been done by many other power plants.
(xxxvii) It was submitted by the applicants before the Director General (Safeguard) that with
procurement of Propylene at JNPT port and new technology for Cumene the raw material prices will
be reduced.  There is no mention of the progress on any such definite scheme and the savingsachieved.  These details may be called for as it has been now stated that the benefit is neutralized
because of an increase in crude prices.  However crude prices have since come down and HCL may
be asked to quantify the benefit achieved in this regard.G/SG/N/8/IND/6/Suppl.1
Page 15
(xxxviii)  The adjustment plans submitted by both HOCL and HCL are an eye wash which even on
paper, leave alone actual implementation, inspires no confidence and seriousness.  Vague and general
statement, totally lacking in details and particularly unsupported by evidence and material have been
made to create false impression about the proposed adjustments, only with a view to somehow ensure
continued levy of Safeguard Duty.
In addition to the above, some of the interested parties have stated as under :-
(a) M/s Kesar Petroproducts Limited, Mumbai
The imported price of Phenol for Dec 2000 was US$670 per MT and not US$610 as per
actual imports made by them and the cost adjusted Phenol price would work out to US$489.
An analysis of Article 7 of the Agreement on Safeguards shows that the word “ Review” has
been used in the context of a measure that has been applied for a period exceeding three years.  In
case where the measure is applied for less than three years, as in the present case , the Authority has
already determined  that the said shorter period is  adequate to prevent or remedy serious injury & to
facilitate adjustment.  In such a case, to extend the period of application of the Safeguard measure
amounts to the application “again” on the import of the product.  This cannot be done unless a period
of two years had elapsed after the initial imposition.
Rules 16 & 18 of the Safeguard Duty Rules deal with the above aspects .  In terms of Rule
16(2), a Safeguard Duty levied in terms of Rule 12 ceases to have effect on the expiry of four years
from the date of imposition, unless revoked earlier.  Since the Director General recommended the
Safeguard Duty for two years only and the Central Government imposed the duty also for two years
i.e. upto 29.06.2001, the duty shall cease to have effect on that day unless revoked earlier.  In other
words, rule 16(2) empowers the Director General only to revoke the Safeguard Duty earlier to29.06.2001.
Rule 18 deals with the situation where the Director General undertakes a review, during the
time the Safeguard Duty is in operation.  This review is to determine whether the said duty should be
continued for the period originally intended or it should be withdrawn or the process of liberalization
should be increased.  It does not deal with the situation where the Director General can extend the
duty beyond the period for which it was originally recommended.  The power of the Director Generalwas only to examine whether the said period of two years could be curtailed or not and the Director
General has no powers to extend this period of im position.  Extending the period of imposition will
amount to imposing the duty again akin to initiating a new investigation.
(b) Alta Laboratories Ltd., Mumbai
They are the manufacturers of Aspirin (Acetyl Salicylic Acid I.P.) and Phenol is our basic raw
material for manufacturing this product.  Our an nual consumption of Phenol is approximately
1200 M. Tons.  The price of Aspirin is statutorily controlled by the Government under DPCO 1987.
Phenol being the main raw material for manufacture of this product, the cost of Phenol has a directbearing on the price of Aspirin.  During the last 12 months the applicants have raised their selling
prices almost by 55 per cent in stages.  Due to un usually high price of Phenol charged by indigenous
manufacturers during the last three years, they have incurred losses as their selling price is revised by
the Government once in three years and the process of getting interim relief is lengthy and laborious.
There is always inordinate delay between the escalation in the cost and the revision of price.G/SG/N/8/IND/6/Suppl.1
Page 16
(c) Schenectady Specialties Asia Ltd., Mumbai
(i)  They are a joint venture company between Schenectady International Inc. (SII) of USA  (the
world's largest manufacturer of Alkylated Phenols) and Sunshield Chemicals Ltd. (SCC) a listed
company manufacturing speciality chemicals.  They manufacture with the state-of-art technologywidest range of Alkylated Phen ols which finds its use in various vital and core sectors.
(ii) Phenol is the basic raw material, accounting for 50 per cent of their raw material input for
manufacture of Alkylated Phenols, and its purity, reliable quality and competitive prices are of utmost
importance  to  the successful quality production of their products.   They consume about 3000 MT of
Phenol per annum.
(iii)  Besides Phenol, Herdillia Chemicals also manufacture Alkyl Phenols and if they get an
opportunity to hike the price of Phenol it will no more remain viable to manufacture Alkyl Phenols in
India by others.  In such  a  situation, the Alkyl Phenols Industry will become a total monopoly of
Herdillia and end product industry such as Surfactants, Antioxidants which go in Agriculture,
Textiles, Pesticides, Plastics, Food and many more industries producing day to day necessities ofIndian public will also become cost inefficient.
(iv) The manufacturers of Phenol have reaped the benefits of their investments and have over the
years invested these amounts into unrelated diversification without re-investing into improving their
plant economics or building economic size Plants.
(v) They have requested to allow “sector specific exemption” to Alkyl Phenol manufacturers so
as to ensure a level playing field for them.
(d) XPRO India Limited, Mumbai
Safeguard Duty should be imposed only for the indigenous manufacturers to gain time and to
be more competitive vis-à-vis imports.  From the submission made by the applicants, it is clear that
Phenol manufacturing can really be economical only if world size efficient Plants are in operation.
There is no indication that the two domestic manufacturers will be going in for such a plan.  They
have put in abeyance their earlier plans of putting a new Plant and therefore nothing substantial will
occur to make the domestic manufacturers globally competitive.
(e) Colour-Chem Limited, Thane
The import duty on finished product namely leather chemicals / leather goods is less than the
duties on raw material Phenol.  They have lost their business since the leather industry prefers toimport leather chemicals being cheaper than indigenous products manufactured by them due to lower
import duties.
F. VIEWS OF DOMESTIC PRODUCERS
The domestic producers have made the following main points:
(a) M/s. Hindustan Organic Chemicals Ltd., Cochin.
(i)  They have their manufacturing units at (1) Rasayani-410027, Distt. Raigad Maharashtra
(2) mbalamugal-682302, Distt.  Ernakulam, Kerala and Phenol plant is located at Ambalamugal only.
(ii) They manufacture Basic Organic Chemicals namely Phenol also known as Carbolic Acid or
Hydroxy Benzene, Acetone, Aniline, Nitrotol uenes, Nitrochlorobenzens, Monochlorobenzene,G/SG/N/8/IND/6/Suppl.1
Page 17
Formaldehyde, Nitrobenzene, Sulphuric Acid, Cyclohexylamine, Acetanilide, Caustic Soda,
Hydrogen Peroxide, Butene-1, 4-Diol.
(iii) Phenol manufactured by them, both Crystal and Hydrated form, is used in the manufacture of
Phenol Formaldehyde Resins,  Laminates, Plywood,  Particle  Boards, Pharmaceuticals, etc.  In themanufacture of Leather Chemicals, Bisphenol-A a nd Alkyl Phenols only Crystal form of Phenol is
used.
(iv)  Benzene and Propylene are the major raw materials while Cumene is an intermediate in the
manufacture of Phenol.  Acetone is formed as a co-product in the manufacture of Phenol.  Phenol and
Acetone are formed in the ratio of 1:0.6.
(b) Herdillia Chemicals Ltd. Mumbai
(i)  They manufacture Basic Organic Chemicals and Specialties like Phenol, Acetone, Phthalic
Anhydride, Diacetone Alcohol, Dodecyl Phenol, No nyl  Phenol, Diphenyl Oxide, Isobutyl Benzene,
Isophorone, Heat Transfer Media, Acetophenone.
(ii)  There are two grades of Phenol manufactured by them namely Crystalline and Hydrated.
Whereas Crystalline Phenol is solid Phenol in crystal  form, hydrated Phenol is a composition of
Phenol and water with a percentage of water being less than 10 per cent.  Due to  this, Phenol remains
in molten form even in ambient or cold conditions and simplifies  material handling procedure by theend users during unloading.  The purity of Crystall ine Phenol is minimum 99.5 per cent  by  weight.
However, the billing of Hydrated Phenol is done on the basis of the actual Phenol content in the
material.
(iii) Phenol is used in the manufacture of Phenol Formaldehyde Resins, Laminates, Plywood,
Particle Boards,  Bisphenol-A,  Alkyl  Phenols,  Pharmaceuticals, Diphenyl Oxide etc.  Applications
such as Leather Chemicals and Bisphenol-A normally require only Crystalline Phenol.
(iv) The imported Phenol and the Phenol manufactured by them is same in all respects.  The
Phenol produced in India is of International standard and has been well accepted in the global market.
(v)  Phenol facility of 10,000 TPA capacity was set up in the 1960s and became operational in
1968.  Initial investment in the Phenol manufacturing facility was Rs.3.31 crores.  Over a period of
time, the capacity was increased to well over 20,000 TPA till the end of the fiscal year  1996-97
through investments in debottlenecking financed entirely through internal accruals.  The capacity of
the plant during 1999-2000 was 32000 TPA & the present capacity of the Phenol plant on an
annualized basis is 34000 TPA.
(vi) Packing cost for Phenol was around Rs.3.5/Kg. for the year 1995-96, Rs.3.75/Kg (Average)
for the year 1996-97, and Rs.4/Kg for the years 1997-98.  This is approximately the difference
between the net sales realization of  Bulk and packed Phenol.  The selling price of  Phenol is based on
the landed price parity and not on a  cost plus basis concept.  As a result there is no correlationbetween the raw material cost  and  the selling price.
(vii) Even though the price realizations in absolu te terms have shown an increase after the very
low levels of past safeguard duty investigation period, the net price realization after deducting the cost
increases have shown a decline.
(viii) Despite the safeguard duty in force the loss of employment per ton of Phenol production has
been to the tune of 19.86 per cent between 1998-99 & April-November 2000.G/SG/N/8/IND/6/Suppl.1
Page 18
(ix) They have not exported Phenol during the years 1998-99,1999-2000 & 2000-01(up to
November 2000)
In addition to the above, the domestic producers have also stated broadly the following :
(a) Phenol is being imported into India primarily from Belgium, Chinese Taipei, Germany, Italy,
Japan, Korea DPR, Korea RP, the Netherlands, Russia, Singapore, South Africa, UK and USA.  The
imports have shown an increasing trend in absolute terms as well as compared to domestic
production.  The imports and domestic production of Phenol during 1994-95 to 1999-2000 have been
as under:
Year Domestic production
(MT)Import
(MT)Imports as
percentage of
(MT)
1994-951995-96
1996-971997-98
1998-99
1999-200057780
63719
5746669281
66210
699616664
21752
1954515352
26670
2899211.53
34.14
34.0122.16
40.28
41.44
(b) Besides HOCL and HCL, there is only one ma nufacturer of Phenol in India (Neyveli Lignite
Corporation  Limited) whose capacity is 1500 TP A and production lower than 1000 TPA. The total
domestic production of Phenol in the country is thus accounted for by HOCL & HCL.
(c) The imports during the first eight and half months i.e. April to December (first half) 2000 –
have been reported to be 18247 MT.  They have stated that the imports have been increasing sharply
in November and December 2000.  The import data furnished by them for the period 1998-99 and
1999-2000 are based on market intelligence sources.
(d) The capacity utilization of domestic producers to meet with the domestic demand which
increased from 85 per cent in 1996-97 to 89 per cent in 1999-2000 declined to 83 per cent in the first
8 months of 2000-01.  They made successful efforts to enhance their effective production capacities,
even though the benefits of safeguard duty did not accrue in terms of additional funds for making
investments for such expansions. Forced by cash crunch, HOCL had to take shutdowns in the months
of April, June and October 2000 due to which, pr oduction volumes were lower in these months in
comparison with the enhanced capacity levels.
(e) Their market share of Phenol in the total domestic consumption of Phenol which increased
from 74.3 per cent in 1996-97 to 80.25 per cent in 1997-98 declined to 71.13 per cent and 70.75 per
cent in the year 1998-99 and 1999-2000.  They have also stated that they are facing depressed
conditions of performance in spite of imposition of safeguard duty on Phenol.
(f) The investigation carried out during the first half of 1999 was based on the facts of the
situation existing at that point of time.  Thereafter, the situation in terms of sustained high level of
imports has continued unrelentingly and imports have still been coming at prices which are even
lower than the September 1998 levels when adjusted for mere Raw Material cost increases.
(g) Even though the absolute price levels at which Phenol is being imported showed some
increase in the period since October 1999, the increase is highly deceptive as the same has been
forced by phenomenal increase in the cost of raw materials and fuels.  Phenol prices are lower than
the raw material cost escalation adjusted price (computed in comparison with September 1998 priceG/SG/N/8/IND/6/Suppl.1
Page 19
and raw material costs.)  Considering costs versus prices, the prices in 1999-2000 and in 2000-01
have generally been lower than the lowest prices existing (till then) in second half of 1998.  Phenol is
being imported into the country at prices, which are lower than the price levels of 2nd half of the year
1998.
(h) The increase in international prices of inputs like Benzene, Propylene and Cumene has led to
an increase in the domestic input prices as well for manufacture of Phenol.  HCL continued to make
losses on Phenol manufacture in 1999-2000 (despite Safeguard Duty in force) and in respect of
HOCL, the profits were far short of even the mere incremental profit accrued on account of Safeguard
Duty imposition.  The marginal profit of April – November, 2000 will turn into losses in the event of
withdrawal of Safeguard Duty.
(i) The increase in crude oil prices from USD 10/Barrel in early 1999 to the present levels of
nearly US$30/Barrel coming at a time of global over capacity for Phenol certainly was not
foreseeable.  The resultant sudden and significant increase in prices of raw materials and fuels at the
time of global Phenol over capacity has led to Phenol being exported at significantly low levels of
‘cost adjusted Phenol prices’.  As a sequel the domestic prices when adjusted for cost increases havedwindled further after the earlier period of investigations.  The cost adjusted Phenol price has gone
down by 19 per cent and 13 per cent during Sept. 1998 to November, 2000 in respect of HOCL &
HCL respectively.
(j) The size of the Indian market and the consequent size of the domestic Phenol producing
industry are both lower than 2 per cent of the size  of the global Phenol producing industry.  Since
Phenol is freely importable, they have no control what so ever on the Indian Phenol prices which get
decided entirely by the world majors in this business.
(k) The imports are being made at extended credit period, which is also a cause of serious injury
to the domestic industry.  As a result of long credit periods on imports, the domestic producers are
required to either give a cash discount for prompt payment on domestic sale or are required to offer
long credit periods.
(l) Despite implementation of adjustment plan being on schedule, the impact of cost reduction
schemes has been more than neutralized by the increase in raw material and fuel costs which led to an
overall cost escalation.  Imports are coming at prices that would render the domestic manufacture ofPhenol unviable.
(m) The savings in Variable Costs due to improvement in operating efficiency could not be
realized because the increase in prices of inputs more than neutralized the impact of operation
efficiencies achieved.   On the fixed cost front also, even though debottlenecking led to highercapacities but the actual production levels did not increase primarily due to sustained increased level
of imports and also because of Force Majeure circumstances.  There has been instances when
production of HCL suffered when the public sector refineries, from whom they procure essential raw
materials, took shut down without adequate notice a nd also the oil companies withdrew all credits and
discounts leading to increase in working capital requirement.
(n) Due to poor financial performance caused by the import prices being lower than even the
mere cost adjusted import prices, the banks were reluctant in sanctioning additional working capital
limits.  In fact HOCL due to cash crunch  had to take shut downs in the months of April, June &
October 2000 due to which their production volumes  were lower in these months in comparison withthe enhanced capacity levels.G/SG/N/8/IND/6/Suppl.1
Page 20
(o) The total outstanding of the domestic industry on sale of Phenol and Acetone between
April 1999 to November 2000 have increased by 36 per cent due to high credit periods enjoyed by the
importers.
(p) Due to the dismal situation caused by sustained increased imports, the flight of competent,
skilled manpower has continued in the domestic Phenol and Acetone industry.
(q) The size of the Indian market being small in comparison with the global market size, Indian
import parcels are transacted on ‘spot basis’.  Spot prices most often tend to be significantly lower
than the contract prices.  Due to this reason, the CIF India arrival prices of Phenol are often lower than
the prices prevailing in the developed world/major Phenol producing regions.  In a falling price
regime, domestic prices are fixed based on expected landed price parity to prevent further booking ofmaterial.  Hence, the domestic prices always tend to be lower than the actual landed cost of import.
However, in a situation in which import prices are increasing, the domestic prices cannot be fixed
based on the expected or even actual landed price parity.  This is because the stock of the material
imported at lower prices (prior to the increase in prices) determines the domestic prices so long as
these stocks remain.  These prices also tend to be lower than the actual arrival prices of import.  Thedomestic industry thus suffers till prices adjust to a reasonable level and remain steady.
(r) It has been contended by the some of the parties that additional production of Phenol globally
will be consumed by additional capacity of Bisphenol-A (BPA) which are currently be set up in
different parts of the world.  The consumption of Phenol will depend on actual consumption for BPA(and other end-uses) and not on the production capacity of BPA.  Hence, the new capacity of BPA is
likely to take away BPA’s market share from the current producers and the requirement of Phenol for
manufacture of BPA will increase only at the realistic growth rate of BPA.  Even after considering the
impact of growth in Phenol for Bisphenol-A se gment, the overall Phenol demand growth rate is
estimated at not more than 4 per cent per annum according to some of the agencies of Internationalrepute like CMAI, Chem Systems, Phenolchemie and Shell.
(s) They have requested for continued imposition of safeguard duty on imports of Phenol for a
further period of 3 years from July 2001 to prevent serious injury to the domestic Phenol
manufacturing industry and to help them to adjust to the extremely difficult situation created by
excess global capacity of Phenol combined with  significant increase in raw material costs.
G. FINDINGS
I have carefully gone through the case records and the replies filed by all interested parties
including the domestic producers, users/importers and exporters.  Submissions made by various
parties and the issues arising therefrom are dealt with at appropriate places in the findings below.
However, before proceeding to discuss the merits of the case it is considered necessary to discuss apreliminary issue concerning Rule 18 of Customs Tariff (Identification and Assessment of Safeguard
Duty) Rules, 1997 hereinafter referred to as SGD Rules.
It has been averred by some of the interested parties that Rule 18 of the SGD Rules deals with
the situation where the Director General undertakes a review, during the time the Safeguard duty is inoperation.  This review is to determine whether the said duty should be continued for the period
originally intended or it should be withdrawn or the process of liberalization should be increased.  It
does not deal with the situation where the Director General can extend the duty beyond the period for
which it was originally recommended. The power of the Director General was only to examine
whether the  period of two years for which the Safeguard Duty on Phenol was imposed initially couldbe curtailed or not and the Director General has no powers to extend this period of imposition.
Extending the period of imposition will amount to imposing the duty again akin to initiating a new
investigation.G/SG/N/8/IND/6/Suppl.1
Page 21
It has been argued that Article 7 of the Agreement on Safeguards stipulates that a review of
safeguard measure is contemplated in the context of a measure that has been applied for a period
exceeding three years.  In a case where the measure is applied for a shorter period, as in the present
case, extension of the period of application of the safeguard measure amounts to the application againof the measure on the import of the product, which can not be done unless a period of two years had
elapsed after the initial imposition.  It has been further argued that Rule 18 of the Safeguard Duty
Rules deals with the situation where the DG undertakes a review, during the period the safeguard duty
is in operation.  This review is to determine whether the said duty should be continued for the period
originally intended or it should be withdrawn or the pace of liberalization be increased.  It does not
deal with the situation where the DG can extend the duty beyond the period for which it was
originally recommended.  Besides, the DG had examined the status of the domestic industry and cameto the positive conclusion that it required two years to remedy serious injury and to facilitate
adjustment.  Consequently, the power of the DG is  only to examine whether the said period of two
years could be curtailed or not. The DG has no power to extend this period of imposition.
This is an important aspect and needs to be examined in the context of the scheme of
safeguard law as envisaged under the provision of  Custom Tariff Act, 1975 and the Safeguard Duty
Rules, which reflect the provision of the Agreement on Safeguards.
Paragraph 1 of Article 7 of the Agreement on Safeguards stipulates
“A Member shall apply safeguard measures only for such period of
time as may be necessary to prevent or remedy serious injury and to
facilitate adjustment.  The period shall not exceed four years, unless
it is extended under paragraph 2”.
Paragraph 2 of Article 7 reads
“ The period mentioned in paragraph 1 may be extended provided
that the competent authorities of the importing Member have
determined, in conformity with the procedures set out in Articles
2,3,4, and 5, that the safeguard measure continues to be necessary to
prevent or remedy serious injury and that there is evidence that the
industry is adjusting, and provided that the pertinent provisions ofArticles 8 and 12 are observed.”
A plain reading of the last sentence of paragraph 1 of Article 7 makes it abundantly clear that
the period of initial imposition of a safeguard measure shall not exceed four years and that this period
can be extended under paragraph 2.  Similarly paragraph 2 makes it clear that the period under
paragraph 1 can be extended subject to fulfilment of certain conditions.  Paragraph 1 specificallyrequires the period of initial application of a safeguard measure to be not exceeding four years i.e. it
can be any period which is four years or less.  And this period of up to four years can be extended in
accordance with the provision of paragraph 2 ibid. Article 7, therefore, in no way requires the period
of initial application of a safeguard measure to be a definite period to be eligible to be extended
further.
Further paragraph 4 of Article 7 reads as under:
“In order to facilitate adjustment in a situation where the expected
duration of a safeguard measure as notified under the provisions ofparagraph 1 of  Article 12 is over one year, the Member applying the
measure shall progressively liberalize it at regular intervals duringG/SG/N/8/IND/6/Suppl.1
Page 22
the period of application.  If the duration of the measure exceeds
three years, the Member applying such a measure shall review the
situation not later than the mid-term of the measure and, if
appropriate, withdraw it or increase the pace of liberalization.  A
measure extended under paragraph 2 shall not be more restrictivethan it was at the end of the initial period, and should continue to be
liberalized.”
This paragraph focuses upon the need to liberalise a safeguard measure, if the period of
application of a safeguard measure is more than one year.  It also mandates a mid term review if the
period of application of the safeguard measure exceed three years.  The purpose of this review is to
consider whether the pace of liberalization be increased or the measure be withdrawn.  The last
sentence of Paragraph 4 envisages the process of liberalization to be ensured even in cases where thesafeguard measure is extended under paragraph 2.
The above provision of Article 7 of the Agreement on Safeguards have been incorporated in
Rule 18 of the Safeguard Duty Rules, which is reproduced below.
“(1) The Director General shall, from time to time,  review the need for continued imposition of the
safeguard duty and shall, if he is satisfied on the basis of information received to him that :
(i) safeguard duty is necessary to prevent or remedy serious injury and there is evidence that the
industry is adjusting positively, it may recommend to the Central Government for thecontinued imposition of duty;
(ii) there is no justification for the continued imposition of such duty, recommend to the Central
Government for its withdrawal:
Provided that where the period of imposition of safeguard duty exceeds three years the
Director General shall review the situation not la ter than the mid-term of such imposition, and, if
appropriate, recommend for withdrawal of such safeguard duty or for the increase of the liberalization
of duty.
2. Any review initiated under sub-rule (1) shall be concluded within a period not exceeding
8 months from the date of initiation of such revi ew or within such extended period as the Central
Government may allow.
3. The provisions of rules 5, 6, 7 and 11 shall mutatis mutandis  apply in the case of review.”
Rule 18 requires the DG, from time to time, to review the need for continued imposition of
the safeguard duty, incorporating the relevant provision in this regard, both of paragraph 2 and
paragraph 4 of Article 7 of the Agreement on Safeguards.  The provisions of Rule 18 in no way limit
the power of the DG to restrict himself, in a review only to the initial period of imposition.  On the
contrary, it specifically empower the DG and requires him to recommend for the continued imposition
of duty if;
(i) the same is necessary to prevent or remedy serious injury, and
(ii) there is evidence that the industry is adjusting positively.  The above interpretation also finds
support from the language of Rule 16  wherein first proviso to sub rule 2 reads:
“ Provided that if the Central Government is of the opinion that the
domestic industry has taken measures to adjust to such injury orG/SG/N/8/IND/6/Suppl.1
Page 23
threat thereof and it is necessary that the safeguard duty should
continue to be imposed, it may extend the period of such imposition”.
In this proviso the expression “ … safeguard duty should continue to be imposed it may
extend such period” has clearly been used in the context of extension of the safeguard duty beyond the
initial period of imposition.
In view of the above discussion, there is no merit in the argument that the DG has powers
only to examine whether the period of initial imposition should be curtailed and that the DG has no
power to recommend extension of this period of initial imposition.
As per Rule 18 of Safeguard Duty Rules the essential requirements to be satisfied for a
continued imposition of Safeguard duty is that it should be necessary to prevent or remedy seriousinjury and there is evidence that the industry is adjusting positively.  And, if there is no justification
for the continued imposition of such duty, recomme ndation for its withdrawal needs to be made.  The
law itself provides a mechanism for review of Safeguard Duty and sets out a standard by which the
necessity for such a continued imposition needs to be examined.  If the conditions are met with,
continued imposition of Safeguard Duty is justified.
As regards the merits of the case, in the present case, it was found that the imports of Phenol
into India increased from 6664 MT in 1994-95 to 15312 MT in 1997-98 and to 24,550 MT in the first
nine months (April to December) of 1998-99.  The increased imports of Phenol caused a decline in
domestic production of Phenol which had registered a growth of about 16.1 per cent in 1997-98 over1996-97.  The decline in 1998-99 over 1997-98 was 6.69 per cent.  Similarly, the domestic producers
suffered a loss of 10.31 per cent age points in the capacity utilization in 1998-99 (April-Dec.) over
1997-98.  They registered a marginal growth in domestic sales of 3.38 per cent in 1998-99 (April-
Dec.) over 1997-98 as compared to a growth of 2 5.1 per cent in the apparent domestic consumption
during the relevant period.  Even this small growth was achieved only at the cost of a drastic reductionin their average sales price which was reduced to Rs.28/- per Kg. in December 1998 as compared to
Rs.37/- per Kg. in January-March 1998.  They had to reduce the list price of Phenol and offer various
additional discounts to prevent their customers from  shifting to imports completely.  The reduction in
net sales realization had serious effect on profitability of the domestic industry and both HOCL and
HCL started incurring losses on their Phenol operati on.  HOCL suffered a loss of Rs (Confidential)
per MT and HCL suffered a loss of Rs.(Confidential) per  MT in December 1998, which in turn
depressed their  share prices, as well.  It was further found that the domestic industry suffered also onaccount of some increase in inventory, loss of employment and loss in productivity.
The domestic industry thus witnessed severely depressed conditions of Phenol operation in
the first three-quarters of 1998-99.
As regards the effort on the part of the domestic industry to make positive adjustment, it was
observed that the existing facilities in HCL were bu ilt in the pre-liberalization, MRTP era which led to
high fixed costs due to lack of economy of s cales.  The domestic producers however undertook to
regularly upgrade technology and debottleneck their manufacturing facilities with the objective of
enhancing their capacities and thereby reducing the operative costs.  They also took steps to reducepower cost by setting up captive power generation facilities by the co-generation route, which was to
stablise by 1999.  The other cost reduction measures included improvement in quality of feedstock,
increased availability of Propylene and state of the art Zeolite technology for the production of
Cumene etc.G/SG/N/8/IND/6/Suppl.1
Page 24
Continued threat of Serious injury
The imports of Phenol into India were 26670 MT in 1998-99.  In spite of safeguard duty
having been imposed on Phenol on 30 June 1999 @ 22 per cent ad valorem, the onslaught of imports
of Phenol continued unabated and increased further to 28,992 MT in 1999-2000 (as per DGCIS data,the imports were 29,302 MT, which is slightly, more than 28992).  As per the information provided
by the applicants, the imports of Phenol till mid-December, 2000 were reportedly  18,247 MT which
in turn, worked out to an annualized figure of 25,760 MT.  Doubts were expressed by some parties
about the authenticity of import data provided by the Applicants, particularly in respect of import data
for the period 2000-01. The domestic producers in this regard have submitted that the data for the
years up to 1999-2000 are available with the DGCIS Calcutta.  Due to time lag in publication of
DGCIS figures, for 2000-01 they have taken the data based on market intelligence sources.  As far as2000-01 data is concerned, the Applicants have provided the details of imports giving the name of the
vessel, date of arrival, quantity, name of the importers and import prices along with
surveyor/insurance reports.  On verification of the details it is found that a quantity of 26,442.992 MT
of Phenol have been imported during the year 2000-01, out of  which a quantity of 12510.594 MTs
was imported up to November 2000, 8652.173 MTs in December 2000, making it 21162.767 MTsduring April-December, 2000.  Table-I below gives the details of imports.
Table-I
Imports in MT
Year Imports Domestic
ProductionImports as a % of
domestic  Production
1997-981998-99
1999-00
2000-01
(April-Dec.)15700
25213
29302
2116369281
66210
69961
5227822.66
38.08
41.88
40.48
It has been argued by some of the interested parties that sub-rules (3) of Rule 18 stipulates
that rules 5, 6, 7 and 11 shall mutatis mutandis  apply in the case of review and Rule 5 inter alia
requires increased imports to cause injury or threat thereof and since there is no increase in imports,there is no case for the safeguard protection.
It has been stated that Rule 5 of the SGD Rules requires that for any initiation of
investigation, the Director General must find an  increase in imports.  In particular, clause 5(3)
requires that the Director General shall not initiate an investigation pursuant to an application madeunder sub-rule (1) unless he examines the adequacy and accuracy of the evidence provided in the
application and satisfies himself that there is sufficient evidence regarding increased imports; serious
injury or threat of serious injury and a causal link between increased imports and alleged injury or
threat of serious injury.  On the basis of information provided by the Domestic Industry there have
been no increase in imports and the information provided by the domestic industry reveals that thedomestic production has plateaud in keeping with the market demand conditions.  Further under the
WTO Jurisprudence if an increase in imports is in fa ct present this should be evident both in an end-
point-to-end-point comparison and in analysis of in tervening trends over the period. That is, the two
analysis should be mutually reinforcing.  Since there have been no increase in imports, there is no
basis to impose Safeguard Duty.
In this regard, it is observed that the law requires the provision of Rules 5, 6, 7 and 11 to
apply mutatis mutandis  (emphasis added).  Notwithstanding the fact that the actual imports in 1999-
2000 were 29302 MT (DGCIS figures), which were the highest during the recent period, one has toG/SG/N/8/IND/6/Suppl.1
Page 25
consider the quantum of imports during the period 1999-2000 and 2000-01 keeping in mind the fact
that safeguard duty was imposed on Phenol imports du ring this period, the very purpose of which was
to give relief to the domestic industry from the injurious imports.  One has, therefore, to consider the
quantum of imports keeping in mind the impact of the safeguard measure already in force and
whether the imports would continue to injure the domestic industry, if the safeguard measure wasremoved.
The domestic producers during this period produced 69281 MT in 1997-98, 66210 in 1998-
99, 69961 MT in 1999-2000 and 45848 MT in April-November 2000.  Their year wise production
capacity was 66500, 75000, 77000 and 83000 (Annualized) during the said periods. They thus
achieved capacity utilization of 104.18 per cent in 1997-98, 88.28 per cent in 1998-99, 90.86 per cent
in 1999-2000 and 82.86 per cent in the first eight months of 2000-01.
Some of the interested parties have stated that if imports were coming into India at higher
prices even after payment of Safeguard Duty, it only implied that there is an increased demand for
Phenol which the domestic industry was unable to cater  and it is this inability of the domestic industry
to satisfy this increased demand to the extent of thei r capacity that imports had to enter into India.  In
this connection they have stated that Imports are growing because the domestic consumption has been
increasing whereas the domestic production was not growing in the same proportion, which resulted
in increased imports to fill in the gap between domestic demand and supply.  They have also averred
that as per the Working Group set up by erstwhile Department of Chemicals and Fertilisers, Govt. of
India  the projected demand of Phenol for 9th Five year plan is 1,45,000 MTA by 2001-02 and2,49,000 TPA by 2006-07.  The total consumption of Phenol is steeply increasing from the year 1997-
98 onwards.  In fact the demand will be much more if the price of Phenol is at a reasonable level to
enable the down stream producers to use their full capacities which is not presently possible since
their end products are getting imported at  cheaper prices in India.  Due to increased demand for
Phenol in Indian market and non-increase of domestic production the consumers have to importhigher quantity of Phenol paying higher import duty due to imposition of Safeguard Duty.  This,
however, provided additional cover for the indigenou s manufacturers to increase their prices without
taking steps to improve their efficiency for additional production or reduction in cost of manufacture.
When the domestic manufacturers cannot meet the market demand even after selling their entire
material they can not complain about increasing imports and ask for continued protection by way of
safeguard duty which is being used only as a cover to increase their sales prices and make undue
profits.
The above submissions made by the interested parties were got checked up from the
Department of Chemicals and Petrochemicals (Ministry of Chemicals & Fertilizers).  The Ministry
has clarified that no Working Group had been set up by the Department of Chemicals in the recent
past, projecting demand for Phenol.  However, the Working Group on Petrochemicals underchapter X in its report on “Feedstock & Building Blocks” has made the demand projection of Phenol
as 133,000 MT and 229,000 MT for the years 2001-02 and 2006-07 respectively.  The Ministry has
clarified that these are estimates based on the data on consumption of Benzene more than three years
ago.  Market realities have since undergone substantial changes.  The actual consumption of Phenol in
the country, according to the Ministry was 78,093 MT, 88,800 MT and 91,000 MT (Approx.) duringthe years 1997-98, 1998-99 & 1999-2000 respectively.  It  has also been stated by the Ministry that
the actual demand for Phenol in the country in 2001-2002 may be at substantial variance with the
estimates.
There is however, a supply-demand gap that needs to be considered in the context of quantum
of imports of Phenol entering into India. The apparent domestic consumption (domestic sales +
import) of Phenol in the domestic market was 90923 MT in 1998-99 which increased to 99440 MT in
1999-2000 and stood at 60101 MT for the period April-November, 2000.  The applicants, however,
have worked out the total domestic consumption of 92073 MT in 1998-99, 95598 MT in 1999-2000G/SG/N/8/IND/6/Suppl.1
Page 26
and 64440 MT in 2000-01 (April-Nov.), on the basis of  opening stocks and closing stocks of imported
Phenol. The Administrative Ministry has repo rted consumption of 78093 MT, 88800 MT and 91000
MT (appr.) in the years 1997-98, 1998-99 and 1999-2000. While the Ministry has provided a figure of
consumption 91000 MT, the apparent domestic consumption works out to 99440 MT in 1999-2000.
As compared to these the total domestic consumption figure of 95598 MT worked out by theapplicants taking into account the opening and closing stocks appear to be more representative. Thus
as compared to domestic production of 69961 MT in 1999-2000 and 45848 MT in 2000-01 (April-
November), the total domestic consumption in 1999-2000 was 95598 MT and  64440 MT in April-
November 2000.
The Table below gives details of domestic production, capacity, imports, sales and  domestic
consumption.
Year Domestic
CapacityDomestic
ProductionCapacity
utilizationDomestic
SalesImports Domestic
Consumption
1998-991999-00
2000-01
(April-
Nov)75000
77000
5533266210
69961
4584888.28
90.86
82.8665710
70138
4636325213
29302
1251092073
95598
64440
There was thus a supply demand gap of (95598-69961) 25637 MT in 1999-2000, including
that required for use in export production estimated to be about 13500 MT per annum.  It is, therefore,evident that certain quantities of Phenol were n ecessary to be imported to meet with the domestic
demand.  The applicants have worked out consumption of imported Phenol to meet with the domestic
demand taking into account the opening stocks and closing stocks of both the domestic producers and
of imported Phenol.  According to them the consumption of imported Phenol during 1999-2000 was
25453 MT.
It is, however, observed that as against the consumption of 25453 MT of imported Phenol in
1999-2000, the total imports were 29302 MT during that year which resulted in build-up of stocks of
imported material from 3800 MT at the end of 1998-99 to 7339 MT at the end of 1999-2000.  It can
be inferred from this built up inventory  that about 3500 MT of Phenol was imported in excess ofdemand in 1999-2000, which accounts for about 12 per cent of the total imports.  With the depletion
of stocks of imported Phenol in 2000-01 (April-Nov.), from 7339 MT in April, 2000 to 2000 MT at
the end of November 2000 large quantities have been imported in November and December 2000.  As
compared to an average of 1419 MT per month till October 2000, the imports of Phenol in
November 2000 were 2550 MT and 8652 MT in December, 2000.
The domestic producers, however, sold the entire quantities they produced, which is evident
from the fact that the domestic producers sold 70145 MT in 1999-2000 and 47465 MT in 2000-01
(April-Nov.).  This became possible due to imposition of safeguard duty which helped the domestic
producers  to sell the material produced by them.
Imports of Phenol which entered at declining c.i.f prices in 1998-99 continued to be priced
between US$400-425 PMT for the earlier period of the financial year 1999-2000.  The c.i.f prices of
imported Phenol, however, started showing an  upward trend from November, 1999 onwards as
indicated in the Table below:G/SG/N/8/IND/6/Suppl.1
Page 27
Table
______________________
Period Price in
(US$)PMT
______________________
November 99    575
December 99    625
January 2000    580
February 2000    580March 2000    580
April 2000    600
May 2000    610
June 2000    625
July 2000    645August 2000    625
Sept 2000    635
October 2000    655
November 2000   645
December 2000    610
It has been argued by some of the parties that in the wake of increase in the c.i.f. prices of
imported Phenol, the domestic producers do not deserve the protection of safeguard duty any further.
The increases in the c.i.f. import prices of Phenol, however, need to be seen in its proper perspective
keeping in view the increases in cost of production as a result of increases in raw material prices etc.It also needs to be considered as to how the increases in cost of production of Phenol have impacted
upon the domestic producers and on the c.i.f. price of imported Phenol and whether the imported
prices fully account for such increases or still undercut the domestically produced Phenol prices.
The main raw materials used in the production of Phenol are Benzene and Propylene.  The
increase in Crude Oil prices from about US$10 per Barrel in early 1999 to a level of US$30 per Barrel
in the second half of the year 2000 has had its impact on the prices of these raw materials.  Theinternational Benzene prices were in the range of US$200-220 PMT in the later half of 1998-99 which
started rising thereafter and were in the range of US$400-418 PMT in the second half of the year
2000.  Similarly, Propylene prices which were in the range of US$240-255 PMT in the later half of
1998-99 and till May 1999, started showing an upward trend and reached in the range of US$400-470
PMT in the second half of the year 2000.  The Benzene prices thus increased by about 95 per cent andPropylene prices by about 75 per cent.  As compar ed to these increases in the basic raw material
prices, the international prices of Phenol which were in the range of US$400-435 PMT, increased to
an average of about US$630 PMT, in the second half of the year 2000, i.e. an increase of about 50-55
per cent only.
In this regard it is also important to observe that the global Phenol capacity has been
augmented by over 1.2 million TPA within a very short span of time.  The new capacities include that
of Phenolchemie in USA (4,00,000 TPA), Ariste ch in USA (2,00,000 TPA), Shell in USA (2,00,000
TPA) and Formosa in Taiwan (2,00,000 TPA) be sides  Mitsui at Singapore with 2,00,000 TPA
capacity, being in an advance stage of implementation.  In percentage terms this means capacityaddition of nearly 20 per cent over the present global demand of Phenol.  This has resulted in increase
in prices of Phenol by only a small modicum of the increase in the cost of manufacture.G/SG/N/8/IND/6/Suppl.1
Page 28
It may be observed here that generally the chemical/petrochemical industry sells its
production in the domestic market at prices keeping in line with the landed prices of imported
material.  The domestic producers of Phenol, therefore, have also to buy their raw materials and sell
Phenol at par with landed prices thereof.  In this context, the domestic producers have submitted that
the component of cost of Phenol representing Benzene and Propylene adjusted for the increase in theprices of Benzene and Propylene, has risen from around US$203-214 PMT of Phenol in the second
half of 1998-99 to US$384-414 PMT of Phenol in the second half of year 2000 i.e. an increase of
about 90 per cent.  HOCL extracts Propylene fr om cracked LPG.  During the period from
September 1998 up to November 2000, the procurement prices of Benzene for HOCL have gone up
by 84 per cent whereas the cracked LPG prices have gone up by 103 per cent.  The prices of LSHS
used by HOCL during this period have gone up by 101 per cent and landed prices of imported cumene
have gone up by 104 per cent.  HCL faced a price hike of 97 per cent for Benzene and 54 per cent forPropylene.  The increase in procurement prices of LSHS, Naphta and fuel oil for HCL during this
period was 96 per cent, 104 per cent and 78 per cent respectively.  The cumene procurement prices for
HCL increased by 118 per cent.
As regards the impact of increase in the raw material prices, it is observed that after making
adjustment for the increase in Benzene and Propylene prices, the cost adjusted prices of imported
material have shown some improvement in the s econd half of the year 2000 being in the range of
US$417-464 PMT, as compared to US$395-435 PMT in the second half of 1998-99.  In the case of
domestically produced Phenol, the applicants have submitted that HCL continued to make losses on
their Phenol operations in 1999-2000 (despite safeguard duty of 22 per cent levied on the importedPhenol) and HOCL made some marginal profits, (whi ch would have turned into losses but for the
safeguard duty).  In 2000-2001 (April-November) both the domestic producers have made some
profits, with 15 per cent safeguard duty in force, wh ich allowed them to raise their selling prices in
tune with landed prices of imported Phenol taking into account the 15 per cent safeguard duty.  It is
important to observe that both the domestic producers would have incurred losses if the safeguardduty was not levied and would start incurring losses if the safeguard duty is not continued beyond
June, 2001. The cost accounts of both the domestic producers have been examined by departmental
Cost Account experts  and have been found to be in order.
It is also important to observe that the imported Phenol arrives with 90-120 days credit
period, which had its impact on the profitability of the domestic producers, as the domestic producers
are required to either give a cash discount for prompt payment on domestic sales or are required tooffer long credit periods.  This has resulted in increasing debtors for both the domestic producers.
The applicants have strongly contended that compression of margins coupled with mounting debtors
leads to a cash crisis situation affecting at times the production due to non-availability of cash to
finance purchase of raw materials.  It is also important to observe that the domestic producers have to
pay the prices for their raw materials up-front, as from 15 June 2000, oil companies, have withdrawn
all the credits and discounts.  The domestic producers also could not build up sufficient stocks of
cumene for the above reasons, which could have helped them in producing more Phenol.  This has
also resulted in increased working capital requirements for the domestic producers and they are also
not able to get additional working capital limits sanctioned by the banks, as a consequence of low
profitability, poor financial performance and the possibility of cessation of safeguard duty on importsof Phenol due to expire on 29.06.01 unless extended by the Government.
It is also observed that the domestic  producers have not fared well on the share price front, as
their share prices have been falling.  They have also suffered loss of employment between
March 1999 to November 2000, their combined manpower reducing from 1168 as on 31.03.1999 to1110 on 30.11.2000.G/SG/N/8/IND/6/Suppl.1
Page 29
The current status of domestic producers thus indicates that they face a continued threat of
serious injury from imports of Phenol and imposition of safeguard duty beyond June 2001 is
necessary to prevent serious injury that may be caused to them on withdrawal of the safeguard duty.
Positive adjustment by the domestic industry
The domestic producers had planned to upgrade technology and debottleneck their operations
so as to increase their production capacities.  In this regard it is observed that the domestic producers
have taken steps enumerated by them in their initial application for improving their efficiencies.
As a result of the efforts made by them, the production capacity of HOCL has increased to
49000 MT pa and that of HCL to 34000 MT pa.  Taken together their production capacity hasincreased from 75000 MT pa in 1998-99 to 83000 MT pa in 2000-2001 i.e. an increase of over 10 per
cent.
Some of the parties have expressed doubts about enhancement of production capacity,
particularly of HOCL.  It was stated by HOCL that for any re-rating and enhanced capacity to becertified, consistent production at that capacity level has to be established for the approval by the
HOCL Board.  On verification, however, the produc tion capacities of HOCL and HCL have been
found to be 49000 MT and 34000 MT pa respectively.  HOCL had a production capacity of
40000 MT pa on a 330 days yearly operation basis.  Its capacity was expanded to 49000 MT pa of
Phenol after modifications in the year 1999-2000.  The process air system of the oxidation section ofthe unit was augmented to achieve this expansion.  Further trial runs to increase the throughput of the
unit to 55000 MT pa were conducted in November-December 2000 which have given encouraging
results.
It has also been verified that HCL have achieved cost reduction benefits from implementation
of two stage cleavage Technology which enabled them to reduce the acidity in cleavage reaction,
reducing in turn formation of by-products and increasing overall yield.  They have also implemented
cost reduction schemes for steam and power; achieving better consumption ratio and also achieved
reduction in fixed costs as a result of increase in Phenol capacity.
Similarly, HOCL on the technology up-gradation front have made progress in installation of
coalescer  and new Acid Injection system.  With the additional filtration and Benzene VapourRecovering System additional 12000 TPA of cume ne can be produced to meet with the increased
Phenol capacity of 49000 TPA.  These have also resulted in the stipulated cost savings.
The domestic industry have stated that despite the levy of safeguard duty the Phenol
operations were not remunerative during the year 1999-2000 due to certain additional unforeseencircumstances which adversely affected financing of  their Cost Reduction Schemes due to shortage of
fund accruals.  However, due to their commitment to reduce cost and be competitive, they managed to
implement the Adjustment Plan Schemes.
With regard to further efforts to bring down their cost of production and the time period
required to achieve them substantially,  HOCL have stated that they will be upgrading their operating
control systems and improve operating efficiencies which is expected to  result in a cost saving of
Rs.(Confidential) PMT of Phenol and to be implemented within one and half years.  Further they have
stated that they will expand their capacity and upgrade their equipment for efficiency improvement
which will result in a cost saving of Rs.(Confidential) PMT of Phenol and may take a period of twoyears for its implementation.  Similarly HCL have stated that they will be able to achieve a cost
saving of Rs. (Confidential) PMT of Phenol on account of de-bottlenecking and installation of
equipment to reduce maintenance downtime within a period of one year; achieve a cost saving of
Rs.(Confidential) PMT of Phenol by augmentation and revamping within a period of one and halfG/SG/N/8/IND/6/Suppl.1
Page 30
years and a cost saving of Rs.(Confidential) PMT of Phenol by improving energy efficiency and
modernization of intermediate plant within a period of two years.  It is thus observed that the domestic
producers require a further period of two years to substantially implement their further restructuring
plans that will result in enhanced production capacities and reduction in the cost of manufacture of
Phenol.
Public Interest
Some of the parties have argued that continued imposition of safeguard duty on imports of
Phenol 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 interest’ 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 intoaccount the larger community interest.  While the imposition of safeguard duty may result in
increased cost of imported Phenol in the hand of buyers and therefore, it may also 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 theincreased imports.  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.  Imposition of safeguard duty that may enablethe 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 Phenol as well as of the buyers of products
manufactured therefrom.  It is, therefore, considered that the continued imposition of safeguard duty
on Phenol for a further period of two years will be in public interest.
It has also been submitted that imposition of safeguard duty will adversely affect country’s
exports, as imported Phenol used in export production will become costlier.  In this regard, it is
observed that in international trade exports are net of duties and taxes i.e. all duties and taxes
including safeguard duty paid on inputs used in the manufacture of export production are entitled to
be refunded as duty drawback etc.  Duties and taxes including safeguard duty paid on imported
Phenol used in export production would also, therefore, be entitled to be refunded.  The objective of
safeguard duty is to enable the domestic producers to become internationally competitive.  If,therefore, the domestically produced Phenol is not internationally competitive for use in export
production, imposition of safeguard duty should help it in becoming internationally competitive,
which should be in the long-term interest of the exporters.  As far as duty free imports of Phenol
under various schemes for use in export production are concerned, the same principle as discussed
above applies i.e. either such imports may not be subjected to levy of safeguard duty ab initio  or if
safeguard duty is collected, it should be entitled to be refunded on export of final product, in
accordance with the existing laws.  It is, therefore, observed that continued imposition of safeguard
duty on Phenol is neither likely to affect adversely the export production, nor is it against the Public
interest.
Share of countries in exports to India
On the basis of information in regard to imports of Phenol  into India during the period 1998-
99, 1999-2000 and 2000-01 it is observed that the following countries exported Phenol to India during
the said period.  The data for the period 1998-99 and 1999-2000 have been taken from DGCISCalcutta and for the period 2000-01 is based on the duly verified data furnished by the applicants.
Accordingly their share in India’s import during the said period is as under:G/SG/N/8/IND/6/Suppl.1
Page 31
Imports in MT
1998-99 1999-2000 2000-01
Country/territory Quantity %age
shareQuantity %age
shareQuantity %age
share
China P.R. 7.000 0.03 117.667 0.40 - -
European
Community85.735 0.34 16493.150 56.29 7348.301 27.79
Israel - - 20.500 0.07 - -
Japan 5911.450 23.45 849.716 2.90 1014.139 0.16
Korea RP 9762.106 38.72 16.000 0.05 - -
Mexico - - 100.000 0.34 - -
Russia 36.000 0.14 895.046 3.05 - -
South Africa 8522.457 33.80 2165.344 7.40 374.000 1.41
Singapore 16.000 0.06 72.600 0.25 41.400 0.16
Switzerland 0.100 - 28.000 0.09 - -
Saudi Arabia - - 108.000 0.37 - -
Chinese Taipei 809.505 3.21 231.850 0.79 3550.420 13.43
USA 62.645 0.25 8204.216 28.00 14114.732 53.38
Total 25212.999 100 29302.089 100 26442.992 100
Conclusion and Recommendation
(1) In view of the findings above, the domestic producers of Phenol are facing a continued threat
of serious injury from imports of Phenol and they are evidently making positive adjustment to thecompetition offered by the imports of Phenol.  They require a further period of two years to
substantially complete their further restructuring plan and continued imposition of safeguard duty for
a further period of two years would be in public in terest.  Further, keeping in view the supply and
demand gap of Phenol, it will also be in public interest to exempt from payment of safeguard duty,
imports (excluding the quantity of Phenol imported for use in export production) of 12000 MTs of
Phenol during the First year and 12500 MTs of Phenol during the Second year of the extended period
of imposition of safeguard duty on Phenol.
(2) In arriving at the amount of safeguard duty that would be adequate to prevent serious injury to
the domestic industry and to facilitate positive adjustment, weighted average cost of production for
HOCL and HCL has been taken into account for the period 2000-01 (up to November 2000).  The
domestic producers have claimed a certain amount of profit on the basis of expected return on capitalemployed 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 CIF import prices of Phenol also have been considered on weighted average
basis for the period 2000-01 (up to November 2000).  Adjustments have been made in the CIF import
price for credit terms.  Change in the applicable rate of customs duty has been taken into account inworking out the landed price of imported Phenol.
(3) Some of the interested parties have stated th at since the liberalization between the first and
second year was to the extent of 7 per cent, the rate of liberalization for the third year has to be either
7 per cent or more.  Consequently, the Safeguard Duty, even if recommended for the third year has tobe 8 per cent or lower.  In this regard it is observed that liberalization need not be uniform and needs
to be in accordance with the requirement of pa rticular set of circumstances keeping in view, inter alia ,
the restructuring/adjustment plan of the domestic producers and factors which have a reasonable
bearing in order to facilitate positive adjustment by the domestic industry and the quantum ofG/SG/N/8/IND/6/Suppl.1
Page 32
safeguard duty imposed being the minimum necessary for the protection of the domestic industry
from the serious injury threatened to be caused by the increased imports of Phenol.
(4) Considering the need to progressively liberalise the safeguard duty in order to facilitate
positive adjustment by the domestic industry, it is recommended that safeguard duty be imposed onimports of Phenol into India at the rates specified below on ad-valorem basis for a further period of
two years being the minimum necessary for the protection of the domestic industry from the
continued threat of serious injury by the imports of Phenol as under:
Level of total
protection
recommended %Existing protection
%Safeguard duty
recommended %
(3)-(2)
(1) (2) (3) (4)
First year of extendedperiod25+12 25 12
Second year of
extended period25+9             9
And a quantity of 12000 MTs and 12500 MTs of Phenol during the First year of the extended
period and Second year of the extended period respectively (excluding the quantity of Phenolimported for use in export production) be exempted from payment of whole of the safeguard duty.
(R.K.GUPTA)
DIRECTOR GENERAL(SAFEGUARDS)
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