WORLD TRADE
ORGANIZATIONG/SG/N/8/IND/9
8 December 2000
(00-5340)
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
The following communication, dated 5 December 2000, has been received from the
Permanent Mission of India.
_______________
Please refer to India's notification (N o. G/SG/N/6/IND/10 dated 13 July 2000) under
Article 12.1(a) of the Agreement on Safeguards regarding initiation of a safeguard investigation
concerning import of Gamma Ferric Oxide (GFO)/Magnetic Iron Oxide (MIO) into India.
The attached Notification No. SG/INV/1/2000 dated 7 November 2000, contains the final
findings of the Director General (Safeguards) concerning this safeguard investigation.G/SG/N/8/IND/9
Page 2
OFFICE OF THE DIRECTOR GENERAL (SAFEGUARDS)
5TH FLOOR, ‘D’ BLOCK, I.P.BHAWAN
I.P.ESTATE, NEW DELHI
NOTIFICATION
SG/INV/1/2000
7 November 2000
Sub:   Safeguard investigation concer ning import of Gamma Ferric Oxide (GFO)/
Magnetic Iron Oxide (MIO) into India - Final Findings.
Having regard to the Customs Tariff Act, 1975 and the Customs Tariff (Identification and
Assessment of Safeguard Duty) Rules, 1997 thereof.
A. P ROCEDURE
1. The Notice of Initiation of safeguard investigation concerning imports of Gamma Ferric
Oxide(GFO)/Magnetic Iron Oxide(MIO) into India was issued on 06.07.2000 and was published in
the Gazette of India, Extraordinary on 11.07.2000.  A copy of the Notice was sent to all known
interested parties, namely:
(i) Domestic Producer
(a) Herdillia Oxides & Electronics Limited., Mumbai (HOEL)
(ii) Importers and User Industries
(i) Super Cassettes Inds. Limited, Noida (UP)
(ii) Tony Electronics Limited, Noida (UP)
(iii) J. K. Corp. Limited, Surajpur (UP)
(iv) Bahubali Electronics Limited, Ajmer
(v) Jai Electronics Inds. Pvt. Ltd., Nasik
(vi) R.M.T. Industries, Silvassa(vii) Meltrack (India) Pvt. Limited, Mysore
(viii) Ree Magtapes Pvt. Ltd., Silvassa
(ix) Sakamichi Tapes Limited, Silvassa
(x) Maxell Magnetic Industries,Delhi
(xi) Hindustan Photo Films Mfg.Co.Ltd., Ootacamund (TN)(xii) Music Systems,Noida (UP)
(iii) Exporters
(i) ISK Magnetics Inc, United States (Retd. Undelivered by Postal Authority)
(ii) Magnox Pulaski Inc, United States
(iii) Titan Kogyo Kabushiki kaisha, Japan
(iv) Saehan Media Co. Ltd., Korea
(iv) Associations
(i) Electronics Material Industries Association, New Delhi.G/SG/N/8/IND/9
Page 3
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
China, Japan, Korea Rep. of, Singapore and the United States.
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 18.08.2000.
4. Replies to the Notice dated 06.07.2000 and to the questionnaire were received from the
following parties:
(a) Domestic Producer
(i) M/s. Herdillia Oxides & Electronics Ltd., Mumbai
(b) Exporters
(i) Magnox Pulaski Inc, UNITED STATES
(ii) Titan Kogyo kabushiki kaisha, Japan
(c) Importers and Users Industries
(i) Super Casettes Industries Ltd., Noida
(ii) J.K.Corp. Ltd., Surajpur (UP)
(iii) Bahubali Electronics Ltd., Ajmer
(iv) Jai Electronics Ltd., Nasik
(v) Meltrack (India) Pvt. Ltd., Mysore
(vi) Hindustan Photo Films Ootacamund (TN)
Besides the above parties, ELCINA, New Delhi (Electronic Component Industries
Association) also forwarded a copy of letter receiv ed by them from M/s. Bahubali Electronics Ltd. and
requested that the Application be examined keeping in view the interest of domestic magnetic tape
manufacturers.
5. Verification of the information considered necessary for the investigation was done and to
this end a team of officers visited the premises of Domestic Producer, Importers and User industries.
The outcome of the investigations was conveyed to the concerned parties and a copy of the
investigation report was also placed in Public File.
6. A Public Hearing was given to all interested parties on 09.10.2000, notice for which was sent
on 31.08.2000.  During the Public Hearing the interested parties were requested to file their written
submission of oral arguments made by them by 16.10.2000, collect replies filed by others on
17.10.2000 and to file rebuttals, if any, by 24.10.2000.  The following parties attended the Public
Hearing:
(i) Herdillia Oxides and Electronics Ltd., Mumbai
(ii) ISK Magnetics, UNITED STATES
(iii) Meltrack India Ltd., Mysore
(iv) Bahubali Electronics Ltd., Ajmer
(v) Super Cassettes Industries Ltd, Noida(vi) Jai Electronics Ltd., Nasik
(vii) J.K.Corp. Ltdl, Surajpur
(viii) ELCINA, New Delhi (through Counsel)G/SG/N/8/IND/9
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B. V IEWS OF THE IMPORTERS /USER INDUSTRIES
(a) M/s Meltrack India Ltd., Mysore
(i) GFO is used in combination with various binders, chemicals and solvents to produce
magnetic slurry which is  used in production of Audio Magnetic Tapes. They are regularly usingimported GFO and on and off purchasing GFO from HOEL.  Based on the techno-commercial results
and feedback from their technical team/customers they have observed that GFO manufactured by
HOEL is not viable and suitable to high-end segment of products.
(ii) M/s Herdillia is manufacturing three grades of oxides viz A-15, A-65 and A-75.  They have
selected and used A-75 grade as its magnetic properties indicates better compared to other grades and
recommended by M/s Herdillia also.  They have analysed the tapes produced with Herdillia, ISKMagnetics 2038 and Magnox HHO 3650 oxides. The tapes produced with Herdillia have lower
Coercivity, Magnetic induction (Bm) Retentivity (Br) and broader switching field distribution, poor
electroaccoustic properties compared to 2038 and Magnox oxide.  All these properties result  in poor
performance of recorded music or speech.
(iii) The size and shape of magnetic particles determines the number of particles, which can be
packed, with a given volume of space.  As the packing density increases a greater signal output is
obtained.  Smaller particles with a narrow particles size distribution give optimum signal to noise ratio
and better recording sensitivity. Herdillia geometrically lacks this.
(iv) Lower coercivity of Herdillia results in lower magnetic recording potential and lower
resistance to erasure of tape signals form stray environmental fields and self-demagnetizing field of
the signal.  Lower Squareness Ratio of Herdillia results in poor magnetic retention.  Broader
switching field distribution means non-uniform magnetic particles, which increases the distortion
level at high recording levels.
(v) Today all recording studios have updated their systems and recording speeds are increased
from 1:64 to 1:128.  To suit for high speed duplication (1:128), tapes should have high saturation
output level (SOL), better high frequency property and lower tape noise with high maximum out put
level (M.O.L.).  The frequency response at 12.5 KHz and 16 KHz are very critical for high speed
duplication, where as Herdillia have about 1.5 to 2 dB lower response.  The maximum output level at
3 per cent HHD is lower by 1 to 1.5 dB with same coatin g thickness.  Tape noise of Herdillia is 2 to 3
dB more compared to 2038 and Magnox which is not recommended.
(vi) They have experienced lot to lot variatio n in properties while using Herdillia Oxides.
Inconsistency in product quality will be instrumental in reducing customer’s confidence.  Herdillia
needs extra energy to disperse and achieve properties, which results in additional usage of dispersingagents and solvents, which increases overall costing of the batch.  Herdillia needs about 20 to 25 per
cent more milling time to achieve standard dispersion, which decreases output of paint production.
With all efforts and additional inputs of raw materials, yield level was 10 per cent lesser compared to
ISK – 2038 and Magnox 3650.
(vii) Today Indian music industries are dumped with  imported tapes.  All recording companies are
switching over to imported tapes because of lower price compared to local tapes.  In addition the
latest Union Budget has reduced the custom duty for imported coated jumbos from 25 per cent to
20 per cent which is a further advantage for traders.  They have to compete with imported tapes like
BASF and SKM which have better electroaccoustic and mechanical properties and offered at lowerprice compared to local tapes. Both from technica l and commercial point of view they have left with
no option but continue to use imported oxides to compete with imported tapes.G/SG/N/8/IND/9
Page 5
(b) Super Cassettes Industries Ltd., Noida (UP)
(i) They are the largest manufacturer of Audio / Video (Blank and Recorded) cassettes in India
which they are marketing under the brand name T-Series.  They are also coating the magnetic tape to
be used in cassettes which is a major and one of the important components.
(ii) They have been importing Gamma Ferric Oxide used for coating of magnetic tape which is
one of the major raw materials, as ferric oxide is applied as magnetic coating on the polyester film.
(iii) M/s Herdillia Oxide and Electronics is the sole manufacturer in India of Gamma Ferric Oxide
suitable for manufacturing normal audio magnetic tape.  Nobody in India is manufacturing Gamma
Ferric Oxide to be used for video magnetic tape as well as professional musical audio tapes andfloppy diskettes to be used in computers.
(iv) The production facilities available with M/s Herdillia Oxides do not have the control and
systems to a required level, for manufacturing video oxide and professional audio grade oxide to be
used in Professional Audio Tapes and Floppy Di scs.  The quality of normal audio grade oxide
manufactured by M/s Herdillia Oxide is also not up to the mark and there is more rejection and more
consumption while using this oxide.
(v) The imported Gamma Ferric Oxide is always costlier than locally available.  The price of
Gamma Ferric Oxide in Japan and Korea is much more higher than their export price to India.  Eventhe landed cost of this oxide in India is 50 per cent more than the price of Gamma Ferric Oxide
manufactured by HOEL.
(vi) The Music and IT industry is growing day by day and India is one of the major contributors to
the world Computer scene.  Any move for imposition of additional anti-dumping / safeguard duty willhamper the development of these industries at this crucial stage and the present manufacturer
M/s Herdillia Oxides will be the sole beneficiary of this imposition whereas it will harm all other
industries engaged in the manufacture of magnetic tape, video tape and computer\IT industry.
(vii) Their end product Audio Cassettes mainly caters to the music needs of common man.  The
import duty has already been increased from 10.86 per cent to 21.9 per cent (net of MODVAT) which
should take care of HOEL’s grievances and therefore there is no need for/of in initiation for anyadditional duty to safeguard the domestic industry.
(viii) There is no injury or threat to the local industry as imported price is much higher than the
indigenous industry.  The workforce engaged directly and indirectly is enormous and any imposition
of anti-dumping/safeguard duty will be detrimental for the employment as levying of anti-dumping /safeguard will lead to closure of magnetic tapes industry completely.
(c) Bahubali Electronics Ltd., Mumbai
(i) They are manufacturers of Audio Magnetic Tapes.  The product being imported by them is a
totally different product, which has high coercivity and is of different specification and is used in
sophisticated tapes.
(ii) The GFO / MIO produced by M/s Herdillia Ox ides and Electronics Ltd. (HOEL) is not of
international standard/quality, in fact they are nowhere near the quality given by internationalmanufactures.  This is the reason Indian tape manufacturers have been importing GFO irrespective of
the less price offered by HOEL.
(iii) They have been facing lot of quality problems whenever they bought GFO from HOEL.
Their quality is poor and inconsistent which is also evident from the fact that they are hardly able toG/SG/N/8/IND/9
Page 6
export their GFO outside India.  Their quality further deteriorated when they broke their collaboration
with Magnox Pulaski, UNITED STATES in the year 1997.  This is one of the reasons that their sales
(domestic and export) dropped in the subsequent year and since inception of HOEL in 1991 till today
they were not able to increase their market share beyond 65 per cent.  Only in 1997-98 it was 70 per
cent because of shortage in international market.
(iv) The domestic sales of HOEL is fairly consistent.  It dropped in 1999-2000, because the import
duty (concessional) for this year was reduced from 15 per cent to 5.5 per cent and as a sequel the
imports increased in 1999-2000.
(v) The Agreement on Safeguards provides protection to the domestic Industry against injury due
to increased imports.  It is important to note that under Article XIX Safeguard can be provided to thedomestic industry only if the increased imports have resulted due “to the effect of an obligation
incurred by the importing country”. In this case it is not so.  The basic duty (Concessional) was
always well below the GATT bound rates of duty.  Even the reduction in duty in 1998-99 from 15 per
cent to 5.5 per cent and again to 16.5 per cent in 1999-2000 was not because of any obligation under
GATT.  As such in this case the obligation for reduction of duty under GATT was not the cause ofincreased imports.  As such it is out of the purview of the Safeguard Agreement.
(vi) To get more market share of the domestic market the quality should be improved and brought
to international level, contrary to this HOEL’s quality has deteriorated with time. People who were
buying from them were forced to shift to foreign suppliers in spite of  the high landed cost of importedGFO.
(vii) The imported GFO  is not a like or directly competitive product. As per the Agreement on
Safeguard the application of the safeguard measures should be applied if the imports caused serious
injury to the domestic industry that produces like or directly competitive product. In this case it is notso and as such the safeguard measures are not applicable for GFO manufactured by HOEL.
(viii) The price of GFO of US$1.80 per Kg being quoted in International market is only an
assumption made by HOEL and they have not provided any supporting documents to substantiate it.
(ix) HOEL’s contention with regard to “High cost of other inputs in India” is false.  The cost of
fuel, power and transportation is much less in India as compared to the United States, Japan andKorea.  It is because of the inefficiency of HOEL that their cost of production of GFO is high and thus
are not able to make money out of this business.
(x) HOEL’s contention of increased imports is not correct.  Increase was only during one year i.e.
1999-2000 due to reduced import duty which has been restored back to 16.5 per cent in the currentyear thus providing enough safeguard.
(xi) Landed price of imported GFO is constant and has not gone down contrary to HOEL’s claim.(xii) The GFO project of HOEL was incorrectly planned.  The installed capacity of 2000 TPA is
over sized.  The Indian market of  GFO is only 1000 - 1100 TPA.  Assuming a market share  of 60 per
cent HOEL could expect a sale of 600 - 700 TPA and thus setting up of a Plant capacity of 2000 TPA
was a wrong decision.
(xiii) They are importing high coercivity (410) low noise high quality oxide which is not being
manufactured in India.
(xiv) Herdillia has not addressed the core issue of improving their quality instead they are talking
of developing new products (Synthetic Iron Oxide) which has no relation with Audio Magnetic Tape.G/SG/N/8/IND/9
Page 7
For developing new products the Audio Magnetic Tape industry should not be asked to bear the
burden of higher price by way of safeguard duty.
(xv) Audio Tape Industry is already reeling under tremendous pressure because of the inverted
duty structure, all the major inputs are at 38.5 per cent custom duty whereas the finished Audio Tape
is at 20 per cent Custom duty, due to this the Indian Audio Tape Industry has become uncompetitive
against imported tapes and huge quantities of finished imported Audio Tapes of good quality have
started coming in India.  Several representations have already been made to the Ministry of Finance to
correct the inverted duty structure but nothing has been done by the Government so far.
(xvi) The imposition of safeguard duty is not in public interest.  If the safeguard duty is imposed on
GFO the Indian Tape Industry will close and 1,100 people will become unemployed as against 133people employed by Herdillia Oxides & Electronics Ltd.
(d) Jai Electronic Industries Pvt. Ltd., Mumbai
(i) They are one of the leading manufacturers of  Audio Magnetic tape in India having
manufacturing base at Nasik in Maharashtra State. GFO is one of the critical raw material used in the
process of manufacturing of Audio Magnetic Tape.
(ii) The GFO imported from M/s MAGNOX PULASKI INC. US by them has different technical
specifications.  It is a high grade product with better magnetic and electronic properties.
(iii) The quality of GFO/MIO produced by HOEL has never been upto the international standard.
Their quality further deteriorated after their collaboration with MAGNOX PULASKI INC. US  was
broken in 1997.  The deterioration in quality of their product is evident from the fact that their exports
have substantially come down from 216 MT  in 1997-98 to 10 MT in 1999-2000.
(iv) Despite the fact that the GFO / MIO of international quality  was easily available worldwide,
they encouraged HOEL to produce GFO of international standard to promote indigenous product, but
HOEL could not produce material of acceptable quality.
(v) M/s HOEL’S contention that the cost of other inpu ts in India is higher is wrong.  In fact the
cost of fuel, power and transportation is much less in India in comparison to the United States, Japanand Korea.  It is their inefficiency which resulted in high cost of production and left less profits for
them.  HOEL’s other contention that the worldwide demand for Audio Tapes has gone down is not
correct.
(vi) Since last two years there has been an awareness of international quality Audio Magnetic
Tape amongst customers and they demand same quality product from them.  To fulfill their
requirement they have to use higher grade GFO which provides higher Maximum Output Level
(MOL).  HOEL was provided enough opportunity to supply the desired quality of GFO.  But despite
their best efforts they could not do so and hence they were left with no option but to import the GFO.
(vii) The reasons behind HOEL’s poor performance and decreased sale is not on account of
increased imports but oversized plant.  The installed capacity of HOEL, is 2000 tpa whereas the
market of GFO in India had never been more than 1,240 mt.   Their own market share had never been
more than 70 per cent as such they could not sell not more than 870 mt.   This concludes that their
installed capacity is 2.5 times more than their market share.
(viii) The Video market has become zero which has adversely affected HOEL sales.(ix) The imported  GFO is not a like or directly competitive product.  The import of such GFO do
not cause injury to the domestic industry which is not producing a like or directly competitiveG/SG/N/8/IND/9
Page 8
product.  As such the Safeguard measures are not applicable.  There  exists a huge difference in the
quality levels of imported GFO and HOEL and as such requires no Safeguard duty.  There has been a
marked increase in awareness and demand of bette r quality product from their customers thereby
resulting in increased demand of imported GFO.  It may also be pointed out that the market share of
HOEL was 70 per cent in 1997-98 when the import duty was at a low of 12 per cent, came down to60 per cent in 1998-99 when the import duty became 15 per cent which is attributable to quality
constraints and termination of collaboration with Magnox.
(x) The Agreement on Safeguards provides protection to the domestic industry against injury due
to increased import.  The import duty on GFO has been already increased from 5.5 per cent  in 1999-
2000 to 16.5 per cent in 2000-2001.  This provides them enough safeguard.
(xi) In their view since the reason of poor perf ormance of HOEL is not increased imports and the
Safeguard Agreement specifically prohibits imposition of safeguard duty because of injury caused by
factors other than increased imports, there is no need for any safeguard duty.
(e) J.K. Corp Limited, New Delhi
(i) The quality and specifications of the Audio Grade GFO imported by them are totally different
from Magnetic Iron Oxide manufactured by HOEL.
(ii) Gamma Ferric Oxide manufactured by HOEL is not of International quality, that is why, most
of the Indian tape manufacturers have preferred to import oxides irrespective of the higher prices
quoted by overseas suppliers.
(f) Hindustan Photo Films Manufacturing Co. Ltd., Ootacamund (TN)
They do not import any Gamma Ferric Oxide/Magnetic Iron Oxide.  They obtain their
requirement from the indigenous manufacturer M/s. Herdillia Oxides & Electronics Ltd. through their
distributors.
C. V
IEWS OF THE EXPORTERS
(a) M/s Magnox Pulaski Inc., United States
(i) Indian Tape producers purchase imported oxide due to better magnetic and acoustical
properties achieved when using Magnox Oxides.  Their dramatic increase in imports to India during
the periods 1997-2000 is related to better quality of their pigment, as compared to Herdillia’s vs
pricing.  Until 1997, and the reduction in duty, Magnox products were virtually unknown to the Indian
Tape Producers. After initial sampling in 1997 to most of the major tape producers in India, theyreported an improvement in audio tape properties by the utilization of Magnox gamma ferric oxide.
This benefits the Indian Tape producer by allowing them to improve on the quality of their product
and compete more effectively against imported audio tape.  In  their view pricing in India is no more
competitive than any other market in the world.  The difficulty experienced by Herdillia to retain
market share in India is directly related to the poor performance of their oxide when used to formulateaudio tape by Indian manufacturers, especially when compared to results achieved using gamma ferric
iron oxide available from Magnox, or other quality conscious producers outside of India.
(ii) Magnox Pulaski, Inc., and its predecessor companies had a business relationship with
Herdillia for many years.  This relationship included the transfer of technology for producing gammaferric iron oxide (1988) and design of the Herdillia Oxide plant located in Chiplun.  They are very
familiar with the process and plant equipment at Herdillia, and the major differences in their method
of production as compared to Magnox.G/SG/N/8/IND/9
Page 9
(iii) While both Magnox and Herdillia utilize similar raw material and methods of production,
there are differences in equipment, process like Seed Preparation, Tank Geometry, Milling, Raw
Material Purification and Mixing.  The difference in these processes to produce gamma ferric iron
oxides and the effect on quality can be proven experimentally by analyzing samples from each
process via Sieve analysis, and measuring the uniformity coefficient for agglomerate size distribution.The lower the value for the uniformity coefficient, on particle or agglomerate sizes, the better the
dispersion properties of the oxide in the tape formula.  In the coating of audio tape, a good dispersion
of the oxide will enhance the surface characteristics of the tape, which influences the Electro-
acoustical properties in a positive manner. Magnox HHO-3650 is about 45 per cent smaller in
agglomerate size, which means that the overall size of HHO-3650 is much smaller than Herdillox A-
15. This can be realized by the audio tape formulator, in that the Magnox Oxide would more readily
disperse and therefore provide better tape properties. This difference in quality and productionmethods accounts for the dramatic increase in imports to India of  gamma ferric iron oxide  produced
by  Magnox, and other quality conscious  producers outside of India.
(iv) Magnox Pulaski, Inc. tests product conformity on both powder and professional tape
properties to ensure higher quality product and better performance of their oxides to the end user.They perform total quality control on their oxide production, including raw materials and test all
physical and magnetic properties of every blend of gamma ferric oxide. In addition, Magnox
Applications Lab formulates professional and comme rcial audio and videotape in order to analyze the
performance of Magnox oxide in finished tape. They test the full range of electro-acoustical properties
and measure customer’s tapes upon request, and offer recommendations for optimized results whichtranslates to added value for their customer base, and provides a level of service not available from
Herdillia.
(v) In the measurement of audio tape performance, certain measurements can be determined
which prove the performance characteristics of a gamma ferric iron oxide in finished audio tape.These factors are listed below:
(a) SOL – This value represents saturated output level at 10 Hz, which is effected by the
particle size, distribution, and ability of the oxide to disperse well in the tape formula.
It is also a representation of the tape coating surface, which if SOL is low, means the
oxide does not disperse well.
(b) O.R. – Orientation Ratio: a measurement of how well the oxide orients when passing
under a magnetic field.  The higher the number the better the performance of the
oxide.
(c) NSFD – Normalized SFD, measure of the distribution of coercive force of magnetic
particles.  The lower this value the better the performance of the oxide, which
translates to improved Electro-acoustic properties, especially in high frequency
response.
(d) Squareness – the measurement of the remnant magnetization to magnetic moment, or
Br/Bm.  The higher the value the better the performance of the oxide.
(e) Sensitivity – measurement of the frequency response in dB’s (decibels) across the
audio range.  This ranges from a low of 315 Hz to a high of 12.5 Hz.  The higher the
number(s) the better the performance of the tape and oxide.
(vi) By providing the Indian Tape manufacturer with a superior quality oxide, their business in
India has been secured against foreign producers of audio tape in terms of quality.  This allows Indian
tape producers to exhibit equal quality to their foreign competitors using Magnox oxide, as compared
to tape produced with Herdillia Oxide.G/SG/N/8/IND/9
Page 10
(vii) In March – April of 1996-97, Magnox Pulaski, Inc. imported material from Herdillia Oxides
and Electronics to supplement production of gamma ferric iron oxide by reprocessing Herdillia
material in order to improve upon the particle distribution and reduce moisture and agglomerates,
characteristics of Herdillia oxide.  During this time frame Magnox purchased in excess of 330 MT,accounting 80 per cent of Herdillia’s export business.  In 1995-96 this volume was 100 MT.  This
relationship was terminated in 1997  and is directly related to Herdillia’s drop in production levels.
(viii) Since then, Herdillia has offered pricing outside of the Indian market, at prices below market
value.  Most recently, they have offered lower pric ing than pricing levels in India as noted in their
report, to tape producers outside of India.  Herdil lia approached customers in Europe, the Middle East,
Hong Kong, Korea, and offered product in the US through their agent CM Magnetics.  Most of theseefforts were unsuccessful, primarily due to the quality issues.  If this price level is acceptable to
Herdillia and export market, then it should all the more acceptable in the Indian market.  The reality
of the situation is that Audio tape producers are not willing to purchase Herdillia Oxide, even if at a
lower cost, whether in India or outside of India, due to inferior quality of the oxide.
(ix) As a result of market conditions, most producers of gamma ferric iron oxides have
experienced negative impacts on employee retention.  At Magnox, in order to remain competitive to
their customer base, they were forced to initiate reductions in force.  In 1995, Magnox employed 180
persons.  The employee level at Magnox has been reduced by more than 50 per cent as a result of
deteriorating market conditions.  In 2000, their effective workforce is 86 employees. Despite thereduction in employees, their overall efficiency has increased to a level unparalleled in their company
history.  This efficiency translates to added cost reduction to maintain a competitive edge.  This trend
in lower employment levels is the nature of business in a global economy.  Those who cannot adjust
to these challenges, face elimination or deterioration of revenue.
(x) Herdillia Oxides and Electronics seek protectionist legislation in order to impose a price
increase upon the Indian Tape producer and eliminate competition.  There are reportedly 12 tape
manufacturing locations in India.  The eliminati on of competition for raw materials to these tape
producers will force these companies into insolvency and limit the Indian public’s freedom to choose
the best value and quality.
(xi) In addition, Herdillia’s contention that prices will increase for gamma ferric iron oxide should
Herdillia close operations, is unlikely.  To the contrary, the import of higher prices will be enormous
to the Indian tape manufacturer, if Herdillia Oxides and Electronics are allowed a monopolistic
market in India.  Herdillia also argues that they will enter the synthetic iron oxide pigment market to
enhance production.  Their capacity and economy of scale will not allow them to be competitive in
this arena, as the pricing levels are in some cases 50 per cent lower than magnetic oxides.
(xii) There is no evidence that price deterioration in India is any different than that found
throughout the rest of the world.  Any extraordinary attempt to protect HOEL from competition on a
global scale, will only negatively impact the Indian Audio Tape manufacturer and consequently the
general public in India.  Therefore the safeguard duty protection sought by HOEL be deniedforthwith.
(b) Titan Kogyo Kabushiki Kaisha, Japan
They have not offered any substantive comments against imposition of safeguard duty or
otherwise.  However, they have furnished details of their capacities, production and exports including
price at which exported to India for the period 1997-98 to 1999-2000 as under.G/SG/N/8/IND/9
Page 11
Year Capacity Production Export Price US$
1997-98 2400 2266 448 2.70 - 2.65
1998-99 2400 1497 432 2.65 - 2.301999-2000 2400 1509 448 2.30 - 2.20
(c) ISK Magnetics Inc., United States
(i) ISK Magnetics is the dominant supplier of MIO for audio tape applications worldwide and is
the primary supplier for all of the largest tape makers. They have a capacity of 6,000-6,500 MT
(based on product mix) of MIO for audio tape applications.  Actual sales in 1999 were over
5,050 MT.  In 2000, sales will exceed 5200 MT.
(ii) ISK  Magnetics, Inc. products are technically superior to those produced by HOEL because
ISK Magnetics process is based upon the use of ferrous chloride as the iron source.  This practice
creates a superior magnetic particle that exhibits high orientation characteristics in magnetic tape.
Such a particle has enhanced switching field properties leading to excellent high-frequency
performance and long wavelength response because of the high particle packing in tape.  ISK
Magnetics quality assurance laboratory routinel y monitors 30-40 in-process variables during the
production process, making certain that ISK Magnetics MIO products create superior tape properties.
Even in the Indian tape industry, ISK Magnetics believe that ISK Magnetics specialty grade magnetic
iron oxides have been preferred over the years when quality is of prime concern.
(iii) From a commercial point of view,  ISK Magnet ics, Inc has been involved in the Indian tape
market for many years.  ISK Magnetics have been a major supplier to the audio and video tape
markets in India dating back to the early 1980s.  ISK Magnetics’ actual strategy in the Indian tape
market has been to offer ISK Magnetics MIO products  at prices that are competitive with comparable
global suppliers of MIO products being used in India.  Based upon ISK Magnetics technical
superiority in an optimized formulation, ISK Magnetics believe that ISK Magnetics can gain asignificant market share in India based on performan ce rather than low pricing.  ISK Magnetics, Inc is
committed to remain a supplier to the Indian tape market.  Unlike many of ISK Magnetics
competitors, ISK Magnetics provide a significant technical service effort to help ISK Magnetics
customers optimize their tape formulations based on ISK Magnetics MIO.  ISK Magnetics technical
service team has over 50 years of experience in the tape making industry.
(iv) The exports made by ISK Magnetics to India during the period in question were based on
technical merit rather than low pricing.  Should  additional safeguard duties be established for
imported MIO products, ISK Magnetics customers, wh o prefer ISK Magnetics products to HOEL and
other MIO producers, will be penalised if they continue to buy MIO from ISK Magnetics, Inc.  HOEL
is requesting that safeguard duties be established to enable them to regain their lost market share in
India.  The fallacy of this premise is that Indian  tape makers prefer to buy products from suppliers
other than HOEL on the basis of superior performance rather than lower pricing.  Further, if Indian
tape makers are forced to buy MIO from Herdillia because the imposition of safeguard duties makes
the importation of MIO prohibitive, the end result will be that the relative quality of audio tape
manufactured in India will decline. ISK Magnetics believe that the imposition of Safeguard Duties on
imports of MIO into India will indeed create a decrease in the imports of high quality MIO into India.Unfortunately, the end result will be that Indian tape makers will produce lower quality audio tapes.
When the audio tapes made by Indian tape makers with HOEL MIO are compared to the imported
pancakes from other world class tape makers, the relative quality will be poorer than the imported
pancakes.  As a result, many audio tape duplicators and end-users will opt in favour of tapes made
with the imported pancakes.  Such a shift could ultimately result in the closure of Indian tape plantsand the loss of employment for many workers.G/SG/N/8/IND/9
Page 12
(v) The ISK technology is unique compared with their world competitors and Herdillia (HOEL)
since they start with a lepidocrocite precursor rather than goethite.  They are the same chemically,
ferrous hydroxide, but the crystal growth habit is quite different.  Lepidocrocite grows as a long
spatulate acicular particle compared with goethite which is more like a needle having a circular cross-
section.  Compared with the rest of the industry ISK starts with ferrous chloride rather than ferroussulphate pickle liquor.  This is the only starting material that reacts with alkalis to form lepidocrocite.
Through years of research and production experience they have developed a critical pickle liquor
purification process based on their knowledge of the harmful and beneficial trace elements which can
destroy or enhance the lepidocrocite growth process.  After carefully growing the crystal it is treated
with a proprietary antisintering agent which preserves the particle shape during the continuous
thermal processing steps of clacination, reducti on and oxidation.  One important feature of their
thermal reduction process unlike the rest of the industry is the use of an inorganic fatty acid as thereductant rather than a reducing gas such as hydrogen or the like. The fatty acid leaves a carbonaceous
layer on the magnetic particle which promotes dispersion in the customer’s magnetic tape
formulation.
(vi) A close look at the global iron oxide pigments scenario characterizes the problems that
Herdillia is likely to face as they attempt to gain a significant market share in the world wide pigments
market for synthetic iron oxides.  The 3 major competitors in the synthetic iron oxide pigments market
include Bayer, Elementis Pigments and LaPorte.  These 3 suppliers account for the vast majority of
the worldwide capacity for synthetic iron oxide.  Each of the 3 companies has the capacity to produce
in excess of 1,00,000 MT yearly and Bayer has capacity of over 3,00,000 MT per year.  All 3 majorsmanufacture products in the western world as well as China. The capacities in China produce low-cost
products of varying quality that are primarily used as blend components for the construction industry
coloured concrete and masonry products for building products.  It is important to note that these
products are sold in large quantities at prices below $ 0.25/lb.  Based on the economics of
manufacture in India as well as the fact that Herdillia does not possess the manufacturing scale of theexisting suppliers to this industry.
(vii) Herdillia Oxides is very unlikely to gain an y  significant share in either the construction
industry or the coatings industry as they lack all of the necessary attributes to gain access to the
market.  In the low-cost markets segments, HOEL does not possess the manufacturing economics to
compete with any of the major suppliers of iron oxide pigments.  Even in these areas, a detailed
knowledge of the construction industry and the customer base is essential to success.  Further colourspecifications exist for these applications and color controlled products is absolutely essential for
success.  To their knowledge, HOEL has no real experience in the manufacture of colour controlled
products at the manufacturing scale level.  At any rate, the cost basis for these products seems to be
out of reach for HOEL with less than 2,000 MT of cap acity. It is very unlikely that HOEL will be able
to meet certain basic critical requirements of paint and coating industry in the next 3 years with theassistance of safeguard duties to protect their existing audio oxide business.
D. V
IEWS OF THE ASSOCIATION
ELCINA, New Delhi
(i) The members of ELCINA comprise largely of the manufacturers of audio tape who will be
directly impacted by the imposition of duty on the product under consideration (GFO).  The
manufacturers of audio tape largely supply “tape pan cakes” to the large music companies/cassette
makers (one manufacturer being a large music company, however, captively consumes his output).
Demand for the product is sporadic and directly proportionate to the popularity of the music and filmindustry.  In light of this, reliable source of supplies of components such as polyester film and GFO
coupled with good quality is the need for the survival of the manufacturers.G/SG/N/8/IND/9
Page 13
(ii) The purpose behind the imposition of Safeguard duties is not to pass off substandard material
to the consumers.  In fact nowhere in the adjustment plan submitted by the domestic industry is any
reference made to the quality and the domestic industry in fact is absolutely blasé about it quality.
(iii) The ISO-9002 certification has little, if any bearing on the quality of GFO manufactured by
HOEL.
(iv) The domestic industry’s quality is also manifested in its pricing.  The price at which domestic
industry is selling is approximately Re 80 to 87 per kg. This they claimed was being done by way of
import price parity.  As compared to this imported oxide with a c.i.f. price of $2.20 and $1.80 results
in a net landed price of Re 127.31 and Re 104.16 .  In light of the above, and the claim of the domestic
industry that they are making a world class product, there can be no explicable reason to keep theirlanded price down to Re 80-87.  While it has been argued by the domestic industry that they are
matching oral price quotes from competitors, it is implausible that this high price differential has
sustained on this misleading basis since so long.  It is further submitted that between 31 March 2000
and 30 September 2000, the rupee has depreciated vis-à-vis the US$ by 5.17 per cent thus making the
imports even more costly and affording additional protection to the domestic industry.  The truereason behind the price differential is the quality.  If not, given the low prices and the high quality, as
claimed, the domestic industry would have a world- wide market for their product, which in turn
would drive up their capacity utilization.
(v) It is an admitted fact that the domestic industry put up a 2,000 Mtpa plant, on the projections
that the video market would grow.  Unfortunately, th is video segment did not grow at all, in fact has
virtually closed down.  In light of this, the total domestic demand for the product under consideration
in India has plateaued out at approximately 1,200 Mtpa.  Even this continues to diminish in light of
the increased imports of finished audio tapes.  Even at the peak of its operations the production of the
product under consideration in the audio tape segment, by HOEL was 961 Mtpa in 1997-98.  In viewof the above, it is apparent that injury to the domestic industry, if any, has been caused due to the
virtual death of the user industry (Video Tape Industry), which led to the creation of excess capacity.
The Hon’ble DG would kindly appreciate the audio tape industry should not be made to bear the
burden of the incorrect projections and patently wrong business decisions of the domestic industry.
Further, the disappearance of the video segment is not a new circumstance brought about by the
increased imports.  It has been a reality since the inception of the domestic industry.
(vi) The following was the duty structure and imported quantities for the product under
consideration (GFO) since 1995-96:
__________________________________________________________________________________
95-96 96-97 97-98 98-99 99-00
Duties 15% 12% 12% 15% 5.5%
Mtpa 348 339 329 487 645
It is pertinent to point out that the duties in 2000-01 have increased to 16.5 per cent.  Clearly,
the increase in imports can also be attributed to the drastic reduction in import duties during 1998-99.Thus, it is the case of the audio tape manufacturers that part of the serious injury to the domestic
industry has been caused by the reduction in duties and this has been rectified by the increase in duties
and even the increase in the US$ to Rupee rate, thus the domestic industry does not need safeguard
protection.
(vii) It is a pre-requisite for the imposition of safeguard duties that the domestic industry must have
a viable restructuring plan to compete with the new situation of increased imports and it is
fundamental to the scheme of safeguards that the readjustment plan addresses the product underG/SG/N/8/IND/9
Page 14
consideration.  Apparently, this is not the case in the instant case.   The domestic industry has claimed
confidentiality of its restructuring plan and has only revealed that synthetic pigments will be
manufactured to increase plant capacity utilization.  It is submitted that details furnished by HOEL are
vague and sketchy and they should be compelled to provide additional details in order that the
domestic audio tape manufacturers can comm ent on the same with full knowledge.  Prima facie , it
appears unjust that the audio tape industry, already being threatened by imports should be compelled
to bear the burden of a restructuring plan for a wholly new product having no relation to the quality of
the GFO being produced by the domestic industry.
(viii) The quality of the indigenous product is the main culprit is also borne out from the fact that
the domestic industry has been selling its goods much below the landed prices.  The question of the
imported goods causing injury, therefore, does not arise and there is no justifiable case for anysafeguard duty protection.
(ix) The cost of Gamma Ferric Oxide/Magnetic Iron Oxide in a pancake tape is approximately
30 per cent of the cost of the pancake.  Any increase in the cost of the raw material, which constitutes
30 per cent of cost of end product (pancakes), is bound to impact the viability of the domestic Indiantape manufacturer.
E. V
IEWS OF THE DOMESTIC PRODUCER
(i) The imports of Gamma Ferric Oxide/Magnetic Iron Oxide have increased from 329 MT in
1997-98 to 645 MT in 1999-2000, an increase by 96 per cent and is close to 152 per cent of the annualproduction of the domestic producer and has challenged the domestic pricing of the product.
(ii) International price of Gamma Ferric Oxide/Magnetic Iron Oxide have dropped significantly
over the period 1995-96 to 1999-2000 i.e. from 2.88 US$ in 1995-96 to 1999-2000 i.e. a drop by
23 per cent.  As a result the domestic prices of Gamma Ferric Oxide/Magnetic Iron Oxide had to belowered which has sharply affected their profitability and increased their losses further.
(iii) The cost of production for the Indian manufacturer has been consistently increasing for
reasons beyond their control.  There have been substa ntial increases in the cost of power, fuel, finance
and transportation which is higher than in other parts of the world.
(iv) As per IFPI, India has a music cassettes sale of 353 million nos. with the United States and
China accounting for 225 and 137 million nos. respectively in 1996. However, in 1997 while
406 million nos. were sold in India, sales in China were to the extent of 175 million nos., in the
United States it dropped to 72 millions.  As a result of this, Gamma Ferric Oxide/Magnetic Iron Oxide
plants in the United States are pressing sales of their products in India, which is still growing @
10 per cent p.a. approx.  Other than in South Korea, Hong Kong and India, the coating of magnetictapes are negligible resulting in much reduced consumption and demand for Gamma Ferric Oxide.  In
most countries digital formats like CDs VCDs and DVDs have replaced magnetic tapes.  Since last
two years extensive use of Internet has reduced requirement of storage media.  Computer tapes and
floppies requiring Gamma Ferric Oxide have  been obsolete for past few years.  Import duty on
Gamma Ferric Oxide has been reducing till March 1999.  There have been sharp rises in imports in1998-99 and 1999-2000 specifically due to sharp drops in prices in the international market further
aided by a short cut in import duty from 19.6 per cent in June 1998 to 9.72 per cent in March 1999.
HOELs plant was designed to produce 2,000 TPA of  Gamma Ferric Oxide for AUDIO/VIDEO
applications.  However, with the phasing out of Vi deo Tape as a media they had been producing only
Audio Tape as a media they had been producing only Audio Grade Gamma Ferric Oxide which has an
all India market of approx. 1,100 to 1,300 TPA.  As such, their plant has been operating at less than
50 per cent capacity utilisation.G/SG/N/8/IND/9
Page 15
(v) They have been compelled to reduce prices to try and retain their market share.  Further
domestic prices are determined by international prices, which have been continuously dropping and
aided further by a drastic cut in concessional import duty in the 1999 Budget.  Converse to this import
duty on all their major raw materials have remained stagnant @ 35% Basic + 16% surcharge + 16%
CVD + 4% SAD.
(vi) As a result of idle plant capacity, reduced market share, falling price realisations and
mounting losses, the employees of the company have been demoralised.  This has resulted in key
technical management personnel leaving the comp any, thereby forcing it to rely on second tier
management   staff for technical support.  As this is the only kind of its plant in India, finding
appropriate replacements for technical support becomes difficult.  Any further brain drain of human
resources shall deprive the company of the technical inputs, which are essential for running the plantefficiently.  Further, continuation of such losses may result in the plant being forced to be closed
permanently thus resulting in loss of employment.
(vii) Their market share of Gamma Ferric Oxide has dropped from 63.25 per cent in 1995-96 to
45.06 per cent in 1999-2000.  This was in spite of the fact that the overall domestic consumption ofGamma ferric Oxide has been between 1,100-1,300 TPA.  International prices of Gamma Ferric
Oxide has fallen significantly over the period 1996-97 to 1999-2000.  To retain market share, HOEL
had to continuously drop prices and is today selling at prices below its minimum fair price.  It is very
essential that HOEL increases its plant capacity utilisation which can happen only with the increase in
their market share by selling at minimum fair price.  To achieve this objective, initiation of safeguardsInvestigation under the Customs Tariff Act 1985 is essential .
(viii) To keep imports in check, the domestic price have had to be dropped progressively, resulting
in the net average realisation for 1999-2000 dropping to Re 87 per Kg. approx from Re 111 per kg. in
1997-98.  Reasonable average survival selling price of HOEL with 15 per cent return on capitalemployed (Net  Block + Working Capital) works out to Re 188/kg approx.  Their plant capacity
utilisation had dropped to 21 per cent in the year 1999-2000 and it is becoming extremely difficult for
them to survive at the existing price realisations.  HOEL cannot continue to operate at these low levels
of plant capacity utilisation as the losses are mounting.  To prevent the company from completely
eroding its net worth and being referred to BIFR, they must increase their market share and plant
utilisation capacities.
(ix) Due to technology phase out in the United States and Japan coupled with environmental
problems the Audio tape coating plants are becoming extinct.  However, there are plants, which still
produce Gamma Ferric Oxide both in the United States and Japan.  On the contrary the Indian Market
has a steady consumption of Gamma Ferric Oxide in the range of 1,100-1,300 TPA since last 4 years.
In order to improve their plant capacity utilisation, these manufacturers in the United States and Japanare looking into alternative markets to sell their products.  India seems to be a promising market
without any slow down in requirement s.  India is a market where Audio Tapes still sell and is the
cheapest source of entertainment available for the mass.  The phasing out of this technology in India
seems remote at least for some more years to come.
(x) Imported GFO has been offered in India at free credit periods ranging between 90 days to 120
which is well above the period of credit considered for setting up of Cash Credit Limits by the Indian
Banks for financing of Working Capital requirements of Indian producers.  As a result of this, the end
use industry expects the domestic industry to offer higher credit periods severely affecting the cash
flow.  If such high credits are not offered, commensurate price reduction is expected by theconsumers, which is based on the Indian Cost of Finance which is significantly higher than in the
country of origin of imported GFO.
(xi) Increased imports have not only come at low prices but also at long credit periods.  It is a
practice of the exporters to offer free credit of 90 to 180 days to the Indian importers.  It may be notedG/SG/N/8/IND/9
Page 16
that the additional benefit accruing on Account of long credit is not quantified for landed cost
comparison.  The Indian consumers have consequently demanded longer credit from the domestic
industry.  The lower gross margins coupled with longer credits have drastically affected the cash
inflow and have led to a liquidity crisis.  The paucity of funds has often hampered their normal
operations.  The effect of reducing profitability, cash flows and the consequent poor image of theindustry has had its effect on their share prices, which reduced from Re 21/- per share in August 1994
to Re 0.95 per share in July 1999.  Due to poor financial performance, they are finding it extremely
difficult to source funds at competitive rates for carrying on with their normal operations.
(xii) They have rendered yeoman service to the Indian audio tape manufacturing industry by
supplying a crucial input promptly when required, at competitive price and of acceptable and
consistent quality over the last decade or so.  The audio-tape manufacturing industry was thus assuredof domestic supply of this crucial input and did not have to rely on imports.  This has finally benefited
the common man in India who have had choicest recordings available easily and economically.  It is
significant to note that each tape coater in India has imported only a particular grade or brand of GFO
but all have approved and purchased repeatedly Herdillia’s Gamma Ferric Oxide in substantial
quantities, so suitable for the Indian needs.  Th e growth of Music Cassettes in India bear adequate
proof to the acceptability of Indian tapes made with Indian raw materials.
(xiii) The product of the end user industry (i.e. the magnetic tape industry) is standard (mostly
conforming to IEC - International Electro T echnical Commission type I Normal Bias Tapes)
irrespective of its manufacturer and the source of GFO based in the manufacture and all the majorIndian tape manufacturers use both imported as well as domestically produced GFO.  The values of
all the parameters are in the same range, with minor variations of less than 10 per cent over the mean
values and for all practical purposes, the GFO of Herdillia as well as the imported GFO can be said to
have the same specifications with Internationally acceptable ranges.
(xiv) The increase in imports of GFO is due to sharply falling international prices, which in turn is
due to unforeseen decline in global demand vis-à-vis capacity. If reduction in Customs Duty had been
the main cause of increased imports, the imports would have got contained in the present fiscal year
2000-2001and the landed cost of imports would have shown an increase.  However, these landed cost
has further declined in the present fiscal year and the imports for the period April 2000 to August
2000 were higher vis-à-vis  April 99 to August 99.
(xv) Herdillia is an ISO 9002 company with the necessary quality systems in place. ELCINA has
tried to trivialise the importance of ISO 9002 certification by saying that it is merely a documentation
system, which is a totally incorrect statement when seen in context of the actual fact.
(xvi) Herdillia has exported over 600 tons of its product to the United States, Europe, Russia and
the Far East and the product has never been rejected nor has there been any quality claim or for any
compensation.  Rather the product has always met the stringent requirements of consumers of these
countries.
(xvii) The levy of safeguard duty on GFO will not have any significant impact on the economics of
tape manufacture because it is just one of the so many inputs that go into the manufacture of a
Magnetic tape.  These inputs are Polyester Film, Poly-Urethane Resins, Solvents, Carbon Black,
VAGH etc. apart from Power and Fuel.  The cost percentage of GFO in the cost of a cassette is very
low (less than 1 per cent) and therefore effect of safeguard duty will be negligible to the consumers at
large.
(xviii) Magnox has made an allegation that the GFO sold to them for distribution had to be
reprocessed.  This is not a correct statement.  GFO cannot be reprocessed.  Magnox has made claims,
based on testing claimed to have been done in th eir own laboratory, that Mean Agglomerate Size of
Herdillia’ s GFO is higher than in case of Magnox.  They have further claimed that smoother surfaceG/SG/N/8/IND/9
Page 17
characteristics of the tape are due to smaller agglomerate size.  If this had been true, based on
Magnox’s own data, the gloss of uncalendared tape would not have been 34 per cent higher in case of
tape made from Herdillia’s GFO.  It would be interesting to note that those tape coaters who have
increased their imports from Magnox, have reported loss of Market Share between 1998-99 and 1999-
2000.  On the other hand, the tape coater, which has consolidated its position in the market, has beenbuying increasing quantities of GFO from Herdillia.  Super Cassettes has been rewarded for procuring
GFO from Herdillia by its increase in market share from 39 per cent to over 47 per cent.  Since, their
name as a Market Leader is at stake, they would never buy any input of inadequate quality.  The
superiority of Herdillia’s GFO can be seen from the fact that Market leaders are using increasing
quantities of their GFO.
(xix) Herdillia has an arrangement with a Technical Expert to guide consumers on usage of
Herdillia’s products and for suggesting formulations, which can improve their quality of tapes made
out of their oxides.  Unfortunately, as the formulations of the individual customers are a closely
guarded secret, the consumers have not been availing of such a service.
(xx) Their prices are based on the principle of Expected Landed Price Parity.  When import prices
fall, they have to drop price to retain market share.  As a reaction to this, the exporters drop prices
further leading to a ‘spiralling down’ of prices.  Due to this, at any point of time, there is a differential
between landed prices of imports vis-à-vis the domestic produce.  If the import prices fall very sharply
at the time of entering into an annual contact, such contract prices to large volume customers gets
fixed on the price based on such import price trends.
(xxi) Synthetic Iron Oxide Pigments manufactured by then have been certified by three world
major producers of Pigments namely Laporte, Elementis and Toda-Bayer that the quality is as good
as, if not better, than the quality of the world majors.  The largest and reputable manufacturers of
Paints in India are regularly purchasing synthetic Iron Oxide Pigments manufactured by them.
F. F
INDINGS
I have carefully gone through the application and the replies filed by the domestic producers,
users/importers, exporters and exporting governments, submissions made by various parties and the
issues arising therefrom are dealt with at the appropriate places in the findings below:
(a) Product Under Consideration
The product under consideration is Gamma Ferric Oxide/Magnetic Iron Oxide (hereinafter
referred to as GFO for the sake of brevity).  GFO produced in various grades, particle sizes and
shapes is the only magnetic media, which is an active component responsible for reproduction of
Audio/Video/Information Medium in a magnetic tape.  The present investigation is, however,restricted only to Audio grade GFO, which is used for manufacturing audio tapes.  In India GFO is
manufactured using Goethite Route.  The manufacturing process involves various steps viz. Copperas
purification, Starters, Conversion, Filtration, Dryi ng, Calcination, Mulling, Blending and Packing.
The raw materials, components and other inputs used for production include copperas (Ferrous
Sulphate Heptahydrate), Iron Powder, Caustic S oda Lye, Soda Ash, LPG and Phosphoric Acid.
The domestic producer of GFO manufacture va rious grades of GFO for audio tapes viz:
HERDILOX A-11, A-15 and A-75.  These different grades can generally be used interchangeably i.e.
A-75 can be used instead of A-15 but reverse interchangeability i.e. A-15 instead of A-75 would
result in a small difference in final performance of the end product.  A-75 gives higher SaturationOutput Level compared to A-15 as a result High Frequency recording is better in audio tapes
manufactured out of A-75 grade compared to A- 15.  However, A-15 is the most commonly used
grade. The grades of GFO that are commonly imported are: Japan THD, the United States Magnox
3650 and the United States Pfizer 2038.G/SG/N/8/IND/9
Page 18
The manufacturing process employed by manufacturers abroad is generally the same except
that ISK Magnetics have claimed that they use a unique technology in the manufacture of GFO.
They start with a lepidocrocite precursor rather than goethite.  They are the same chemically, ferrous
hydroxide, but the crystal growth habit is quite different.  Lepidocrocite grows as a long spatulateacicular particle compared with goethite, which is more like a needle having a circular cross-section.
Compared with the rest of the industry, ISK starts with ferrous chloride rather than ferrous sulphate
pickle liquor.  It has been stated on their behalf that ISK Magnetics products are technically superior
to those produced by HOEL because ISK Magnetics process is based upon the use of ferrous chloride
as the Iron source, which creates a superior magnetic particle that exhibits  high orientation
characteristics in magnetic tapes.  Such a particle has enhanced switching field properties leading to
excellent high-frequency performance and long wavelength response because of the high particlepacking in tape.
In this regard, it is observed that both the imported GFO, including that produced and
exported by ISK, and the domestic GFO compete with each other in the same market, for the same
application, i.e. in the manufacture of magnetic media for audio tapes.  A mere superiority in qualitydoes not ipso-facto  take away a product out of the scope of ‘like or directly competitive products’.
In view of the above, the present investigation covers all grades of GFO, imported for use in
Audio applications.
GFO is classified under heading 2821.10 of the First Schedule to the Customs Tariff Act,
1975.  This classification is, however, indicated only for the sake of ease of reference and does not
restrict the scope of the product under consideration in any way.
(b) Domestic Industry
The application for imposition of safeguard duty on GFO has been filed by Herdillia Oxides
& Electronics Ltd. (hereinafter referred to as HOEL for the sake of brevity).  In India, GFO is
manufactured only by one company, namely, HOEL and they account for the entire domestic
production.  The application is, therefore, considered to have been made by the domestic industry
producing Gamma Ferric Oxide/Magnetic Iron Oxide.
(c) Increased Imports
GFO Audio grade is imported into India mainly from Japan, the United States and Korea.
Presently no video grade GFO is being imported into India.  The import duty (basic) on GFO was
50 per cent ad-valorem in 1995-96 up to June, 1996 which was reduced to 40 per cent ad-valorem inJuly 1996 and to 30 per cent ad-valorem in 1997-98.  The import duty was, however, raised to 35 per
cent ad-valorem in 1999-2000.  GFO for use in Magnetic Inks/Magnetic Tapes was, however,
charged to concessional rate of import duty of 15 per cent up to June 1996 which was reduced to
12 per cent, thereafter, till August 1997, increased to 15 per cent thereafter till February 1999  when it
was reduced to 5.5 per cent ad-valorem (basic+surcharge) before raising it to 16.5 per cent ad-valorem (basic+surcharge) on 1 March, 2000.
GFO in India is produced only by HOEL.  HOEL was set up in the year 1987 in collaboration
with Magnox Inc. of the United States with a capacity of 2,000 MT pa.  HOEL have stated that the
manufacture of GFO had earlier been restricted to a few companies in the advanced countries namely,the United States, West Germany and Japan.  The decision to put up a plant in India was taken on the
basis of feasibility studies, taking into consideration the growth prospects of magnetic media in India
and neighbouring countries.  The commercial production in HOEL commenced in 1991 and around
that period numerous units in India obtained Letters of Intent and Industrial Licenses for manufacture
of Magnetic Media for audio and other applications with investments of about Re 400 Crores.  TheG/SG/N/8/IND/9
Page 19
total requirement of over 4000 MT of GFO, around 2000 MT for audio and around 2000 MT for the
video sector was projected.  Video cassettes around this time had become extremely popular with the
mushrooming of video libraries.  Besides, the use of main frame computers using computer tapes was
also very much prevalent.
With the technological advancement such as satellite and cable television followed by other
formats like VCD and DVD, the global demand for video cassettes declined substantially.  Further,
with the Internet coming in vogue in the second half of 1990s, much of the global capacity has been
rendered surplus.  As per IFPI, India had a music ca ssette sale of 353 Million with the United States
and China accounting for 225 Million and 137 Million respectively in 1996.  In 1997, however, sales
in India increased to 406 Million as compared to 175 Million in China and in the United States the
sales dropped to 72 Million. Magnox, who had a t echnical and marketing agreement with HOEL with
an export tie-up whereby a part of the production of HOEL was to be exported to them and was to be
distributed by them, had to restrict their marketing activities to India alone, where the market for
GFO for audio format still existed to a substantial extent. Demand for GFO in India was estimated at
about 2,400 MT on the basis of sale of about 650 Million audio cassettes in India and the requirement
of about 3.75 grams of GFO per C-60 equivalent. Indi a was, therefore, considered a major market for
audio grade GFO.
As a result of these developments, the imports of GFO into India, which declined from
348 MT in 1995-96 to 339 MT in 1996-97 started increasing.  As verified, the imports of GFO
increased to 576 MT in 1997-98, 654.125 MT in 1998-99 and to 799.175 MT in 1999-2000.  HOELhad submitted import figures of 329 MT in 1997-98, 487 MT in 1998-99 and 645 MT in 1999-2000
in their application which on verification have been found to be on lower side as compared to the
actual figures mentioned above. The import price of GFO during this period has been falling sharply
from 2.88 US$/Kg in January 1996 to US$2.62/Kg in January 1997, US$ 2.61 in January 1998,
US$2.3 per Kg. in January 1999 and to US$2.21 in January 2000.  The imports of GFO have thusbeen entering into India at sharply declining prices.  The domestic production during this period was
734 MT in 1995-96, which increased to 906 MT in 1996-97 and to 961 MT in 1997-98, but started
declining thereafter to 873 MT in 1998-99 and to a meagre 424 MT in 1999-2000.  The table below
shows the figures of domestic production and imports during the period 1995-96 to 1999-2000.
Table 1
Year Domestic
Production
(MT)Imports
(MT)Imports as a % of
Domestic production
1995-96 743 348 46.8
1996-97 906 339 37.4
1997-98 961 576 59.9
1998-99 873 654 74.9
1999-2000 424 799 188.4
As seen from the table above the imports which were 46.8 per cent of domestic production in
1995-96 and had declined to 37.4 per cent in 1996-97 increased thereafter to 59.9 per cent, 74.9 percent  and 188.4 per cent in 1997-98, 1998-99 and 1999-2000 respectively.  The imports have thus
increased both in absolute terms as well as compared to domestic production.
An issue has been raised that the increase in imports must be the effect of obligation incurred
under the WTO and since the import duty on GFO is much below the bound levels, the increasedimports cannot be considered to be a result of any ‘obligation incurred’ in respect of GFO. This
requirement, however, emanates from Article XIX of GATT 1994 and is in relation to suspension ofG/SG/N/8/IND/9
Page 20
the obligation in whole or in part or withdrawal or modification of the concession. In this regard, it is
observed that the Government has incurred and fulfilled its obligation under GATT 1994 in respect of
GFO including unrestricted imports and tariff concessions, as a result of which the imports of GFO
into India have entered in increased quantities, as discussed above.
(d) Serious Injury
(i) Domestic Production:  The domestic production of GFO (Audio grade), which was
743 MT in 1995-96 increased to 906 MT in 1996-97 and to 961 MT in 1997-98.  The domestic
production thereafter declined to 873 MT in 1998-99 and to 424 MT in 1999-2000.  The domestic
production in 1999-2000 thus declined to a level of 48.6 per cent of 1998-99 production.  HOEL also
produced GFO – video grade till 1997-98; 157 MT in 1995-96, 19 MT in 1996-97 and 14 MT in1997-98.  They did not produce any video grade GFO thereafter.
(ii) Capacity Utilisation : Keeping with the domestic production, the capacity utilisation
of the lone domestic producer also peaked to 49 per cent in 1997-98 before declining to 44 per cent in
1998-99 and to a mere 21.2 per cent in 1999-2000.
(iii) Domestic Sales:  The domestic sales of GFO picked up from 599 MT in 1995-96 to
701 MT in 1996-97 and to 776 MT in 1997-98 but declined thereafter to 754 MT in 1998-99 and to
529 MT in 1999-2000.  The domestic producer thus lost a sale of 225 MT in 1999-2000 as compared
to 1998-99 i.e. a loss of about 30 per cent.
(iv) Closing Stock:  The closing stock of GFO with HOEL peaked to 329 MT in 1998-99
from 213 MT in 1995-96, 269 MT in 1996-97 and 238 MT in 1997-98.  The closing stock, however,
declined to 205 MT in 1999-2000.  Compared to the domestic production the closing stock in 1999-
2000 was, however, 48.3 per cent, whereas in 1998-99 it stood at 36.6 per cent and before that theclosing stock was 28.6 per cent in 1995-96, 29.7 per cent in 1996-97 and 24.7 per cent in 1997-98.
The closing stock in 1999-2000 was thus the highest when compared as a percentage of domestic
production.
(v) Profitability: HOEL have been making losses during the period from 1995-96 to
1999-2000.  However, the losses, which were Re  29.15 lacs in 1995-96, Re 215.01 lacs in 1996-97,
Re 223.73 lacs in 1997-98 and Re 284.5 lacs in 1998-99 increased phenomenally to Re 496.2 lacs in1999-2000.  As a result of these sharply enhanced losses, cash flows and the consequent poor image
of the industry has had its effect on HOEL’s share prices, which fell from Re 21/- per share in
August 1994 to Re 0.95 per share in July 1999.  Besides, due to poor financial performance, HOEL
found it difficult to source funds at competitive rates for carrying on their normal operations. It has,
however, been contended by some parties that as HOEL were all along making losses, the samecannot be considered to reflect upon the serious injury suffered by HOEL. In this regard it is observed
that the losses to HOEL, which had stabilised at around 220 lacs pa in 1996-97 and 1997-98,
increased by about 27 per cent in 1998-99 as the import prices of GFO declined sharply in the last
quarter of 1998-99 and thereafter the losses increased rapidly to 486.2 lacs in 1999-2000, an increase
of more than Re 210 lacs. In percentage terms the losses increased by about 75 per cent in 1999-2000over 1998-99, which was mainly due to unremunerative prices of GFO fetched by HOEL on account
of competition from the increased imports of GFO entering at declining prices.
(vi) Loss of employment : During the last three years i.e. 1997-98, 1998-99 and 1999-
2000, HOEL employed 121, 124 and 120 employees respectively.  The number of employees in1999-2000, thus, has reduced from 124 to 120.
(vii) Productivity:  HOEL have also lost on account of productivity.  The production of
GFO in MT per employee has come down from 8 MT in 1997-98 to 7MT in 1998-99 and to a mere
3.5 MT in 1999-2000.G/SG/N/8/IND/9
Page 21
The domestic industry, thus have lost on account of production, capacity utilisation, domestic
sales, profitability, employment and productivity.  As regards closing stock of GFO, although in
absolute terms the carry over inventory declined from 320 MT in 1998-99 to 205 MT in 1999-2000
but as compared to domestic production the inventory increased to 48.3 per cent in 1999-2000 from36.6 per cent in 1998-99.  The domestic industry has, therefore, suffered and is threatened to suffer
further significant overall impairment in its position.
(e) Causality
As regards the cause of injury to the domestic industry, the concerned parties have raised
various issues.  The issue most vociferously contended by some of the parties concerns the quality ofdomestically produced GFO.  It has been submitted that the quality of domestically produced GFO is
inferior as compared to the imported GFO and that it is because of quality considerations that the user
industry has favoured use of imported GFO.  Heavy reliance has been placed by them on the fact that
HOEL are selling their GFO at lower prices as co mpared to imported GFO which according to them
is an evidence in support of their contention. In this regard some of the parties have contended thatthe Indian tape manufacturers pay 30 per cent to 60 per cent more price to the foreign suppliers,
which raises a question as to why HOEL is not able to get the same price as the foreign suppliers.
For the purpose of comparison they have calculated the landed price of imported GFO (excluding
Additional Duty of Customs) as Re 127.31 per Kg (at US$2.20 per Kg.) and Re 104.16 per Kg (at
US$1.80 per Kg) as compared to Re 80-87/Kg realised by HOEL. The c.i.f. price of US $2.20 per Kghas been selected being the average c.i.f. price of imported GFO during 1999-2000 and US$ 1.80 per
Kg, which as stated by HOEL was used by the domestic consumers to negotiate the price with them
and to compel them to sell their GFO at a price competing therewith.
In regard to the domestic selling prices, it is observed that HOEL have categorically stated
that they have been consciously keeping their pri ces to be competitive as compared to imported GFO.
During the period 1999-2000, the import duty (basic+surcharge) on GFO was 5.5 per cent and the
exchange rate was between Re 42.60/US$ - Re 43.8/US$ as against 16.5 per cent and Re 46.4/US$
respectively taken in arriving at the landed price of Re 127.31 and Re 104.16.  The average c.i.f.
price, as verified, in 1999-2000 was Re 100.37per Kg and with customs duty (basic+surcharge) @
5.5 per cent, the landed price worked out to Re 105.89 per Kg, which is much lower than
Re 127.31/Kg mentioned above.
It is further observed that in 1999-2000, as ve rified, GFO was imported from Korea, though
small quantity, at a rate of Re 79.62/Kg.  With 5.5 per cent customs duty (basic+surcharge), the
landed price worked out to Re 84 per Kg.  It is, therefore, possible that HOEL may have been
compelled to match these prices.  Besides, the argu ment that lower prices indicate inferior quality
does not necessarily hold any ground.  As already mentioned above c.i.f. import price of GFO have
been declining over the years.  Some of the exporte rs have reduced their prices much more than the
others. If lower prices were linked to quality deficiencies, would it be correct to infer that the quality
of imported GFO also has deteriorated during this period.
HOEL have, however, provided details of prices at which they supplied GFO to various
customers.  Bahubali purchased their entire requirement in 1995-96 and 1997-98 from HOEL and did
not import GFO in these years. In 1996-97, they imported a small quantity of 14 MT of GFO at a
landed price of Re 125 per Kg, whereas the price of HOEL for 154 MT sold to them was @ Re 128
per Kg.  In 1998-99, they imported 43.5 MT @ 113 per Kg as against 208 MT supplied by HOEL @Re 118 per Kg.  In 1999-2000, Bahubali imported 124 MT@ Re 102/Kg as against 63 MT from
HOEL @ Re 97 per Kg.  Similarly, Jai Electronic Ind. imported 34 MT of GFO in 1998-99 @ Re 114
per Kg as against 162 MT procured  from HOEL @ Re 120 per Kg. In 1999-2000, they imported 106
MT of GFO @ 102/Kg as against 27MT from HOEL @ Re 99.25/Kg.  Another company J.K.Corpn.
imported 95 MT from Korea and Japan @ Re 95 per Kg. and Re 117/- per Kg. respectively as againstG/SG/N/8/IND/9
Page 22
90 MT from HOEL @ Re 117/- per Kg.  In 1999-2000,  J.K.Corp. imported 10 MT @ Re 84 per Kg
as against 153 MT from HOEL @ Re 93 per Kg.
The above mentioned three importers/domestic users of GFO, collectively procured 460 MT
of GFO from HOEL in 1998-99 and 243 MT in 1999-2000.  These quantities account for asubstantial portion of the total domestic sales of HOEL of 754 MT and 529 MT in 1998-99 and 1999-
2000 respectively.  In 1998-99, HOEL made these supplies at prices above the landed prices of
imported GFO and in 1999-2000, 153 MT to J.K.Corpn. were supplied at prices above their landed
imported prices.
HOEL have explained that their prices are based on the principle of ‘Expected Landed Price
Parity’.  The offer price was US $ 1.8 per Kg. at the time when the ‘Actual Arrival Price’ wasUS$2/Kg i.e. 10 per cent higher but to prevent imports, in a falling price situation, they had to offer
GFO at a price based on the anticipated landed cost.  In this regard it is observed that a total of 799
MT of GFO entered into India in 1999-2000.  Out of this 180 MT was imported in the First Quarter at
an average c.i.f. price of Re 102.22 per Kg., 188.175 MT in the Second Quarter @ Re 101.03 per Kg.
(average); 240.5 MT in the Third Quarter @ Re 99.94per Kg. (average) and 190.5 MT in the lastquarter @ Re 98.53 per Kg. (average).  The c.i.f. price of imported GFO, thus have been showing a
continuous declining trend.
In respect of Super Cassettes, one of their large volume customers, HOEL have submitted that
annual contract prices with such large volume customers get fixed on the price based on such importprice trends. The delivery price trend taken into account for fixing the annual contract price based on
the expected landed price coupled with the devaluation of Indian rupees accounted for the difference
between the landed price of imported GFO and domestic sale price of GFO for such large volume
customers. Besides, in a falling price situation, th e domestic sale price chase the falling export prices
which in turn chase the falling domestic price and so-on setting thereby a spiralling down of prices.HOEL in this regard have submitted that in 1998-99 the average landed cost of import was Re 120/kg.
The domestic sale prices were adjusted to Re 112/kg but the landed cost of imported GFO further
declined to Re 103/kg in 1999-2000.  Consequently the domestic sale price was adjusted to Re 90/kg
which saw the landed cost of imported GFO currently (i2000-2001) to be coming down on an average
to Re 88/kg.
In view of the above discussion, it is apparent that lower domestic sale prices as compared to
landed prices of imported GFO are no reflection on the quality of domestically produced GFO.
Some of the parties have, however, cited some specific examples of quality complaints
against domestic GFO.  They have also submitted copies of correspondence in this regard.  Some of
the complaints pertain to 1997, while the majority of the complaints pertain to 1998.  The instances ofquality complaints show appreciable reduction in 1999, with only one complaint in respect of HOEL's
standard grade A-15 (copy of a letter from one Mr. G.M. Joshi, Asstt. Manager (Production) - name
of the company not mentioned) and another in respect of A-65, a grade newly developed by HOEL.
It is, however, observed that GFO is produced in batches.  It is, therefore, obvious that quality
complaints in respect of a particular batch is no reflection on other batches.  Besides, from the nature
of complaints it is seen that the buyers have generally complained of inferior quality of domestic GFO
as compared to  that of imported GFO.  In regard to quality parameters, HOEL have provided
comparative details of both domestic GFO and imported GFO as under: -G/SG/N/8/IND/9
Page 23
Table 2
Typical GFO
CharacteristicsIndian
A-15Japan
THDUS Magnox
3650Indian
A-75US
Pfizer
2038
Coercivity-HcOe  389 387 413 414 403
Remanance Br. Guass 2,000 2,100 1,850 2,000 1,800
Inductance  Bm Guass 4,100 4,050 3,800 4,050 3,450
Oil absorption ml/20g(Gardner Coleman method8.4 8.0 10.5 10.10 8.60
BET m2/gm 25.40 25.62 22.80 24.80 25.03
FeO Content % 0.15 0.13 0.22 0.35 0.15
The Table above shows mean value of various parameters, which are in the same range, with
minor variations within 10 per cent over the mean value.
It is also observed that HOEL is an ISO 9002 accredited company. Some of the parties in the
context of ISO 9002 accreditation have contended that ISO 9002 is not a ‘Quality System’ but a
‘Company Management System’ and that ISO 9002 promotes the approval of the company’sManagement System and not its products.  This, however, does not seem to be correct as the very
certificate of ISO 9002 awarded to HOEL by BVQI mentions on its face “Bureau Veritas Quality
International certify that the Quality Management System of the above supplier has been assessed and
found to be in accordance with the requirements of the quality standards detailed below: -
____________________Quality Standards____________________
_____________________BSEN ISO 9002: 1994____________________________________Scope of supply ____________________
Manufacture and supply of pure or Cobalt doped Gamma Ferric (Magnetic Iron) oxides."
It has also been verified that HOEL have adequate facilities to test their GFO and that they
supply only that material to their buyers which meets with the quality parameters.  It is also pertinent
to mention that HOEL have been obtaining feedba ck from their customers, titled as ‘Customer
Satisfaction Index’ as a part of ISO 9002 certification requirement.  They have submitted copies of
these documents from their major customers, which bear testimony of the acceptability of their GFO.
HOEL, to support the acceptability of their GFO, have also submitted that they have exported GFO to
the United States, Russia, Turkey, Spain, Mexico and Malaysia.  They exported 125 MT and 128 MT
respectively in 1995-96 and 1996-97 to Magnox.  In 1997-98, they exported 216 MT, in 1998-99 theyexported 31.5 MT and in 1999-2000, they exported 10 MT of GFO.
Be it as it may.  The issue of quality cannot be considered in isolation.  GFO is a commercial
product and one has to consider the commercial substitutability of GFO taking into account both the
quality and the price at which the product substitutes the competing products. The need to considercommercial substitutability of the competing products is also borne out from the fact that some of the
parties, instead of rejecting HOEL’s material, claimed compensation from HOEL for higher batch
costs of magnetic slurry resulting from use of their GFO.G/SG/N/8/IND/9
Page 24
As regards the commercial substitutability of the domestic GFO and imported GFO it is
observed that the domestic production of GFO peaked to 961MT in 1997-98 before declining to
873 MT in 1998-99 and to 424 MT in 1999-2000.  At the same time, the imports, which had declined
to 339 MT in 1996-97, increased to 576 MT in 1997-98, 654 MT in 1998-99 and to 799 MT in 1999-
2000.
The table below shows the figures of domestic sales, imports, apparent domestic consumption
of GFO and share of domestic GFO in the apparent consumption.
Table 3
Year Domestic
sales MTImports
MTApparent
Domestic
ConsumptionShare of domestic
sales in apparent
consumption %
1995-96 599 348 947 63.25
1996-97 701 339 1040 67.40
1997-98 776 576 1352 57.4
1998-99 754 654 1408 53.55
1999-2000 529 799 1328 39.83
It is observed from the data tabulated above that the apparent domestic consumption
(domestic sales + imports) of audio grade GFO was 947 MT in 1995-96, 1,040 MT in 1996-97,
1,352 MT in 1997-98, 1,408 MT in 1998-99 and 1,328 MT in 1999-2000. Thus, while the apparentdomestic consumption of GFO increased from 947 MT in 1995-96 to 1,328 MT in 1999-2000 but the
share of domestic GFO declined from 63.25 per cent in 1995-96 to 39.83 per cent in 1999-2000.   It is
further observed that the share of domestic GFO had peaked to 67.4 per cent in 1996-97, but started
declining thereafter to 57.4 per cent in 1997-98, 53.55 per cent in 1998-99 and to 39.83 per cent in
1999-2000.  During this period, however, the imports increased by 69.9 per cent in 1997-98 over1996-97, 13.5 per cent in 1998-99 over 1997-98 and by 22.2 per cent in 1999-2000 over 1998-99.
The domestic sales instead of increasing, declined by about 3 per cent in 1998-99 over 1997-98 and
by about 30 per cent in 1999-2000 over 1998-99.
It is further observed that the c.i.f. prices of imported GFO have been declining continuously
from a high of about 2.88 US$/Kg. in 1995-96 to US$2.21/Kg in 1999-2000.  The decline between
1995-96 and 1997-98 was from 2.88 US$/Kg to 2.61 US$/Kg, but it was much sharper in the
subsequent years, particularly from the beginning of the third quarter of 1998-99 up to 1999-2000.
The verification of landed price for the year 1997-98 to 1999-2000 shows that in 1997-98, the average
c.i.f. price of imported GFO was Re 103.87/Kg. With 15 per cent import duty, the landed price
worked out to Re 119.45/Kg.  In 1998-99, with average c.i.f. price of Re 109.42/Kg. and import duty
of 15 per cent the landed price worked out to Re 125.83/Kg, whereas in 1999-2000, the landed pricefell sharply to Re 105.89/Kg. with c.i.f. price (average) of Re 100.37/Kg and import duty of 5.5 per
cent.  As already mentioned earlier, in the 1999-2000 itself, the c.i.f. prices of imported GFO declined
from an average of Re 102.22/Kg. in the first quarter to RS. 98.53/Kg. in the last quarter.
It has also been submitted by some parties that HOEL have set up an oversized plant and with
the demand of video grade GFO vanishing, HOEL have become unviable. In this regard, it is
observed that the circumstances under which HOEL set up a 2000 MT capacity plant and the
subsequent technological developments which have rendered GFO capacities surplus world over,
have already been discussed in detail in sub-para (c) above under “Increased Imports”.  In view of
these developments, it cannot be held that HOEL did not take a wise decision in setting up 2000 MTcapacity GFO plant, or that the injury to them is self-inflicted.G/SG/N/8/IND/9
Page 25
In view of the above it is observed that the imports of GFO have increased during the years
1997-98 to 1999-2000 at declining prices which have taken over the market share lost by the domestic
GFO.  The serious injury to the domestic producer of GFO has, therefore, been caused due to
increased imports of GFO.
(f) Adjustment Plan
In regard to the adjustment plan of the domestic  industry two issues have been raised.  The
first issue is that the adjustment plan of HOEL is not product-specific i.e. it is not related to
improvement in the quality of GFO but is related to the development of new products.  The second
issue concerns the viability of the restructuring plan.  It has also been submitted that the details
regarding restructuring plan furnished by HOEL on non-confidential basis are not adequate.
In respect of the restructuring plan of the domestic industry, it is observed that HOEL in their
application for imposition of safeguard duty on GFO have mentioned that the current domestic
demand for audio grade GFO is around 1,200 MT pa.  They have, therefore, planned to achieve better
plant efficiency by maximizing the plant capacity utilisation, by manufacturing various other productssuch as Synthetic Iron Oxide Pigments.  The details of new products have been furnished on
confidential basis.  They have identified the higher fixed cost as the major problem concerning their
production, which they have sought to overcome, by distributing it over the new products and by
restructuring of their borrowings to reduce the debt service burden.  These details are considered to be
adequate as they specifically address to the problem identified by the domestic industry and constitutea reasonable plan to restructure the domestic industry by introducing new products.
In regard to the issue that the restructuring plan  is not product specific, it is observed that the
law does not require the restructuring plan to be product specific.  Besides, any plan that attempts to
improve upon the cost of production of the product, fixed or variable, cannot be said to be a plan nothaving a bearing on that product.
As regards the viability of the adjustment plan, it has been submitted by HOEL that they
would be able to produce Iron-Oxide Pigments for Pa int Industry at competitive prices.  So far as the
quality of these pigments is concerned HOEL have claimed to have received certificates from three
world majors in the field namely, Laporte, Elementis and Toda-Bayer.  In India, Asian Paints and
Goodlass Nerolac, two of the largest paint manuf actures have already started purchasing their
pigments.  Besides, HOEL claim to have a distinct advantage in the Ferrous Fumerate business due to
the availability of the crucial raw material –Fumaric Acid, within the Herdillia group. HOEL have
produced copies of documents evidencing approval of some of their new products. These synergies
and economies in utilising common facility and technology for Iron Oxide Pigments and GFO are
likely to make them competitive.
In view of the above, it is considered that HOEL have submitted a viable re-structuring plan.
The details furnished by HOEL indicate that they would take about 2½-3 years to substantially
complete their restructuring plan.
(g) Public Interest
It has been claimed by some parties that imposition of safeguard duty on GFO would not be
in public interest as GFO is a declining industry and the domestic Indian GFO consumers are under
severe threat from import of finished audio tapes from abroad.
In this regard, it is observed that while it is a fact that the market for the video grade GFO is
diminishing, the same is not true for the audio grade GFO, particularly in the Indian context. As
already mentioned earlier, the apparent domestic consumption of GFO (audio grade) in India has
grown from about 900-950 MT in 1995-96 to about 1300-1400 MT in 1999-2000 keeping pace withG/SG/N/8/IND/9
Page 26
the increased music cassette sales. Further 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 into account the larger community interest. While the imposition of
safeguard duty may result in increased cost of imported GFO in the hand of buyers and, therefore, it
may also effect the end products manufactured therefrom, it is important to keep in mind the objectiveof imposition of safeguard duty. The purpose of imposition of safeguard duty is to provide time to the
domestic industry to make positive adjustment to meet with the new situation of competition offered
by the increased 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. Besides the
argument that holds good for the domestic consumers of GFO also holds good for the domestic
producers of GFO and. both of them have the right to seek the protection of legal remedies availableto them in order to survive in the wake of threat from imports.
In view of the above it is considered that imposition of safeguard duty on GFO will be in
public interest.
(h) Provisional Safeguard Duty
In view of the fact that after completing the investigation final findings are being issued in
this case, it is not considered necessary to re cord any preliminary finding for the purposes of
imposition of provisional safeguard duty.
(i) Share of Countries in exports to India
 On the basis of information as verified, in regard to imports of GFO into India during the
period 1999-2000, it is observed that only three countries, namely Japan, Korea and the United Statesexported GFO to India during 1999-2000.  Their shares in India’s imports during this period were as
under: -
Country Imports MT Percentage share
Japan 435 54.43
Korea   15   1.88
United States 349.175 43.69
(j) Conclusion and Recommendation
(i) In view of the findings above, it is concluded that increased imports of GFO into
India have caused and threatened to cause further serious injury to the domestic
producers of GFO and it will be in the Public interest to impose safeguard duty for a
period of two and a half years on imports of GFO into India.
(ii) 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 HOEL has been taken into account for the entire 1999-2000,
being more reflective of the true costs for the whole year. The domestic producershave claimed a certain amount of profit on the basis of expected return on capital
employed etc. which is considered to be on the higher side, considering that right
from 1995-96 they were making losses. A nominal element of profit (confidential)
alone, therefore, has been considered appropriate and allowed. Similarly, the c.i.f.
import prices of GFO also have been considered on weighted average basis for thelast six months i.e. October 1999 – March 2000. Adjustments have been made in theG/SG/N/8/IND/9
Page 27
c.i.f. import price for credit terms and handling charges on an average basis. Change
in the applicable rate of customs duty with effect from 1 March 2000 has been taken
into account in working out the landed price of imported GFO.
(iii) The change in exchange rate and the c.i.f. import prices occurring after 1999-2000
have not been taken into account being post investigation changes.
(iv) 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 on imports of GFO into India at the rates specified below
on ad-valorem basis for a period of two and a half years as under being the minimum
necessary for the protection of the domestic industry from the serious injury causedand further threatened to be caused by the increased imports of GFO.
Period Level of total
protection
recommended %Existing protection
%Safeguard duty
recommended %
(2)-(3)
(1) (2) (3) (4)
First year 39.5 23
Second year 36.5 20
Balance six
months31.516.5
15
  (Signed)
(R.K.Gupta)
         Director General (Safeguards)
__________