WORLD TRADE
ORGANIZATIONG/SG/N/8/IND/10
11 January 2001
(01-0127)
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 8 January 2001, has been received from the Permanent
Mission of India.
_______________
Please refer to India's notification (N o. G/SG/N/6/IND/11 dated 20 July 2000) under
Article 12.1(a) of the Agreement on Safeguards regarding initiation of a safeguard investigation
concerning imports of Methylene Chloride into India.
The attached Notification No. SG/INV/2/2000 dated 15 December 2000, contains the final
findings of the Director General (Safeguards) concerning this safeguard investigation.G/SG/N/8/IND/10
Page 2
OFFICE OF THE DIRECTOR GENERAL (SAFEGUARDS)
5TH FLOOR, `D’ BLOCK, I.P.BHAWAN
I.P.ESTATE, NEW DELHI.
NOTIFICATION
F.No. SG/INV/2/2000
Dated: 15 December 2000
Sub: Safeguard investigation concerning import of Methylene Chloride 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. PROCEDURE
1. The Notice of  Initiation of safeguard investigation concerning imports of Methylene Chloride
into India was issued on 17.07.2000 and was published in the Gazette of India, Extraordinary, on
18.07.2000.  A copy of the Notice was sent to all known interested parties, namely:
Domestic Producers
(i) Gujarat Alkalies & Chemicals Limited, (GACL), Gujarat
(ii) Chemplast Sanmar Limited, (CSL), Chennai
(iii) SRF Limited, (SRF), New Delhi.
Importers & Users Industries
(i) C.J.Shah & Co., Mumbai
(ii) Haresh Kumar & Co., Mumbai
(iii) Ranbaxy Laboratories Ltd. New Delhi.
(iv) Lupin Laboratories Ltd., Mumbai
(v) Kopran Ltd., Mumbai
(vi) Dr. Reddy’s Laboratories Ltd., Hyderabad(vii) Traxpo Trading Pvt. Ltd., Mumbai
(viii) Aurobindo Pharma Ltd., Hyderabad
(ix) Chemox Chemical Industries Ltd., Bharuch, Gujarat
(x) Indosol Drugs Pvt. Ltd., Ankleshwar, Gujarat
(xi) Siris Ltd., Hyderabad(xii) Rallis, Mumbai
(xiii) United Phosphorus Ltd., Mumbai
(xiv) Cipla Ltd., Mumbai
(xv) J.K.Drugs & Pharmaceuticals Ltd., New Delhi.
(xvi) Max G.B.Ltd., Chandigarh
Exporters
(i) ICI Chemicals & Polymers Limited, U.K.
(ii) Solvay A.G., Belgium(iii) Akzo Nobel NV, Netherlands
(iv) Elf Atochem, S.A., Fran ce (Now known as Atofina)
(v) Helm Ag., GermanyG/SG/N/8/IND/10
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(vi) Larouche Industries International L.I.I., Germany
(Returned undelivered by Postal authorities)
(vii) DOW Chemical Company, United States
(viii) ICC Chemical Corporation, United States
(ix) Vinmar International Ltd., United States
Associations
(i) Verband der Chemischen Indutrie – VCL, Germany
(ii) Chemical Safety Management Centre, Japan
(iii) Chemical Manufacturers Association, USA
(iv) European Chlorinated Solvent Association, Belgium
2. A copy of the notice along with the application and questionnaire was also sent to the
governments of exporting countries through their High Commissions/Embassies in New Delhi namely
Belgium, Brazil, Chinese Taipei, France, Germany, Hong Kong, Hungary, Israel, Italy, Japan, the
Netherlands, Russia, Spain, Switzerland, the UK 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 28.08.2000.
4. The European Union/Delegation of European Commission in India also requested the
Director General (Safeguard) to consider them as an interested party in the investigations.  Their
request as an interested party was taken on record and they were furnished all relevant documents.
5. A letter dated 23.10.2000 was received from SRF Ltd., New Delhi, one of the domestic
producers of Methylene Chloride extending support to the Applicants for imposition of safeguardduty.  They have stated that they have a capacity to manufacture 10,000 MT of Methylene Chloride
per annum which they can fully utilise to meet local demand if prices are remunerative.
6. M/s. GACL and CSL requested extension of time to file their response to the questionnaire
and accordingly they were permitted to file their response by 3 September 2000.
7. Replies to the Notice dated 17.07.2000 and to the questionnaire were received from the
following parties:
Domestic Producers
(i) Gujarat Alkalies & Chemicals Limited, (GACL), Gujarat
(ii) Chemplast Sanmar Limited, (CSL), Chennai
Exporters
(i) Atofina, France
(ii) Helm Ag., Germany
(iii) ICI Chemicals – Polymers Ltd., UK (through counsel)
(iv) Solvay SA, Belgium
Exporting Governments
(i) Chinese Taipei, (Taipei Economic  and Cultural Centre, New Delhi).
(ii) Embassy of the Republic of Hungary, New Delhi.G/SG/N/8/IND/10
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Importers & User Industries
(i) Ranbaxy Laboratories Ltd., New Delhi
(ii) Indosol Drugs Ltd., Mumbai
(iii) Aurobindo Pharma Ltd., Hyderabad(iv) Lupin Laboratories Ltd., Mumbai
8. A team of officers did verification of the information considered necessary for the
investigation and the outcome of the investigations was conveyed to the concerned parties who were
visited and a copy of the investigation report was also placed in Public File.
9. A Public Hearing was given to all interested parties on 03.11.2000, notice for which was sent
on 28.09.2000.  During the Public Hearing the interested parties were requested to file their written
submission of oral arguments made by them by 13.11.2000, collect replies filed by others on
14.11.2000 and to file rebuttals, if any, by 27.11.2000.
10. The following parties attended the Public Hearing:(i) Gujarat Alkalies & Chemicals Limited, (GACL), Gujarat *
(ii) Chemplast Sanmar Limited, (CSL), Chennai*
(iii) SRF Ltd., New Delhi
(iv) Atofina, France(v) ICI Chemicals – Polymers Ltd., UK*
(vi) Chinese Taipei, (Taipei Economic and Cultural Centre, New Delhi).
(vii) Ranbaxy Laboratories Ltd., New Delhi*
(viii) Indosol Drugs Ltd., Mumbai
(ix) Aurobindo Pharma Ltd., Hyderabad(x) Lupin Laboratories Ltd., Mumbai
(xi) European Commission, New Delhi.
*(Represented through Counsel)B. VIEWS OF DOMESTIC PRODUCERS
(i) Gujarat Alkalies and Chemicals Ltd. is a co mpany promoted by Government of Gujarat
through Gujarat Industrial Investment Corporation and are the largest producers of caustic-chlorine in
the country.  In addition to caustic-soda, the company is also manufacturing Sodium Cyanide,
Chloromethanes, Hydrogen Peroxide, Potassium Hydroxide, Potassium Carbonate and Phosphoric
Acid at its Baroda and Bharuch (Gujarat) plants.  The company has a sales turnover of Re 705 crore
(1999-2000) and employs about 1,400 employees.  The company’s accounts are audited by
Comptroller & Auditor General.
(ii) Chemplast Sanmar Ltd. is the flagship company of the Sanmar Group of Companies.  It is one
of the largest group based in South India.  Chemplast Sanmar Ltd. commenced operations at Mettur
near Salem in Tamil Nadu in May, 1967. Chempl ast Sanmar Ltd. (CSL) manufactures PVC Resins,
Chlorine, Chlorinated Solvents, Refrigerant Gases and Silicon Wafers.  The turnover of the company
is around Re 400 crores per annum and has an employee strength of around 1,200.
(iii) The import figures furnished by them in respect of Methylene Chloride have been arrived at
on the basis of DGCIS data.  For the year 1999-2000, the figures pertain to imports made at Kandlawhich have been extrapolated to arrive at a quantum of 13,500 MT.G/SG/N/8/IND/10
Page 5
(iv) The imports to an extent became necessary till about 1996-97 due to demand and supply
constraints.  As CSL enhanced its capacity to produce Methylene Chloride by 7,500 MT and SRF also
commenced production of Methylene Chloride in the year 1997-98.  It was anticipated that imports of
Methylene Chloride would gradually decline, contra ry to this imports have increased in absolute
terms from 7,390 MT in 1997-98 to 9,269 MT in 1998-99 and from 9,269 MT to 13,500 in 1999-2000.  Similarly imports were 42.25 per cent of domestic production in the year 1997-98 which came
down slightly to 40.96 per cent of the domestic production in the year 1998-99 and increased to
59.02 per cent of the domestic production in the year 1999-2000.  The imports of Methylene Chloride
have doubled within the last three years which is close to 60 per cent of the annual production of the
domestic producers and has challenged the domestic pricing of the product.
(v) International price of Methylene Chloride have been steadily falling during last 5 years.  The
landed cost of Methylene Chloride into India during the last 2 years has fallen by 46 per cent.
(vi) Production of Chloromethanes is a continuous process involving production of all three
products namely; Methylene Chloride, Chloroform and Carbon Tetrachloride.  GACL product mix
ratios are 42:36:22 for the above named products respectively while Chemplast’s are 45:30:25 percent.  This is due to their individual plant process characteristics and the actual production figures
tend to vary from these ratios.
(vii) There are stringent environmental regulations in Europe and the United States controlling the
use of one particular Chloromethane solvent, Methylene Chloride, which is primarily used as a paintstripper.  The restrictions have been imposed on the use of Methylene Chloride by the Occupational
Safety and Health Administration (OSHA) United States and by the European Union Environment
Council regarding volatile organic compounds (VOC).  Due to this reason, and to reduce their
growing inventories, the European producers were diverting and  exporting their production to the far
eastern countries and South East Asian markets.  However, due to the fall in the economies of theeastern countries, these surplus productions are being diverted to India, which has become a highly
receptive market for these surplus products.
(viii) To keep up with the steady down ward trend of prices of Chloromethanes being landed at
Indian ports, the Indian manufacturers have had to correspondingly reduce their prices to be able to
sell their products in the market.  The option of holding on to their inventories, even on a short term,
basis is not available to this industry, since (a) the storage or shelf life of the liquid products likeCholoromethanes is short and (b) the steady drop in international and c.i.f. India prices.  The prices
have shown no occurrences of bouncing back to a sustainable level in the recent past based on which
the decision to hold on to inventories on a short term basis can be based.  Hence with every drop in
c.i.f. prices, domestic manufacturers have had to drop their own prices to a matching level on an
immediate basis, to stay in the market. GACL had to reduce its Exwork price of Methylene Chloridefrom Re 25,968/PMT in April’98 to Re 16,944/PMT in March 2000.  Similarly M/s. CSL had to
reduce its Exwork price from Re 26,302/PMT  in April’98 to Re 18,283/PMT in March 2000 which
has affected their profitability  seriously.
(ix) The Indian economy has opened its door to liberal imports, by drastically reducing customs
duties in the last 6/7 years, with a steep fall from 100 per cent to 35 per cent.  This has incentivated
export of the surplus products from Europe, by adding lower duties to reduced prices.
(x) The cost of production for the Indian manufacturers have been consistently increasing for
reasons beyond their control.  There have been substantial increases in the prices of Methyl Alcohol,Chlorine and power, apart from wages and  salaries.  In this situation, the market perspective for
chemicals in general, both in India and internationally, has turned bleak lately. Prices of various
chemicals have shown consistently downward tre nds.  For example, a major product of Gujarat
Alkalies & Chemicals Ltd., viz. Caustic soda has seen a drastic reduction in its list price - from a highG/SG/N/8/IND/10
Page 6
of Re 14,057 in 1996-97 to an effective realization of Re 7,500/- today.  This has dangerously
compressed the margins on the overall profitability  of the company.  Chloromethanes which was
earlier a surplus generator has turned negative.  Another major product of Chemplast, viz. Polyvinyl
Chloride has seen a drop in prices from a high of Re 2,580/- to a low of Re 1,850/- in recent times.
Within this overall scenario, the influx of large qua ntities of Chloromethane is playing havoc with the
present operations of the Indian producers and seriously threatening even their medium term viability.
(xi) The pressure from the European and US manufacturers is relentless.  Even as the budget for
1999 presented a meagre relief of 5 per cent increase in the custom tariff, as a result of rationalization,
the exporters of Europe have brought down their already low prices by another US$15, thus
practically nullifying the marginal rationalization.  There is no hope of the relentless downward spiral
of prices in Europe and the United States ever stabilizing as indicated by this trend.
(xii) The imported Methylene Chloride is identical in all respects to the one manufactured by
domestic industry and has the same usage characteristics.  During the last several year they have been
supplying Methylene Chloride to the domestic users, in particular Pharma and Drug majors who are
extremely quality conscious and none raised any serious objection regarding the quality of theproduct.
(xiii) The relative market share of domestic producers has declined from 70 per cent in 1997-98 to
60 per cent in 1999-2000.
(xiv) GACL and CSL are in the process of de-bottlenecking their existing plants and capacity
utilisation are being optimised.  The total requir ements of the Indian chloromethane consuming
industry can easily be satisfied by the domestic industry.
(xv) Both the companies viz GACL & CSL are taking effective steps to bring down their cost of
production and sales adopting aggressive marketin g policy; commissioning a 90 MW power plant by
GACL and a 30 MW power plant by CSL to reduce the cost of power.
In addition to the above, SRF Ltd., New Delhi have stated the following:
(i) Their Chloromethanes Plant was commissioned in 1995-96 and has been designed to co-
produce Methylene Chloride, Chloroform and Carbon Tetrachloride.  The maximum ratio of each ofproduct produced depends on the Plant designed and the operating parameters.  The ratio of each
product is varied depending on the market conditions.  They do not have any captive consumption of
Methylene Chloride and their entire production is sold.
(ii) As per the guidelines issued by the Government of India, production of Carbon Tetrachloride
has to be phased out.  They have been  de-bottlenecking their plant and shifting the ratio towards
Methylene Chloride.  As a sequel, they have  increased their ratio of Methylene Chloride production
from 10 per cent to 55 per cent of the capacity of Chlo romethanes in the last 5 years.  Chloromethanes
capacity was de-bottlenecked from 14,500 MT per annum in 1997-98 to 18,550 in 1998-99.
(iii) They have not exported Methylene Chloride in the last three years.  They have not been able
to utilise the 10,000 MT capacity of Methylene Chloride due to unrelenting imports.  Their weighted
average price realisation (in tankers) per MT of Methylene Chloride which was Re 25,660/- in
April 1998 –  June 1998; Re 27,050/- in July 1998 – Sept.1998 declined to Re 19,020/- in Oct.-
December 1999 and further declined to Re 17,180/- in January-March 2000.G/SG/N/8/IND/10
Page 7
C. VIEWS OF THE IMPORTERS/USER INDUSTRIES
(a) Indosol Drugs Ltd., Mumbai
(b) Aurobindo Pharma Ltd., Hyderabad
(c) Lupin Laboratories Ltd., Mumbai
They have stated mainly the following:
(i) They are large users of Methylene Chloride which is a major input for a number of bulk drugs
manufactured by them for sale in domestic market and overseas.  Domestically some of these
products are used for combating common and widespread diseases.  Having regard to the nature of the
drugs, it is their constant effort to make sure that  the drugs are within the reach of the general public.
Accordingly cost effective manufacturing of these pr oducts is in public interest to ensure that these
products can be supplied at a reasonable cost to their consumers.
(ii) There has already been a steep increase in the cost of Methylene Chloride over the last six
months  by virtue of the increase in international and domestic prices and the devaluation of the
Indian rupee.  A further imposition of 52.57 per cent imposition of safeguard duty would place amajor burden on their cost structure which would ultimately result in increased cost for consumers for
their products
(iii) The domestic industry despite operating more than their capacity have on several occasions
have failed to fulfil their requirements for Meth ylene Chloride compelling them to rely on imports.
(d) Ranbaxy Laboratories Ltd., New Delhi.(i) The foundation for the legal provision on safeguards can be traced to Article XIX of GATT,
1994 and to the Agreement on Safeguards.  Para 1 of Article XIX enables a country to takeemergency action if any product is being imported into its territory in such increased quantities in
such a condition as to cause serious injury to the domestic producers of the like or directly
competitive product.  The increase should be as a result of unforeseen developments and because of
the obligations, including tariff concessions, undertaken by a Member Country.  Article XIX and the
Agreement on Safeguards have to be kept in mind while interpreting the provisions of Section 8B and
the Safeguard Rules.  Thus, when Section 8B specifies that there must be an increase in the import of
an Article “in such increased quantities”, it is necessary to evaluate whether the increase is as a resultof unforeseen developments and of the effect of obligations by India incurred under the GATT
Agreement. Methylene Chloride falling under Heading No.2903.12 was not subject to any import
restriction during the last five years.  The increase in imports of Methylene Chloride was not at all due
to the effect of obligations incurred by India, incl uding the Tariff concessions.  It was also not due to
“unforeseen developments” as the increase was a direct consequence of the increase in demand thatcould not be catered to by the domestic industries.   The demand could not be met by the domestic
industry, in spite of their operations at over 100 per cent capacity.
(ii) Unlike in an anti-dumping investigation where both volume and price of imports have to be
considered, safeguard action is essentially a volume based action.  The price of imports is a secondaryfactor.  Once it has been established that the increased imports are due to market conditions and the
inability of the domestic industry because of its capacity constraints to cater to the needs of the users,
the question of serious injury to the domestic industry cannot exist.
(iii) The quantum of sales of the domestic indu stry has not shown any downward trend.  The loss
of the market share of 8 per cent in 1999-2000 is not an indicator of injury, much less serious injury,
in view of the fact that the domestic industry has lost its share only because it was operating at moreG/SG/N/8/IND/10
Page 8
than 100 per cent capacity and could not increase its hare proportionate to the increase in consumption
and not because the increased imports have eaten its market share.
(iv) The safeguard duty sought by the domestic industry has been wrongly calculated.  It has been
calculated on the basis of the landed value on the lowest price at which Methylene Chloride had beenimported in 1999-2000 which is not a correct methodology.  The weighted average c.i.f. price from
April 1999 to September 2000 has to be considered for determining the landed value.  As a part of
cyclical ups and downs, the price of Methylene Chloride fell for a short time in early 2000.  They had
imported Methylene Chloride at US$450 per MT and had contracted for import at the same or higher
price.  If the safeguard duty imposed based on the lowest c.i.f. import of a stray consignment, it will
result in windfall profit to the domestic industry.  Under Article XIX, safeguard action should only be
to the extent and for such time as may be necessary to prevent or remedy the serious injury.  Keepingin view of the fact that there is no serious injury at all and the landed price is currently far in excess of
fair selling price demanded by the domestic industry, there is no requirement to continue the
investigation or to impose safeguard duty.
(v) In accordance with Rule 5(2)(b) of the Safeguard Duty Rules, an application for imposition
safeguard duty should include a statement of the efforts being taken or planned to be taken or both to
make a positive adjustment to import competition. In a safeguard action, the increased import is the
factor and not the price.  In fact the price is assumed to be “fair” as opposed to dumped or subsidised
prices which are treated as “unfair” prices.  If  Re 11,990 is a fair price and Re 23,734 is the fair
expectation of the domestic industry, the adjustment plan should indicate measures to bridge this gap.After taking into account the prevailing level of Customs Duty, duty protection sought is Re 6,317 per
MT.  In other words, the adjustment plan should show a cost  reduction at least to the extent of
Re 6,317 whereas the applicants adjustment plan not even accounts for 1/4th of this amount.  In fact,
no amount of effort on their part will bring about a reduction in their cost of production by about
Re 6,000/- which is a must to meet the competition.  This is one more reason as to why the presentsafeguard investigation should be terminated.
D. VIEWS OF THE EXPORTERS
(a) Atofina, France
(i) They oppose  the imposition of the safeguard duty on imports of Methylene Chloride sought
by the two Indian companies, Gujarat Alkalies and Chemicals Ltd. (GACL) and Chemplast SanmarLtd. (CSL).
(ii) They observe from the import figures that the market share of imported product during 1999-
2000 is actually less than that of 1995-96 and 1996-97.  This hardly represents a targeting of the
Indian market and it was merely a question of imports maintaining its regular historical marketposition.
(iii) They observe that the production of Methylene Chloride in India has increased by 47 per cent
from 1996-97 to 1999-2000.  This large increase of production will indeed have contributed
negatively to domestic pricing conditions.
(iv) The reference price of US$275/T c.i.f. Kandla is neither a price that is known to ATOFINA or
has been used by ATOFINA for its business in India during the time of the study.  Current market
prices for Methylene Chloride exported from Europe (Source, ICIS-LOR report, 28 July 2000) are
quoted as US$ 370 – 430 f.o.b. North West Europe.  This would equate to a landed c.i.f. Kandla priceof US$ 400 – 450/T at present.  This price, when converted a landed cost, is considerably higher that
demanded by the Indian producers as a reasonable selling price.  They had exported a quantity of
1,727 MT of Methylene Chloride during 1999-2000.G/SG/N/8/IND/10
Page 9
(v) The calculation made by the Indian producers for the landed cost of imported material has
made no costing for the port charges, the rental of bulk storage at the port, surveying and analytical
costs, product losses, or the cost of financing the import operation, or a margin for a distribution or
trading company where the product is imported by such a company.
(b) M/s. ICI Chlor – Chemicals
(i) Their product is primarily supplied for pharmaceutical and cosmetic manufacturing (65 per
cent) agro chemicals (25 per cent); extraction medium in the food industry (5 per cent); polyurethane
foam blousing, adhesive formulations, plastic processing, metal digressing etc.   Very negligible
quantities are supplied for the paint and varnish remover formulations.
(ii) They had exported the following quantities of Methylene Chloride to India during 1998-2000
viz:
Year Bulk Drum Total1998 3,118 1,054 4,172
1999 4,886 1,694 6,580
2000 2,749    831 3,580
(Aug’2000)
(iii) The figures of imports mentioned by the domestic industry in their application are erroneous
and they reserve their right to comment on this very crucial aspect of import quantities after actual
import data is collected by DG(SG).  The allegation that domestic sales in Europe are decreasing and
therefore Methylene Chloride is finding its way to India is categorically denied.
(iv) The strongly believe that no injury is caused to the domestic industry due to imports of
Methylene Chloride and any imposition of safeguard duties will provide undue protection to the
domestic industry at the cost of the user industry which is predominantly the pharmaceutical and
agrochemical sectors.
(v) The re-adjustment plan submitted by the Applicants does not deserve safeguard protection.
The adjustment claimed by them have already been  implemented or are part of ongoing improvements
in the ordinary course of Plant maintenance and operation.  The total benefit derived by the domestic
industry by adjustment will be Re 1,800/- to Re 2,300/- as against a protection sought for Re 6,739/-
which in itself is an evidence to show that the ad justment plan is wholly inadequate to address the
alleged injury.
(vi) Methylene Chloride has not been imported in to India in the ‘increased’ quantities required
under Section 8B of the Customs Tariff Act.  The domestic industry has suffered no injury, let alone
serious injury.  In fact the plants are operating at capacities in excess of 100 per cent by their own
admission.  The prices of Methylene Chloride being imported into India have drastically increased inthe last few months.  Prices move on account of the cost of raw materials and demand and supply
globally.  The period that shows the reduction in prices coincided with the lowest price of raw
materials in recent memory.  Coupled with the South East Asian crisis, the prices were reduced
globally.  Both these issues have now been addressed and prices have increased drastically in the past
few months.G/SG/N/8/IND/10
Page 10
(c) Solvay SA, Belgium
(i) Their sales of Methylene Chloride to India are not likely to cause a serious injury either to the
Indian market or to the Indian domestic producers of Methylene Chloride.
(ii) Their export prices to India were corresponding to export market prices in Asia/Pacific area
and were greater than their prices in European domestic market during the same relevant period.
(d) Helm AG, Germany
They have not exported Methylene Chloride to India at least for the last 4 years (1996 to
August 2000).  They do not accept to be claimed as one of the major exporters disturbing the Indianmarket by selling at low prices.
E. VIEWS OF THE EXPORTING GOVERNMENTS
(a) Embassy of Republic of Hungary, New Delhi.
Based on the export statistics of Hungary there is no evidence that Methylene Chloride have
been exported to India in the last 3 years.
(b) Chinese Taipei
(i) Their exports of Methylene Chloride to India is very limited.  There were only few exports of
Methylene Chloride to India in 1995 and 1996.  No exports of Methylene Chloride have been effected
during January 1997 till May 2000.
(ii) Under the provisions of WTO Agreement on safeguards with regard to application of
safeguard measures they reserve their right to be consulted before any safeguard duty is imposed.
(c) European Commission, New Delhi
(i) India is entitled to take safeguard action under Article XIX GATT 1994, which reads
‘Emergency Action on Imports of Particular Pr oducts’, and the WTO Agreement on Safeguards.
These provisions permit WTO countries to take safeguard action in emergency situations where onlythe use of exceptional measures may remedy the serious injury caused by increased imports of a given
product to a domestic industry.  Safeguard measur es should thus only be applied where no other
remedy appears appropriate.  Otherwise, the application of safeguard measures risks creating serious
trade disturbances, notably trade diversion, and ma y lead to a dangerous proliferation of trade
restrictive measures world-wide.  Safeguard measures should not and cannot be used as an instrumentto shield the Indian industry from normal and fair import competition in circumstances where no
emergency action appears to be warrants.
(ii) Safeguard measures may only apply to a product if such product is being imported in such
increased quantities and under such conditions as to  cause or threaten to cause serious injury to the
domestic industry that produces like or directly competitive products.  As a preliminary remark, the
Commission notes that the Indian conclusion that  prima facie imports of Methylene Chloride have
threatened to cause serious injury to domestic producers of Methylene Chloride is not sufficiently
substantiated.  The scant information contained in the initiation notice and in the non-confidential
version of the petition does not support such a conclusion, in particular having regard  to  the  strictrequirement of Article 4 (1)(b) of the WTO Safeguard Agreement, which states that ‘A determination
of the existence of a threat of serious injury shall be based on facts and not merely on allegations,
conjecture or remote possibility.G/SG/N/8/IND/10
Page 11
(iii) The application of safeguard measures, given their emergency nature, requires the existence
of a substantial sharp increase in imports.  The Commission doubts that import data provided by India
justify any such conclusion.,  The figure for year 1999-2000 of 13,500 MT is an estimate provided by
the petitioners and is not supported by any evidence or explanation.  It is furthermore in contradictionwith the figure provided by Kandla Port Trust, which is substantially lower (10,247 MT).  Whatever
the correct figure, the comparison with the import volumes back in 1996-97 i.e. 12,302 MT, certainly
does not show a sharp increase of imports in absolute terms.  The same applies if the percentage of
imports relative to domestic production is taken into account (a fall from 79 per cent in 1996-97 to
59 per cent in 1999-2000), given that domestic production increased much more than imports in the
same period.   As regards the claim that prices of imports have been decreasing substantially in the
period under consideration, the Commission notes that this reflects an overall world-wide trend which
affects all producers of this commodity.  In addition, the decreasing trend refers in particular to this
product in form of bulk material.  The Commission notes that around 25 per cent of  EC Exports to
India are in drums, whose prices are much higher than bulk materials.
(iv) The WTO Agreement on Safeguards requires that imports cause or threaten to cause serious
injury to the domestic industry.  Serious injury is defined in the Agreement as ‘a significant overall
impairment in the position of a domestic industry’.  The Notice of  Initiation contains very little to
prove that the injury was or would be serious.  The conclusion of DG(SG) is based on two isolated
considerations, that imports prices have declined in the period under consideration, following a world-
wide trend and that the market share of domestic producers diminished by 10 per cent between 1997-98 and 1999-2000.  However, in the same context the investigating authority appears to have
disregarded the fact the Indian market for these products increased substantially as also the capacity
utilisation of the domestic producers during the said period.
(v) The imports on Methylene Chloride have not increased in such a manner and under such
conditions so as to threaten to cause serious injury to the Indian producers.  In fact, the Commission
submits that all necessary conditions of substance and procedure for the application of safeguard
measures required under Article XIX GATT 1994 and the WTO Agreement on Safeguards do not
appear present in this case.  The Commission also considers that the imposition of provisional
safeguard measures, as requested by the petitioners would not be justified, since the conditions
provided by Article 6 of the Safeguard Agreement are not met.
F. F
INDINGS
1. (i) I have carefully gone through the case records and the replies filed by the domestic
producers, users/importers, exporters and exporting governments.  Submissions made by various
parties and the issues arising there from are dealt with at appropriate places in the findings below.
(ii) However, before discussing other issues, a preliminary issue concerning the information
supplied by SRF needs to be addressed first.  It has been claimed by some parties that there is no
provision for including other domestic producers in the application and to accept information
furnished by them after the initiation of investigation.   In this regard they have also invited attention
to the Safeguard Duty Rules concerning initiation of investigation, which requires the DirectorGeneral to examine the accuracy and adequacy of evidence provided in the application and also the
procedure prescribed in Rule 6 and 7 etc.
(iii) To consider this issue in its proper perspective, it will be necessary to consider the entire
procedure of investigation as stipulated in the Safeguard Duty Rules.  Rule 5 of the Safeguard DutyRules (SGD Rules) which deals with initiation of investigation provides that :G/SG/N/8/IND/10
Page 12
“Except as provided in sub-rule (4) the Director General shall, on receipt of a written
application by or on behalf of the domestic producers of like article or directly
competitive article, initiate an investigat ion to determine the existence of ‘serious
injury’ or ‘threat of serious injury’ to the domestic industry, caused by the import of
an article in such increased quantities, absolute or relative to domestic production.”
(iv) The term ‘domestic industry’ is defined under Section 8B of the Customs Tariff Act, 1975 as
under:
“Domestic industry” means the producers (i) as a whole of the like article or a
directly competitive article in India; or (ii) whose collective output of the like article
or a directly competitive article in India constitutes a major share of the total
production of the said article in India”
(v) Rule 5 also  requires the Director General to examine the accuracy and adequacy of the
evidence provided in the application. The principles  that govern investigation are provided for in
Rule 6.
(vi) The investigation is thus required to be initiated after examining the accuracy and adequacy
of the information provided by or on behalf of the domestic industry in the application.  It is not
necessary that the application must be filed by all the  domestic producers, or that the producers who
have not initially joined the application can not let their position be known thereafter.  The notice of
initiation sets the investigation process on.  One of the purposes of the Notice  of Initiation is to put allinterested parties on notice.  Even the parties not identified in the application can respond and join the
investigation after initiation thereof.  There is , therefore, nothing wrong in SRF joining the
investigation on 23 October 2000 by extending their support to the domestic producers.  The
requirement of natural justice, however, is that response filed by them should neither give them any
unfair advantage nor should cause prejudice to the interests of other parties.  To ensure this SRF werespecifically asked at the time of Public Hearing to submit their response to the Questionnaire by
13
 November 2000 and comments thereon were allowed to be made by other parties by
27 November 2000.  Besides, it has been ensured that only such information is relied upon in this
investigation, which passes the test of scrutiny.  Information furnished by SRF which does not meet
with the above requirement or which could not be subject to verification, such as, their cost of
production has not been considered in the present in vestigation.  Keeping this in view, the findings
below are made.
2. Product under Investigation
(i) The product under investigation is Methylene Chloride, a solvent belonging to the
Chloromethane family of solvents. The other two products in the family are Chloroform and Carbon
Tetrachloride. Methylene Chloride is a colourless volatile liquid with a chloroform like odour.  Also
known as Dichloro Methane, it has the chemical formula: CH2Cl2.
(ii) There are basically two routes for producin g Chloromethanes, i.e. either using Methane or
Methanol as the basic raw material. The Methane based process uses thermal chlorination of Methane.The reaction between Chlorine and Methane, the natural gas constituent, in the presence of light or a
catalyst, is the most important process in the manufacture of Chloromethanes. Depending upon the
adjustment of the process parameters, the predominant yield is methyl chloride, which is recycled by
chlorination to obtain Methylene Chloride.  Proportionately smaller amounts of Chloroform and
Carbon Tetrachloride are obtained in the process.  Methane is mixed with chlorine and the reactorfitted with arc lamps to above atmospheric pressure and with the residence times controlled so that the
chlorine is used up completely.  Secondary Chlorination take place at ambient temperature in a lightG/SG/N/8/IND/10
Page 13
catalyzed reactor, which converts Methylene Chloride to Chloroform, and in other reactors
Chloroform is similarly converted to Carbon Tetrachloride.
(iii) In the Methanol route, methyl chloride is produced in the first stage of the reaction by hydro
chlorination of methanol with hydrogen chloride.  The second stage of the process involves eitherthermal chlorination or photo chlorination of methyl chloride to produce a mixture of all the four
products; i.e. un-reacted methyl chloride, Methylene Chloride, Chloroform and Carbon Tetrachloride.
The above products are subsequently separated and purified in the downstream towers.
(iv) GACL produces Methylene Chloride using Methane route while Chemplast and SRF both use
Methanol route to produce Methylene Chloride.
(v) Methylene Chloride is used in the Photo films, bulk drugs and pharmaceutical industry.
Methylene Chloride is also used in the manufacture of foam, resin casting, fumigants and
agrochemicals.
(vi) Methylene Chloride is classified under heading 2903.12 of the First Schedule to the Customs
Tariff Act, 1975 and under 29031200 of the Indian Trade Classification based on Harmonised
Commodity Description and Coding System.  The above classification, however, is indicated for the
purpose of convenience and in no way restricts the scope of the coverage of the product under
investigation.
(vii) There is no dispute about the domestically produced Methylene Chloride being a product
alike the imported Methylene Chloride.
3. Domestic Industry
(i)  There are three domestic producers of Methylene Chloride namely (a) GACL (b) Chemplast
and (c) SRF.
(ii) GACL have an installed capacity of 21120 MT per annum to produce Chloromethane with
8,910 MT per annum to produce Methylene Chloride.  The installed capacity of Chemplast to produce
Methylene Chloride was 6,000 MT per annum till 1996-97, which has been increased to 13,500 MT
per annum in 1997-98 out of a total Chloromethane capacity of 30,000 MT per annum. As regardsSRF, which started manufacturing Methylene Chloride only in 1997-98, the applicants claimed the
installed capacity of SRF to be 4800 MT per annum to produce Methylene Chloride, out of a total
capacity of 21,000 MT per annum for the Chloromethane.  In their letter dated November 9, 2000,
however, SRF have stated their installed capacity of Chloromethane to be 18,500 MT per annum and
as per their design, they can produce up to 55 per cent Methylene Chloride i.e. they have a capacity toproduce 10,175 MT per annum of Methylene Chloride.
(iii) In 1999-2000, GACL, Chemplast and SRF accounted for a production of 8,721 MT,
14,151 MT and 3,266 MT of Methylene Chloride respectively.
(iv) The application for imposition of safeguard duty on imports of Methylene Chloride was filed
by GACL and Chemplast.  SRF did not disclose its position at that time.  Subsequently, however, SRF
vide their letter dated 23.10.2000 have expressed their desire to support the applicants.  At the time of
Public Hearing on 07.11.2000, SRF were asked to file a reply to the Questionnaire for the domestic
producers, which was submitted by them on 13.11.2000.
(v) It is accordingly considered that the request for imposition of safeguard duty on Methylene
Chloride has been made by the domestic industry comprising of all the three domestic producers.G/SG/N/8/IND/10
Page 14
4. Increased Imports
(i) Methylene Chloride is imported into India fr om Belgium, Brazil, P.R.China, Chinese Taipei,
France, Germany, Hong Kong, Hungary, Israel , Italy, Japan, the Netherlands, Russia, Spain,
Switzerland, the UK and the United States.
(ii) The import duty (basic customs duty + surcharge, if any) on Methylene Chloride was 65 per
cent ad valorem in 1994-95, which was brought down subsequently to 50 per cent in 1995-96, 40 per
cent in 1996-97 and to 35 per cent in 1997-98 before raising to 38.5 per cent on 01.03.1999.  The
imports were allowed without any quantitative restrictions to enter into India from 1995-96 onwards.
(iii) The c.i.f. prices of imported Methylene Chloride during the period 1997-1999 and the prices
of Chlorine and Methanol during the same period were as under:
Table 1
(Prices in US$ PMT)
1997 1998 1999
Year Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Methylene
Chloride678 625 608 661 612 590 518 521 465 386 331 317
Chlorine 135.3 167.9 139.5 160.2 141.1 93.58 71.66 28.4 39.03 63.56 139 209.2
Methanol 241 211 196 179 118 102 98 98 98 124 124 105
It is seen from the above that while the prices of both the raw materials declined during the
period from Q1 of 97 to Q4 of 98, they showed an increasing trend thereafter. The prices of Chlorine
increased substantially thereafter during each of the quarter up to Q4 of 1999 and the prices ofMethanol also ruled higher as compared to Q4 98 prices.  As against this the prices of Methylene
Chloride kept with the trend of declining raw material prices during the period Q1 of 1997 to Q4 of
1998 but did not rise thereafter keeping with the trend of rising raw material prices.  Instead the c.i.f.
prices of Methylene Chloride kept on declining sharply from a level of US$521 PMT to US$317 PMT
during the period Q4 of 1998 to Q4 of 1999.
(iv) The imports of Methylene Chloride into India were 10,776 MT in 1995-96, 12,032 MT in
1996-97, 7,390 MT in 1997-98 and 9,296 MT in 1998-99.  As regards 1999-2000, the applicants
claimed the imports to be 13,500 MT on an estimated basis.  They have submitted that the import
figures for 1999-2000 were not available in Public Domain.  According to them, out of the totalimports of 9,269 MT in 1998-99, 6,760 MT were imported through Kandla Port, which accounted for
72.93 per cent of the total imports of Methylene Chloride into the country.  In 1999-2000, the imports
of Methylene Chloride through Kandla, were 10,247 MT.  Assuming the same ratio of 73 per cent of
the total quantity of Methylene Chloride being imported through Kandla, the imports of Methylene
Chloride in 1999-2000 worked out to about 14,050 MT.  The applicants, however, claimed theimports of Methylene Chloride into India as 13,500 MT during 1999-2000.
(v) Various parties have questioned the quantum of imports of Methylene Chloride in 1999-2000
as estimated by the applicants.  In this regard, it is observed that the Kandla Port Trust Authorities
have confirmed imports of 10,247 MT of Methyl ene Chloride through Kandla Port in 1999-2000.
Atofina have confirmed their imports for 1999-2000 as 1,727 MT, and another 800-1000 MT of
Methylene Chloride being imported in drums in 1999-2000.  Atofina, therefore, have claimed the totalimports to be 12,774 MT instead of 13,500 MT.  The import figures were however, verified through
the DGCIS and the Customs authorities.  According to the reports received from them, the country
wise imports during 1999-2000were as under:G/SG/N/8/IND/10
Page 15
Table 2
Name of the Country Quantity (MT)
Chinese Taipei 40.248
China, P.R. 20.124
Denmark 5.5
France 1,727
(As confirmed by Atofina)
Germany 4,730.896
Hong Kong 20.124
The Netherlands 1,763.247
South Africa 25.378
United Kingdom 5,238.477
United States 100
Total 13,670.994
On the basis of above data it is observed that total imports of Methylene Chloride in 1999-2000 were13,670.994 MT.
(vi) The Table below indicates the figures of domestic production and imports of Methylene
Chloride for the period 1995-96 to 1999-2000.
Table 3
Year Domestic production
(MT)Imports (MT) Imports as percentage of
domestic production
1995-96 16,340 10,776 65.95
1996-97 15,588 12,302 78.92
1997-98 19,111   7,390 38.67
1998-99 25,091   9,269 36.94
1999-2000 26,138 13,671 52.30
It is observed from the data tabulated above that the imports which were 10,776 MT in 1995-
96 increased to 12,302 MT in 1996-97, declined subsequently to 7,390 MT in 1997-98 but increasedthereafter to 9,269 MT in 1998-99 and to 13,671 MT in 1999-2000.  The imports of Methylene
Chloride in India thus increased from 10,776 MT in 1995-96 to 13671 MT in 1999-2000.  As
compared to domestic production, however, the imports were about 66 per cent in 1995-96, which
decreased to 37 per cent in 1998-99 but increased subsequently to 52.30 per cent in 1999-2000.
(vii) It has been argued by various parties that  imports of Methylene Chloride into India during
1995-96 to 1999-2000 can not be considered to meet with the requirement of increased imports asrequired under the law.  In the context of increased imports it has also been argued that the increase in
imports is to be considered keeping in mind the WTO Panel Report in the Argentina Footwear case.
In this case, the Panel observed:
“We believe that in assessing whether an end-point-to-end-point increase in imports
satisfies the increased imports requirement of Article 2.1, the sensitivity of the
comparison to the specific years used as the end-points is important as it might
confirm or reverse the apparent initial conclusion.  If changing the starting-point
and/or ending point of the investigation period by just one year means that theG/SG/N/8/IND/10
Page 16
comparison shows a decline in imports rather than an increase, this necessarily
signifies an intervening decrease in imports rather than an increase, thus calling in to
question the conclusion that there are increased imports.”
“If an increase in imports is in fact pr esent this should be evident both in an
end-point-to-end-point comparison and in anal ysis of the intervening trends over the
period.  That is the two analyses should be mutually reinforcing”.
“The Agreement is clear that it is the data on import quantities, both in
absolute terms and relative to the (quantity of) domestic production that are relevant
in this context, in that the Agreement refe rs to imports “in such increased quantities”
(emphasis added).  Therefore, our evaluation will focus on the data on import
quantities.”
(viii) In regard to the requirement under the law, it is observed that Section 8B of the Customs
Tariff Act, 1975 empowers the Government to impose safeguard duty on an article, if it is satisfied
that the article is imported into India in such increased quantities and under such conditions so as to
cause or threatening to cause serious injury to domestic industry.  Further, the term ‘increased
quantity’ has been defined under the Customs Tariff (Identification and Assessment of Safeguard
Duty) Rules, 1997 to include increase in imports wh ether in absolute terms or relative to domestic
production. In the present case, on an end-point-to-end-point basis, there is undoubtedly an increase in
the imports in absolute terms, co mpared to any previous years. The increasing trend of imports,
reversed only in 1997-98 when it declined from 12,302 MT to 7,390 MT.  There was, however, a
significant development during this period, which has an important bearing on the analysis of
increased imports.  This development is concerning the production capacity of the domesticproducers, being 14,910 MT till 1996-97 but increasing substantially in 1997-98 due to expansion of
chloromethanes production capacity of Chemplast to 30000 MT per annum which resulted in
enhancement of their Methylene Chloride capacity from 6000 MT per annum to 13500 MT per
annum, and setting up of Methylene Chloride manufacturing facility by SRF in 1997-98 with a total
Chloromethanes capacity of 14,500 MT per annum.  As a result of these developments, the domesticindustry had a capacity to produce (22,410 + 55 per cent of 14,500) 30,385 MT per annum of
Methylene Chloride in 1997-98.  The sharp decline in imports in 1997-98 appears to be a consequence
of this development. In the present case, therefore, the import trend particularly for the period from
1997-98 to 1999-2000, reflects more realistically upon the current state of the domestic industry.
(ix) During the period 1997-98 to 1999-2000, the imports of Methylene Chloride into India
increased from 7,390 MT in 1997-98 to 9,269 MT in 1998-99 and to 13,671 MT in 1999-2000.  Theimports during this period, as compared to domes tic production stood at 38.67 per cent, 36.94 per cent
and 52.30 per cent respectively.  The imports of Methylene Chloride into India, thus increased both in
absolute term as well as compared to domestic production.
(x) It has also been argued by some parties that it  is necessary to evaluate whether the increase is
as a result of unforeseen developments and of the effect of obligations incurred by India under the
GATT.   In the context of “as a result of unforeseen developments” attention has also been invited to
the Hatters’ Fur case in which this expression was interpreted by the Working Party as under:
“The term ‘unforeseen development’ should be interpreted to mean developments
occurring after the negotiation of the relevant tariff concession which it would not be
reasonable to expect that the negotiators of the country making the concession could
and should have foreseen at the time when the concession was negotiated.”
In regard to the term “unforeseen developments” both in the Argentina Footwear case and in
Korean Dairy Products case the Appellate Body observed that:G/SG/N/8/IND/10
Page 17
“To determine the meaning of the clause “as a result of unforeseen developments and
of the effect of the obligations incurred by a Member under this Agreement, including
tariff concessions”…  in sub-paragraph (a) of Article XIX:1, we must examine these
words in their ordinary meaning, in thei r context and in light of the object and
purpose of Article XIX.  We look first to the ordinary meaning of these words.  As to
the meaning of “unforeseen developments”, we note that the dictionary definition of
“unforeseen”, particularly as it relates to the word “developments”, is synonymous
with “unexpected”.  “Unforeseeable”, on the other hand, is defined in the dictionaries
as meaning “unpredictable” or “incapable of being foreseen, foretold or anticipated”
(emphasis added). Thus, it seems to us that the ordinary meaning of the phrase “ as a
result of unforeseen developments” requires that the developments which led to aproduct being imported in such increased quantities and under such conditions as to
cause or threaten to cause serious injury to domestic producers must have been
“unexpected”.  With respect to the phrase “of the effect of the obligations incurred by
a Member under this Agreement, including tariff concessions”, we believe that this
phrase simply means that it must be demonstrated, as a matter of fact, that the
importing Member has incurred obligations under the GATT 1994, including tariff
concessions (emphasis added).  Here, we note that the Schedules annexed to the
GATT 1994 are made an integral part of Part-I of that Agreement, pursuant to
paragraph 7 of Article II of the GATT 1994.  Therefore, any concession or
commitment in a Member’s Schedule is subject to the obligations in Article II of theGATT 1994.”
The Appellate Body has thus distinguished be tween ‘unforeseen’ and ‘unforeseeable’.  They
have held ‘unforeseen developments’ to be synonymous with ‘unexpected developments’.  The phrase
“.. which it would not be reasonable to expect that the negotiators of the country making the
concession could and should have foreseen at the time when the concession was negotiated”,however, appears to set different standard which fall more in the realm of “unforeseeable”, which the
Appellate Body has distinguished from “unforeseen”.
(xi) As regards the developments that have resulted in increased imports, the applicants have
mentioned that the general use of Methylene Chloride as a paint stripper, is now being restricted due
to stringent European and American Environmental regulations.  Consequently, the European
producers have started looking at markets for their surplus production.  They have also produced acopy of ‘Final Rule’ effective April 10, 1997 issued by the Occupational Safety and Health
Administration (OSHA), USA in support of their contention.  Besides, in the past, the surplus
production was diverted to the South East Asian Markets, which due to set back in their economics
started finding its way to other markets, including India.  It has also been accepted by some parties
that, “the period that shows reduction in prices coincided with the lowest price of raw materials inrecent memory.  Coupled with the South Asian Crisis, the prices were reduced globally.”  It has been
argued by some parties that the petitioners allege that domestic sales are decreasing in Europe as a
result of environmental regulations, however, proof is provided of OSHA Regulations, which pertains
to the US.  In this regard it is observed that while  it is a matter of fact that OSHA Regulations pertain
to the US, the applicants have produced a copy of E.C.S.A. (European Chlorinated SolventAssociation) Bulletin of  August 2000 giving deta ils of European Solvent Sales in 1999.  It clearly
mentions that “the Western European market for virgin chlorinated  solvents totaled 303,000 tonnes in
1999, a decrease of 1.6 per cent compared to 1998, according to combined ECSA sales data and
Eurostat-import figures.”  It further reports  “the influence of the VOC or Solvent Emissions Directive
largely explains decreasing Western European chlorinated solvent sales volume.  It must beimplemented in EU member-states by April-2001 when new installations will have to meet stringent
emission limits.  All new investments are already taking these limits into account”G/SG/N/8/IND/10
Page 18
The ECSA Bulletin also reveals that the Methylene Chloride sales which increased from
141 thousand MT in 1996 to 151 thousand MT in 1997, stabilized thereafter to 150 thousand MT in
1998 and 1999. From the above discussion, it is evident that use of Methylene Chloride has been
regulated not only in the US but also in the Europe.
Besides, it is a matter of fact that while the domestic industry has been opened to face
competition from global producers, it lacks provision of international competitive environment for the
factors responsible for production at internationally competitive prices.  It is common knowledge that
power, fuel and financing could not be made available in India at prices compared to international
levels.  The increase in imports clearly is a result of all these unexpected developments.
(xii) As regard the obligations incurred by India in respect of Methylene Chloride it is appropriate
to mention that Methylene Chloride is one of the products in respect of which India has, inter alia,
incurred the obligation of both providing tariff concessions by including it in its Schedule of
Concession and unrestricted importability i.e. allowing imports of Methylene Chloride without any
quantitative restrictions.
(xiii) In view of the above analysis, it is obser ved that Methylene Chloride has been imported into
India in increased quantities.  The imports of Methylene Chloride have increased both in absolute
terms as well  as compared to domestic production, particularly during 1997-98 to 1999-2000, which
is the period that reflects more realistically on the current status of the domestic industry.  The imports
have increased as a result of unexpected developments and of the effect of obligations incurred byIndia.
5. Serious Injury
(a) It has been argued by some parties that it is not adequate that imports must be increased, but
the imports ‘must also be made under such conditions so as to cause or threaten to cause serious
injury.  In this regard reliance has been placed upon the Panel Report in Argentina Footwear case
which states:
“In our view, the phrase “under such conditions” does not constitute a specific legal
requirement for a price analysis separate and apart from the increased import, injury
and causation analyses provided for in Article 4.2  We consider that Article 2.1 setsforth the fundamental legal requirements (i.e. the conditions) for application of a
safeguard measure, and that Article 4.2 then further develops the operational aspects
of these requirements.  We believe that the phrase “under such conditions” would
indicate the need to analyze the conditions of competition between the imported
product and domestic like or directly competing products in the importing country’smarket.”
(b) Clause 6(c) of Section 8B of the Customs Tariff Act, 1975, defines ‘serious injury’ to mean
an injury causing significant overall impairment in the position of a domestic industry and Sub-clause
(d) defines ‘threat of serious injury’ to mean a clear and imminent danger of serious injury.  Further in
determining whether increased imports have caused or threatening to cause serious injury to adomestic industry, the Annex to the Safeguard Duty Rules requires the Director General to evaluate
all relevant factors of an objective and quantifiable nature having a bearing on the situation of that
industry, in particular, the rate and amount of increase in imports of the article concerned in absolute
and relative terms, the share of the domestic market taken by increased imports, changes in the level
of sales, production, productivity, capacity utilisation, profits and losses and employment. Thesefactors are analysed below:G/SG/N/8/IND/10
Page 19
1. Production:  The production of Methylene Chloride by the domestic producers was
16,340 MT in 1995-96.  Except for a small decline in 1996-97 to 15,588 MT, the domestic production
increased thereafter to 19,111 MT in 1997-98, 25,091 MT in 1998-99 and to 26,138 MT in 1999-
2000.  The domestic production in 1997-98 increased by 3,523 MT or 22.6 per cent over 1996-97.  In
1998-99, the domestic production increased by 5,980 MT or 31.3 per cent over 1997-98.  In 1999-2000, however, the domestic production increased by 1,047 MT only i.e. by about 4.2 per cent over
1998-99.
2. Capacity Utilisation: The domestic industry had a capacity to produce 14,910 MT per annum
of Methylene Chloride in 1995-96 and 1996-97.  Chemplast, however, expanded their
Chloromethanes capacity to 30,000 MT per annum and SRF also set up their Chloromethanes plant in
1997-98.  As a result, the capacity of the domestic industry increased to 30,385 MT per annum in1997-98.  Owing to further improvement made by SRF, the capacity has increased to (22,410 +
10,175) 32,585 MT per annum in 1998-99 and 1999-2000.  During the years 1995-96 to 1999-2000,
the total domestic production was 16,340 MT, 15,588 MT, 19,111 MT, 25,091 MT and 26,138 MT
respectively.  The capacity utilisation of the domestic industry, therefore, was 109.6 per cent,
104.5 per cent, 62.9 per cent, 77 per cent and 80.2 per cent respectively.  The domestic industry, thussuffered a loss in capacity utilisation in the period 1997-98 to 1999-2000 as compared to 1995-97, but
during 1997-98 to 1999-2000, it showed an improvement in capacity utilisation from 62.9 per cent to
80.2 per cent.
3. Sales
(i) The Table below gives the figures of domestic sales of Methylene Chloride by the three
domestic producers for the period from 1995-96 to 1999-2000.
Table 4
(Domestic Sales in MT)
Year GACL Chemplast SRF Total
1995-96 9,273 6,092  15,365
1996-97 9,002 5,617  14,619
1997-98 7,459 9,156 1,583 18,198
1998-99 8,207 12,355 2,405 22,967
1999-2k 8,152 12,822 3,307 24,281
From the data tabulated above, it is observed that the domestic sales of the domestic industry
have increased from 15,365 MT in 1995-96 to 24,281 MT in 1999-2000.
(ii) The apparent domestic consumption during the period, however, was as given in Table below:
Table 5
Apparent Domestic Consumption  (MT)
Year Domestic sales Imports Apparent
domestic consumption
1995-96 15,365 10,766 26,141
1996-97 14,619 12,302 26,921
1997-98 18,198 7,390 25,588
1998-99 22,967 9,269 32,236
1999-2000 24,281 13,671 37,952G/SG/N/8/IND/10
Page 20
From the data tabulated above, it is observed that the apparent domestic consumption was on
an average 26,217 MT per annum during the period 1995-96 to 1997-98, which increased substantially
in 1998-99.  As compared to the immediately preceding year 1997-98, the apparent domestic
consumption in 1998-99, increased by 6,648 MT or by about 26 per cent.  The domestic sales alsoregistered a similar growth of 26.2 per cent over 1997-98.  In 1999-2000, however, the apparent
domestic consumption increased by 17.73 per cent but the domestic sales increased only by 5.72 per
cent.  The domestic sales thus did not grow keeping pace with the growth in apparent domestic
consumption.  Even the small growth of 5.72 per cent in domestic sales was achieved only by
drastically reducing the sale price by the domestic producers.
(iii) The net sales value in the case of GACL declined from Re 30,121 PMT in 1998-99 to
Re 20,927 PMT in 1999-2000 or by about 30 per cent.  In the case of Chemplast, the net sales value
declined from Re 25,117 PMT in 1998-99 to Re 20,344 PMT in 1999-2000 i.e. by about 19 per cent
and in the case of SRF, the net sales value declined from Re 23,120 PMT (sales in tankers) to Re
18,750 PMT respectively i.e. by about 19 per cent.  It is  thus observed that the domestic producers
could not keep their share in the apparent domestic consumption and the small growth which theyachieved was as a result of decline in sales prices by about 19 per cent to 30 per cent.
(iv) Stocks
The closing stock of the three domestic producers was 289 MT in 1995-96 which increased to
376 MT in 1996-97 and to 515 MT in 1997-98 before declining to 196 MT in 1998-99.  In 1999-2000,
however, the closing stocks increased to the highest level of 580 MT.
(v) Employment
All the three domestic producers have reported no loss in employment.
(vi) Productivity
The domestic producers also have registered no loss of productivity i.e. production per
employee on account of the fact that production has increased during the period from 1997-98 to
1999-200 and there is no loss of employment.
(vii) Profitability
The reduced sales realisation had its effect on the profitability of the three domestic producers
as far as their Methylene Chloride operations were concerned.  In the case of GACL, their profit onMethylene Chloride has fallen drastically in 1998-99 and turned into losses in the year 1999-2000, as
verified from the sales realisation and cost of production data.  Similarly, in the case of Chemplast
also, profit in 1998-99 has turned into losses in 1999-2000.  Thus both the applicant companies which
were making profits on their Methylene Chloride operation have incurred losses in 1999-2000.
(c) From the above analysis, it is observed that while the domestic industry registered an
improvement in production, capacity  utilisation and productivity, they lost their market share,
suffered  lower sales realisations, profits turning into losses and building  up of some stocks.  Further,
the domestic producers, in order to distribute the fixed costs and thus minimize the injury, had to
operate at optimum levels which in no way appears to be a reflection of their improved performance.Some of the parties have argued that price is not an important factor in the injury analysis in safeguard
cases.  This is, however, not tenable.  In fact, pri ce at which the goods are sold in the domestic market
is one of the most important factors having a bearing on the injury suffered by it.  Section 8B of the
Customs Tariff Act, 1975 which empowers the Central Govt. to impose safeguard duty stipulates thatG/SG/N/8/IND/10
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“if the Central Govt., after conducting such enquiry as it deems fit, is satisfied that any article is
imported into India in such increased quantities and under such conditions so as to cause or
threatening to cause serious injury to domestic industry, then it may, be notification in the Official
Gazette, impose a safeguard duty on that article”.  It is amply clear from a plain reading of this Section
that conditions under which the increased imports take place needs to be investigated for imposition ofsafeguard duty and, therefore, price at which imports entered into India needs surely to be looked into
as price is one of the most important factor that needs consideration in taking a decision to source
material. In determination of serious injury or th reat thereof, the law requires an examination of
change in level of sales, profitability etc. of the domestic producers.  These factors undoubtedly
depend upon the prices of competing products and in that context import prices do become relevant
and require an examination, specially to assess their effect on the domestic situation.
In view of the above, the domestic producers of Methylene Chloride are under a threat of
serious injury if the imports of Methylene Chloride are allowed unabated.
6. Cause of Injury
(i) As regards the cause of injury, it is observed  that the c.i.f. import prices of Methylene
Chloride have been declining during 1997-98 through 1999-2000.  The c.i.f. price which was US$678
PMT in the First Quarter of 1997, declined to US$625 PMT in the Second Quarter; US$608 PMT in
the Third Quarter of 1997.  In the last Quarter of 1997, the price increased to US$661 PMT but
declined again to US$612 PMT in the First Quarter of 1998.  The c.i.f. import prices declined sharplythereafter from US$590 PMT in the Second Quarter of 1998 to US$518 PMT in the Third Quarter of
1998, US$465 PMT in the First Quarter of 1999, to US$386 PMT, US$331 PMT and US$317 PMT in
the Second, Third and the last Quarter of 1999.  In the First Quarter of 2000, the c.i.f. import prices
declined further to US$270 to 275.  In terms of Re PMT the c.i.f. prices declined from Re 14,545 in
the Second Quarter of 1999 to Re 13,626 in the Fourth Quarter of 1999. At the same time the importsof Methylene Chloride into India kept on increasing.  The imports of Methylene Chloride, which were
7,390 MT in 1997-98 increased to 9,269 MT in 1998-99 and to 13,671 MT in 1999-2000.  The imports
thus increased by about 25.3 per cent in 1998-99 over 1997-98 and by about 47.5 per cent in 1999-
2000 over 1998-99.  As compared to this increase in imports, the domestic production in 1998-99
increased by 32.4 per cent over 1997-98 but in 1999-2000 the production increased by only 4.2 per
cent.  The domestic producers tried to maintain their share in the apparent domestic consumption by
reducing their sale prices.  The net sales value in the case of GACL declined from Re 30,121 PMT in1998-99 to Re 20,927 PMT.  In the case of Chemplast, the net sales value declined from Re
25,117 PMT in 1998-99 to Re 20,344 PMT in 1999-2000. In the case of SRF it declined from Re
23,120 PMT (tanker sales) in 1998-99 to Re 18,750 PMT (tanker sale) in 1999-2000.  In spite of this
sharp decline in sales price, the domestic producers could not retain their market share.  In 1999-2000,
the apparent domestic consumption increased by 17.73 per cent but the domestic producers couldregister a growth of only 5.72 per cent.  They lost a share of (117.73 per cent X 22,976 – 24,281)
2,769 MT in 1999-2000.  The market share lost by them was gained by the imports, which increased
by an additional (13,671 – 9,269 x 117.73 per cent) 2,759 MT.
(ii) The injury to the domestic producers of Meth ylene Chloride has thus been caused by the
increased imports of Methylene Chloride.  It has been argued by some parties that if the cause of
injury to domestic producers was cheaper imports, it does not hold good any longer as the import
prices of Methylene Chloride have shown substantial improvement currently, that is, in the later half
of 2000.  It has been submitted that the current c.i.f. prices for Methylene Chloride are US$450 PMT
and as per the applicants own submission the non injurious price was US$350 PMT.
(iii) In this, regard, it is observed that the current c.i.f. prices of Methylene Chloride cannot be the
basis for arriving at a decision since this is post investigation price having no bearing on the prices
prevailing during the period under consideration.  The import prices may have increased due toG/SG/N/8/IND/10
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various factors, which would also influence the domestic cost of production.  It is neither practicable
nor desirable to base the findings on post investigation prices.
(iv) Some parties have also argued in favour of a trigger price mechanism i.e. safeguard duty be
imposed only on imports entering at a price lower than a reference price.  This, suggestion, however,does not appear to be legally tenable in the context of safeguard investigation as that would give it a
colour of a price based measure where the low priced imports, although not unfair, would get
discriminated and charged to safeguard duty, wher eas the higher priced imports would not attract
safeguard duty.  This does not appear to meet with the objectives of safeguard measures which
encourages the domestic producers to make efforts to  become competitive, rather than encouraging
inefficiency for the domestic industry or for the exporters.  The trigger price mechanism on the
contrary penalises the efficient foreign producers, while encouraging the inefficient producers.
7. Adjustment Plan
(i) The applicants have submitted a restructuring plan indicating details of efforts being taken and
planned to be taken to make a positive adjustment to improve their competitiveness. The applicantshave stated that they have been regularly upgrading their technology and de-bottlenecking their
manufacturing facilities with the objective of reducing the operative cost per unit of Methylene
Chloride.
(ii)   M/s. GACL had initially claimed that the reduction in the cost of Methylene Chloride per
MT would be on following accounts:
(a) Savings on account of packaging;
(b) Substituting use of furnace oil with natural gas to achieve reduction in cost of steam;  and
(c) Substituting Naptha with natural gas and wheeling of power to reduce the cost of production
(iii) It has specifically been stated by GACL in their application that the replacement of Naptha
with natural gas will be achieved in the next 12 months and GACL will be in a position to reduce the
cost of production of Methylene Chloride by abou t Re (confidential) PMT over a period of 3 years.
Similarly, Chemplast had stated that by drawing power from captive generation they will achieve a
saving of Re (confidential)PMT of Methylene Chloride. In their response to the questionnaire and
written submissions made during the Public Hearin g, GACL have stated that Chlorine and power cost
are the major inputs for manufacture of Methylene Chloride.  In order to cut down Chlorine cost they
have tied up with M/s. Gujarat Sate Petroleum Corporation for supply of natural gas to enable them
change over to natural gas from Naphtha as a feedstock for their 90MW captive power plant being
operated in Dahej.  They have proposed wheeling the low cost power from Dahej to Baroda plant
which will help them to reduce the power cost and as a sequel the cost of Chlorine and in turn cost of
Methylene Chloride.  They have also stated that reduction in power cost will reduce the cost of power
consumed in the manufacture of Methylene Chloride.  Besides, they have also stated that they are
making efforts to reduce the packing cost and discussing with various financial institutions to bring
down the cost of their borrowing which is expected to bring down the cost of Methylene Chloride
further. Similarly, Chemplast have stated that they propose to operate their plant at lower molar ratioso as to maximize production of Methylene Chloride.  They have stated this would result in a cost
saving of Re (confidential)PMT and further they anticipate reduction in cost of Methylene Chloride to
the extent of Re (confidential) by importing Methanol at Cochin instead of at Kandla. The domestic
producers, therefore, requested for imposition of safeguard duty for a period of three years.
(iv) The adjustment plans furnished by the applicants have been examined. In view of the fact that
most of the imported Methylene Chloride arrives in tankers, price comparison needs to be made for
Methylene Chloride sold in bulk.  The cost reduction efforts on account of packaging have, therefore,
to be excluded. Besides, imposition of safeguard duty for three years needs to be considered in its rightG/SG/N/8/IND/10
Page 23
perspective.  It is considered after due analysis of the restructuring plan, and keeping in view the
possibility of implementation of the plans, protection for a shorter duration of one year alone should
be adequate for the domestic producers to prevent occurrence of serious injury.
8. Public interest
(i) Some of the parties have argued that impos ition of safeguard duty would not serve any public
interest.  On the contrary imposition of safeguard duty would place a major cost burden on a number
of end user industry, in particular, bulk drug manufacturers and would ultimately result in increased
costs for consumers of their products. However, the applicants have stated that the impact of cost of
Methylene Chloride would be negligible vis-à-vis the final formulated product price, to be paid for by
the consuming public.
(ii) In this regard, it is observed that the expression ‘public interest’ does not cover in its ambit
consumer interest alone.  It is a much wider term, which covers in its ambit the general social welfare
taking into account the larger community interest.  While the imposition of safeguard duty may result
in increased cost of imported Methylene Chloride in the hand of buyers and therefore, it may alsoaffect the end products manufactured therefrom, it is important to keep in mind the objective of
imposition of safeguard duty.  The purpose of imposition of safeguard duty is to provide time to the
domestic industry to make positive adjustment to meet with the new situation of competition offered
by the increased imports.  The imposition of safeguard duty, for the period and to the extent just
adequate, would, therefore, not only minimize the adverse effect, if any, for the customers but alsoallow them a wider choice to source their requirements, and at competitive prices.  The domestic
producers who have set up plants with huge public investments provide employment to a large number
of people and make valuable contribution to the national economy.  Safeguard duty, which would
enable the domestic producers to survive in the face of competition offered by the increased imports,
will, therefore, also be in the long term interest of the buyers of Methylene Chloride as well as of thebuyers of products manufactured therefrom.  It is, therefore, considered that imposition of safeguard
duty on Methylene Chloride will be in the public interest.
9. Provisional Safeguard Duty
In view of the fact that after completing the investigations final findings are being issued in
this case, it is not considered necessary to re cord any preliminary findings for the purpose of
imposition of provisional safeguard duty.
10. Share of Countries in Exports to India
On the basis of information as verified, in regard to imports of Methylene Chloride into India
during the period 1999-2000, the share of various countries in India’s imports were as under:
Table 6
Country/Territory Imports (MT) %age share
Chinese Taipei 40.248 0.29
China, P.R. 20.124 0.15
Denmark 5.5 0.04
France 1,727 12.63
Germany 4,730.896 34.60
Hong Kong 20.124 0.15
The Netherlands 1,763.247 12.90
South Africa 25.378 0.18G/SG/N/8/IND/10
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Country/Territory Imports (MT) %age share
United Kingdom 5,238.477 38.33
United States 100 0.73
Total 13,670.994 100
11. Conclusion and Recommendation
(i) In view of the findings above, it is concluded that increased imports of Methylene Chloride
into India have threatened to cause serious inju ry to the domestic producers of Methylene Chloride
and it will be in the Public interest to impose safeguard duty for a period of one year on imports ofMethylene Chloride 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 (bulk)
for GACL and CSL has been taken into account for the entire period 1999-2000, being more reflectiveof the true costs for the whole year.  The domestic producers have claimed a certain amount of profit
on the basis of expected return on capital employed etc. However, a lower profit (confidential) has
been considered appropriate and allowed.  Similarl y the c.i.f. import prices of Methylene Chloride
have also been considered on weighted average basis for the last six months i.e. October 1999 –
March 2000.  Adjustment has been made in the c.i.f. import price for landing charges. The extent ofprotection has also been considered on the basis of benefit likely to occur from the restructuring of the
domestic industry, and only the minimum level of protection is being recommended that would
facilitate the domestic industry to make a positive adjustment.  Accordingly, it is recommended that
safeguard duty be imposed on import of Methylene Chloride into India at the rate specified below at
ad valorem basis for a period of one year as under being the minimum necessary for the protection ofthe domestic industry from the serious injury threatened to be caused by the increased imports of
Methylene Chloride.
Level of total protection
recommended %Existing protection % Safeguard duty recommended %
(2)-(1)
(1) (2) (3)
38.5 + 11 38.5 11
  (Signed)
(R.K.Gupta)
          Director General
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