WORLD TRADE
ORGANIZATIONG/SG/N/8/IND/5
26 February 1999
(99-0754)
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 18 February 1999, has been received from the
Permanent Mission of India.
_______________
Please refer to India's notification under Article 12.1(a) of the Agreement on Safeguards,
circulated as WTO document G/SG/N/6/IND/3 dated 27 March 1998 regarding initiation of an
investigation by the Director General (Safeguards) concerning imports of Flexible Slabstock Polyol ofMolecular weight 3000-4000 used in the manufacture of Slabstock Foam and Polyurethane Foam
Mattresses into India.  I forward herewith a copy of the notification containing the findings of the
Director General (Safeguards) with regard to the investigation under reference.
TABLE OF CONTENTS
Page
I. PROCEDURE ........................................................................................................................ 2
II. VIEWS OF THE DOMESTIC INDUSTRY ........................................................................ 4
III. VIEWS OF USERS/IMPORTERS ...................................................................................... 8
IV. VIEWS OF EXPORTERS/EXPORTING GOVERNMENTS ........................................ 13
V. FINDINGS OF THE DIRECTOR GENERAL ................................................................. 19
VI. CONCLUSIONS AND RECOMMENDATIONS ............................................................. 33G/SG/N/8/IND/5
Page 2
DIRECTOR GENERAL (Safeguards),
5th Floor, Drum Shape Building,
I.P.Bhawan, I.P.Estate,
New Delhi-110002.
NOTIFICATION
SG/INV/4/97
17 September 1998
Subject:  Safeguard investigation concerning import s of Flexible Slabstock Polyol of molecular
weight 3000-4000 used in the manufacture of Slabstock Foams and Polyurethane
Foam mattresses-Final Findings
G.S.R. 613 (E).  Having regard to the Customs Tariff Act, 1975 and the Customs Tariff
(Identification and Assessment of Safeguard Duty) Rules, 1997 thereof.
I. PROCEDURE
(i) The Notice of Initiation of Safeguard investigation concerning imports of Flexible Slabstock
Polyol  of molecular weight 3000-4000 used in the manufacture of Slabstock foams and Polyurethanefoam mattresses ( hereinafter referred to as FSP) into India was issued on 26 February 1998 and was
published in the Gazette of India, Extraordinary on 3 March 1998. A copy of the Notice was also sent
to all known interested parties as under :-
Domestic Producers
1. M/s Manali Petrochemicals Ltd. (MPL), Chennai
2. M/s Spic Organics Ltd. (SORL), Chennai.
Importers
1. Aagosh Polyfoam Pvt. Ltd.,Chandigarh.
2. Arvind International Ltd., Calcutta.
3.  Banmore Foam Pvt. Ltd., Morena, M.P.
4. Cozy Foams Pvt. Ltd., Palghar, Thana.
5. D.P. Foam Pvt. Ltd., Pondicherry
6. Dura Foam Inds. Pvt. Ltd. Dadra Nagar Haveli.7. Diana Foams Pvt. Ltd.,Orissa
8. Devi Polyurethane Pvt. Ltd., Distt. Nasik.
9. Enkay Foam Pvt. Ltd., Meerut,
10. Feather Foam Enterprises Pvt. Ltd., Noida.
11. Foam Home India Pvt. Ltd., Midc  Taloja.12. Feather Foam Enterprises Pvt. Ltd., Silvassa.
13. Joy Foam Pvt. Ltd., Ranipet.
14. Juhi Foam Pvt. Ltd., Punjab
15. Kurlon Ltd., Bhubhaneshwar,
16. Kamal Foam, Pondicherry17. M.R. Foams,  Hyderabad.
18. Multiwyn Foams Pvt. Ltd., Calcutta.
19. Modern Foam Udyog,  Ludhiana,
20. NU Foams Inds., Ahmedabad.G/SG/N/8/IND/5
Page 3
21. Natson Foam Mfg. Pvt. Ltd., Distt. Mehsana
22. Panama Polyproducts Pvt.  Ltd. Bulandashahar.
23. Pallavi Foam Inds. Pvt. Ltd.,  Noida Dadri Road, UP
24. Poly Foam, Chintupuda.
25. Prabhat Polyurethane Pvt. Ltd., Pondicherry.26. Pratap Polyurethane Pvt. Ltd., Calcutta
27. P.U. Foam Pvt. Ltd.,  Calcutta
28. Raj Leather Cloth Inds. Pvt. Ltd., Sonepat,
29. Sheela Foam Pvt. Ltd., Sahibabad,
30. Tirupati Foam Ltd., Mehsana.
31. Tirupati Foam Ltd., Taluk Kalol.
Exporters
1. Arco Chemical (Singapore) Pte. Ltd., Singapore
2. M/s Arco Chemicals, United States
3. Asahi Denka Kogyo K.K., Japan.4. Asahi Glass Company Ltd., Singapore
5. Dow Chemical Pacific (Singapore) Pte. Ltd., Singapore
6. Helm AG, Germany.
7. Shell Chemicals, and Shell Eastern Petroleum (Pte.) Ltd., Singapore
8. M/s Yokong Ltd., Seoul,
(ii) A copy of the notice was also sent to the governments of exporting countries through their
embassies in New Delhi.
(iii) Questionnaires were also sent on the same day to all known domestic producers, importers
and exporters and they were asked to submit their response by 13
th April 1998. Request for
extension of time to submit their replies were made by the following parties :-
• M/s Shell Eastern Petroleum Pte. Ltd., Singapore
• M/s Dow Chemical Pacific(Sing apore) Pte. Ltd., Singapore
• M/s Asahi Glass Co. Ltd., Japan
Keeping their request in mind and the need to complete the investigation expeditiously
extension up to 24 April 1998 was allowed and the parties concerned were accordingly
informed.
(iv) M/s Sealed Air (S) Pte. Ltd., Singapore and M/s Bayer AG Germany requested to be
considered as an interested party which was acceded to.
(v) Replies to the Notice dated 26 February 1998 and questionnaires have been received from the
following parties :-
Domestic Producers
1. M/s Manali Petrochemicals Ltd.
2. M/s Spic Organics Ltd.
Importers
1. M/s Banmore Foam (P) Ltd., New Delhi.G/SG/N/8/IND/5
Page 4
2. M/s Bharat Foam Udyog Pvt. Ltd., Faridabad.
3. M/s D.P. Foam Pvt. Ltd., Pondicherry.
4. M/s Joy Foam Pvt. Ltd., Chennai.
5. M/s Kurlon Ltd., Bangalore.
6. M/s Madras Polymoulds, Chennai. 7. M/s Polyurethane Association of India, Chennai.
8. M/s Sheela Foam Pvt. Ltd., Ghaziabad.
9. M/s Soft Foam Industries Pvt. Ltd., Andhra Pradesh.
10. M/s U-Foam Pvt. Ltd., Hyderabad.
Exporters
1. M/s Arco Chemical (Singapore) Pte. Ltd., Singapore.
2. M/s Asahi Glass Co. Ltd., Japan (Singapore Branch).
3. M/s Dow Chemical Pacific (Singapore) Ltd., Singapore.
4. M/s Sealed Air (S) Pte. Ltd., Singapore.
5. M/s Shell Eastern Petroleum (Pte.) Ltd., Singapore.
(vi) Verification of the information considered necessary for the investigation was done  and to this
end a team of officers visited the premises of M/s.  Manali Petrochemicals Ltd, Chennai,
M/s. Spic Organics Ltd., Chennai and M/s. Sh eela Foam Pvt. Ltd., Ghaziabad and M/s Bharat
Foam Udyog Pvt. Ltd., Faridabad.  The outcome of  the verification was conveyed to theconcerned parties.
(vii) A public hearing was also held on 6.8.98 notice for which was sent to all interested parties on
6 July 98.  The parties were asked to submit in writing the information presented by them in the
public hearing so as to reach the office of  DG by 13
 August 1998 and to collect the copies of
written submission made by other parties from the office of DG on 14  August 1998.  Rebuttals,
if any, were asked to be submitted in the office of DG by 26 August 1998.
II. VIEWS OF THE DOMESTIC INDUSTRY
The domestic producers have made the following main points:-
1. Both MPL and SORL are ISO 9001 and 9002 accr edited  companies respectively with the
R&D centre approved by the Dept. of Science and Technology of the Govt. of India.
2. The products conform to international standards set for their category.
3. They regularly collect from their customers feedback about the superiority and services as
perceived by them.
4. Multinationals and even small customers have appreciated the quality of their products and
services rendered by them.
5.  They manufactured Flexible Slabstock Polyol of molecular weight 3000 which is
substitutable with similar FSP of molecular weight between 3000 and 4000. Internationally products
of 3000, 3500 and 4000 molecular weight are available for more or less similar applications.
6. Multinational operators have appointed dealers in different cities and products available from
them and the domestic products conform to the same specification and molecular weight.G/SG/N/8/IND/5
Page 5
7. Injury is because of high raw material cost, low levels of customs duty, increased imports,
low interest from exporters and sales tax and octroi on indigenous products.
8. They manufacture both homopolyol and hetropolyol and the product hetropolyol has been
made available to all customers.
9. Polyol plants were shut down in the beginning of the financial year 1997-98 due to very low
levels of sale, high level of stocks and higher  level of locked up working capital.
10. They had never faced problem of this nature ever since the commissioning of the projects in
1990.  Most of their customers know in their hearts of heart the services rendered by the company
directly and indirectly to the PU industry in lifting it up off the ground.
11. Both Manali Petrochemicals and Spic Organi cs Ltd. belong to SPIC Group of Companies.
MPL was set up with the technology of Atochem, who were operating similar plants at Lavera, France
and basic engineering was done by Technip of France and detailed engineering was executed by
Engineers India Ltd.  SORL was incorporated base d on the technology of Enichem of Italy.  The
detailed engineering was carried out by Uhde,  Indi a.  The contract for import of Polyol technology
was entered into in the year 1983 and after the adve nt of ARCO into the scene, upgradation of the
technology took place.  Based on this first plant was built in Texas in 1984.  Subsequent plants were
built up with the same technology in Indonesia, Korea and France.  The size of the reactors transfer
system and instrumentation are similar to the plants built in Korea except that MPL plant is a twotrain Polyol plant whereas the plant in Korea has three trains.
12. The commissioning of the plants and guarantee test runs were completed in the year 1990.
The capacity of PO plants shown in their application for Safeguard duty (SGD) was as per capacities
mentioned in their Annual Reports.  MPL   plant   was  designed for capacity of 7,500 MT pa eventhough they had licensed capacity of 6,000 MT pa.  When the minimum economic capacity was
increased subsequently and also the requirement for licence was withdrawn, they had registered the
plant for capacity of 25,000 MT pa each.  During guarantee test run, even under standard conditions
of operation, the plants have achieved 136per cent i.e. more than 7,500 MT pa. Subsequent to the first
year of operation  they had further stepped up the capacity of the plants by removing the bottlenecks
and  on stream efficiency of the plant indicates that the capacity of the plants are around 10,000 pa at
MPL and 8,500 MT pa at SORL.  The PO plant capac ity as per the design and as verified in the
guarantee performance test is 15,000 MT pa each. The supporting utility plants are of much  higher
capacity and can support another PO plant comfortabl y. The capacity utilization of PO plant is at
8,900-10,000 MT pa only and production can easily be stepped up to capacity of 15,000 MT pa if
only sufficient markets are available to cater to.  It can also be stepped up further in a short span of
time with marginal investment to meet the demand of the country.
13.     When FSP was introduced by the end of the year 1990, MPL and SORL had sent their
commercial and technical officers for field tria ls and the product was accepted by most of the
customers without much problem.  Because of the advice given by collaborates and very tight
availability situation of Ethylene Oxide, both the companies first introduced homopolyol.  In 1992,hetropolyol was also introduced.  On an average production of hetropolyol was 35 per cent of the total
production of polyols.  They sold hetro grades only to customers who wanted only this particular
grade continuously.
14. Their technical staff  fine  tuned the formulations at the customers’ places and thereafter
visited them whenever specific help was sought.  They had attended to most of the issues whenever it
was referred  to them.  They have technical support service personnel stationed at Delhi and  Mumbai
who attend to the customers request instantaneously and whenever special efforts were required, theirG/SG/N/8/IND/5
Page 6
scientists, involved in the development of the pro duct were flown on the same day to attend to their
problems.
15.    They had more than 50 small and medium customers  in these areas who were totally dependent
on them for the product as well as technical support service as their requirement was in smallquantities and the total consumption was between 100 kg. per month to 5 MT per month.  Most of the
multinational companies were not interested in cate ring to their requirement because the time and
effort spent to develop and cater to these kind of small customers were manifold compared to straight
easy market of FSP in which they had been relegated to a non-entity.
16.      The increasing quantity of FSP used by their customers progressively from 1991-92 year-wise
is an ample testimony of their acceptance of the product and the support provided by the companies tothe PU industry.  They had a market share close to 100per cent since 1990-91 which has declined to
current level of less than 40 per cent.  The market share with some of the large foamers declined
progressively from 100 per cent (1995-96) to 70 per cent (1996-97) to 25 per cent (1997-98) to
current level of only 7 per cent (1998-June 98) in the last 4 years.  These large foamers make up for
more than 70 per cent of the market.
17.     The foamers had been using indigenous FSP since 1991.  Since 1996-97 they have gone away
from the indigenous FSP to imported FSP which is definitely not because of the perceived quality of
hetro or homopolyols or problems of availability since the companies had sold much larger quantities
before, but it could perhaps be price and price related issues.
18.     The production scenario became acute since December 1996, when the indigenous propylene
price started showing unprecedented rise by almost 33 per cent and at the same time customs duty on
polyols fell to 30 per cent.
19. The increase in cost of production starting from November 1996 till April, 1997 prevented the
company from dropping the price below the level of input cost and cheaper imports virtually took
over the entire market.
20.     MPL has entered into a 10 year long term contract with MRL for supply of propylene.  The
contract is based on the price of LPG and only notional processing cost is added to arrive at the price
of propylene.  Govt. of India decided the price of  LPG month wise since September 1993 and as this
price varied, price of propylene also varied month wise. The fire accident in MRL in 1993 forced
them to conceive a make shift propylene importation terminal at port of Cuddalore.  The major ports
at Chennai, Mumbai and Tuticorin  do not have facility to import propylene and they were also not
interested in creating one because of congestion and lack of space within the port area to
accommodate the hazardous cargo shipment.  They have now 1,500 MT storage capacity ofpropylene.  MRL can easily supply 70 per cent of the requirement of the companies at full production
level and the balance 30 per cent is to be imported. The landed cost of propylene through Cuddalore
terminal was roughly Re 3/- per kg. more than that at a full fledged terminal due to method of
handling.  They had decided to further upgrade th e system with the SBM facility with the view to
bridge the gap and reduce the cost.
21.     Technip along with MPL have proposed now to set up plants in China, Thailand and Chinese
Taipei with MPL as the model.
22.    All the quality parameters of indigenous FSP and imported FSP were same.  FSP though
prepared batch wise goes to a storage tank. Technology to manufacture PO foam was same in small
and big plants.G/SG/N/8/IND/5
Page 7
23.    Though the cost of production of FSP was high at the time of making application, they had no
objection if for the purpose of SGD, the audited cost of production of FSP for the entire year 1997-98
was taken into consideration as this was the actual cost of production for the entire year.
24.    The import figures shown in the application were not complete as the import figures of ICD
Delhi and Kandla were not included.
25.    Though they had demanded different SGD for MPL and SORL because of different equity
levels to take care the interest of shareholders weighted average SGD may be recommended which
will simplify the operation.
26.     The  industry grew at a phenomenal rate in spite of high cost of chemicals, high customs tariff
and high excise duty on PU products during the period 1993-97.  The growth was substantial during
the years 1994-95 and 1995-96 inspite of very high international prices of Polyol  i.e., US$1,850 PMT
(Re 81 per kg. in India) and TDI  at the rate of US$2,800 PMT. Currently Polyol is selling at the rate
of US$980 PMT (Re 61 per kg. in India) and TDI at the rate of US$1,700 PMT (Re 100 per kg. in
India).  If PU industry can grow at such a hectic pace with such high costs and heavy tax and dutystructure, why the industry is not able to grow today.
27.     Earlier the price of PU foam was Re 250/- per kg. which has come down to the level of
Re 150/- per kg.  The prices are coming down because of excess production and probably competition
among various foamers to expand the market and not because the market is not able to absorb thealready low cost.  The industry and market did absorb much higher cost of inputs before.
28.     The production of Polyols was disrupted during April 1993 because of fire accident in MRL.
Hence MPL implemented import facility for Propylene  at Cuddalore.  Since then Polyol was not in
short supply from the company at any point of time and supply tap was never closed and that too toM/s Sheela group.
29.      As regards foamers observation of the processability of Polyols, it is true that Hetro Polyols
are easy to process as compared to Homo Polyols earlier used by the foamers because of Ethylene
Oxide (EO) content and slightly less requirement of certain catalysts.  They were selling Hetro
Polyols since 1992 and 35 per cent of the quantity produced was of Hetro grade.
30.     For foamers price was the key issue and a precursor for their purchase decision because when
the price of indigenous Polyol was about 5-6 rupees more from December 96 onwards the marked
tapered off completely.  The quantity off take by various business groups came down dramatically
and imports grew up in leaps and bounds.  Even discussions in June 1997 offering very special prices
did not increase the off take.
31.     The issues regarding Propylene prices reduction and 4 per cent Special Additional Duty are in
the period subsequent to filing of application.  4 per cent SAD is of no real help to MPL/SORL since
most  of the Polyols are currently imported under the DEPB scheme.  Moreover, imports can be made
through a  trader who is based at a place like Daman or Pondicherry where sales tax is either low ornot attracted at all.
32.    They have produced enough documents in support of the capacity of the plants and they have
adequate capacity of P0 plant and Polyol plant to meet the entire demand of the country.
33.    The minimum economic capacity for this industry prior to 1989 was 12,000 MT PO/Polyol
plants and there was no specific mention for the Polyol plant alone.  After ease of the licensing
procedure, they were now registered  for a capacity of 25,000 MT of PO, 12,000 MT of PG and
25,000 MT of  Polyol.  However, capacity available with them now are as under :-G/SG/N/8/IND/5
Page 8
 
 MPL (MT) SORL  (MT)
  
Propylene Oxide 15,000 15,000
 Propylene Glycol   7,815   7,500
 Polyol 10,000   8,000
34. Regarding allegation of monopoly, wrong market practice and distortion of prices, they
submitted that inspite of both MPL and SORL belonging to the same group, they had completely lost
the market and their market share came down to 40 per cent.  Large buyers had reduced their market
share from 100 per cent to 7 per cent.  If they could manipulate the price and distort the market, they
should have made profit instead of incurring cash losses.
35.    Regarding the observations that if the plants set up in Chinese Taipei, Thailand and China on
MPL/SORL technology can be competitive in a less tariff environment, why not in India?
MPL/SORL have submitted that Propylene prices, cost of liabilities, local taxes and duties were much
higher in India than those countries.  Moreover, plants at those places are operated as part of a largerpetrochemical complex and receive utilities and raw materials at only conversion rates.
36. Shell has pointed out that products from Singa pore can land in Mumbai within 10 days and in
Delhi within 15 days which contradicts the claim made by M/s DOW that the voyage time is 45 days.
37. The users may be asked to produce evidence regarding their refusal to accept the credit period
or taking a Dollar cover.
III. VIEWS OF USERS/IMPORTERS
The importers/users of FSP have made the following main points:-
1. Quality of FSP manufactured by MPL and SORL was not upto the international standards.2. After purchase of UB Petro by SPIC group and renaming as SORL, both MPL and SORL
have come under the same umbrella and have adopted a monopolistic attitude. Their terms and
conditions were arbitrarily changed and they had withdrawn the trade discounts which were earlieroffered. The prices were also changed without assigning any reason.
3. Polyurethane foam manufacturers have suffered serious losses due to defective Polyol
supplied by domestic producers who  have behaved in a most irresponsible way in rejecting the
quality complaints and  demanded the bill amounts with threat of cutting off supplies altogether fromboth the enterprises. Domestic producers have been totally disregarding quality complaints and refuse
to meet the complaints technically or otherwise. An established enterprise cannot face the situation
where the two domestic manufacturers, who are now  held by the same group, refuse to supply
materials and hold the industry to ransom. Therefore, polyurethane manufacturers had to establish
sources from foreign suppliers even though the prices of imported material is slightly more expensivethan the indigenous price. They have chosen to import some quantities of FSP on  better terms and
assured quality supply.
4. The domestic producers could not even depreciate their plants during the last eight years of
their coming into existence how they would be ab le to turn around the operations in short period of
two years of demanded SGD. Both the units being managed by the same group, different SGD have
been demanded which reflects on the management efficiency of the units.G/SG/N/8/IND/5
Page 9
5. The international producers provide excellent services and latest technology to the industry.
Interest rates offered by them were in line with Libor rates monitored by the RBI. The credit of
90/120 days was in vogue for the last over 15/20 years even before MPL and SORL started
production.
6. One major area of constraint was the uncertain supplies from the domestic producers which
affected their production. They did not have any problem of that kind in case of imported Polyol in
spite of cumbersome import formalities involved. Because of better quality of imported FSP, the
quality of polyurethane foam manufactured was superior.
7. The Polyol manufactured by the domestic producers was Homo-Polyol, requiring far greater
quantities of catalyst levels for foam production which are expensive. Browning of the centre of thefoam blocks takes place due to inappropriate level of anti-scorching agents provided in the local
Polyol. The two companies, though owned by the same group utilize different technologies for
manufacturing Polyol which require changes in the formulation. As the marketing set up is the same
when they placed an order, they had no control over which material would be supplied.
8. Price was not the consideration for imports since even today the prices of imported Polyol
were higher than the indigenous Polyol.  The Po lyol manufacturers all over the world provided
adequate technical assistance for polyurethane foam industry. In case of difficulties in manufacturing,
they could refer to the information and experience available with the raw material manufacturers.
Frequently highly qualified technical representatives visited their production units to guide them outof difficulties. No such technical assistance was available from domestic manufacturers.  Nor they had
any adequate R&D facilities to correctly evaluate the product or even to do test production.
9. The production capacity figures given by the domestic producers appear to be incorrect and
misleading. This is probably for all types of Polyols and not for FSP alone. The present capacity istotally inadequate to meet the present requirement in the Indian market.
10. The reason for higher prices of indigenous Po lyol is because of high price of their raw
material i.e. propylene which is monopoly of Publ ic Sector Refineries. The domestic producers have
failed in their planning to procure cheap raw material from international manufacturers by creating
facilities in the ports.
11. Specialty Polyols are not available with domestic producers.
12. The cost of production of the domestic producers is higher than the international producers
because of the size of the units.
13. Polyurethane industry is facing a very tough competition from the rubberised coir
manufacturers and several small scale rubber foam manufacturers who are enjoying both excise
exemption as well as sales tax exemption in many states. Imposition of SGD on FSP would be
detrimental to the industry.
14. They were totally wedded to the idea of consuming local inputs rather than importing and
were even prepared to pay a couple of rupees to avoid import hassles. This was possible provided the
quality and supplies were assured.
15.      In addition some of the  users/importers have made the following additional points :-G/SG/N/8/IND/5
Page 10
(a) M/s. Sheela Foam Pvt. Ltd.
(i) Imposition of SGD on FSP would cause serious injury to PU Foam Industry as it
would increase the cost of production and lead to a monopolistic pattern which will
be harmful not only to PU i ndustry but also to MPL/SORL.
(ii) Consumption of PU foam was very low in India as compared to other like products
i.e. coir foam and and rubber foam because of high taxes and duties livable on PU
Foam compared to nations like China, India consumes only 1/20th level of PU foam
on a per capita basis.
(iii) Selling prices of PU Foam were below the cost prices.  Like any other consumer
durable, the prices of PU Foam and its products have fallen in the last couple of
years.
(iv) In the Budget for the year 1998-99, 5 per cent  Central Excise duty was imposed on
coir foam which was withdrawn after a short period.
(v) There is no need of any SGD since pr ices of propylene have declined from
Re 24,000/- PMT to Re 15,000/- PMT, 4 per cent SAD has been imposed on imports
and exchange rate of US$ has gone up from Re 37/- per US$ to Re 43/- per US$.
(vi) It is in their interest that a local supplier is present as the problems of import and
currency fluctuations are reduced greatly.  There was no guarantee of supplies of FSP
from MPL/SORL and they shall also continue to import.
(vii) Processing of local FSP was a difficult j ob as compared to standard imported FSP.
(b) M/s. G.J. Foam
(i) There  is difference in the quality of domestic FSP and imported FSP.
(ii) Different quality of foam is produced from different batches of indigenous FSP.
Quality of indigenous FSP is not consistent .
(iii) They felt difficulties in processing indigenous FSP, more so in bigger plants.
(iv) PU foam is importable but not  virtually imported.
(v) Now prices of propylene have gone down.
(c) M/s. U Foam Pvt. Ltd.
(i) They have suffered incalculable losses due to bad quality of Polyol supplied by UB
Petro with no control for internal scorch and irregular balancing of catalyst which is
normally available for  any standard Polyol supplier.
(ii) MPL/SORL have very large outstanding from the market and that too from a handful
of inter related companies who have managed to run up huge outstandings and arestill being favoured with supplies and special credit facilities on supplies.G/SG/N/8/IND/5
Page 11
(iii) Import of polyols from international companies must continue and the local
companies have to fight the competition with better efficiency and cash management
and not burden the industry with additional levies.
(d) M/s Tirupati Foam Ltd.
(i) Increase in raw material price will affect prices of finished product and PU Foam will
become uncompetitive to like products because of high duties and taxes leviable on
PU Foam.
(ii) There had been considerable growth of Foam industry during the last 4-5 years.
Increase in prices of raw material would be harmful for this growth.
(iii) They purchased 90 per cent of their requirement of FSP from MPL/SORL.  They
experienced batch to batch variation in the Polyol quality which affects the
production of continuous machine.
(iv) Imports have increased because of reduction in duties.
(v) MPL/SORL are already receiving several advantages such as competitive raw
material prices, increased duty protection etc.
(e) M/s. Bharat Foam Udyog Pvt. Ltd.
(i) P.U. Foam industry should not be subjected to duty on raw material
(f) M/s. M H Polymers
(i) PU foam is reserved for SSI sector and increase in prices cannot be afforded.
(ii) SSI exemption is not applicable to PU foam under Central Excise Act.
(iii) They encounter several problems in processing the local Polyol as quality was not up
to international standard.
(iv) Imposition of SGD will increase cost of PU Foam and because of being
uncompetitive they shall be forced to curtail production resulting in unemployment
and loss of revenue to Govt.
(v) Both the applicants are under one management and are monopoly producers.
(g) M/s. Jain & Jayna Foams Pvt. Ltd.
(i) Prior to 1991 when MPL and UB Petro started manufacturing  Polyols, they were
importing Polyol.  After 1991 they started purchasing the material from both the
companies on competitive prices since both being under different management
offered attractive schemes i.e. quantity discount, cash discount, annual target discount
and credit facility for 90 days.  This practice continued till 95-96 in spite of poor
quality material supplied by both the companies.
(ii) MPL and SORL are not able to supply Hetro polyols and their plea that they supplied
hetropolyol to those customers who want cont inuous  supply of  the same is wrong.G/SG/N/8/IND/5
Page 12
(iii) Indigenous industry was made viable on record only because of higher rates of import
duty.
(iv) After the purchase of UB Petro by MPL, they started dictating policies,
changed/withdrew all benefits and their sales promotion schemes because ofmonopolist attitude.  Imports started only from the last one and a half year.
(h) Polyurethane Association of India
(i) Polyurethane Association of India (PUAI) is registered as a Society to look after
various interests of Polyurethane Industries.  Polyurethane production in India has
made substantial progress and present production is in excess of 50,000 MT perannum.
(ii) PU / Slabstock Foam in India is reserved for small-scale sector by the Government of
India.  However, general exemption No: (1) (SSI Exemption) is not applicable under
the Excise Act.
(iii) The Slab Stock  Industry production levels were virtually stagnant from 1985 to 1992
at levels of 9,000 to 10,000 MT per annum.
(iv) PU Foam competes with Cotton, Rubber and Rubberised Coir in large segments of
the market.
(v) PU Foam was classified as a luxury item and both the raw materials as well as foam
were subjected to very heavy duties.
(vi) The usage of PU Foam in Mattresses and Pillows released scarce cotton for the export
sector.
(vii) PU Industry has been fighting  an uneven battle against products like Rubberized Coir
Foam which enjoys total exemption from excise duty.
(viii) There is stiff competition within the Industry and also substitute products and there is
an urgent need to maintain price of PU Foam to sustain the growth.
(ix) Imposition of Safeguard Duty will be detrimental to the Industry and will only help
the monopoly producer in the country, who would exploit a captive market.
(x) The applicants have failed to prove serious injury to the domestic industry.
(xi) The applicants are already enjoying benefits of 35 per cent customs duty.(xii) The post application developments like
(a) Reduction in Propylene prices
(b) Imposition of 4 per cent Special Additional Duty
(c) Appreciation of US$ by 18 per cent against the Indian Rupee has given
applicants additional competitive edge and further diluted their case forimposition of duty.G/SG/N/8/IND/5
Page 13
IV. VIEWS OF EXPORTERS/EXPORTING GOVERNMENTS
The exporters of FSP have made the following main points:-
(a) M/s Sealed Air (S) Pte. Ltd., Singapore
1. They were an interested party in the proceedings.2. They were producing and exporting to India Instapak Chemical B which has the same HS
Tariff category as Slabstock Polyol produced by domestic producers, but which is neither like nor
directly competitive with FSP.
3. Although both substances contain Polyol, Instapak Chemical B differs from FSP in the
following ways :-
(i)   Different molecular weight of Polyol.
(ii)  Different chemical additives.(iii) Unique reactivity with Instapak Chemical A.
4. Instapak Chemical B and FSP are not directly competitive articles because it has a unique end
use. It is used only to produce protective foam in-house to package items such as defence electronics,
avionics, computer peripherals, aircraft parts etc. and not for mattresses or flexible slabstock.
5. There is no causal link between exports of  Instapak Chemical B to India and any serious
injury or threat thereof to Indian producers of FSP.
6. Instapak Chemical B exported to India be ex cluded from the scope of safeguard measures.
(b) Asahi Glass Co. Ltd., Singapore
1.  The c.i.f. prices of FSP are as under :-
Year      Quantity (MT) c.i.f. price ($ per MT)
1995    151 1,474
1996    302 1,307
1997 1,192 1,141
2. Increase of import duty or implementation of SGD may not help domestic producers because
of the following reasons :-
(i) The installed capacity and actual output of domestic producers is not enough to meet
the growing demand.
(ii) The installed capacity and actual output is not big enough for economic scale of
operation resulting in high operating cost.
(iii) Quality and inconsistency in supply.
(iv) Inability to provide better credit terms/facilities to customers as compared to that of
foreign suppliers.G/SG/N/8/IND/5
Page 14
(c) Shell Companies in Singapore
1. Their capacity is 78,000 MT per annum. They service markets in all the Asia Pacific countries
and in the Middle East, Africa, Europe and America. Their sales into India in 1997 represented only
2.7 per cent of total FSP plant capacity i.e., they exported only 2,100 MT of  FSP to India.
2. Total consumption of Polyol in India was 25,000 MT against a capacity of 13,500 MT.
Import of FSP was, therefore, necessitated by domestic demand exceeding domestic supply.
3. Interest rates and credit periods offered by them were generally in accordance with US prime
rates and on 90 days credit basis.
4. Their sale policy was to offer the product to customers at prices consistent with local market
pricing levels and conditions. Shell India Pvt. Ltd. was a registered Indian company which provided
Shell with marketing assistance only. The allegation  that Shell was desperate to sell in India and had
started dropping the prices heavily in India was incorrect.
5. Their exports of FSP from Shell form only small portion of Indian FSP market which is
increasing with consumption growth.
6. Import duty in India was the highest. Local producers in other countries where import duties
were much lower were nonetheless able to sustain themselves in the face of larger import volumes ofFSP.  Per capita consumption of FSP in India was lowest and high import duty did not facilitate
consumption growth.
7. Due to appreciation of 12 per cent of US$ against Indian Rupee in 1997, imports have
become dearer in spite of duty reduction.
8. The total capacity of Polyols at MPL and SORL is 13,500 MT pa .The production at
80 per cent level is 10,800 MT pa. All India demand of Polyols is around 33,000 MT pa, out of which
a demand of FSP is 12,000 MT pa.  It is evident that imports of Polyols are necessitated by a shortfall
in domestic production.
9. The domestic consumption of Polyols in India is raising by an average of 10  per cent per
annum.  MPL/SORL having 30 persons in their R&D are working with Mitsui of Japan and several
other companies to develop PU systems and other Polyol grades and in the process neglected the
flexible slab/foam business.
10. MPL/SORL have supplied only 35  per cent of the FSP as Hetro-Polyols.  This supply from
their end is constrained and they cannot meet the market demand.  Shell Chemicals has supplied only
hetropolyol .
11. Supplies from Shell commenced only from middle of 1996 and they sold only hetro grade of
Polyols, which find application in flexible slab stock foam production.
12. MPL and SORL are a part of the same business group.  The levy of Safe Guard duty would be
contrary to the MRTP Act, 1969 as it would tantamount to encouraging a monopolist who would then
exploits his dominant position in the market to th e detriment of customers who would be at their
mercy to pay substantially high price for the product.
13. MPL and SORL can supply goods at short notice, where as in the case of imports, even with a
relative close imports source like Singapore, it takes about 45 to 60 days to complete the sales.G/SG/N/8/IND/5
Page 15
14. Imposition of Safeguard duty on FSP will force various foamers in to unhappy situation
because of their difficulty to compete against other substitutes.
15. Any imposition of duty will be passed on to the foamers and MPL/SORL will sell their entire
capacity to the foamers at completely one sided terms.
16. MPL/SORL have admitted that they took over UB Petrochemicals (renamed as SORL) to
prevent “Price undercutting” and to stabilize in other words to prevent competition and to monopolise.
17. The Safeguard duty provisions are not meant as a cover for improper cost management.18. MPL/SORL have failed to ensure contractual raw material arrangements to enable themselves
to be competitive so far availability of Propylene is concerned.
19. It seems that MPL/SORL even at present do not have any plans for expansion of the existing
units and import of 1,500 tons of Propylene was too large for them.  Their plans to import large
quantities of Propylene at competitive terms do not seem to be feasible, as globally such quantities areconsidered very small to supply.  They should resolve their supply issues with MRL rather than trying
to look for Propylene imports.
20. It has been learnt that this problem has now been sorted out and MPL/SORL will receive
substantial portion of their Propylene requirements from MRL at internationally competitive prices.The main stated cause of their request for Safeguard duty has thus disappeared.
21. Since October 1997 import duties have increased by about 9.5 per cent and there has been a
net drop of 19 per cent in the Indian Rupee value, which has made the imports expensive by about 30
per cent when compared to the period mentione d by MPL/SORL.  Thus redress sought through
Safeguard duty is no longer valid.
22. Protection afforded to MPL/SORL in India is far higher than anyone else in Asia Pacific
region.
23. Demand of two different Safeguard duties by MPL/SORL is contrary to the Provisions of
WTO agreement, Section 8B of the Customs Tariff Act of 1975 and the provisions of the Safeguardduty Rules of 1997.  The Rules provide for a uniform Safeguard duty on a non-discriminatory basis.
Safeguard duty is not meant for guaranteed returns to the share holders.
24. No public interest will be served by levy of Safeguard duty, which is an essential requirement
under WTO agreement on Safeguards.
25. All the Polyols supplied by Shell was on interest-bearing credit.  The interest in each and
every case was the prevailing US Prime Rate (in accordance with RBI regulations) which averages to
around 8 per cent per annum.  Credits start from the date of Bill of Lading, i.e. the date when the
material leaves the load  Port.  However, this appearance of cheap credit as objected to byMPL/SORL is deceptive because of the following two factors:
(a) Approximately 65 per cent of the  C.I.F. Value (customs duty plus CVD)of the good
is paid for at the time of customs clearance.  In case of our material, this is within 15
days of shipment.
(b) For the c.i.f. payment, to the supplier, there is always exchange rate risk for the
importer, i.e. by the time of c.i.f. payment is due the rupee/dollar rate may have
changed.  Importers either take the risk or take “forward cover” from the Banks.  TheG/SG/N/8/IND/5
Page 16
cost varies but an interest of 8 per cent p.a. would mean that the net cost of credit for
the c.i.f. portion is close to 16 per cent.
Shell Chemicals exports have been largely against Letters of Credit which have their
own costs of processing and more important locking up of  margin money (which variesbetween 25 and 100 per cent of c.i.f. value) at the time of opening of the L/C.  Given the time
taken for amendments and supply lead times, this margin money can get locked for an
average period of 45 days.  Needless to say this is additional working capital burden for the
customers.
26. The problems of MPL/SORL are permanent in  nature as their size is uneconomical .
(d) Dow Chemical Pacific (Singapore) Pte. Ltd.
1. They have only one agent in India namely Dow Chemical International Ltd., Mumbai and no
additional agents, sub-agents or distributors have been appointed for sale of  FSP in India.
2. MPL and SORL are owned by the same group who are the sole domestic suppliers of FSP.
They enjoy monopoly which enables them to dictate and manipulate the terms in the market at the
expense of the users. The decline in sales of  FSP as claimed by MPL/SORL is not as a result of
unfair competition from imported Polyol but rather through their product and market management
practices and non-competitive manufacturing capability.
3. Even in FSP, other than manufacturing Polyols of different molecular weights, depending
upon the use of Propylene Oxide (PO) or a combinatio n of the same with Ethylene Oxide (EO), it is
possible to make Homo Polyols (only PO) or Hetro Polyols (combination of EO/PO). It is pertinent to
note that majority of Polyols being imported is Hetro Polyol, while majority of that being produced byMPL/SORL is Homo Polyol. Flexible slabstock foamers generally prefer Hetro Polyols as it provides
better machine processability and optimum catalyst requirements as compared to Homo Polyols.
95 per cent of their sales are of Hetro Polyols.
4. The sales of FSP for 1994-95 is shown as 4,518 MT for MPL and 4,072 MT for SORL which
is factually incorrect and represent the total Polyether Polyol sales. The actual sales of FSP for the
year 1994-95 are 3,328 MT for MPL and 2,609 MT for SORL as mentioned in the summarystatement.
5. Lowering of duties from 65 per cent in 1994-95 to 32 per cent in 1996-97 has made imported
Hetro Polyols more affordable. There is no quantum jump in imports but a gradual increase in imports
based on increase in local demand which is increasing @ 10 per cent to 12 per cent per year as well assome shift to Hetro Polyol technology at the expense of Homo Polyol technology promoted by
MPL/SORL.
6. Major Polyol producers continuously improve product performance through investment in
Research & Development.
7. Increased sales of Polyols of MPL/SORL during the period July-Nov. 1997 indicate that
MPL/SORL have already been substantially ad vantaged by the depreciation of the Rupee by
10 per cent and the increase in import duty by 3 per cent.
8. Total demand of Polyols in India is 25,000 MT per year out of which 11,500 MT is required
by Flexible slabstock foamers i.e., for FSP. The domestic capacity of 13,500 MT for all Polyols is not
adequate.G/SG/N/8/IND/5
Page 17
9. They have estimated imports of 3,850 MT for the year 1997-98 (April-August) as against
2,514 MT by the applicants.
10. Reduction in import duty and increase in imports have not impacted the sales of FSP of
MPL/SORL till 1996-97.
11. Interest rates and credit period being offered to Indian customers are at US prime rate of
interest. Credit period offered by Dow for FSP is 90 days from the date of Bill of Lading out of which
40-45 days are lost in transit and clearing. The domestic suppliers also offer 30-45 days credit.
Moreover credit offered to buyers is only for c.i.f and not for other expenses like duties and handling
charges etc.
12. It is absurd for MPL/SORL to claim helplessness in procuring raw materials at competitive
prices as access to global markets is easily available.
13. Units set up by MPL/SORL are too small to fight plants of global size because small units
with high raw material cost have production cost ne arly two fold higher than world scale facilities.
14. Capacity utilisation figures provided by the applicant under Annexure VIII are confusing and
inconsistent with their published data and, therefore, needs a careful scrutiny.
15. The pricing trend of FSP in India has consistently been at par or higher than prices prevailing
in Pacific area. Hence allegation of dumping is baseless. Also the landed cost of Polyols has generally
been higher than domestically produced Polyols and customers have preferred to pay a premium for
imported Polyol to avail of the superior product and services.
16. Dow have also made some legal submissions that no serious injury is caused to the domestic
industry. There is no causal link between increased imports and injury and that levy of SGD will
encourage monopoly.
17.  Subsequent to the filing of their response, very significant changes had occurred both with
regard to the price of Propylene paid by the applicants to MRL as the Govt. of India has decontrolled
the prices of most petroleum products sold by the refineries, decline in imports on account of
depreciation of rupee by about 18 per cent vis-à-vis US dollar and imposition of  special additionalduty of customs by Finance (No:2) Bill, 1998 with  effect from 1 June 98.  The long outstanding
dispute between the applicants and MRL about Propylene prices has been satisfactorily resolved in
favour of the applicants.
18. Because of the changes mentioned above applicants have benefited by about US$497/pmt of
FSP as against the SGD of US$569 and US$233 sought by them.  All these three changes go to thevery root and basis of the application made by the applicants.  Since all the grievances of the
applicants have already been taken care of  due to the policy changes initiated by the Govt. and also
on account of macro economic factors, the application has become infractuous and deserves to be
rejected.
19. There is no quantum jump, but a gradual increase in the imports over a period of time.
20. Rate of import duty in India on Polyols is the highest in the entire Asia-Pacific Region and
hence the applicants already  have adequate duty protection.
21. The applicants be directed to produce documentary evidence to substantiate their claims that
their plants are designed for much higher capacity than what is disclosed by them.G/SG/N/8/IND/5
Page 18
22. Two different amounts of SGD sought by the applicants for two different legal entities (MPL
& SORL) on the basis of different amounts of equity  capital employed in the two Units is grossly
erroneous  and contrary to the Provisions of SGD Rules 1997.
23. SGD Rules 1997, provide that these are emergency measures to be used sparingly in rare
cases, where there is a great danger and irreparable injury due to massive increase in Imports which
may lead to over all impairment of the domestic industry.  In the present case, none of the three pre-
conditions spelt out in the SGD rules for invoking these emergency measures have been satisfied.
24. Applicants have failed to provide any objective evidence of the causal link between increased
imports and the alleged injury to the applicants.
25. Both the applicants are under the common ownership and are the monopoly producers of the
product in question.  It would be against the prov isions of MRTP Act, 1969 and Directive Principles
of  State Policy enshrined in Article 39 of the Constitution if Govt. of India levies a SGD as it would
eliminate competition from the market.
26. SGD sought by the applicants in US Dollars is not in consonance with the Provisions of
Section 8 B read with Rule 12 of the SGD Rule, 1997 and would also be contrary to the Provisions of
Foreign Exchange Regulations Act, 1973.
(e) M/s ARCO Chemical (Singapore) Pte. Ltd.
1. Prices offered to India are in line with the prices offered in Asia region and no special prices
are being offered to India.
2. The 35 per cent import duty in India is one of the highest in the region.3. India is one of the lowest FSP consumption country in the region. Indian market is large to
accommodate imported FSP and there is high potential to grow which would benefit both the
domestic producers and exporters provided the import tax is comparable to the other countries.
4. Global players like ARCO Chemical will provide latest product and technology to Indian
market provided the import duties are comparable to other countries.
5. Imposition of Safe Guard Duty will reduce the purchasing options available to the Indian
customers, since the applicants are the sole producers in India.
6. The applicants are already enjoying the benefits of duties exceeding 40 per cent level and
depreciating Rupee against US Dollars.
7. Imposition of Safeguard Duty would go against principle of maximum good to the maximum
people and hence should not be imposed .
(f) Bayer AG
1. The product exported by them are entirely different to the product under investigation and
they have not exported FSP during the period under investigation from Germany to India.
(i) Embassy of Japan
The safeguard measure serves an emergency measure for exceptional circumstances which
can only be implemented under strict requirements.  This is also evident from the fact that only 15G/SG/N/8/IND/5
Page 19
safeguards investigations have been initiated among all the WTO Members over the last three years
since the establishment of the WTO. Japan is gravely concerned about the situation in which the
Government of India has initiated as many as  5 safeguard investigations within 5 months.
V. FINDINGS OF THE DIRECTOR GENERAL
I have carefully gone through the case records and the replies filed by the domestic producers,
users/importers, exporters and exporting governments.  Submission made by various parties and the
issues arising therefrom are dealt with at appropriate places in the findings below.
1. Product Under Investigation
1. The product under investigation is Flexible Slabstock Polyol of molecular weight 3000-4000
(FSP) used in the manufacture of Slabstock Foams and Polyurethane Foam Mattresses..
2. FSP chemically is Polyether Polyol, a viscous, colourless liquid, manufactured through
propaxylation ethoxylation of polyhydric alcohol  (starters)  using liquid catalyst.  When a triol likeglycerin is used as starter and molecular weight is built upto 3000-4000, the resultant product is a
slabstock flexible grade Polyol.  Flexible Polyol is reacted with Toluene Di-Isocyanate (TDI) to
produce flexible slabstock polyurethane foam.  Small quantities of catalysts and surfactants are used
in the reaction mixture to form the polyurethane and to control the foam properties.  Foam of varying
densities between 10 and 40 kg./cu.M can be produced for use in varieties of applications like:-
(a) Seat cushions
(b) Polyurethane bedding
(c ) Carpet underlay
(d) Garments(e) Miscellaneous applications for various coverings, acoustics etc.
3. FSP is manufactured as homopolyol and hetropolyol.  Propylene Oxide (PO) based polyols
are referred to as homopolyols and those containing  Ethylene Oxide mix are known as hetropolyols.
Both homopolyols and hetropolyols are used inter changeably by the  foamers.
4. It has been claimed by some parties that some specialty polyols like Instapak  Chemical B and
Polyether Polyols for use in the manufacture of Rigid Foams for Refrigerator and Thermoware
Insulation, Structure Applications, Sprays etc. and for Flexible Moulded Foam for Automotive and
Motorcycle seating and Elastomers for footwear are not like or directly competing with flexible
slabstock polyols.  The main distinguishing feature is the molecular weight. The present investigation,
however, covers only Flexible Slabstock Polyol s having molecular weight between 3000 and 4000
and not others. Specialty Polyols are, therefore, not covered in the present investigation. For ease of
identification the list of competitive products of some of the known manufactures/exporters is given
below:-
Manufacturer Grades
MPL EMPEYOL F 3000/3002
SORL SORL F 3000/3010
BAYER DESMOPHEN 7186B
DOW VOROCOL 3010
ARCO 5613/5603G/SG/N/8/IND/5
Page 20
5. The above list is only indicative and in no way exhaustive or binding on the scope of the
present investigation.
6. FSP is classified under sub-heading No.3907.20 of the First Schedule to the Customs Tariff
Act 1975, and under 39072000 of the Indian Trade Classification based on the HarmonisedCommodity Description.  The above classification is indicated only for the purpose of convenience
and in no way restricts the scope of the coverage of the product under investigation i.e. Flexible
Slabstock Polyol of molecular weight between 3000-4000.
2. Domestic Industry
1. The application has been filed by Manali Petrochemicals Ltd., Chennai and SPIC Organics
Ltd., Chennai who are the only domestic producers of Flexible Slabstock Polyol accounting for the
total domestic production of Flexible Slabstock Polyol. It is, therefore, considered that the application
has been made by the domestic industry.
3. Increased Imports
1. FSP is imported into India from Germany, Japan, the Netherlands, Singapore, Thailand and
the United States.  FSP attracted import duty of 65 per cent in 1994-95, 40 per cent in 1995-96,
32 per cent in 1996-97 and 1997-98 up to September and  35 per cent from Oct. 1997.  The domestic
producers have stated that the imports of FSP during this period were 103 MT in 1994-95, 502 MT in1995-96, 1,020 MT in 1996-97 and 2,515 MT during the period April-August 1997.
2. The applicants have claimed the import figures  to be part data only as data of imports
through Kandla and ICD  Delhi are not available in public domain.  The actual imports, therefore, can
be more.  The Director General of Commercial Intelligence and Statistics (DGCIS) has compiled dataof ‘Other Polyethers’ under number 39072000 which includes import data of all Polyols.  The DGCIS
import data under number 39072000 are 1994-95 – 3,613 MT, 1995-96 – 5,120 MT, 1996-97 –
7,124 MT and 1997-98 (April-August) 4,998 MT.  Shell have stated that in 1996-97 they exported
2,100 MT of FSP to India.  Dow have estimated that the total imports into India were 1,800 MT in
1994-95, 2,700 MT in 1995-96, 3,350 MT in 1996-97 and 3,850 MT in April-August 1997.  The
estimate of Dow appears to be more reliable and these findings are, therefore, based on import figures
furnished by Dow.
3. The imports increased by 50 per cent in 1995-96 as compared to 1994-95, by 20 per cent in
1996-97 as compared to 1995-96 and by 175.8 per cent in April-August, 1997 as compared to 1996-
97 on a pro-rata basis. As compared to 1994-95, the imports have increased by 413.3 per cent on a
pro-rata basis in April-August, 1997. The domestic production of FSP during this period was5,762 MT in 1994-95, 6,831 MT in 1995-96, 7,050 MT in 1996-97 and 1,122 MT in April-
August 1997.  In comparative terms the imports were 31.2 per cent, 39.5 per cent, 47.5 per cent and
343.1 per cent of the domestic production in 1994-95, 1995-96, 1996-97 and 1997-98 (April-August).
Table 1 below gives the domestic production and import figures during the above period in absolute
and comparative terms:-G/SG/N/8/IND/5
Page 21
Table 1
Year Domestic production
MTImports MT Imports as percentage
of domestic production
1994-95 5,762 1,800 31.2
1995-96 6,831 2,700 39.5
1996-97 7,050 3,350 47.5
1997-98
(April-August)1,122 3,850 343.1
The imports have thus increased both absolutely as well as compared to domestic production.
4. Gap in Domestic Demand and Supply
1. It has been claimed that the domestic market of FSP is growing at the rate of 10-12 per cent
and that the domestic demand of FSP is about 11500 MT pa and that of Rigid/Moulded/Semi RigidPolyols 13,500 MT.  The total Polyol demand thus is 25,000 MT pa  whereas the domestic producers
can cater to only about 13,500 MT pa  and  there is a gap between domestic demand and supply which
the domestic producers can not meet.  Imports to meet this gap are necessary.
2. In this regard, it is observed that the apparent domestic consumption (domestic sales +
imports) of FSP during the last three years was 7,737 MT in 1994-95, 9,200 MT in 1995-96 and
10,483 MT in 1996-97.  In 1997-98 (April-August), the apparent consumption was 4,507 MT which
on pro-rata basis works out to about 10,817 MT pa for 1997-98.  The domestic production during
1994-95,  1995-96 and 1996-97  was 5,762 MT, 6,831 MT and 7,050 MT.  In 1997-98 (April-August)
the production, however, fell to 1,122 MT.
3. In their application, the domestic producers mentioned their installed capacity as 6,000 MT pa
for MPL  and 7,500 MT pa for SORL and  the tota l installed capacity as 13,500 MT pa.  With this
installed capacity, the domestic producers had sufficient production capacity to cater to the entire
domestic demand of FSP which has grown from 7,737 MT in 1994-95 to about 10,483 MT in 1996-97and about 10,813 MT for the entire 1997-98 (worked out on a pro-rata basis).  It may also be
mentioned here that the domestic producers have stated that they produce all grades of Polyols i.e.
FSP, Rigid Polyols etc. and that their current level of production of all grades taken together was
about 8,000 MT pa.  Out of about 8,000 MT pa, as mentioned above, FSP production was about
7,000 MT.  The production of other Polyols was, therefore, about 1,000 MT or about 12.5 per cent of
the total Polyol production.  The major proportion of domestic capacity was thus, being utilized for
the production of FSP.   Out of 13,500 MT pa capacity, therefore, they can devote about 11,500 MT,the estimated demand, for FSP.
4. The domestic producers have, however, claimed that they have a combined capacity of
18,000 MT pa, 10,000 MT pa for MPL and 8,000 MT pa for SORL.   This claim of the domestic
producers has been challenged by some parties and they have requested for examination ofdocumentary evidence in this regard.  The domestic producers have explained that the plant when
built in 1989-90 was designed to produce 7,500 MT pa in MPL even though the licensed capacity was
6,000 MT pa.  They have produced documentary evidence in this regard on confidential basis.  The
MPL plant during the guarantee run recorded a production of 136 per cent i.e. more than  7,500 MT
pa.  They have further stated that subsequent to the first year of operation, they have stepped up theplant capacity by removing the bottlenecks and the on-stream efficiency of the plants indicates that
the capacity of the plants are around 10,000 MT pa at MPL and 8,500 MT pa at SORL.  They have
estimated that their share in rigid system and cold cure systems are not expected to be beyondG/SG/N/8/IND/5
Page 22
4,000 MT in the next two years, which leaves them  with comfortable production levels to meet the
demand of FSP.  The domestic producers have also stated that the PO plant capacity as per the design
and as verified in the guarantee performance test is 15,000 MT pa each.  The supporting utility plants
like boiler, nitrogen, cooling tower, raw and finished  product storage, waste water treatment plant and
the expensive cross-country pipe line to pump the effluent into the Sea 6 to 7 kms.  away, are of muchhigher capacity and can support another PO plant comfortably.  The capacity utilization of the PO
plant presently is at 8,900-10,000 MT pa only and production can easily be stepped-up to guaranteed
capacity of 15,000 MT pa if only sufficient markets are available to cater to.  It can also be stepped up
further in a short span of time with marginal invest ment with attractive investment to turn over ratio,
if the opportunity is afforded for the company to expand and run the plant at higher plant load factor
and meet the demand for the country.
5. They have also stated that the application was made on the original registered capacity as per
the SIA documents and as appearing in the Balance Sheets but the capacities of the plants are much
higher as per the design and as per the guarantee test runs conducted.
6. It is important to mention here that in 1995-96, the domestic producers carried on an
inventory of 402 MT and in 1996-97 the inventory level was 373 MT.  In the first five months of
1997-98 (April-August), however, they were sadd led with an inventory of 846 MT i.e. about
75 per cent of the quantity of 1,122 MT produced by them with a capacity utilization of about
19.9 per cent.
7. It is observed that the domestic producers manufacture both ‘homopolyols’ and ‘hetropolyols’
and they are supplying hetropolyols to their customers.  Grade F-3002 in the case of MPL and grade
F-3010 in the case of SORL are hetropolyols.  The companies had, however, first introduced
homopolyols which is based only on Propylene Oxide, based on the advice of their collaborators and
also partly due to the very tight availability situation of Ethylene Oxide.  In 1992, they introducedhetropolyol.  However, with a view to conserve EO  for strategically important cold cure products,
they sold hetropolyols to those customers alone who wanted only this particular grade and supplied
homopolyols to customers who wanted continuous repeat supply of any one grade consistently
without change.  The domestic producers have, submitted that hetropolyols are easy to process
because of Ethylene Oxide content and require certain catalysts slightly less.  Ethylene Oxide now is
not in short supply after 1993 and they are meeting with the ordered quantity of hetropolyols.
35 per cent of the quantity produced by them is hetropolyols.  Currently they have the capacity andcapability to meet the entire demand, if the buyers  so desired.
8. No ground, therefore, exists to hold that the domestic producers did not have capacity
adequate to meet the domestic demand of FSP or to hold that the imports were necessitated because
the domestic producers were not in a position to cater to the domestic demand of FSP.
5. Inefficiency  of Domestic Producers
1. It has been stated that domestic producers failed  to enter into long term binding with MRL for
supply of Propylene and they are attempting to penalize the Indian customers for their own mistakes.Further, it is no great wisdom that for any business and particularly for petrochemical plants, it
devolves on the management and directors of the company to ensure that they have contractual raw
material arrangements in place which enables them to be competitive.  MPL/SORL have failed to do
this.  They decided to go ahead with investment of MPL willing to take a gamble.  Not only that, MPL
went one step further when they took over UB Petrochemicals (SORL) even after the liberalisationprocess had started.
2. In this regard, it is observed that the domestic producers obtain propylene, the principal raw
material used in the manufacture of FSP, mainly from the Madras Refineries Ltd. (MRL)  and someG/SG/N/8/IND/5
Page 23
quantities are imported. Both MPL and SORL have  entered into 10 year long term contract for supply
of Propylene with MRL and they have produced c opy of the agreements entered into by them with
MRL on a confidential basis.  Propylene is separated from LPG. The contract is based on the price of
LPG with addition of notional processing cost to make up the price of Propylene.  LPG prices were
controlled by the Government of India and deci ded month-wise since September 1993 and the prices
of Propylene followed the LPG price trend.
3. In this context it is also observed that at the material time the import duty on propylene was
quite high making it difficult for any one to conceive the project on the basis of imported propylene.
The import duty on propylene was brought down  in March 1993.  At the same time a fire accident in
MRL in 1993 forced the domestic producers to conceive a make shift propylene importation terminal
at the port  of Cuddalore as the major ports at Chennai, Mumbai and Tuticorin did not have facilityand interest in creating one because of the congestion and lack of space within the port area to
accommodate the hazardous  cargo shipment.
4. It is, therefore, not correct to say that the domestic producers failed to enter into long term
binding with MRL for supply of propylene or th at they are attempting to penalize the Indian
customers for their own mistakes.
5. Another issue that has been highlighted in  the context of inefficiency of the domestic
producers is the size of their Propylene Oxide (PO)  manufacturing capacity which allegedly did not
allow production of PO at economically viable rate  and the high prices of raw materials which has
increased their cost of production.
6. In this regard it is observed that the PO plant ca pacity as per the design and as verified in the
guarantee performance test is 15,000 MT pa each whereas the capacity utilization of the PO plants is
around 8,900-10,000 MT pa only.  It can not be expected that the domestic producers should have set-up plant capacities far in excess of what is necessary to meet the demand.  The domestic producers
have also submitted that because of the high cost of investment in POSM route and POTBA route, the
technology adopted by them is ideally suited for medium capacity plants and Technip along with
MPL have proposed now to construct plants in Ch ina, Thailand and Chinese Taipei with MPL as the
model.  The Chinese plant will also include Polyol plant based on the design of SORL.  A team from
Chinese Taipei and China has visited them twice last year and once this year to finalize the design
specifications.
7. Besides, it needs, to be appreciated that the basic objective of imposition of Safeguard Duty is
to allow time to domestic industry to make positive adjustment to meet with the new situation of
competition offered by the increased imports.  If the domestic industry was fully efficient and
competitive, perhaps it needed no safeguard measures for protection.  The question that needs to beanswered in the context of desirability of imposing Safeguard Duty is whether there is a reasonable
possibility of domestic industry making positive adjustment and to become competitive.  If the answer
is in the affirmative the domestic industry needs to be protected.
6. Quality and Technical Support
1. Some of the parties have stated that the quality of domestic FSP was not up to the mark and
that the imported FSP was of better quality and the overseas suppliers were providing them with
excellent services and latest technology.  Besides the Polyol manufactured by the domestic producers
was homopolyol, requiring far greater quantities of catalyst levels for foam production which areexpensive.  Browning of the centre of foam blocks takes place due to inappropriate level of anti-
scorching agents provided in the domestic Polyol .  The two companies, though owned by the same
group utilize different technologies for manufacturing Polyol which require changes in theG/SG/N/8/IND/5
Page 24
formulation.  As the marketing set up is the same when they placed an order, they had no control over
which material would be supplied.
2. In this regard it is observed   that both MPL and SORL are ISO 9001 and ISO 9002 accredited
companies respectively.  They have claimed that their product conforms to international standards setfor its category.  They have also submitted that as a part of ISO accreditation they regularly collect
feedback from their customers.  A copy of characteristics of MPL and imported product has also been
produced by the applicants on confidential basis which shows that their product is fully comparable
with the imported FSP. The domestic producers have stat ed that they follow statistical quality control
procedures to monitor the major quality parameters and records reveal conformity to design norms as
achieved by other international producers.  They have a full fledged application laboratory and quality
control facility recognized by the Department of Scientific  and Industrial Research (DSIR) under theMinistry of Science and Technology.  They  also have laboratory facilities of their sister company
Tamilnadu Petroproducts Ltd. (TPL) and also the sophisticated laboratory of SPIC Science
Foundation in Chennai.  The quality of the product, the basic parameters of molecular weight
distribution, colour, hydroxyl number and other major parameters are tested there as per the standard
test methods.  Excepting for certain special tests recommended by their collaborators, rest of the testsare as per ASTM standards.  They have also  submitted documentary evidence in this regard.
3. The domestic producers have further stated that they have completed development  of CFC
free formulations and have already commenced commercial production, which has been approved by
almost all major manufactures.  The Polyether Polyols developed by them for use in flexible marketand specialty Polyols developed to strengthen and open the cells of the foam have been appreciated by
a Japanese team from Mitsui, which has contributed to the Indian  PU industry much more than was
done by others before.  They have also stated that they carry out collaborative studies and joint
Programmes with other international laboratories and product developed in their laboratory fared
better and received approval in comparison to other international products.
4. The domestic producers have further stated that their technical staff fine-tuned the
formulations when the products were introduced in the market at the customers’ places and thereafter
visited the customers’ places whenever specific help was sought.
5. As per ISO 9000 procedures, they keep on receiving feed back from customers and ensure
total customer satisfaction and continuously improve upon them.  They have also submitteddocumentary evidence in this regard.  They have further submitted that they have more than 50 small
and medium customers of FSP who are totally dependent upon them for the product as well as the
technical support service, as their requirement is in small quantities of about 100 kg. to 5 MT per
month.  Most of the multinational companies are no t interested in catering to their requirements.
6. It is also observed that the foam production process is an intricate process and the quality of
foam produced depends upon various parameters, quality of FSP is one of them.  Primarily, however,
it depends upon the quality of machine used by the foamers.  Some of the users have referred to
quality complaints made by them during 1995 and 1996 or earlier.  They have also submitted copies
of correspondence entered into by them claiming compensation for poor quality of material.  It is,however, observed that these complaints are pertaining to 1995-96 or earlier period and not for the
current period.  The domestic producers have in this regard stated that after the companies came under
the same group, foam producers lost their leverage to put one company against the other and extricate
the maximum concessions.  They, therefore, used the quality problems as the tool to meet this end.
Almost all these complaints were dubious.
7. The domestic producers have submitted that in certain cases when analysed the problems
could perhaps be isolated to temperature of the chemicals at which it has to be stored during foaming,
wrong formulations, bad machinery or other problem which is not attributable to quality ofG/SG/N/8/IND/5
Page 25
MPL/SORL product.  They, however, in view of the continuous business relationship and with a view
to preserve and nurture the customer relationship, accepted certain of the claims, with the full
knowledge that the claims were not tenable on any grounds.
8. As regards the variation of batch to batch quality, the domestic producers have stated that
Polyol produced from the plant is pumped into a 225 MT capacity storage tank in MPL and 80 MT
tank in SORL and then it is homogenised before packing in drums.  Hence it is unlikely that drum to
drum variations or batch to batch variations can ever be noted.
9. In this regard, it is pertinent to observe th at some of the buyers of MPL and SORL who were
subjected to verification by the team of officers had outstanding amounts to pay to  MPL/SORL and
they did not have any evidence to show that they ha d rejected or returned any material to MPL/SORL.
Similarly the Central Excise records of MPL and SORL did not show that they had received any
material back from their buyers except 1.35 MT of FSP by SORL in the last three years.  Besides,
even the major foam producers did not have FSP testing facilities at their premises.  Sheela Foam and
Bharat Foam who alongwith their sister concerns held about 45 per cent of market share of Slabstock
Foam and PU Foam mattresses did not have such testing facilities.  On demand, nocorrespondence/evidence was produced by them regarding rejection of FSP procured by them from
MPL/SORL.
10. In view of the foregoing discussion, it is considered that the quality and technical support
service provided by MPL/SORL were not the cause of increased imports.
7. Monopoly Status of Domestic Producers
1. Some of the parties have argued that both the applicants i.e. MPL and SORL are under
common ownership and are the monopoly producers.  Imposition of Safeguard Duty would, therefore,
be against the provisions of MRTP Act, 1969 and the Directive Principals of State Policy as enshrined
in Article 39 of the Constitution, which contemplate that the operation of the economic system should
not result in the concentration of economic power to the common detriment.
2. In this regard, it is observed that the MRTP Act, 1969 is based on the principle of abuse and
not prohibition.  In other words, the Act does not declare any monopoly to be illegal ipso facto  but it
endeavours to strike a balance between the injury caused as a result of monopolistic or restrictivetrade practices and the reasonableness thereof in the context of benefits accruing thereby.
3. MPL and SORL started their production in around 1990.  Both the companies belong to SPIC
group having common management and operating Propylene Oxide,  Propylene Glycol and Polyol
plants.  ‘TIDCO’ the Tamilnadu State Government Industrial Development Corporation is the Jointpromoter of SORL.  Alt hough both MPL and SORL belong to the same group of companies, they are
two individual legal entities.   UBPPL was taken over by the SPIC group in around August, 1994 and
renamed SORL.  The applicants have claimed that af ter take over of UBPPL, they have maintained a
consistent and transparent pricing policy making available the product at almost the same price to all
the buyers in India.
4. The domestic user industry has grown with MP L and SORL who have catered to the domestic
market for the last 7-8 years.  The exporters/importers have in no way provided any evidence of injury
caused to the domestic users of FSP by MPL and SORL.  They have done nothing else except stating
that MPL and SORL together control a major share of domestic market.  On the contrary as admittedby the Polyurethane  Association of India, the sl abstock Industry production was virtually stagnant at
the level of 9,000-10,000 MT pa during 1985-1992, which has now grown to more than 50,000 MT pa
i.e. after the advent of MPL and take over of SORL by the SPIC group the domestic industry made
appreciable growth.G/SG/N/8/IND/5
Page 26
5. The domestic producers have categorically stated that they have maintained a consistent and
transparent pricing  policy. Between 1991 and 19 94 both MPL and SORL had outstanding amounts in
excess of four months from the market and they were suffering to stabilize the price because of over
production and a smaller market in the country during that period.  Credit periods ballooned when thecompanies tried to enlarge their market share. In July-October 1995 when the prices of petroleum
products were ruling high and imported FSP landed at a price of over Re 100 per kg., they did not
raise the price indiscriminately and leveled it once it reached the satisfactory level of about Re 78 per
kg.  The price of the product was known to all customers in the market and no special discounts were
offered for quantity uplifted and all the customers were more or less treated at par and that they never
resorted to any manipulation or bias at the market  place.  They, however, offered a prompt payment
discount of Re 2.5 per kg. if the payment was made on the 45
th day without delay.
6. It is appropriate here to observe that the domestic producers have a total capacity of about
18,000 MT of FSP as compared to substantially larger  capacities of exporters.  The imports of FSP are
allowed into India without any restrictions.  An y one who so desired could import FSP or meet his
requirement domestically.  In the light of unrestricted imports, it is not correct to presume that thedomestic producers enjoyed any monopoly - specially in view of the fact that the imports of FSP into
India have increased during the period 1994-95 to 1997-98 (April-August)drastically accounting for
about 25-30 per cent of the apparent consumption.  The law also does not require the interests of a
single producer or of two companies belonging to the same group, not to be protected on that ground
alone even if they deserved to be rightfully protected.
7. It is observed that Safeguard Duty is aimed not at encouraging monopolistic practices.  It is
specifically targeted at protecting the interest of domestic producers if increased imports cause or
threaten to cause serious injury to them so as to  allow them time to make positive adjustment to meet
with the new situation of competition offered by the increased imports.  Safeguard duty is a temporarymeasure imposed only to the extent adequate to re move the injury.  Besides, the Customs Tariff Act
1975 which empowers the Central Government to impose Safeguard Duty is an Act of the Parliament
having the same force of law as the MRTP Act, 1969.  Imposition of Safeguard Duty in cases meeting
with the requirements set forth in this regard is, therefore, not in violation of the provisions of the
MRTP Act, 1969 or the Directive Principle of the  State Policy as enshrined in the Constitution of
India.
8. Public Interest
1. Some of the parties have argued that imposition of Safeguard Duty would not serve any
public interest.  On the contrary imposition of safeguard duty would severely prejudice the public
interest as a number of end user industry may close down.
2. In this regard it is observed that the domestic producers have specifically stated that they have
made sincere efforts to ensure that the end-user industry grows.  They co-founded  the Polyurethane
Association of India and have submitted a list of tiny and small buyers who were serviced mainly by
them and whose requirements of FSP were only about 100 kg. to 5 MT per month.
3. It is further 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 FSP in the hands of buyers and, therefore, it may also effect the endproducts 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,G/SG/N/8/IND/5
Page 27
would, therefore, not only minimize the adverse effect, if any, for the customers but also allow them a
wider choice to source their requirements, and at competitive prices.  The domestic producers who
have set up plants with huge public investments provide employment to a large number of people and
make valuable contribution to the national economy.  Safeguard Duty which would enable the
domestic producers to survive in the face of competition offered by the  increased imports will,therefore, be in the long term interest of the buyers of FSP as well as of the buyers of products
manufactured therefrom.  It is, therefore, considered that imposition of Safeguard Duty on FSP will be
in public interest
9. Other Issues
1. It has been argued by some of the parties that import duty on FSP in India is the highest in the
region.  This argument, however, is considered to be irrelevant in the context of safeguard duty as the
level of import duty on a particular product depends upon various factors some of which are level of
import duties on comparable and competitive products and on inputs, the need to raise revenue and
the disadvantages suffered by the domestic producers vis-à-vis international producers etc.  Each
country, therefore, decides the level of import duties according to its needs, which cannot be viewedas a reference point for others.
2. It has also been submitted that safeguard measure serves an emergency measures for
exceptional circumstances which can only be implemented under strict requirements and that India
has initiated five investigations within 5 months out of 15 investigations initiated during the last threeyears.
3. In this regard it is observed that the present safeguard investigation has been initiated in
accordance with the domestic Safeguard law which reflects the WTO provisions on the subject.
Article XIX of the General Agreement on Tariffs and Trade (GATT) deals with Emergency Action onImports of Particular Products and the Agreement on Safeguard (AOS) clarifies and reinforces the
disciplines of GATT 1994 and specially those of its Article XIX. Article 2 of AOS deals with
conditions necessary for imposition of safeguard measures and stipulates that if increased imports,
absolute or relative to domestic production, cause or threaten to cause serious injury to domestic
producers that produces like or directly competitive products, a safeguard measure can be applied.
Since the investigation in the present case has been in itiated in accordance with the provisions of the
Indian Safeguard law which reflect the relevant WTO provisions, it is considered that therequirements in this regard have been fully met with.
4. It has also been submitted that the domestic producers have claimed different amounts of
safeguard duty for the two units and that the safeguard duty can not be imposed to ensure guaranteed
returns on equity capital.
5. In this regard it is observed that the domestic producers had initially requested for two
different amounts of safeguard duty for the two companies based on their calculation of a fair sales
realization for the two companies separately.  They have, however, subsequently requested for a
uniform safeguard duty worked out on weighted average basis for the two companies, who are theonly producers of the product.
6. As far as return on equity capital is concerned, it is observed that under rule 8 of the Customs
Tariff (identification and Assessment of Safeguard Duty) Rules, 1997, profits and losses of domestic
industry is one of the factors which is required specifically to be evaluated to determine whetherincreased imports have caused or threatened to cause serious injury to the domestic industry.  Return
on equity capital is one of the reflections of the profits or losses made by the companies and,
therefore, relevant for the determination of existence of serious injury to the domestic industry.  Since
the safeguard duty is intended to redress or prevent the serious injury caused to the domestic industryG/SG/N/8/IND/5
Page 28
by increased imports, there appears to be nothing wrong in the domestic producers taking into
consideration a reasonable return on the equity capital while seeking the amount of safeguard duty
that would be adequate to remove or prevent the serious injury to them.
10. Serious Injury
1. An analysis of various factors indicates that the domestic industry has suffered a significant
overall impairment as discussed below:
(a) Production.  The domestic production of Flexible Slabstock Polyol which increased
from 5,762 MT  in 1994-95 to 6,831 MT in 1995-96 and 7,050 MT in 1996-97 has
drastically fallen down to 1,122 MT in the first five months of 1997-98 showing adecline of 61.8 per cent in production as compared to 1996-97 on pro-rata basis.
(b) Sales.  The domestic Sales of Flexible Slabstock Polyol which reached a peak of
7,133 MT in 1996-97 from 5,937 MT in 1994-95 and 6,500 MT in 1995-96 have
gone down to 657 MT  in the first five months of 1997-98 i.e. sales have fallen by77.9 per cent in the first five months of 1997-98 as compared to the sales of 1996-97
on pro-rata basis. The domestic producers lost their share in apparent consumption
from 76.7 per cent in 1994-95 to 70.7 per cent  in 1995-96, 68.1 per cent in 1996-97
and to mere 14.6 per cent in April-August 1997 i.e. the domestic producers lost their
market share by 365.8 per cent as compared to 1996-97. The applicants have beenable to maintain this reduced share in the domestic market only at a reduced average
selling price which has fallen down from Re 81,331 per MT to Re 74,800 per MT
(inclusive of Central Excise duty) in the corresponding period.
(c ) Stocks.  Even at drastically reduced level of production, the stocks have accumulated
to 846 MT at the end of August, 1997 as compared to 373 MT at the end of
March 1997.  The stocks thus have piled up to 226.8 per cent of the stocks in 1996-
97.
(d) Capacity utilization.  Keeping in line with the production, the capacity utilization by
the domestic producers has also come down drastically in 1997-98 (April-August) as
compared to 1996-97.
(e) Loss of profit.  The average sales realization of both the companies has declined over
the years as a result of reduction in the average sales price. The domestic producers
are unable to reduce the price further, even as they lost the market as they have
reached the limits and will incur cash losses if sales prices declined further.  They arealso not able to meet their financial obligations to banks and financial institutions.
They are maintaining production by borrowing from the market and financial
institutions.  SORL has already attracted the BIFR provisions.
(f) Loss of productivity.  MPL and SORL employed 323 and 259 persons in 1996-97 and
accounted for a production of about 12.1 MT pa per person. The productivity in
1997-98 (April-August) has declined to about 4.87 MT pa per person i.e. they have
suffered a loss in productivity of 59.75 per cent as compared to 1996-97.
(g) Loss of employment.  The number of employees in MPL and SORL together has
reduced from 582 in 1996-97 to 553 1997-98 (April-August) i.e. by about 5 per cent.G/SG/N/8/IND/5
Page 29
(h) Surplus capacity set up abroad.  The domestic producers are also facing a threat of
further serious injury to them from  large capacity plants set-up closer to India who
have access to raw materials at prices much lower than in India.
11. Causal Link
1. As discussed above, the domestic industry has suffered a significant overall impairment.  The
domestic producers of FSP catered to the domestic demand. They sold 5,937 MT in 1994-95,
6,500 MT in 1995-96, 7,133 MT in 1996-97 and 657 MT in April-August 1997.  The total apparent
consumption during this period i.e. sales by domestic producers and imports was 7,737 MT in 1994-
95 which increased  to 9,200 MT in 1995-96 and to 10,483 MT in 1996-97.  The share of domestic
producers in the apparent consumption which was 76.7 per cent in 1994-95 however, fell down to70.7 per cent in 1995-96 and 68.1 per cent in 1996-97.  In 1997-98 (April-August), the share of the
domestic producers was only 657 MT in the total apparent consumption of 4,507 MT representing in
percentage terms a share of only 14.6 per cent.  The domestic producers thus lost their share in
apparent consumption from 76.7 per cent in 1994-95 to 70.7 per cent in 1995-96, 68 per cent in 1996-
97 and 14.6 per cent in April-August, 1997-98.  At the same time the imports increased from1,800 MT in 1994-95 to 2,700 MT in 1995-96, 3,350 MT in 1996-97 and to 3,850 MT in the first five
months of 1997-98.  The share of imports in the apparent consumption increased from 23.3 per cent in
1994-95 to 29.3 per cent in 1995-96, 32 per cent in 1996-97 and to 85.4 per cent in 1997-98 (April-
August).  In comparative terms the imports increased their share by 25.8 per cent in 1995-96,
8.4 per cent in 1996-97 and by 166.9 per cent in April-August 1997.
2. The total apparent consumption (domestic sales + imports) in 1996-97 stood at 10,483 MT
which on a pro-rata basis increased by 3.2 per cent to 4,507 MT in the first five months (April-
August) of 1997-98.  The domestic sales, however, lost drastically.  The domestic producers who
should have registered a sale of (7,133/12)x5x103.2%  i.e. 3,067 MT in April-August 1997 couldachieve a sale of only 657 MT i.e. they lost sales of 2,410 MT which were taken over by the imports
which captured an additional market of { 3,850-(3,350/12)x5x103.2%} 2,410 MT taking into account
the growth of 3.2 per cent in the apparent consumption.
3. Similarly, the domestic production in April-August 1997, which should have increased by
3.2 per cent, keeping in line with the growth in apparent consumption, to {(7,050/12)x5x103.2%}
3,032 MT, declined to 1,122 MT i.e. the domestic producers lost a production of 1,920 MT, whichwas taken over by the imported FSP which increased by {3,850-(3,350/12)x5x103.2%} 2,410 MT.
This increased quantity not only substituted the production of 1,920 MT lost by the domestic industry
but also resulted in the inventory built up of the domestic producers by about (2,410-1,920) 490 MT
which is evident from the fact that the closing stock at the end of April-August 1997 was
473 MT(846-373) more than the 1996-97 closing stock.
4. The domestic producers have stated that imports into India are steadily increasing for the last
three years after being stagnant for some time.  Driven to the wall, even at higher cost of production in
order to maintain the reduced market share MPL and SORL dropped their prices substantially which
barely covered the variable cost.
5. It is observed that while in 1994-95 FSP was imported at an average c.i.f. price of Re 42,109
PMT and landed price i.e. c.i.f. price plus import duty(excluding  Additional Duty of Customs levied
at the applicable rate of Central Excise duty) of Re 69,480 PMT, in 1995-96  the average c.i.f. price
increased to Re 46,107 PMT but the landed price declined to Re 60,722 PMT, in 1996-97 the averagec.i.f. price declined to Re 43,373 PMT and landed price to Re 57,252 PMT. In the first five months
(April-August)  1997-98,  the average c.i.f. prices declined drastically to Re 39,905 PMT with landed
price declining to Re 52,674 PMT.  While in 1995-96, the average sales realization of domesticG/SG/N/8/IND/5
Page 30
producers was 77,177 PMT, in 1996-97 it declined to Re 67,776 PMT and in 1997-98 (April-August)
the average sales realization further declined to Re 59,840 PMT.
6. Thus, the c.i.f. import prices as well as the landed prices have been declining over the years as
indicated in the table below:
Table 2
Imported goods Domestically produced goods
YearAvg. c.i.f.
price
Re/MTImport duty
(excluding
additional
duty of
customs) %Landed
price
Re/MTAvg. selling
price
(inclusive of
C. Ex. duty)
Re/MTRate of
C. Ex.
duty %Avg. sales
realization
Re/MT
1994-95 42,109 65 69,480 83,018 30 63,860
1995-96 46,107 42 60,722 92,612 20 77,177
1996-97 43,373 32 57,252 81,331 20 67,776
1997-98
(April-August)39,905 32 52,674 74,800 25 59,840
7. The imported FSP thus started undercutting domestic FSP in 1995-96 and onwards which had
its impact on the domestic production and sales.  The growth in production in 1996-97 was only
3.2 per cent over 1995-96 as compared to 18.6 per cent in 1995-96 over 1994-95.  In 1997-98 (April-
August), the production has drastically declined to 1,122 MT i.e. by 61.8 per cent on a pro-rata basis
as compared to 1996-97 and at the same time the inventory built up to 846 MT i.e. 226.8 per cent of
1996-97 closing stock and 75.4 per cent of the production during this period.
8. It has been stated by some of the parties that it was not on account of prices that the imports
have displaced domestic production and sales but on account of factors such as quality, technical
service support etc. of the domestic producers.  In this regard it is observed that price of imported FSP
was one of the most important factors in the decisi on of the buyers to choose their source of supply of
FSP.  Some of the Foam makers have expressed their concern over prices of raw material (FSP) as the
price of FSP had its impact on the price of foam manufactured by them and on its competitiveness
with other foam substitutes.  Some others have mentioned that they were importing Polyol prior to
1991 but after 1991 when the production of MPL and UBPPL came into existence they started
purchasing their material at competitive prices with cash discount, quantity discount, credit facilities
for 90 days without interest etc. but since 1995- 96 with the change in MP L/SORL policies in this
regard, they switched over to imported material.
9. Some of the exporters have also mentioned of imports becoming less competitive because of
depreciation of Indian Rupee and increase in customs duty and consequent improvement in the sales
of domestic producers.  All these go to prove that it was not quality or other factors which were the
cause of increased imports or serious injury to the domestic producers but the price of FSP which wasthe most important factor for the buyers to select their source of supply of FSP.
10. In view of the above, it is observed that the imports of FSP have been entering into India in
increasing quantities at declining prices and the increased imports have caused serious injury  and
threat of further serious injury to the domestic produces of FSP.G/SG/N/8/IND/5
Page 31
12. Impact of Subsequent Changes
1. The drop in exchange rate and propylene prices by MRL and increase in customs duty after
the initiation of safeguard investigation have been stated as some of the developments by some of the
parties which have taken away the need to provide any protection to the domestic industry by way ofsafeguard duty.
2. Dow in this regard have submitted calculations on impact of changes in economic situation
since May 1997 and according to them the impact of reduction in propylene price on Polyol cost is
US$147/MT, impact of increase in customs duty since May 1997 is US$94/MT and impact of
depreciation of Rupee vis-à-vis US$ is  US$256/MT.  In conclusion they have calculated the total
price advantage in terms of safeguard duty sought as US$497/MT.  On the other hand, the domesticproducers have challenged Dow’s calculations and have submitted their version of the impact of post
initiation changes and according to them the combined effect of change in propylene price, increase of
customs duty and depreciation of Indian Rupee has to be  viewed in the light of drop in the c.i.f. price
of imported FSP which has come down to a level of US$930/MT in May 1998 from US$1,180/PMT
in July 1997.  They have, taking into account all these factors, worked out the net effect asUS$118/MT instead of US$497/MT worked out by Dow.
3. Be it as it may.  The main issue to be considered here is whether the changes in the period
after initiation of an investigation and before the recommendations are made should be taken into
account in arriving at a decision regarding the finding of the serious injury or the quantum of thesafeguard duty.
4. It must be appreciated that safeguard duty can be imposed only if increased imports have
caused ‘serious injury’.  This implies that ‘increas ed imports’ is a condition precedent to or coexisting
with the occurrence of ‘serious injury’.  The inve stigation, therefore, must show that imports have
increased and they have caused serious injury.  The finding of serious injury needs to be based on an
objective analysis of various parameters and the interested parties need to be given fullest opportunity
to present their case and to rebut evidence and arguments submitted by others.  It is in this context that
the parties need to know the facts and figures on the basis of which the investigation has been initiated
and which they have to prove or disprove.  If this framework of reference is not fixed, it may lead to a
confusion where various  parties may speak of situations prevailing in different periods and there may
be no meeting ground.  While this is true of facts and figures, the same logic may not apply for thechanges in governmental policies which have a bearing on the outcome of the investigation such as
changes in the rates of import duties which might have taken place in the intervening period.
5. It is, therefore, observed that it will be appropriate:
(i) to base  the findings on the data considered for initiation of investigation and which
was thrown open for the parties to comment upon by  incorporating them in the
initiation documents,  and
(ii) to take into account policy changes which have taken place subsequently.
6. In the present case while initiating the investigation, data up to the period August 1997 has
been relied upon.  Accordingly, it is considered th at changes in exchange rate and c.i.f. value of
imported FSP after August 97 are not to be taken into account.  Change in price of propylene as a
result of  decontrol of LPG price being a policy change would need to be taken into account, so alsothe change in customs duty.G/SG/N/8/IND/5
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13. Positive Adjustment
1. The domestic producers have submitted details of efforts being made by them for making a
positive adjustment to meet with the new situation of competition offered by the increased imports.
2. The domestic producers have been already importing propylene from Cuddalore port but this
results in an additional cost of about Re3 per kg. in the cost of propylene imported by them.  The
major parts at Chennai, Mumbai and Tuticorin do not have facility to import propylene, nor are they
interested in creating one because of the congestion and lack of space within the port area to
accommodate the hazardous cargo shipment.  An independent chemical terminal is being set up at
Ennore Satellite Port by their group company MAC - VORMAN,  a joint venture of VORMAN of
Netherlands, which is coming up rapidly and is likely to be operational in the year 2000.  Till the timeEnnore Satellite Terminal becomes operative, the domestic producers have decided to upgrade with
the  Single Buoy Mooring, (SBM) facility the stor age terminal at Cuddalore.  This will also enable
them to operate during monsoon period.  They are currently having 1,000 MT storage capacity and
another 500 MT capacity by way of road tankers etc. and thus they can handle about 1,500 MT
propylene parcels.  During the next two years they intend to upgrade the storage facility so as tohandle larger shipments of 2,000-2,500 MT size, reducing the freight cost and making propylene
available at prices comparative to international prices.
3. MPL and SORL receive about 70 per cent of th eir propylene requirements from MRL and the
balance 30 per cent is imported.  The domestic producers have stated that Madras Refineries Ltd. havealso realised the need to support them with better  price and making use of phased dismantling of the
administered pricing mechanism, which is already effective from 1 April 98.  They are contemplating
to make available the Feedstock close to international price by the year 2000. They can also obtain
propylene from the proposed Pennar Refineries coming up at Cuddalore.  They are likely to get
propylene to run their plant at full load at international FOB price levels. Pennar Refineries are alsoproposing to construct a jetty where ships can co me alongside and discharge liquid cargo including
LPG and propylene.  This enhances possibility of integrating/enhancing their facility at Cuddalore.
4. The domestic producers have further stated that they have brought down the energy levels and
thus cut down the cost of production. They can step -up their production capacities in a short span of
time with marginal investment with attractive inve stment to turn over ratio, if the opportunity is
offered for the company to run the plant at higher plant load factors.
5. With the enhanced possibilities of getting propylene at competitive prices, the problems of
high cost of production due to high raw material co st is likely to be totally addressed and continuous
availability of markets, which will enable the plant to run at high capacity utilization, will enable them
to cut the production cost further and also enable them to expand the plant to make use of thefavourable capital turn over ratio.
6. In  view of the above, it is considered that  the domestic industry would need a period of about
eighteen months to make positive adjustment to the import competition.
14. Share of Exporting Countries
1. On the basis of information available, share of exporting countries in India’s imports of FSP
was as under:G/SG/N/8/IND/5
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Country Share in %
Germany 0.3
Japan 0.1
The Netherlands 13.6
Singapore 16.7
United States 69.1
VI. CONCLUSIONS AND RECOMMENDATIONS
1. In view of the findings above, it is concluded that increased imports of Flexible Slabstock
Polyol into India have caused and further threatened to cause serious injury to the domestic producers
of Flexible Slabstock Polyol and it will be in public interest to impose safeguard duty for a period of
eighteen months on imports of Flexible Slabstock Polyol into India.
2. In arriving at the amount of safeguard duty that would be adequate to prevent serious injury to
domestic industry and to facilitate positive adjustment, weighted average cost of production for both
MPL and SORL has been taken into account for the period  April-August 1997 on the basis of the
data for the whole of 1997-98 as the data for the entire 1997-98 is a more representative data and the
cost of production for the whole  of 1997-98 is lesser than that for April-August 1997.  Adjustmenthas also been made for the reduction in price of propylene, the principal raw material for the
manufacture of Flexible Slabstock Polyol. The domestic producers have claimed a certain amount of
profit (confidential) which is considered to be on the higher side and, therefore, a lower amount of
profit considered to be appropriate has been allowe d.  Similarly, the c.i.f. import prices of Flexible
Slabstock Polyol also have been considered on weighted average basis for the period April-August 1997.  Adjustment in the c.i.f. import price have been made for credit terms and handling
charges on an average basis.  No adjustment for sales tax paid on domestically produced Propylene
Glycol has been made as Special Additional Duty of customs has been imposed in the recent Budget
on imports which takes into account the incidence of sales tax etc. on locally produced goods.
Change in the applicable rate of customs duty has been taken into account in working out the landedprice of imported Flexible Slabstock Polyol.
3. Considering the need to progressively liberalize the Safeguard duty in order to facilitate
positive adjustment by the domestic industry, it is recommended that safeguard duty be imposed on
imports of Flexible Slabstock Polyol of molecular weight 3000-4000 used in the manufacture ofSlabstock Foam and Polyurethane Foam Mattresses at the rates specified below on ad-valorem  basis
for a period of eighteen months as under being the minimum necessary for the protection of the
domestic industry from the serious injury caused and threatened to be caused by the increased imports
of Flexible Slabstock Polyol :-
Period Level of protection
recommended %Existing Level of
protection %Safeguard duty
recommended (2)-(3)
%
(1) (2) (3) (4)
First twelve months 55 35 20
Next six months 40 35 5
(R.K. Gupta)
Director General (Safeguards)
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