WORLD TRADE  
ORGANIZATION  G/SG/N/6/PER/2 
25 March 2009 
 
 (09-1472) 
Committee on Safeguards Original:   Spanish 
  
 
NOTIFICATION UNDER ARTICLE 12.1(A) OF THE AGREEMENT 
ON SAFEGUARDS ON INITIATION OF AN INVESTIGATION 
AND THE REASONS FOR IT 
 
PERU 
 
(Cotton Yarn
) 
   The following communication, dated 19 March 2009, is being circulated at the request of the 
delegation of Peru. 
 
______________ 
   The Permanent Mission of Peru to the Intern ational Organizations at Geneva presents its 
compliments to the Secretariat of the World Tr ade Organization (Committee on Safeguards) and, 
pursuant to the provisions of Article 12.1(a) of  the Agreement on Safeguards, hereby notifies 
Resolution No. 036-2009/CFD-INDECOPI, of 9 Ma rch 2009, published in the Official Journal 
El Peruano  on 13 March 2009, by means of which th e National Institute for the Defence of 
Competition and the Protection of Intellectual Pr operty (INDECOPI) approved the initiation of a 
general safeguard investigation into imports of co tton yarn under tariff headings 52.05 and 52.06 of 
the NANDINA national tariff.  
1. Specify the date when the investigation was initiated. 
 
 The investigation was initiated on 13 March 2009. 
 
2. Specify the product subject to the investigation. 
 
 Cotton yarn entering under tariff headings 52.05 and 52.06 of the NANDINA national tariff.  3. Provide the reasons for the initiati on of investigation, for example: 
 
 (i) Was the investigation initiated pursuan t to a petition from the domestic industry? 
  On 19 January 2009, the Sociedad Nacional de Industrias (National Industry Society) 
submitted a request to the competent authority fo r application of a general safeguard measure on 
imports of cotton yarn under tariff headings  52.05 and 52.06 of the NANDINA national tariff. 
  (ii) Evidence on the basis of which the investigation was initiated.   Imports of cotton yarn increased by 163 per cent from 2006 to 2008.  This growth was 
reflected in cotton yarn imported under tariff h eadings 52.05 and 52.06 of the NANDINA national 
tariff.  In this connection, a downward trend has b een noted in the prices of these imports.  Moreover, G/SG/N/6/PER/2 
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  injury to the domestic industry has also been determ ined, on a preliminary basi s, based on evidence of 
a deterioration in the domestic industry's market sh are, sales levels, production, inventories, use of 
installed capacity, profits and employment.   (iii) Evidence, if any, of critical circum stances where delay would cause damage which it 
would be difficult to repair. 
  At the current stage of the investigation pro cedure, there is no evidence of the existence of 
critical circumstances where delay would cause dama ge which it would be difficult to repair.  A 
decision on the need to apply provisional saf eguard measures will be examined during the 
investigation, after the relevant Prelim inary Technical Report has been issued. 
  G/SG/N/6/PER/2 
 Page 3 
 
 
  036-2009/CFD-INDECOPI 
 
9 March 2009 
 
THE INDECOPI DUMPING AND SUBSIDIES COMMISSION 
 
Having regard to File No. 005-2009-CFD, and;  
WHEREAS 
 
I. BACKGROUND 
 On 19 January 2009, the National Industry Society (hereinafter SNI), on behalf of its 
associates Algodonera Peruana S.A.C., Compañía I ndustrial Romosa S.A.C., Creditex S.A., Empresa 
Algodonera S.A., Fijesa S.A.C., Filasur S.A., Hilande ría de Algodón Peruano S.A., Industrial Textil 
Piura S.A., Tejidos San Jacinto S.A. y Southamtex S.A.C., requested the application of a general 
safeguard measure to imports of cotton yarn u nder tariff headings 52.05 and 52.06 of the NANDINA 
national tariff.   The following are the principal reasons for th e SNI's request for application of a general 
safeguard measure:  
 (i) In 2008, domestic yarn production was down 26.64 per cent on the previous year, 
totalling 22,355,863 kg. net weight.  Over the same period, there was also a sharp downturn in the use of installed capacity and in sales on the domestic market, which 
fell 28.25 per cent from 25,656 MT in 2007 to just 18,401 MT in October 2008.  Similarly, inventories increased by 53.61 per cent in 2008 in comparison with the 
previous year; 
  (ii) the cause of this situation was the 438 per cent increase in cotton yarn imports 
between January 2004 and November 2008,  which in part replaced domestic 
production on the market; 
 
 (iii) the volume of yarn imported in 2008 w as equivalent to the output of approximately 
ten domestic cotton mills (with approximate  annual production of 4,000 MT);  and, 
  (iv) the decline of the domestic yarn sector, and more specifically of the part producing 
cotton yarn, is mainly attributable to imports from four (4) countries, which 
accounted for 96.5 per cent of total imports between January and November 2008.
1  
These include, in particular, imports from I ndia, as it exports goods at particularly 
low prices2, thereby increasing its share as a supplier from 38.71 per cent in 2006 to 
87.37 per cent in 2008. 
  In its application, the SNI  requested that  the Commission prepare a Preliminary Technical 
Report to assess the relevance of applying provisiona l safeguard measures to yarn imports, pursuant to 
Article 6 of the WTO Agreement on Safeguards (hereinafter Agreement on Safeguards ) and 
Article 29 of Supreme Decree No. 020-98-ITINCI, as amended by Supreme Decree No. 023-2003-MINCETUR (hereinafter Regulations on Safeguards ). 
                                                     
 
1 India, Turkey, Pakistan and Bolivia. 
2 According to the Ministry of Production (PRODUCE), the price of combed cotton yarn from India is, 
on average, 15 per cent lower than that for all other countries in the world.  This information was provided as an 
attachment to the application made by the SNI. G/SG/N/6/PER/2 
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 On 2 March 2009, the SNI duly provided all of  the information required for processing the 
application for initiation of an investigation.  
II. PROCEDURE FOR THE APPLICATION OF SAFEGUARD MEASURES 
 General safeguard measures are protection mech anisms imposed by States when there is an 
unforeseen increase in imports, whic h causes injury to a domestic industry.  In order to impose 
safeguard measures, it is not necessary to demonstr ate the existence of unfair trade practices, but 
rather it must be proven that the increase in imports  is the fundamental cause of the injury suffered by 
the domestic industry.  Such measures ar e governed by the Agreement on Safeguards
3 and the 
Regulations on Safeguards.4 
  Pursuant to the Regulations on Safeguards, it is the responsib ility of INDECOPI, through this 
Commission, to decide whether to in itiate an investigation in this rega rd.  If it is decided to initiate an 
investigation, it must be conducted over a period of si x (6) months as of the date of the notification of 
its initiation published in the Official Journal El Peruano .  Upon conclusion of the investigation, the 
Commission must issue a Technical Report with its recommendation on the need to apply the 
requested safeguard measure.  If there are critical  circumstances where any delay would cause damage 
to the domestic industry, which it would be difficu lt to repair, INDECOPI shall, upon request, prepare 
a Preliminary Technical Report during the investig ation procedure in order to assess the need to 
impose provisional measures. 
 
 It should be noted that in cases such as these, INDECOPI only plays an investigatory role, and the decision on whether or not to apply the requ ested safeguard measures, be they permanent or 
provisional, is made by a Multisectoral Commission  comprising the Ministers of Foreign Trade and 
Tourism, the Economy and Finance, and the sector  to which the affected domestic industry in 
question belongs (in this case, the Minister of Production). 
  In accordance with the respons ibilities specifically provided in the legislation in force, this 
administrative decision shall determine whether or not  to initiate the investigation requested by the 
SNI, taking into account the relevant pr ovisions in the Regulations on Safeguards.
5 
                                                      
3 AGREEMENT ON SAFEGUARDS, Article 2: Conditions 
1.  A Member may apply a safeguard measure to a product only if that Member has determined, 
pursuant to the provisions set out below, that such produ ct is being imported into its territory in such increased 
quantities, absolute or relative to domestic production, and under such conditions as to cause or threaten to cause serious injury to the domestic industry that produces like or directly competitive products. 
4 REGULATIONS ON SAFEGUARDS, Article 3   Safeguard measures shall be applied when a 
product, irrespective of its source, is being imported in such increased quantities, absolute or relative to 
domestic production, and under such conditions as to cause  or threaten to cause serious injury to the domestic 
industry that produces like or directly competitive products.  
5 REGULATIONS ON SAFEGUARDS, Article 14   The decision to initiate an investigation shall 
contain at least the following information:  
(a) The identity of the applicant; 
(b) a detailed description of the product or products that have been or are being imported, with an 
indication of their tariff heading; 
(c) a description of the domestic product alike to or directly competitive with the product that has 
been or is being imported; 
(d) information on the increase in imports and the serious injury or threat thereof; 
(e) the period under investigation; 
(f) the time-limits for the determination or submission of documents, advertisements, etc.; 
(g) the name of the exporting co untry or countries and the neces sary information to ensure 
accurate identification of the pr oduct concerned and its origin.  G/SG/N/6/PER/2 
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III. ANALYSIS 
 Pursuant to the Regulations on Safeguards, th e decision to initiate an investigation must 
specify, inter alia , the imported product to be the subject of  the investigation and the investigation 
period. 
 
 In this case, the application of safeguard measures to imports of cotton yarn under tariff headings 52.05 and 52.06 of the NANDINA national ta riff has been requested .  The investigation 
period covers the years 2006 to 2008.
6 
 III.1 Determination of like or directly competitive product 
 
 Pursuant to section II of this Resolution, saf eguard measures shall be applied when the 
increase in imports of a product causes or threaten s to cause serious injury to the domestic industry 
that produces like or directly competitive products
. 
 
 In this case, on the basis of the considerations contained in Report No. 014-2009/CFD-INDECOPI, this Commission consider s that, on a preliminary basis and in light 
of the information available at this stage of th e procedure, the domestic product and the imported 
product in respect of which an investigation is re quested are directly competitive products as they can 
be used interchangeably to produce fabrics and articles of clothing. 
 
III.2 Determination of the domestic industry 
 
 The applicant enterprises constitute the dom estic industry producing the product that is 
directly competitive with the imported product as th ey represent a major proportion of the output of 
the product manufactured in Peru, pursuant to Article 4 of the Regulations on Safeguards.
7  In 2008, 
these enterprises collectively represented approximate ly 63.52 per cent of domestic yarn production, 
as indicated in Report No. 014-2009/CFD-INDECOPI.  
III.3 Increase in imports 
  During the investigation period (2006 to 2008), cotton yarn imports increased by 163 per 
cent, reaching 39.2 million kg., despite the sl owdown recorded in the second half of 2008.
8  In fact, 
cotton yarn imports increased by 105.4 per cent between 2006 and 2007, and by 28.5 per cent 
between 2007 and 2008.  The average rate of  expansion therefore rose to 66.97 per cent. 
 
 As explained in Report No. 014-2009/CFD-INDE COPI, this growth occurred in cotton yarn 
imports entering under the two tariff headings subject  to investigation (52.05 and 52.06).  It was 
                                                      
6 See Report No. 014-2009/CFD-INDECOPI. 
7 REGULATIONS ON SAFE GUARDS, Article 4   For the purposes of this Decree, the following 
meanings shall apply: 
Domestic industry:  the producers as a whole of the like or directly competitive products operating 
within Peruvian territory, or those whose collective output of the like or directly competitive products 
constitutes a major proportion of the domestic production of those products.  A major proportion of domestic 
production shall be understood to mean an enterprise or  group of enterprises accounti ng for at least 50 per cent 
of total domestic production of the particular product. 
8 In the second half of 2008, a negative growth rate of 9.97 per cent was noted in imports of yarn 
containing 85 per cent or more by weight of cotton (tariff heading 52.05).  Compared with the second half of 
2007, similarly, there was a contraction of 47.52 per cent in imports of yarn containing less than 85 per cent by weight of cotton (tariff heading 52.06) in the second half of 2008, in comparison with the same period the 
previous year. G/SG/N/6/PER/2 
Page 6  
 
  shown that imports of yarn containing 85 per cent or more by weight of cotton (tariff heading 52.05) 
increased by 164.7 per cent between 2006 and 2008
9;  while imports of yarn containing less than 
85 per cent by weight of cotton (tariff heading 52.06) rose by an average of 96.9 per cent, from 157,758 kg. to 310,675 kg.
10 
 III.4 Preliminary determination of serious in jury caused to the domestic industry 
 
 The preceding section shows that between 2006 and 2008, imports of cotton yarn increased 
by 163 per cent, from 14.8 million kg. to 39.2 million kg.  
 It can be shown that there was a downward trend in the price of these imports.
11  The country 
that most increased its share in total imports during this period was India, which accounted for 87 per cent of total imports
12, taking over from other suppliers such as Bolivia, the United States and 
Canada.13 
 
 Taking into account the considerations in Report No. 014-2009/CFD-INDECOPI, it has been 
possible, on a preliminary basis, to determine th e injury to the domestic industry, based on evidence 
of deterioration in its market share, sales levels, production, inventories, use of installed capacity, 
profits and employment; such factors were analysed  in depth in the aforesai d Report, pursuant to 
Article 4 of the Agreement on Safeguards:14 
 
• Market share absorbed by increasing imports  
  Although market demand grew by 34.08 per cen t in absolute terms between 2006 and 2008, 
and at an average annual rate of 16.36 per cent, th e domestic industry's share of the market gradually 
declined (from 79.58 per cent in the first half of  2006 to 58.7 per cent in the second half of 2008) 
owing to the increased presence of imported products. 
 
• Levels of production, sales, inventories and use of installed capacity
 
  The domestic industry has been seriously affected  by its loss of market share.  Firstly, the 
applicant enterprises suffered a downturn of 2.81 pe r cent in production between 2006 and 2008.  It 
                                                     
 
9 These imports increased by 104.7 per cent between 2006 and 2007, whereas they rose by 29.3 per 
cent between 2007 and 2008. 
10 Imports under tariff heading 52.06 increased by 168.9 per cent between 2006 and 2007, whereas they 
decreased by 26.7 per cen t between 2007 and 2008. 
11 The average weighted f.o.b. price of imported yarn fell by 3.16 per cent during the period examined 
down to US$2.56 per kg. in 2008.  The CIF price + tariff of the imports by country of origin fell by 1.3 per cent over the same period of analysis. 
12 In 2008, 86.6 per cent of imported cotton yarn came from India, 4.2 per cent from Turkey, 3.3 per 
cent from Bolivia, 2 per cent from the United States and 3 per cent from other countries. 
13 In 2006, Bolivia had a 14.5 per cent share of imports; the United States, 8.95 per cent; and Canada, 
21.55 per cent.  However, in 2008, their shares of the import market fell to 3.32 per cent, 2.05 per cent and 
0.13 per cent, respectively. 
14 AGREEMENT ON SAFEGUARDS, Article 4:  Det ermination of Serious Injury or Threat 
Thereof 
2.(a)  In the investigation to determine whether increased imports have caused or are threatening to 
cause serious injury to a domestic industry under the te rms of this Agreement, th e competent authorities shall 
evaluate all relevant factors of an objective and quantifiable nature having a bearing on the situation of that 
industry, in particular, the rate and amount of the increase in imports of the product concerned in absolute and relative terms, the share of the domestic market taken by increased imports, changes in the level of sales, 
production, productivity, capacity utilizati on, profits and losses, and employment.  G/SG/N/6/PER/2 
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  should be noted that, in the second ha lf of 2008 alone, yarn production fell by 14 percentage points in 
comparison with the same period the previous year.   The analysis in Report No. 014-2009/CFD-INDECOPI also reveals a fall of 18 per cent in the domestic industry's sales, from 28 million kg. in 2006 to  21.8 million kg. in 2008.  It should be noted 
that, in the second half of 2008, domestic sales declined by 21.22 per cent in comparison with the 
sales recorded for the same period the previous year.   The drop in sales levels has not only led to a 30.3 per cent
15 increase in the level of 
inventories, which reached 10.4 million kg. in the sec ond half of 2008, but is also hampering efforts 
by the domestic industry to recover the investment made to increase its production capacity.  In this 
respect, it should be noted that a clear downward trend has been observed in the use of installed capacity in the domestic industry, from an average of 89.41 per cent in 2006 to 79.27 per cent in 2008.  
• Profits and employment trends
 
 
 Information on the financial ratios of the dom estic industry shows that, although there was an 
improvement in the liquidity, solvency and pr ofitability indicators between 2006 and 2007, these 
indicators reflect a considerable decline in 2008.  Likewise, there is preliminary evidence of a 
significant drop in the operating profits of the app licant enterprises, of which three were in fact 
operating at a loss in 2008.  
 As regards employment trends, although no downsizing has occurred, there has been a 
reduction in the number of working days, shifts and even working hours.   The injury caused to the domestic industry, as explained in the preceding paragraphs, coincides with the sudden increase in yarn imports, t hus leading to the preliminary conclusion that the 
latter is the cause of the injury suffered by the domestic industry between 2006 and 2008.  Herein lies 
the justification for initiating the investigation requested by the SNI.   Notwithstanding the above, it should be pointed out that, at this stage of the procedure and in 
light of the information available in the file, other factors, unrelated to the increase in imports, have 
been preliminarily identified as possibly having aff ected the decline in the domestic industry during 
the investigation period.  These factors will need to  be analysed in the investigation in depth to 
determine their effect on the injury suffered by  the domestic industry as part of the review of 
attribution stipulated by the Agreement on Safeguards,  in order to decide whether safeguard measures 
need to be applied.  These factors are the following:  
 - Lower domestic demand for yarn resulting from the slowdown in Peruvian exports of 
clothing, which increased by just 0.81 per cent in 2007-2008, whereas the average 
annual growth rate between 20 06 and 2007 was 8.61 per cent. 
  - Lower demand for yarn in foreign market s because of the decline in demand for yarn 
under tariff heading 52.05 over the past year.  This seems to have had a greater effect 
on those applicant enterprises with larger volumes of production intended for sale on 
foreign markets. 
  - The 25.9 per cent increase in the price of cotton fibre between 2006 and 2008, leading 
to higher costs for yarn-producing enterprises, this being the principal input used to 
produce yarn. 
                                                     
 
15 The analysis of trends in inventories does not include the enterprises Algodonera Peruana S.A. or 
Fiiesa S.A.C. G/SG/N/6/PER/2 
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 - The higher cost of credit in Peru as a result of the global financial crisis.  
IV. REQUEST TO EXCLUDE IMPORTS THAT ARE NOT A SUBSTANTIAL CAUSE 
OF INJURY TO THE DOMESTIC INDUSTRY 
 In its request for initiation of an investigation, the SNI indicated that, by virtue of Article 9 of 
the Agreement on Safeguards, developing countries whose imports do not exceed the " de minimis " 
level of 3 per cent of total imports stipulated in  the Agreement should be excluded.  It therefore 
requested that the United States, by virtue of th e Peru Trade Promotion Agreement signed with this 
country, and Bolivia, member of the Andean Community, be excluded. 
 
 In view of this request and taking into account the provisions of the Agreement on Safeguards 
and the trade and regional integration agreements si gned by Peru, during the investigation it will be 
determined whether or not to recommend the ex clusion of certain countries from the eventual 
application of a general safeguard  measure to cotton yarn imports. 
 
V. REQUEST FOR THE APPLICATION OF PROVISIONAL SAFEGUARD 
MEASURES 
 In its application for initiation of an inves tigation, the SNI requested the application of 
provisional safeguard measures to cotton yarn imports in tariff headings 52.05 and 52.06.  
 As indicated above, the Regulations on Safeguard s provide that, during the investigation, the 
investigating authority must prepare a Preliminary Technical Report to communicate its recommendations to the Multisectoral Commission on the need to apply such a measure and its 
advisability.  
 In this respect, after initiating the investiga tion and during the inves tigation procedure, the 
Commission shall issue the Preliminary Technical Report recommending whether or not to apply the provisional measures.  This will allow the views and evidence of those parties who might be affected 
by the application of safeguard measures to be collected, including, for example, domestic cotton 
producers, fabric manufacturers and clothing manuf acturers (belonging to the textile-clothing sector 
production chain) so that the impact which the applic ation of such a measure would have on all stages 
of the production chain can be evaluated. 
 
VI. DECISION OF THE COMMISSION 
 On the basis of the analysis conducted in Report No. 014-2009/CFD-INDECOPI, and in 
accordance with the aforementioned considerations, it should be decided to initiate the investigation 
procedure in order to determine the necessity a nd advisability of recommending the application of 
general safeguard measures to imports of cotton ya rn under tariff headings 52.05 and 52.06 of the 
NANDINA national tariff.   A detailed evaluation of the aforem entioned points can be found in Report 
No. 014-2009/CFD-INDECOPI, which forms an integr al part of this Resolution, pursuant to 
Article 6.2 of Law No. 27444, available on the INDECOPI website at http://www.indecopi.gob.pe/
. 
  Pursuant to the WTO Agreement on Safegua rds, Supreme Decree No. 020-98-ITINCI, as 
amended by Supreme Decree No. 023-2003-MINC ETUR, Legislative Decree No. 1033 and; 
 
 As unanimously agreed at its meeting of 9 March 2009; 
  G/SG/N/6/PER/2 
 Page 9 
 
 
  HEREBY DECIDES: 
 
Article 1.-   To initiate the investigation procedure for the application of a general safeguard measure 
to imports of cotton yarn under tariff headings 52. 05 and 52.06 of the NANDINA national tariff, for 
the period between 2006 and 2008. 
 
Article 2.-   To invite all parties interested in e xpressing their position with regard to the product 
subject to the investigation to make their views known or provide information or evidence to the 
Dumping and Subsidies Commission within thirty (3 0) working days of the day following publication 
of this Resolution.  Within the same timefra me, the Dumping and Subsidies Commission shall 
determine the date for the public hearing. 
 Article 3.-   To specify that, within thirty (30) working days of the publication of this Resolution, the 
applicant enterprises shall submit a report containing  the general outline of an adjustment plan and 
substantiating the objectives associat ed with the adjustment of th e domestic industry to competition 
from yarn imports, pursuant to Article 12 of S upreme Decree No. 020-98-ITINCI, as amended by 
Supreme Decree No. 023-2003-MINCETUR.  Article 4.-   To determine that any communicati on made in accordance with the preceding 
Articles shall indicate the name, address, electr onic mail address and telephone and fax numbers of 
the sender and be forwarded to the following address: 
 
 Dumping and Subsidies Commission  INDECOPI  Calle De La Prosa 138, San Borja  Lima 41, Peru 
 Tel.:  (51-1) 224-7800 (ext. 1221) 
 Fax :  (51-1) 224-7800 (ext. 1296)  E-mail:  dumping@indecopi.gob.pe  Article 5.-   To publish this Resolution once only in the Official Journal El Peruano , pursuant to 
Article 17 of Supreme Decree No. 020-98-ITINCI, as amended by Supreme Decree 
No. 023-2003-MINCETUR. 
 Article 6.-   To specify that the investigation pr ocedure shall have a maximum duration of 
six (6) months following publication of this Resolution.  The initiation of the procedure shall be calculated from the day of publication. 
 
Through the intermediary and by the fa vourable vote of Commission members 
Peter Barclay Piazza, Jorge Aguayo  Luy and Eduardo Zegarra Méndez. 
 
For registration, communication and publication. 
  
 
_____________________ 
 
PETER BARCLAY PIAZZA 
 
 
Chairman 
 
__________