WORLD TRADE
ORGANIZATIONG/SG/N/8/IND/8
8 November 1999
(99-4821)
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 29 October 1999, has been received from the Permanent
Mission of India.
_______________
The attached notification (No. SG/INV/1/99 dated 7 October 1999) under Article 12.1(b) of
the Agreement on Safeguards contains the final findings of the Director General (Safeguards)
regarding India's safeguard investigation concerning imports of Acetone into India.
The findings of the Director General (Safeguards) are under consideration of the Government
of India.   India is ready to consult with WTO Members, having a substantial interest as exporters of
this product into India, on the issue of imposition of safeguards duty based on the findings of the
Director General (Safeguards).   Interested WTO Members, having a substantial interest as exportersof this product into India and wishing to consult India on this issue, may make a written request in this
regard.G/SG/N/8/IND/8
Page 2
OFFICE OF THE DIRECTOR GENERAL (SAFEGUARDS)
5th FLOOR, ‘D’ BLOCK, I.P.BHAWAN,
I.P ESTATE, NEW DELHI .
F.No.SG/INV/1/99
Dated:  7 October 1999
NOTIFICATION
Subject: Safeguard investigation concerning imports of Acetone into India - Final
Findings.
Having regard to the Customs Tariff Act, 1975 and the Customs Tariff  (Identification and
Assessment of Safeguard Duty) Rules, 1997 thereof.
A. PROCEDURE
1. The Notice of Initiation of safeguard investigation concerning imports of Acetone into India
was issued  on 16.06.1999 and was published in the Gazette of India, Extraordinary on 19.06.1999.  A
copy of the Notice was sent to all known interested parties, namely:
Domestic Producers
(i) Hindustan Organic Chemicals Ltd (HOC), Mumbai
(ii) Herdillia Chemicals Ltd. (HCL), Mumbai
(iii) Rajaram  Bapu Patil SSK Ltd., Walva, Distt. Sangli (hereinafter referred to as   Walva)
(iv) Chaltan Vibhag Khand Udyog Sahakari Mandali Udyog Ltd. Surat (hereinafter referred to as
Chaltan)
(v) Krishna Sahakari Sakhar Karkhana Ltd., Maharashtra (hereinafter referred to as Krishna)
(vi) National Organic Chemical I ndustries Ltd., Mumbai (NOCIL)
(vii) Cordite Factory, Aruvankadu, Nilgiris.
(viii) Sirsilk Ltd., Andhra Pradesh
The Notice sent by Regd. Post to Sirsilk Ltd was returned undelivered by the postal
authorities with the remarks “ Factory closed”.
Importers
(i) C.J.Shah & Company, Mumbai
(ii) Haresh Kumar & Company, Mumbai
(iii) Crescent Organics Ltd., Mumbai
(iv) Aroma Agencies Mumbai
(v) Vinmar International India Pvt. Ltd., Mumbai
User Industries
(i) Kesar Petro Products Ltd., Mumbai
(ii) Glaxo India Ltd., Mumbai
(iii) Kopran Ltd., Mumbai(iv) Gharda Chemicals Ltd., Mumbai
(v) Asian Paints Ltd., Mumbai
(vi) Bayer (India) Ltd., Mumbai
(vii) Bombay Oxygen Corporation, MumbaiG/SG/N/8/IND/8
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(viii) Hitkari Multifilters Ltd., Mumbai
(ix) Gujarat State Fertilisers and Chemicals Ltd., Vadodara
(x) ICI Ltd. West Bengal
Exporters
(i) Georgia Gulf Corporation, United States
(ii) Mitsui Chemicals, Tokyo
(iii) Kumho Chemical Company, Seoul, Korea
(iv) Merisol/Merichem Sasol, South Africa
(v) Kolmar Petrochemicals AG, Switzerland.
(vi) ICC Chemical Corporation, New York,
Overseas Associations
(i) Chemical  Safety Management Centre, Japa n Chemical Industry Association-JCIA, Tokyo
100, Japan.
(ii) Chemical  and Allied Industries Associ ation -(CAIA) Auckland Park 2006, South Africa.
(Notice sent was returned undelivered)
(iii) Korean  Petrochemical Industry Association -(KPIA) Chongno-ku, Seoul, Korea.
(iv) Chemical Manufacturers Association (CMA) Virginia-22209, United States
Indian Associations
(i) Indian Chemical Manufact urers Association, Mumbai
2. A copy of the notice along with the application and questionnaire was also sent to the
governments of exporting countries through their High Commissions/Embassies in New Delhi namely
Canada, China, P.R., Chinese Taipei, Finland, France, Germany, Japan, Korea DPR, Korea RP, the
Netherlands, New Zealand, Russia, Saudi Arabia, Singapore, South Africa, Spain, United Kingdom
and the United States.
3. Questionnaires were also sent on the same day to all known domestic producers, exporters
and importers who were asked to submit their response by 26.07.1999.
4. Request for extension of time to submit their reply was made by the following parties :-(i) Bayer (India) Ltd., Mumbai
(ii) Gujarat State Fertilisers and Chemicals Ltd., Vadodara
Keeping their request in mind and the need to co mplete the investigation within the statutory
period, M/s. Bayer (India) Ltd. was granted extension up to 30.07.99  and M/s. GSFC was informed
that they may make their views known at the time of public hearing.
5. Replies  to the Notice dated 16.06.1999 and to the questionnaire were received from the
following parties:
Domestic Producers
(i) Hindustan Organic Chemicals Ltd., Mumbai
(ii) Herdillia Chemicals Ltd., Mumbai
(iii) NOCIL Mumbai
(iv) Cordite Factory AruvankaduG/SG/N/8/IND/8
Page 4
(v) Krishna, Maharashtra
Importers
(i) Haresh Kumar & Co., Mumbai
(ii) Crescent International Ltd., Mumbai
User Industries
(i) Kesar Petro Products Ltd., Mumbai
(ii) Bayer (India) Ltd., Mumbai
(iii) Gujarat State Fertilisers  & Chemicals Ltd., Vadodara
Exporters
(i) Mitsui Chemicals Inc., Japan
(ii) Merisol, South Africa(iii) Kumho P&B Chemicals Inc., Seoul, Kor ea (through M/s. Samsung Corporation).
(iv) Sasol Solvents, South Africa (through M/s. Crescent Organics, Mumbai).
6. Response to the notice has also been filed by the following :-
(i) Aurobindo Pharma Ltd., Hyderabad
7. 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. Hindustan   Organic Chemicals Ltd., Cochin;
M/s. Herdillia Chemicals  Ltd., Mumbai; NOCIL, Mumbai, M/s. Kesar Petroproducts Ltd., Mumbaiand Crescent Organics Ltd., Mumbai.  The outcome of investigations was conveyed to the concerned
parties and a copy of the investigation report was also placed in  the Public File.
8. A Public Hearing was given to all interested parties on 10.09.99, notice for which was sent
on 10.08.99.  During the Public Hearing the interested parties were requested to file their written
submission of oral arguments made by them by 16.09.99;   collect copies of replies filed by others on
17.09.99 and to file rebuttals if any, by 24.09.99.  The following parties attended the public hearing:
(i)    Hindustan Organic Chemicals, Mumbai
(ii)   Herdillia Chemicals Ltd., Mumbai
(iii) Rajaram, Walva
(iv) Krishna(v) Bayer India Ltd., Mumbai
(vi) Crescent Organics Ltd., Mumbai
(vii) Kesar Petro Products Ltd., Mumbai (Through Counsel)
(viii) Mitsui Chemicals Inc., Japan (Through Counsel)
(ix)      Mitsui & Co. Ltd., Japan(x) Samsung Corporation,
(xi) Gujarat State Fertilisers & Chemicals
(xii)  Ranbaxy New Delhi
(xiii) Embassy of Taiwan, New Delhi
(xiv) South African High Commission, New Delhi(xv) NOCIL, MumbaiG/SG/N/8/IND/8
Page 5
B.     VIEWS OF EXPORTERS
The following main points have been made by the exporters:
(a) Mitsui Chemicals Inc., Japan
(i)  The Applicant Indian manufacturers of Acetone are in a monopolistic position in
India (as per their own claim they control up to 97 per cent of the domestic
production) and it appears that the present application is being used as an instrument
to secure and perpetuate that monopolistic position.  Several of the issues currently
complained of, have also existed in earlier years, in which years the Applicants
achieved a capacity utilization of 102 per cent, clearly indicating that these factors didnot affect them significantly.  It is apparent that the sharp decrease in exports which
indicate that the Applicants have become internationally uncompetitive is the reason
for the current application with a view to secure and sustain the Applicants
monopolistic dominance of the Indian market.
(ii)   The quantum of the levy claimed effectively also indicates that the Applicants are
trying to secure for themselves a level of profitability wholly unconnected with the
current trend in the international market.  This would clearly be at the cost of the
Indian Domestic User Industry.  The action indicated appears to be detrimental to the
Indian Industry as a whole and with a very narrow perspective to secure marketdominance and unrealistic price/profit realization for the two Applicants.
(iii)  The application fails to indicate ‘serious injury’ and in particular fails to establish any
causal link between the claimed injury and the imports.
(iv) The application fails to establish ‘critical circumstances’ and more particularly,
‘irreparable damage’ consequently the request for imposition of provisional duty does
not appear sustainable.
(v)      The application sets out information on certain critical issues in a selective and
improper manner.  One such instance is re garding the information as to the low &
reducing capacity utilization.  The Applicants have alleged that the low and reducingcapacity utilisation is a result of increasing imports, without clarifying the fact that
the effective Acetone capacities of those companies has also been taken into
consideration who have not been producing any or producing negligible quantities of
Acetone since 1994-95 the non-production of Acetone by such companies is not on
account of the increasing imports, as even in 1994-95 when the imports were as lowas 9,046 TPA no production was undertaken by them.  A consideration of this issue is
vital to a determination of the injury claimed and  the sort of selective information
offered must be construed as a conscious act of the Applicants with a view to not
disclosing the information required which presumably is adverse to them.
(vi)  The source of information in support of various submissions of the Applicants have
not been indicated or indicated as Market Information Sources.  Such Market
Information Sources are clearly nebulous and are not capable of sustainable
verification and this vitiates the Application.
(vii)  Various figures such as the domestic demand figures are not absolute figures and
have been derived by using mathematical formulae and therefore such figures are not
reflective of the true position.G/SG/N/8/IND/8
Page 6
(viii)  Certain figures set out regarding a drop in the percentage of profitability do not seem
to accurately reflect the position as set out in certain published audited accounts of
the Applicant Company.  It is submitted that this is a matter of some serious concern
as to the credibility of the Application.
(ix)  The import price of shipment of Acetone at US$240/MT indicated by HOC and
Herdillia, in their opinion is an exceptional case and should not be used for general
consideration.
(x)  In the present phase of globalization, local prices are also reflective of international
prices.  The expectation of the Applicants as indicated from the Application is that
they should be able to sustain within India, (at the cost of the Indian Domestic UserIndustry), profit as they were making in the past, which wholly fails to recognize the
impact of international prices.  The Applicants appeared to be using these
proceedings as an instrument to try and secure an unrealistic level of profitability,
which they can exploit in view of their monopolistic dominance of the Indian market.
(xi)  An examination of the sales figures of both the Applicants indicates that the sales
figures of Herdillia have consistently shown an increase, which pattern of increase is
sustained even on the basis of the figures set out for year 1998-99.  As regards HOC,
the figures set out clearly indicate a fluctuating trend of sale from 1991-92 and
thereafter.  The projective sales for 1998-99 are also reflective of this fluctuatingtrend of sale which has earlier existed for HOC.  The imports in question therefore,
appear not to have caused any serious injury to the Applicants in respect of their
sales.
(xii) As to the issue of the stocks built up, an examination of HOC's stock position clearly
indicates that this has also shown a fluctuating pattern, which pattern is likely to
sustain in 1998-99 and thereafter.  As regards Herdillia, their figures as to closing
stock when examined in the context of factors like export as compared to their earlier
exports, they have had no exports in the years 1997-98 and 1998-99 clearly indicate
any stock built up is directly attributable to their failure to sustain their
competitiveness in the international market .  The imports in question therefore, have
had no adverse impact on the stock position of the Applicants.
(xiii) HOC and Herdillia’s calculation of requested safeguard duty rate of 86 per cent is
based on their asserted minimum fair price using 12 per cent as reasonable return on
employed capital.  This rate of 12 per cent is unfairly high for manufactures of
commodity chemicals today and even higher than the profitability rates realized byHOC or Herdillia in the past.  In 1995-96, HOC realized profitability of 14.20 per
cent, but during that period, prices of chemical products were exceptionally high and
those prices went down in 1997.
(xiv)  Demand of Acetone in India is constantly increasing.  Acetone is one of the most
important basic chemical to produce many kinds of Acetone derivatives. These
Acetone derivatives are used in various industries which are in a severe international
competition.  The demand for acetone which is used in Pharmaceutical industry has
been increasing by 8 per cent to 10 per annum and pharmaceutical products using
acetone were one of the major exports of India.  Imposition of Safeguard Duty onAcetone  would benefit two domestic Acetone producers at the expense of many
manufacturers demanding Acetone.  Delay of  growth of such manufacturers would
cause  irreparable adverse effect on general economy of India.G/SG/N/8/IND/8
Page 7
(xv) They admit that the domestic Acetone producers are experiencing difficulty due to
decreased import duty rate on Acetone.  However, import duty rate on Acetone in
India is still considerably higher than other countries.
(xvi) As production capacity of domestic Acetone producers cannot satisfy the total
demand of Acetone in India, Acetone users will have to purchase imported Acetone
even after imposition of safeguard duty.  Procurement of Acetone at higher than
international market price would severely deteriorate competitiveness of those users.
They did not export their Acetone to India from 1.04.94 to 31.3.99 but hope to
cooperate with the users of Acetone by supplying their product in the near future.
(xvii) The initiation of the safeguard proceedings is wrongful and in breach of due process
as the ultimate culmination of these proceedings would result in a situation which is
clearly in breach of the laws of India as secured by other statutes, particularly statutes
such as  the MRTP Act which have defined socio-economic objectives.
(xviii) The factors based on which injury is claimed are factors inherent to and typical of
Indian industry as a whole, and the Chemicals and Pharmaceutical industry in
particular i.e. the Customs Tariff structure, the pricing mechanism operative in India,
infrastructure problems etc.  This position is clearly recognized in various
government studies and published papers.  The injury claimed is, therefore, not a
consequence of imports.
(xix) The Application refers to certain figures in the context of entities who are themselves
importers of Acetone.  Further the Application also refers to figures relevant to
entities who themselves have not supported this Application indicating clearly that
they are neither injured nor perceive a threat of injury.  Reference to such entitiespresents a skewed picture which clouds the issues under consideration.
(xx) A study of the Indian market indicate s that there is a demand supply gap both in
quantum and quality terms which per-force requires imports by the user local
industry.  Any levy which tends to restrict or renders the imports costlier will have a
significant adverse impact on the domestic and international competitiveness of the
local user industry.
(xxi) The Applicants have applied for the imposition of safeguard duty on behalf of eight
Acetone manufacturers in India.  These eight manufacturers could be divided into
three categories based on their manufacturing processes as follows:
(a) Cumene Process Manufacturers HOC and Herdillia;
(b) Isopropyl Alcohol Process Manufacturers NOCIL
(c) Fermentation Process Manufacturers Cordite, Chaltan, Walva,
Sirsilk and Krishna
As the Financial/economic situations of Acetone manufacturers in the categories
mentioned above are essentially different, treating eight manufacturers as one group
would lead to incorrect conclusions bein g drawn as to the state of the domestic
Acetone Industry.  The Cumene Process is  the most common and competitive process
used by the major Acetone manufacturers in the world.  Isopropyl Alcohol Process isa cost inefficient process for production of Acetone requiring large unit of Propylene
as raw material of Isopropyl Alcohol.  As the price of Propylene has increased,
NOCIL has suspended its Acetone producti on and is now importing Acetone for its
production of Methyl Isobutyl Ketone (MIBK) and Diacetone Alcohol (DAA).  AsG/SG/N/8/IND/8
Page 8
NOCIL is an importer of Acetone, they should not be included in consideration of
injury.  The Fermentation Process Manufacturers first produce Ethanol and
subsequently Ethanol is used as a raw material for the manufacture of Acetone.
During the relevant period, as the sale of Ethanol was more profitable than that of
Acetone, the Fermentation Process Manufacturers sold Ethanol rather than Acetone.Even though the Acetone production by Fermentation Process Manufacturers has
been extremely low as compared with their production capacity, they have not
suffered any injury from such low production.
(xxii) Domestic demand of Acetone has been constantly increasing owing to the open-door
economic policy of the Indian Government.  As the Applicants’ production capacity
is unable to satisfy such increasing demand, users need to import Acetone fromforeign manufacturers.  The reason why the Applicants have failed to satisfy the
domestic market is lack of international competitiveness, which is clearly indicated
by decrease in their exports.  The Applicants could have achieved their targeted
production level by increasing export of their product if they were internationally
competitive.
(xxiii) The capacity utilization of the Applicants has decreased from 96.7 per cent in 1997-
98 to 89.7 per cent in 1998-99 which should be attributed to the expansion of
production capacity by Herdillia in 1998-99 through debottlenecking, and should not
be attributed to the increased imports of Acetone into India.  If it were not for suchexpansion, the capacity utilization of th e Applicants in 1998-99 would have been
94.1 per cent.
(xxiv) The Applicants have enjoyed capacity utilization rates between 87 per cent to 102 per
cent during 1994-99 which are extremely high rates for chemical products and whichmost of global major chemical manufacturers are unable to attain.
(xxiv) Acetone is a commodity product sold worldwide and its price is established
internationally.  The price of Acetone imported into India has dropped due to overall
decline of the international market price of Acetone.  The rate of decline of the price
in India is at the same level as other areas.  The Applicants had to decrease their
Acetone price in India in order to meet with this global economic situation.  Increasedimports should not be regarded as the cause of drop of Acetone price in India.  The
profitability of the Applicants has fallen in this competitive market because their
production cost is much higher than foreign producers of Acetone.  The Applicants
could not attract their customers in this situation nor increase their production
because of already high capacity utilization.  Thus they fail to fulfil the increasingdemand of Acetone in India and the market share of domestic Acetone producers has
declined during the relevant period.
(xxvi) The chemicals industry at large has been passing through a global recession and the
Indian Chemical Industry has also felt its impact.  The downtrend in business andprices is not peculiar to India and the Applicants cannot be an island and claim to be
unaffected.  The injury claimed is, therefore, not a consequence of imports.
(xxvii) The chemical industry worldwide is a cyclical industry, characterised by periodical
ebbs and flows.
(xxviii) Imposition of safeguard duty may probably save two industries, but render several
thousand units totally non-competitive.G/SG/N/8/IND/8
Page 9
(xxix) In reports published by Business Line – 11 April 1999 and Press Trust of India,
8 July 1999, HOC have spoken in a different language that they are doing well.  They
can not turn up in another fora  and plead they are injured.
(xxx) In Business Line of 20 June 1999 HCL recognised adverse impact of global
commodity price swings aggravated by domestic infrastructure – related problems
and import from other group companies or subsidiaries.  Factors other than import
need to be excluded for evaluating  injury caused by imports.
(xxxi) As per the ratio of judgement in the case popularly referred to as the Certain
Categories of Glass Cases, OJ 1986 C 128/7, several factors of injury are not
attributable to increased imports.
(b) Merisol/Merichem Sasol, South Africa
They acknowledged receipt of the notice of initiation but stated that Acetone was not part of
the Merisol product portfolio.
(c) Kumho P & B Chemical Inc., Seoul, Korea
(i) The company has submitted certain details relating to their capacity, production, cost
of production, selling price in domestic market, and export price per unit in Indiaduring the year 1998-99 which is as under:
Years 1998 1999
 Capacity (MT) 75,000 75,000
Production (MT) 76,859 77,000
Cost of Production (US$)      306      299
Selling price in domestic market
Korea (US$)     406      426
Export price (US$)      330
f.o.b. Korea-
(ii) The company has also stated that they exported Acetone to India as under during the
last 3 years.
Year Exports (MT)
1996 1,040
1997 -
1998 4,370
1999 -
(d) Sasol Solvents, South Africa
(i) While Acetone marketed by Sasol is manufactured in a unique process in which coal
is gasified and converted into petroleum products and chemicals one of which is
Acetone; the other producers of Acetone use a different feedstock such as Naptha,
Gas Propylene, Benzene, Cumene and Iso Propyl Alcohol.G/SG/N/8/IND/8
Page 10
(ii) Their annual Acetone manufacturing capacity is 1,70,000 Tonnes.  They manufacture
Acetone of  purity 99.85 per cent (minimum).
(iii) They have authorised their indenting agents for Acetone supplies to Indian market,
M/s. Crescent Organics Ltd., Mumbai to represent them in the matter ofinvestigations for the levy of Safeguard duty on Acetone.
The view expressed by M/s. Crescent Organics Ltd., Mumbai being more in the
nature of submissions akin to importers, have been incorporated under ‘views of
Importers/user industry’.
C.     VIEWS OF THE EXPORTING GOVERNMENTS
(a) Chinese Taipei (Taiwan)
They furnished details of export of Acetone to India from Taiwan and have requested
stopping the safeguard investigation since the quantity of Acetone imported from Taiwan wasminimal and desired prior consultation as per Article 12 of the WTO Agreement on Safeguards.
(b) Department of Trade and Industry, London
They expressed gratitude for having been advised of the notice of initiation and desired being
kept informed of the progress of investigations.
(c) South African High Commission, New Delhi
They are of the view that the imposition of safeguard duty on Acetone is not justified by the
circumstances prevailing in the Indian Industry.  India’s effective and operating capacities have not
been able to meet the country’s demand for Acetone and it is for this reason Acetone is being
exported by Republic of South Africa to India.
Acetone prices in line with other petrochemical feedstock, such as Propylene, Benzene and
Cumene – came down during 1998-99 and therefore Acetone exported by South Africa had
necessarily to fall in line with this trend.  Acet one from South Africa is being exported to meet the
supply – demand gap in India and that the prices of  Acetone have been moving up significantly since
April 1999.
(d) Embassy of Saudi Arabia, New Delhi
The Royal Embassy of Saudi Arabia, New Delhi in their response stated that to their
knowledge Acetone is not manufactured in the King dom of Saudi Arabia and they see no possibility
of Acetone being dumped  into India.
D. VIEWS OF  IMPORTERS/USER INDUSTRIES
I.        The importers in general have made the following main points:
(i) It is a matter of common knowledge for those in the industry that Acetone is a cyclic
industry and the prices fluctuate depending upon the business cycle.  The prices ofAcetone are further dependent upon the prices of Phenol.
(ii) A plant utilisation level of about 85-90 per cent is extremely good plant utilisation.
The Applicants are operating at their optimum capacity and further addition to theG/SG/N/8/IND/8
Page 11
production by the industry is ruled out unless some capacities are added.  There could
be various factors internal/external to HCL and HOC which could have influenced
production of Acetone and that these factors are not necessarily reducible to one
factor namely, imports of Acetone.  The production of Phenol and viability to market
the same during the period of reference which has been documented could have had amajor impact on lower production levels of Acetone.  Perhaps HOC and HCL have
not been able to produce Acetone to full capacity since they themselves have
imported Acetone.
(iii) HOC and HCL have not apprised the correct status of effective capacity of Acetone
manufacturers in the country.  While historically there may have been eight
manufacturers of Acetone in India, it is a well known fact that apart fromM/s. Herdillia Chemicals Ltd (HCL), M/s.Hindustan Organic Chemicals Ltd (HOC)
and M/s. National Organic Chemical Indus tries Ltd (NOCIL), there are no other
manufacturers of Acetone in India who can be depended upon for continuity of
supply of Acetone through out the year, year after year.  ‘Cordite’ is under the
Ministry of Defence Production and exclusively caters only to its own in-houserequirement - which was set up linked to manufacture of explosives for the Armed
Forces.  It is not a supplier to non-defence units.  Chaltan (3,000 TPA), Walva
(4,500 TPA), Sirsilk (1,500 TPA) and Krishna  (4,500 TPA) are all basically Molasses
based alcohol units - who like Cordite (1,320 TPA) have set up highly uneconomical
and unviable Acetone manufacturing capacities.  These alcohol based manufacturersof Acetone reopen their units only when Acetone can be sold at rather exorbitant
prices which could happen when either imports are inadequate and/or there is a major
shutdown at HCL / HOC / NOCIL.  These units have been rendered uncompetitive by
HCL and HOC long before imports of Acetone came into the country.  It is surprising
that HCL and HOC should now blame importers for the present predicament of theseunits.  In view of this, the unviable Acetone manufacturing capacities of Cordite /
Alcohol units viz., 14,820 TPA should be deleted from the “Effective Manufacturing
Capacity”.  Similarly  NOCIL do not fi nd it economical to produce Acetone from
Crude IPA,  they are progressively phasing themselves out of manufactured Acetone
to bought in Acetone from HCL / Imports.  Even their purchases of Acetone from
HCL are intended to encourage HCL to use their Propylene - which is 65 per cent
costlier than imports.  In view of this, NOCIL’s production capacity of 14000 TPAAcetone should be deleted.  The effective Acetone capacity of manufactured Acetone
in India be considered commensurate and coterminous with the combined Acetone
manufacturing capacities of HOC and HCL viz., 45,950 TPA.
(iv) It is not proper for the Applicants to file the petition for imposition of safeguard duty
in respect of an item which they themselves have been importing either for in house
consumption or for stock and sale.  Further, imports of large parcels by HCL / HOC /
NOCIL have enabled other interested Indian importers to piggy-back on such imports
at prices negotiated by  these manufacturers.
(v) The  increased imports are not the prime cause of injury to the domestic producers of
Acetone.   Until 1994-95, the Applicants were operating in a monopolistic situation as
imports until then were restricted under the high import duty regime (65 per cent
basic duty).  The Government had introduced the policy of globalisation of economyand liberalised imports in 1992-93 with a phased programme of reduction in custom
duties over a period of 7 to 8 years.G/SG/N/8/IND/8
Page 12
(vi) While Reliance Petroleum Ltd., have set up the largest refinery in the world in less
than 5 years, after nearly 7 years there is no adequate evidence of efforts showing
HCL/HOC/NOCIL making themselves competitive in the manufacture of Acetone.
During this 7 year period, they have not shed their obsolete technologies and gone in
for state of art global scale of production which could produce Acetone for sale at aninternationally competitive price.  If after 7 years, they are content with mere
debottlenecking and no major cost reduction has taken place either in their
manufacturing process or by sourcing imports of feedstocks at a cheaper prices, then
their customers should not be penalised by having to pay the price for inefficient
purchasing / manufacturing process.
(vii) The Applicant’s high cost of production could possibly be one of the major reasons
for a drop in the annual production tonnage.  The non competitive purchasing of
major inputs is a major cause of the Applicants inability to produce cost competitive
Acetone vis-a-vis imports.  It requires to be investigated whether raw materials,
namely Benzene and  Propylene or the alternative feedstock, namely, Cumene have
been sourced at internationally competitive prices.  For reasons best known to themthey remained silent on such critical issues as to whether they were in a position to
procure Benzene and Cumene at competitive international prices - which has a
serious bearing on their competitiveness and the injury as alleged.  Had both
Applicants procured larger quantities of Cumene in the international market on
extended credits from 120 days to 180 days during the reference period, they shouldhave been able to bring down the cost of Acetone substantially.
(viii) US-Gulf producers are the largest exporters of Cumene in the world.  Most of the
major buyers of Cumene - including HCL and HOC - source their Cumene from the
US-Gulf region.  From the ICIS-LOR data it is observed that c.i.f. Indian import priceof Cumene imports are often at par with f.o.b. US-Gulf prices at which major
American producers of Acetone are purchasing Cumene.  As Cumene could be
imported at a competitive price comparable with global producers of Acetone in the
United States, the non import of Cumene in larger quantities can have a direct bearing
on the profitability of HCL / HOC.
(ix) It is not imports that have caused injury but rather the smug attitude of the Applicants
and perhaps their expectation that either the problem would resolve by itself or the
Government would come to their rescue by way of imposing safeguard duty as was
done in the case of Phenol.
(x) The HOC and HCL imported Acetone despite alleged capacity non utilisation which
is not understood.  HOC’s imports were exclusively for stock and sale.  HCL is
reported to have taken Acetone to their plant and sold the same thereafter to
customers of Acetone.  If, as allege d by HCL and HOC, increased imports have
caused injury to the domestic producers of Acetone, then it would also be necessary
to assess the extent to which imports of Acetone by HCL and HOC have contributedto such injury.  NOCIL so far has apparently not claimed injury due to imports.
However, their imports - by the same logic - would have caused them injury also.
Under the  circumstances, it requires to be established how HCL and HOC can enjoy
the benefits of being importers of Acetone and concurrently seek imposition of
safeguard duty.  The bids for imports  made by the Applicants also influenced theprice at which subsequently imports took place.
(xi) The Applicants have not presented a correct picture of demand for Acetone and have
concealed the fact that Effective Manufacturing Capacity is grossly inadequate toG/SG/N/8/IND/8
Page 13
meet the country’s demand for Acetone.  The domestic production is not enough to
meet the domestic annual consumption of about 70,000 MT.  Even at 100 per cent
capacity utilisation by the Applicants, they  fail to meet and are far short of the
domestic consumption.  Therefore, import is  the only way to meet out the balance
demand.  Most of the domestic consumers are procuring  their requirement from theApplicants but both put together do not have enough capacity to meet their entire
demand.
(xii) The stock position  of HOC and HCL  clearly reveals that their entire production is
consumed by the domestic market and imports do not have any adverse impact on
them.
(xiii) The installed capacity of both the Applicants is much lower vis-à-vis standard
international Plant capacity.  Besides, the Plant set up by the Applicants are
inefficient with inferior technologies.  They create shortage of Acetone in domestic
market, invariably adjusting shut down of their Plants and resort to price rise even
when there is drop in international price.
(xiv) There does not appear to be any further erosion in prices of Acetone - which are
reported to have come down to US$240 PMT c.i.f. in March 1999 and has already
risen to US$370 PMT in July 1999.  Consequent to the increase in the prices of
Acetone in the international market the manufacturers HOC and HCL have increasedtheir selling prices during May/June/July 1999 from Re 18,000 PMT to Re 23,500
which is more than the loss incurred reportedly by them in the last quarter of 1999.
The prices are reported to be rising even higher.
(xv) Imports of Acetone are being projected by the Applicants as the cause of lower net
sales price realisation of indigenously produced Acetone.  However, this is not the
case.  The true cause of lower sales price realisations is the uncompetitive price at
which they persist in purchasing their raw materials e.g., Propylene. Imports should
not be unfairly blamed for lack of profitability by the Applicants who have
consciously chosen to remain uncompetitive in their buying patterns.
(xvi) As imports of Acetone at 180 days credit are alleged to be creating liquidity problems
for the Applicants, they need to explain why they themselves are not obtaining
100 per cent of their requirements of Propylene and Benzene or Cumene at 180 days
credit by resorting to imports.
(xvii) The Applicants have already increased their selling prices for Acetone from
Re 21,500 to Re 23,500 per MT during June/July’99 and there was scope of
increasing their price to Re 26,000 per MT or even Re 28,000 per MT ex-plant during
July 1999.  As against HCL prices,  traders such as M/s. Crescent International have
sold 50 Tons Acetone to M/s. Kopran Ltd., M/s. Indosol Drugs and M/s. Glaxo India
Ltd., at a basic price of Re 28,000 per MT + excise + taxes.  Thus HCL / HOC are notmaking a serious attempt to improve sales realisation.
(xviii) The Applicants expectation of a 12 per cent return on Capital Employed is
unreasonable.   The market forces of demand and supply determine price and it would
be arbitrary and unrealistic to have an accounting norm of 12 per cent return oncapital employed - when there is no such norm worldwide for Acetone.  The
Applicants are trying to secure for themselves a level of profitability wholly
unconnected with the current trend in the international market.G/SG/N/8/IND/8
Page 14
(xix) The average net realisation of each of the Applicants requires to be worked out afresh
using imported Propylene and Benzene as a starting point.  Additionally, if the
average net realisation improves substantially by resorting to 100 per cent import of
Cumene as the starting point for manufacture of Acetone, this should have been
resorted to. HCL is importing Cumene at US$275 PMT c.i.f. in March 1999.  Aproper scrutiny of the costing of production based on imported inputs purchased more
competitively would have improved profitability.
(xx) Considering the increase in c.i.f. prices of Acetone (US$390 PMT c.i.f.) by more than
US$150 PMT since April, 1999 and the possibility of importing Propylene and
Benzene or Cumene at much cheaper prices than if these are produced by certain
indigenous producers, there is no material case for imposition of safeguard duty onimports of Acetone.
(xxi) The safeguard duty rate of 86 per cent is based on a wrong price assumption
(US$240) and an unfairly high return of 12 per cent - which is not realistic for
commodity chemicals worldwide specially for a by-product such as Acetone whose
principal product Phenol is already protected by 22 per cent Safeguard Duty.
II.    In addition to the above points some of the importers have also made the following
submissions:
M/s. Kesar Petroproducts Ltd., Mumbai
(a) The purpose of safeguard duty is to provide a price protection to domestic industry (the
petition is not for quota restriction).  In case it is found after conducting the investigations that
the prices of Acetone in the relevant period were not the fair prices for the domestic industry,a floor price may be fixed, on the lines being recommended by the Designated Authority on
Anti-dumping, considering the fact that domestic industry has accepted that there is no injury
to them in case the imports are available at Re 22,000 PMT (considering the prevailing level
of customs duties) which mechanism would ensure smooth supplies to the consumers and
would provide a protection to the domestic industry.
(b) HOC indicated that the price of Acetone has increased in the international market and,
therefore, HOC vide th eir letter dated 7th July, 1999 indicated increase in Acetone prices in
the light of tremendous increase in the international price of Acetone and increased price of
Phenol also by Re 3,000/- MT on account of 22 per cent safeguard duty imposed by the GOI
w.e.f. 30 June 1999 and thus they have covered their losses incurred in the last quarter of
1999 (to be read as 1998-99) by way of increase in prices. HCL also vide their letter dated1 July 99 (immediately after issue of letter for initiation for safeguard duty) increased the
price of Acetone and thus they have covered their losses incurred in the last quarter of 1999
(to be read as 1998-99) by way of increase in prices.
(c) Price revision by HOC are always effective immediately and they stop deliveries of Phenol
and Acetone against the pending delivery orders which has already been issued by them at old
rates.  This dictatorial nature does not allow consumers of Acetone and Phenol to decide their
prices and are invariably at a loss.
(d) HOC manufactures Phenol and Acetone at their Cochin Unit and they have another unit at
Rasayani, Maharashtra to manufacture other products.  HOC’s Cochin plant is highly
profitable and the losses incurred at their Rasayani plant are compensated by Cochin plant.G/SG/N/8/IND/8
Page 15
(e)  The real grievance of the Petitioner is the price at which the imports are coming in and not the
volume of imports.  If this is so, then the remedy lies elsewhere.
Aurobindo Pharma Ltd., Hyderabad
(f) The overheads of HOC are increasing year after year whereas the production capacities of
Acetone did not increase thereby HOC are not able to compete with the international market.
They should concentrate on reducing overheads.
Bayer (India) Ltd., Mumbai
(g)  They have purchased very small quantities of imported acetone from local importers on a tax
plus basis or against Advance License in times of shortages.  They have supported the
domestic industry through the deemed export procedure by purchasing Acetone at higher
prices instead of resorting to direct imports to capitalise on the fall in international prices.  If
safeguard duty is imposed, the domestic industry will resort to a price increase which will be
totally unfair to M/s. Bayer and will affect their competitiveness.  There is no possibility ofavailability of Acetone ex-major domestic producers.  Considering that one of the Applicants
is a Public Sector Unit  and their present financial position, it would be optimistic to believe
that Re 650 Crores will be released by the Govt. of India.
Gujarat State Fertilizers  and Chemicals Ltd.
(h)   They contact indigenous manufacturers to match the landed price of imported Acetone so that
at no extra cost they are able to keep the indigenous sources alive in the interest of their long
term procurement policy.
Ranbaxy
(i)   The combined capacity of HOC and HCL as stated by them in their application was
45,950 MT.  They have claimed that their capacity has increased in July-August, 1999, which
needs to be substantiated by a certificate from their Statutory Auditors to that effect.
Crescent Organics Ltd.
(j) Unlike HOC and HCL none of the other domestic producers of Acetone are compulsive
producers of Acetone.  They object to NOCIL and Cordite to be implicated as applicants.
Based on their past performance, they object to Chalthan and Sirsilk producers to be included
as applicants.  They also object to inclusion of Krishna and Walva being consistent non-performing units since 1994-95.  The true cause of injury to domestic producers is
uneconomical procurement of raw material, their inability to quickly raise prices and
uncompetitive scale of production.
(k) The major US plants as well as Mitsui’s Singapore plant have a Mitsui Special Technology to
convert Acetone back into Propylene.  None of these new capacities will export Acetone but
Phenol.  There is, therefore, no cause for alar m about a wave of Acetone exports to India and
request for Safeguard Duty for a period of 3 years on this ground is not warranted.G/SG/N/8/IND/8
Page 16
E. VIEWS OF DOMESTIC PRODUCERS
       The domestic producers have made the following main points:
(a) Cordite Factory, Aruvankadu (The Nilgiris)
(i) In view of the increase in price of Ethyl Alcohol, their raw material for manufacture
of Acetone, they have stopped manufacture of Acetone since quite sometime.
(ii) They are not affected directly by the excessive imports of Acetone.(iii) As a consumer of Acetone they are happy about the reduction in Acetone prices.
(b)     Krishna, Satara
(i) They have been manufacturing Acetone since the year 1984 and their capacity is
4,500 TPA.
(ii) The increased imports of Acetone in India (more than 28,000 tons in 1998-99) at
extremely low prices in the region of US$250/Ton have caused serious injury to the
domestic Acetone manufacturing industry.
(iii) Imports of Acetone into India have increased by more than ten times in the past seven
years from 2,773 MT in 1992-93 to 28,870 MT in 1998-99.
(iv) The sharp fall in import duties in the past few years has also led to near extinction of
a substantial number of Indian Acetone manufacturers.
(v) They support the application made by HOC and HCL for Safeguard investigation
against imports of Acetone which has been made to assuage the suffering of the
domestic Acetone manufacturers.
(c) Rajaram Bapu Sahakari Sakhar Karkhana, Walwa
(i) Import prices of Acetone have been drastically falling in the past four years along
with dramatic increase in imports.
(ii) In 1995-96 they could recover fully their manufacturing cost of Acetone.  Due to
lower landed cost of imports in 1996-97 they could not recover their manufacturingcost and they had to temporarily suspend production of Acetone.
(iii) They are in dire need of safeguard duty to be levied on imports of Acetone to
recommence Acetone production.
(d)       NOCIL, Mumbai
(i) They are a producer as well as consumer of Acetone.
(ii) They are greatly concerned with the nature of claims made by the domestic industry.
Petrochemical is a cyclic industry and the prices fluctuate depending upon the
business cycle.  The prices of Acetone are further dependent upon the prices of
Phenol.G/SG/N/8/IND/8
Page 17
(iii) It is a matter of common knowledge for those in Petrochemical industry that a plant
utilization level of about 85-90 per cent is an extremely good plant utilization.  HOC
and HCL are operating at their optimum capacity and further addition to the
production by the industry may not be possible unless fresh capacities are added.  The
country being deficient in Acetone, the remaining demand has to be met out ofimports.
(iv) Imposition of safeguard duty is not in public interest.  The purpose of safeguard duty
is to provide a price protection to domestic industry (the petition is not for quota
restriction).  In case it is found after conducting the present investigation, that the
prices of Acetone in the relevant period were not the fair prices for the domestic
industry, floor price may be fixed on the lines being recommended by the Designated
Authority on Anti Dumping, considering the fact that domestic industry has accepted
that there is no injury to them in case the imports are available at Re 23,907/- pmt
(considering the prevailing level of customs duties and without considering the
additional duty of customs and SAD) which mechanism would ensure smooth
supplies to the consumers and would provide protection to the domestic industry.
(v) It is not disputed that the import price in India had declined to as low as US$240/t and
it is also possible that the Applicants might have made losses at these prices and
might have made profits when the prices were higher.  Since the decline in the price
is a market phenomenon, no extra protection of safeguard duty is required to be givento the industry particularly when the benefit of rising market has also been reaped by
the domestic industry.
(vi) Considering that the capacity utilization of the Applicants is already very good, it
does not appear feasible that the domestic industry can increase production in theshort run.  It also needs to be noted that other domestic companies who hold capacity
for Acetone production are in fact not produ cing Acetone for more than last five
years, and reasons for closure of their plants cannot be attributed to imports.
(vii) Since manufacture of Acetone through th e IPA route is not economical, NOCIL does
not produce significant volumes of Acetone for the merchant market.  The capacity
available with NOCIL is, therefore, effectively not available to the domestic industry.
(viii) Imposition of safeguard duty would affect the availability of the product to the
consumers and is thus not in the public interest, which is understood to be one of the
vital requirements under the Safeguard Duty Rules.
(ix) NOCIL in addition to being  a producer of Acetone, also purchases Acetone to
manufacture downstream products like Methyl Isobutyl Ketone (MIBK), Diacetone
Alcohol (DAA) and Methyl Isobutyl Carbinol (MIBC). NOCIL is the only
manufacturer of MIBK and MIBC in the country.  While MIBK is used mainly in
pharmaceuticals, rubber chemicals, surface coatings etc., MIBC is used in orefloatation, latent solvent for nitrocellulose, resins etc.
(x) NOCIL competes with international chemical companies for MIBK.  The competition
from international companies is very severe  and any imposition of additional duty on
Acetone will seriously affect the viability of manufacture of MIBK.
(xi) The whole case of domestic industry seems to be the allegation that the domestic
producers have been forced to reduce their selling prices from Re 28/kg  in
March 1998 to Re 18/kg in March 1999.  If the intent of the imposition of safeguardG/SG/N/8/IND/8
Page 18
duty is to provide a price protection to the domestic industry, the safeguard duty
should be recommended on a variable basis, on the lines being recommended by the
Designated Authority on Anti-dumping  which would not only ensure protection to
the domestic industry, but also protect the interest of the consumers though they feel
no relief by way of safeguard duty is required to be given to the domestic industry.
(xii) The market conditions prevailing for Acetone in 1998-99 were due to the cyclical
nature of the petrochemical industry.  The Acetone prices have in fact increased to
US$360/t in June 99 from US$240/t in March 99.  They do not think that any
adjustment is required to be undertaken by the Indian industry in view of the
prevailing market conditions in that period.
(e) Hindustan Organic Chemicals Ltd., Mumbai &  Herdillia Chemicals Ltd., Mumbai
(i) HOC have  their manufacturing units at (1) Rasayani-410027, Distt. Raigad
Maharashtra (2) Ambalamugal-682302, Distt.  Ernakulam, Kerala and Phenol plant is
located at Ambalamugal only.  They manufacture Basic Organic Chemicals namelyAcetone also known as Dimethyl Ketone, Phenol also known as Carbolic Acid or
Hydroxy Benzene, Aniline, Nitrotoluenes, Nitrochlorobenzene, Monochlorobenzene,
Formaldehyde, Nitrobenzene, Sulphuri c Acid, Cyclohexylamine, Acetanilide,
Caustic Soda, Hydrogen Pe roxide, Butene-1, 4-Diol.
(ii) HOC produce Acetone by the Oxidation of Cumene using air at elevated
temperatures and pressures.  The product is Cumene Hydroperoxide at lower
concentration, which is then alkali washed and concentrated to a higher strength.
This is then mixed with H
2SO 4 which causes a cleavage reaction to give Phenol and
Acetone.  This is washed to remove acidity and distilled in a series of distillationcolumns to give Acetone, Phenol and unreacted Cumene (which is recycled for
conversion to Acetone and Phenol. Benzene and Propylene are the major raw
materials while Cumene is an intermediate in the manufacture of Acetone and Phenol.
Cumene is at times bought out also.  Acetone manufactured by them has similar
qualities and characteristics as of imported product.
(iii) HCL manufacture basic organic chemicals and specialties like  Phenol, Acetone,
Phthalic Anhydride, Diacetone Alcohol,  Dodecyl Phenol, Nonyl Phenol, Diphenyl
Oxide, Isobutyl Benzene, Isophorone, Heat  Transfer Media, Acetopherone.  The
imported  Acetone and the Acetone manufactured by them is same in all respects.
(iv) Acetone manufactured by HCL/HOC is used  in numerous organic synthesis either as
an intermediate or as a solvent.  The chemicals manufactured  from Acetone includes
Isophorone, Diacetone Alocohol, Methyl Methacrylate, Bisphenol A, Rubber
Chemicals and Cellulose Acetate.  Acetone is also used as a solvent in the
manufacture of paints and coatings.
(v) Acetone imports have been steadily going up at a high growth rate, almost
consistently, in the 1990’s at an average rate of 78 per cent per annum between 1993-
94 and 1998-99 (from 1014 MT to 21870 MT).  This spurt in imports, particularly
during 1998-99 is on account of sharp decline in global Acetone prices.  The spurt in
imports accompanied by the drop in margins has adversely affected the industry tosuch an extent that if the same situa tion continues to exist the domestic Acetone
industry may have to close down.G/SG/N/8/IND/8
Page 19
(vi) The c.i.f. rates of Acetone imported during 1995-96 was in the range of US$490 to
880; in 1996-97 it was US$380 to 490; in 1997-98 it was US$440 to 530 which came
down to US$240 PMT in March 1999.  This decline in the cost of import coupled
with the reduction in Customs Duty from 50 per cent to around 35 per cent has
adversely affected them.  The net realisation of the domestic manufacturers have alsobeen affected.
(vii) Whereas the cost of production has been by and large increasing over a period of
time, the domestic prices, which are a function of international prices (c.i.f. India),
import duty and the exchange rate have had to be drastically reduced in order to
minimise the loss of market share.  This has led to compression of margins.
(viii) In view of the rapid fall in c.i.f. India prices to an all time low in the past 5 years,
there is a significant further spurt in (more than doubling of) import over and above
the past five year average of 14,454 TPA, and there is a further compression of
margins equivalent to the compression of landed cost of import over and above
current levels.  Increased imports leading to loss of market share has led to lowerproduction of sale leading to high fixed costs per ton.
(ix) Due to these extremely low priced imports, Indian manufacturers had to reduce their
prices from Re 31/- Kg in January 1998 to Re 21/-Kg in October 1998 to the end
March 1999 price level of Re 18/Kg (all prices being list prices) so that the net priceafter discounts nearly matches the landed cost of import at around Re 15/Kg net of
CVD setoff.  Till end March 1999, there is a drop of Re 13/Kg in list prices on a
January 1998 level of Re 31/Kg.  There has been no corresponding reduction in the
raw material prices.  In view of this, the cost of manufacture remains high and
profitability is under pressure.
(x) HOC during 1998-99 recorded a profit of Re 386 PMT in the first quarter,
Re 6,980 PMT in the second quarter and Re 447PMT in the third quarter but incurred
a loss of Re 1,722 PMT in the fourth quarter.  Similarly Herdillia made profits of
Re 3,282 PMT and Re 2,264 PMT in the first and second quarters of 1998-99 but
incurred a loss of Re 1,588 PMT and Re 2,096 PMT in the third and fourth quarter
respectively.
(xi) Due to the large scale Acetone imports  (at substantially lower costs and long credit
periods) flooding the Indian Markets, the situation is forcing the manufacturers to
offer more credit period to the customers.  The debtors, in case of both the companies
have gone up substantially during the past few months elongating the working capitalcycle finally resulting in a severe cash crunch.  As a result, both the organisations are
finding it difficult to pay to the suppliers on time.  The debtors of Acetone have
increased from 32 days in August 1998 to 38 days in March 1999.  The organizations
have had to borrow funds higher than the prevailing market rate resulting in a further
loss of profitability.
(xii) Herdillia’s as well as HOC’s performance parameters for credit rating have also
deteriorated due to low Acetone prices making it further difficult to access funds at
reasonable cost.  This will have a further adverse impact on the profitability in the
future as interest cost component will go up.  This is very much imminent.
(xiii) Due to the liquidity crunch (and the consequent loss of profitability), both the
manufacturers are finding it extremely difficult to access funds from financialG/SG/N/8/IND/8
Page 20
institutions.  This is, in turn, resulting in delay of implementation of the long-term
plans to build Green-field Acetone capacities.
(xiv) Propylene is currently not importable due to grossly inadequate port infrastructure for
artificially liquefied gases.  Freight on Propylene is very high further making itdifficult to import.  Domestic prices of Propylene are more than 65 per cent higher
than the international f.o.b. prices. Over and above this, the domestic freight on
Propylene is as high as another 15-20 per cent of the domestic Propylene price.
(xv) In India, the cost of power, fuel, finance, transportation etc. is also higher than in
other parts of the world where Acetone is produced.  This contributes to higher cost
of manufacture of Acetone (in India) and is a factor beyond the control of IndianAcetone producers.
(xvi) The international prices of the co-product of Acetone (i.e. Phenol) have also fallen
sharply in the last one year because of which the combined landed cost of Acetone
and Phenol has fallen sharply during the same period.  Domestic prices of Phenol alsohave had to be lowered.  Because of this, the combined net realisations and
consequently the margins on Acetone and Phenol have been adversely affected.  The
combined landed cost of import of Acetone and co-product Phenol has significantly
declined indicating deteriorating situation.
(xvii) HOC and HCL have been upgrading their technology and debottlenecking
manufacturing facilities with the objective of reducing the operating costs per unit
and increasing effective capacity to satisfy the increasing domestic demand from
most of the sectors.  To reduce the power cost, they have taken steps to setting up of
captive power generation facilities by the co-generation route and gains would start
accruing.  They are planning to set up a World Scale Greenfield Phenol
manufacturing  facility  either 100,000 TPA or 150,000 TPA (corresponding Acetone
capacity of 60,000 TPA expandable to 90,000 TPA) at Dahej in Maharashtra or
Gujarat State.  There is a possibility of a cooperative effort between HOC and HCL.
They intend to become internationally competitive by extending their capacities,
upgrade and modernise technology with the help of technology suppliers and
consultants.
F. FINDINGS
1. I have carefully gone through the case records and the replies filed by the domestic producers,
users/importers, exporters and exporting governments.  Submissions made by various parties and theissues arising therefrom are dealt with at appropriate places in the findings below.
2. Product under Investigation
(i) The product under investigation is ‘Acetone’ (also known as Dimethyl Ketone), a
basic organic chemical with chemical formula CH 3COCH 3.
(ii) Acetone is manufactured using different processes including the Cumene route which
is used by HOC and HCL, the Isopropyl Alcohol (IPA) based route and the Alcohol
(Ethanol) based route.  In the Cumene route, Acetone is produced by the oxidation ofCumene using air at elevated temperatures and pressures.  The product is Cumene
Hydroperoxide at lower concentration, which is then alkali washed and concentrated
to a higher strength.  This is then mixed with H
2SO 4, which causes a cleavage
reaction to give Phenol and Acetone.  This is washed to remove acidity and distilledG/SG/N/8/IND/8
Page 21
in a series of distillation columns to give Phenol, Acetone and unreacted Cumene
(which is recycled for conversion to Phenol and Acetone).  Cumene in turn is
produced by the reaction between Propylene and Benzene in the presence of solid
Phosphoric Acid catalyst at high pressures and elevated temperatures.
(iii) In the IPA based route, Acetone is manufactured by Dehydrogenation of IPA.  This
conversion is carried out at elevated temperature in presence of a catalyst which is
normally a metal or a metallic oxide supported over an inert material.
(iv) In the Alcohol based route, Acetone is produced by Catalytic Ketonisation of Alcohol
using steam at high temperatures.  This process is generally followed by the sugar
factories in India.
(v) Acetone is produced in a single grade as colourless liquid with an agreeable ether-like
odour.
(vi) Acetone is used in numerous organic synthesis (of bulk pharmaceuticals,
agrochemicals, dyestuffs, certain explosives and downstream chemicals) either as an
intermediate or as solvent.  The chemicals manufactured from Acetone include
Isophorone, Diacetone Alcohol, Methyl Methacrylate and Bisphenol-A.  Besides,
Acetone is used in the manufacture of certain Rubber Chemicals, Oxy-Acetylene,
Cellulose Acetate and also as a solvent in the manufacture of Paints/Coatings.
(vii) Acetone is classified under sub-heading 2914.11 of the First Schedule to the Customs
Tariff Act, 1975 and under 29141100 of the Indian Trade Classification based on
Harmonised Commodity Description and Coding System (ITC).  This classification
of Acetone under the Customs Tariff Act, 1975 and the Indian Trade Classificationhas been indicated for the purpose of convenience and in no way restricts the scope of
the coverage of the product under investigation.
3. Domestic Industry
(i) In all eight domestic producers have capacity to produce Acetone with an effective
Acetone capacity of 74,770 MTpa. M/s Hindu stan Organic Chemicals Ltd., Mumbai
(HOC) and M/s Herdillia Chemicals Ltd., Mumbai (HCL) produce Acetone through
the Cumene route. NOCIL produces Acetone through IPA based route and the other
five domestic producers namely Challtan, Sirsilk, Krishna, Rajaram (Walwa) and
Cordite units have production capacity for Acetone based on Alcohol.
(ii) NOCIL have  submitted that imposition of safeguard duty is not in public interest.
They have also stated that since manufacture of Acetone through the IPA route is not
economical, NOCIL does not produce significant volumes of Acetone for the
merchant market and, therefore, the capacity available with NOCIL is effectively not
available to the domestic industry.  They have further stated that they have chosen tomaximise the production of IPA, which offers better value addition/returns on
investment.  Increased production of IPA ha s led to reduced production of Acetone.
Similarly, Cordite unit has stated that they have stopped production of Acetone since
quite sometime and that as a consumer of Acetone, they are happy about the
reduction in Acetone prices.
(iii) M/s Krishna Sahkari Sakhar Karkhana Ltd. and M/s Rajaram Babu Patil SSK Ltd.,
although did not join the Applicants in filing this application, they have participated
in the investigation and extended their support for imposition of safeguard duty onG/SG/N/8/IND/8
Page 22
imports of Acetone.  They have categorically stated that they had to suspend their
production in view of increased imports at sharply reduced prices, which made
production of Acetone unviable for them and that levy of safeguard duty will enable
them to recommence the production of Acetone.
(iv) The production of the eight domestic producers (in MT) during the period 1994-95 to
1998-99 is given in the Table below:
Table 1
Production in MT
Year/Company 1994-95 1995-96 1996-97 1997-98 1998-99
HOC 23,576 27,024 21,333 27,555 25,096
HCL 11,579 12,790 14,151 14,803 16,126
NOCIL 7,277 6,731 3,209 1,523 1,021
Cordite 300 425 425 380 375
Krishna 0 1,157 0 0 0
Rajaram 0 1,429 166 0 0
Sirsilk 0 0 0 0 0
Chalthan 0 0 0 0 0
Total 42,732 49,556 39,284 44,261 42,618
(v) The application for imposition of safeguard duty on Acetone has been filed by HOC
and HCL who had a combined capacity of 45,950 MT (1998-99) of Acetoneproduction.  During 1998-99, they produced 41,222 MT of Acetone out of a total of
42,618 MT of Acetone produced in the country during 1998-99.  HOC and HCL
together, therefore, constitute a major proportion of domestic production.  The
application by HOC and HCL is, therefore, considered to have been made on behalf
of the domestic industry.
4. Increased Imports
(i) Acetone is imported into India from Canada, China, P.R., Chinese Taipei, France,
Finland, Germany, Japan, Korea DPR, Korea RP, the Netherlands, Russia, Saudi
Arabia, Singapore, South Africa, the United Kingdom and the United States.
Currently, the major exporters of Acetone to India are Germany, the Netherlands,Russia, South Africa, South Korea, Taiwan and the United States.  The import duty
on Acetone that was 85 per cent in 1993-94 was brought down to 65 per cent in 1994-
95, 50 per cent in 1995-96, 40 per cent in 1996-97 and to 30 per cent + 2 per cent +
3 per cent in 1997-98.  In 1998-99, Acetone attracted import duty @ 30 per cent +
5 per cent ad valorem excluding Additional Duty of Customs and Special Additional
Duty of Customs.
(ii) In 1994-95 a total of 9,046 MT of Acetone entered into India mainly from Germany
(1,001 MT), Netherlands (826 MT), Philippines (1,551 MT) and United States (4,839
MT).  In 1995-96, the imports of Acetone rose phenomenally to 18,519 MT withmajor imports from Belgium (1,037 MT), Chinese Taipei (978 MT), Germany (2,549
MT), Korea (1,452 MT), Netherlands (2,100 MT), Singapore (820 MT) South Africa
(7,498 MT) and the United States (1,098 MT).  The imports during 1996-97 increased
further to 26,228 MT with major imports from Germany (1,429 MT), Netherlands
(1,415 MT), South Africa (11,124 MT), UK (1,597 MT) and the United StatesG/SG/N/8/IND/8
Page 23
(7,561 MT).  In 1997-98, the imports, however, declined to 16,574 MT with major
imports from Korea (1,401 MT), Netherlands (637 MT), Singapore (1,770 MT),
South Africa (9,030 MT) and the United States (3,547 MT).  The imports in 1998-99
reached an all time peak to 29,182 MT with major imports coming from South Africa
(16,350 MT), Korea (2,975 MT), Netherlands (2,571 MT), Russia (2,040 MT), theUnited States (1,480 MT), Germany (1,365 MT) and Taiwan (1,005 MT).
(iii) Doubts have been expressed by some parties about the authenticity of import data
provided by the Applicants, particularly in respect of import data for the period 1998-
99.  The domestic producers in this regard have submitted that the data for the years
up to 1997-98 has been taken from the DGCIS, Calcutta.  Due to time lag in
publication of DGCIS figures, for 1998-99 they have taken the data based on marketintelligence sources.  In regard to the auth enticity of the import data, it is observed
that the data provided by the Applicants for the period from 1994-95 to 1997-98 is
based on the DGCIS statistics and is authentic.  As far as 1998-99 data is concerned,
it is observed that the Applicants have provided details of imports giving name of the
vessel, date of arrival, quantity, port of loading and price etc. in the application.  It isobserved that no specific discrepancy in the import data for the period 1998-99 has
been pointed out by any party.  However, the import data of Acetone was subjected to
verification.  Kandla Custom House has confirmed imports of 15,610.442 MT
(15,360.737 MT claimed by the Applicants) of Acetone and Mumbai Custom House
has confirmed imports of 13,472.549 MT (13,410.691 MT claimed by the Applicants)of Acetone.  The Applicants have claimed imports of 98,960 MT of Acetone through
Chennai Port. The difference between figures of imports confirmed by the Custom
Authorities and that claimed by the Applicants is insignificant.  The total imports of
Acetone during 1998-99 were, therefore, 29,182 MT.  The Table below gives import
figures of Acetone from 1994-95 to 1998-99.
Table 2
Imports in MT
Year Imports
       Quantity (MT)               Value (Re Mn.)
1994-95   9,046 121.7
1995-96  18,519 414.9
1996-97 26,228 464.7
1997-98 16,574 376.9
1998-99 29,182 --
(iv) The imports increased from 9,046 MT in 1994-95 to 18,519 MT in 1995-96 and to
26,228 MT in 1996-97.  In 1997-98, however, the imports declined to 16,574 MT.
Leaving aside 1994-95 when the imports were on the lower side, on an average
during 1995-96 to 1997-98 the quantum of im ports of Acetone into India was 20,440
MT pa.  In 1998-99, the imports jumped to 29,182 MT i.e. an increase of about
42.8 per cent over the average imports during 1995-98.  As compared to theimmediately preceding year 1997-98, the imports in 1998-99 increased by 76 per
cent.  In comparative terms the imports were 21.17 per cent of domestic production in
1994-95, 37.37 per cent in 1995-96, 66.77 per cent in 1996-97, 37.45 per cent in
1997-98 and 68.47 per cent in 1998-99.  The domestic production, import figures and
imports as a percentage of domestic production are given below in Table 3.G/SG/N/8/IND/8
Page 24
Table 3
Imports as a percentage of Domestic Production
Year Domestic
Production (MT)Imports(MT) Imports as percentage of
Domestic Production
1994-95 42,732   9,046 21.17
1995-96 49,556 18,519 37.37
1996-97 39,284 26,228 66.77
1997-98 44,261 16,574 37.45
1998-99 42,618 29,182 68.47
(v) The imports have thus increased both in absolute terms as well as compared to
domestic production.
5. Threat of Serious Injury
(a) Domestic Producers Affected by Imports of Acetone
(i) Clause 6 (c) of Section 8B of the Customs Tariff Act, 1975, defines ‘serious injury’ to
mean an injury causing significant overall impairment in the position of a domestic
industry and Sub-clause (d) defines ‘threat of serious injury’ to mean a clear and
imminent danger of serious injury.  Further in determining whether increased imports
have caused or threatening to cause serious injury to a domestic industry, the Annexto the Safeguard Duty Rules requires the Director General to evaluate all relevant
factors of an objective and quantifiable nature having a bearing on the situation of
that industry, in particular, the rate and amount of increase in imports of the article
concerned in absolute and relative terms, the share of the domestic market taken by
increased imports, changes in the level of sales, production, productivity, capacityutilisation, profits and losses and employment.
(ii) An important issue regarding the actual capacity of Acetone available to the domestic
industry has been raised by various parties.  It is considered necessary to discuss this
issue first, before proceeding to analyse various factors of injury.
(iii) The Applicants have claimed an effective Acetone capacity of 74,770 MT pa in 1998-
99 available with the eight domestic producers, who in all produced 42,618 MT of
Acetone, which accounted for only 57 per cent utilisation of the effective Acetone
capacity. It has been argued by various parties that the Applicants have included
capacity of those companies also who have not been producing any or producing
negligible quantities of Acetone since 1994-95.  These include NOCIL with capacity
of 14,000 MT pa who had run their plant at 52 per cent in 1994-95, 48 per cent in
1995-96, 23 per cent in 1996-97, 11 per cent in 1997-98 and 7 per cent in 1998-99.
The Alcohol based Acetone manufacturing units Chalthan and Sirsilk with capacity
3,000 MT pa and 1,500 MT pa respectively did not produce Acetone since 1994-95,
Rajaram (Walwa) and Krishna produced only 2,586 MT in 1995-96 and 166 MT in1996-97 against their capacity of 4,500 Mt pa each with no production of Acetone
thereafter.  In respect of Cordite unit with capacity of 1,320 MT pa, it has been
argued that this unit was set up purely for Ministry of Defence and, therefore, this
unit does not meet demand of other domestic consumers.G/SG/N/8/IND/8
Page 25
(iv) In this regard, it is observed that NOCIL have submitted that manufacture of Acetone
through the IPA route is not economical; they do not produce significant volumes of
Acetone for the merchant market and, therefore, the capacity available with them is
effectively not available to the domestic industry.  In view of this specific assertion of
NOCIL, their capacity cannot be considered to be effectively available to thedomestic industry.
(v) As regards Chalthan and Sirsilk units, it is observed that these units have not
responded to the Notice of Initiation, nor have they submitted reply to the
Questionnaires sent to them.  These units have not produced Acetone since 1994-95.
In view of the above facts, it appears that both Chalthan and Sirsilk are not interested
in re-commencing their Acetone production and hence their Acetone manufacturingcapacity cannot be considered to be effectively available to the domestic industry.
(vi) The Cordite unit have submitted that in view of the increase in price of Ethyl
Alcohol, their raw material for the manufacture of Acetone, they have stopped
manufacture of Acetone since quite sometime.  They are not affected directly by theexcessive imports of Acetone and that as a consumer of Acetone, they are happy
about the reduction in Acetone prices.  In view of their above submission, their
capacity also is not considered to be effectively available to the domestic industry.
(vii) Krishna and Rajaram (Walwa) units have reaffirmed their intention to produce
Acetone and have requested for imposition of safeguard duty on imports of Acetone.
They had produced 2,686 MT of Acetone in 1995-96 and 166 MT in 1996-97.  Both
of them have a capacity of 4,500 MT pa each to produce Acetone.  The argument of
some parties to exclude their capacities from the total available Acetone capacity as
they have not produced Acetone in the last few years is not acceptable as theseAcetone capacities cannot be disregarded simply because these units have not been
able to produce Acetone for the last couple of years.  This is a manifestation of
serious injury suffered by them.  While they suffered almost complete loss of
production, if they are not allowed to be cons idered as a part of the domestic Acetone
industry on that ground alone, it would amount to adding insult to the injury.  They
have categorically mentioned their desire to recommence production of Acetone.  In
this regard, it is also important to observe that world over many units produceAcetone using Alcohol based route.  Production of Acetone in India using Alcohol as
raw material is, therefore, no exception.
(viii) In view of the above discussion, it is considered that the injury analysis needs to be
carried out in respect of HOC, HCL, Krishna and Rajaram (Walwa) units alone(excluding NOCIL, Cordite, Chalthan and Sirsilk units), hereinafter, referred to as the
‘affected domestic producers’.  The Acetone capacity and production of the affected
domestic producers for the period 1994-95 to 1998-99 were as given in Table 4
below.G/SG/N/8/IND/8
Page 26
Table 4
Capacity and Production of Affected Domestic Producers
Producers Capacity      Production
 94-95  95-96  96-97  97-98  98-99 94-95 95-96  96-97  97-98  98-99
HOC 24,640 24,640 24,640 27,650 27,650 23,576 27,024 21,333 27,555 25,096
HCL 12,000 14,400 16,170 16,170 18,300 11,579 12,790 14,151 14,803 16,126
Krishna   4,500   4,500   4,500   4,500   4,500         0   1,157          0          0          0
Rajaram   4,500   4,500   4,500   4,500   4,500         0   1,429      166          0          0
Total 45,640 48,040 49,810 52,820 54,950 35,155 42,400 35,650 42,358 41,222
(b) Domestic Production
(i) An analysis of various factors attributing to the present status of the ‘affected
domestic producers’ reveals that the domestic production was 35,155 MT in 1994-95.
The domestic production increased to 42,400 MT in 1995-96 but then declined
sharply to 35,650 MT in 1996-97.  The domestic production then increased to42,358 MT in 1997-98 and declined to 41,222 MT in 1998-99.  The domestic
production that registered a growth of about 18.8 per cent in 1997-98 over the
production during 1996-97 registered a fall of 2.68 per cent in 1998-99 over 1997-98.
(ii) It has been mentioned earlier that eight producers in the country had the capacity to
produce Acetone through different manufacturing processes using different raw
materials.  These producers have been clubbed in three different categories, namelyAlcohol based producers, IPA based producer s and Cumene based producers.  It has
been argued by various parties that these producers falling in different categories have
different economies of production and that some of the producers have not been
producing Acetone for the last few years,  besides NOCIL has turned to be an
importer than producer of Acetone.  The Applicants have explained this peculiarsituation of Acetone industry by stating that the injury to the domestic Acetone
industry has been caused in stages.  The Applicants have explained that the Indian
Acetone manufacturing industry started suffering since 1996-97 due to large imports
at substantially lower prices.  In this regard it is observed that the imports peaked to a
high of 26,228 MT in 1996-97 at an average c.i.f. price of Re 17,718 PMT ascompared to 18,519 MT in 1995-96 at an average c.i.f. price of Re 22,407 PMT. This
resulted in the domestic production (all units included) which reached a peak of
49,556 MT in 1995-96 from 42,732 MT in 1994-95, to decline to a low of 39,284 MT
in 1996-97.  The first sector of the industry to be affected was Alcohol based
producers whose production reduced to 591 MT in 1996-97 which in the previousyear i.e. 1995-96 was 3,011 MT, 425 MT by Cordite, 1,429 MT by Rajaram (Walwa)
and 1,157 MT by Krishna.  After 1996-97, these units except Cordite had to suspend
their production.  This is in the background of the fact that between 1980-81 and
1996-97, the production of sugarcane in India had increased resulting in improved
availability of Alcohol which should have led to increased production of Alcoholbased Acetone.  On the contrary, these units had to discontinue with their Acetone
production after 1996-97.
(iii) The second sector of the domestic industry to suffer was IPA based Acetone producer
– NOCIL who suffered a loss of more than 50 per cent in their production of Acetone
in 96-97 which stood at 3,209 MT as compared to 6,731 MT in 1995-96 and
7,277 MT in 1994-95.  Its production reduced further to 1,523 MT in 1997-98 and to1,021 MT in 1998-99.  This also resulted in turning of NOCIL into a major importer
of Acetone than a producer of Acetone.G/SG/N/8/IND/8
Page 27
(iv) The applicant companies, which have been termed as compulsive producers of
Acetone by some of the parties also faced a very severe competition from the imports
of Acetone, but they were prevented from either suspending or curtailing their
production in order to save their dedicated investment in Phenol/Acetone plants byrunning their plants optimally so as to minimise the injury, even at the cost of
incurring losses.  However, they also suffered loss of production.  HOC which
produced 27,555 MT in 1997-98, produced only 25,096 MT in 1998-99  HCL
achieved a slightly better production of 16,126 MT in 1998-99 as compared to
14,803 MT in 1997-98.  Taken together, the two Cumene based applicant companies
produced 41,222 MT of Acetone in 1998-99 as compared to 42,358 MT in 1997-98.
(v) The domestic producers of Acetone have thus suffered loss of production of Acetone
in 1998-99 as compared to 1997-98.
(c) Capacity Utilisation
(i) As discussed at (a) above, the Acetone capacity available to the domestic industry is
that of four producers, namely HOC, HCL, Krishna and Rajaram (Walwa) units.
They had a total Acetone capacity of 45,640 MT pa in 1994-95 which increased to
48,040 MT pa in 1995-96, 49,810 MT pa in 1996-97, 52,820 MT pa in 1997-98 and
to 54,950 MT pa in 1998-99.  During this period they collectively accounted forproduction of 35,155 MT, 42,400 MT, 35,650 MT, 42,358 MT and 41,222 MT of
Acetone respectively.  Their capacity utilisation which peaked to a high of 88.3 per
cent in 1995-96 from 77 per cent in 1994-95, suffered a severe setback in 1996-97
when it declined to 71.6 per cent.  The capacity utilisation again registered a growth
to 80.2 per cent in 1997-98 but thereafter declined to 75 per cent in 1998-99.  Thedomestic producers of Acetone have thus suffered a loss in capacity utilisation.
(ii) It has been argued by some of the interested parties that the Applicants achieved a
high level of capacity utilisation of 87 per cent to 102 per cent which are extremely
high rates for chemical products and which most of the global major chemical
manufacturers are unable to attain.  In this regard, it is observed that HOC achieved
as high as 103 per cent of capacity ut ilisation in 1995-96 and HCL achieved 96.5 per
cent capacity utilisation in 1994-95.  In the year 1998-99, HOC and HCL, however,
achieved 91 per cent and 88 per cent capacity utilisation respectively.  While it may
be possible that these capacity utilisation may be considered to be at a high rate in the
context of global major chemical manufacturers, in the context of their own past
performance, both HOC and HCL registered a fall in capacity utilisation.  The‘affected domestic producers’ as a whole also lost on capacity utilisation in 1998-99
which stood at 75 per cent as compared to 88.3 per cent in 1995-96, a loss of
13.3 percentage points.
(d) Sales
(i) The Table below gives the domestic sales figures of the ‘affected domestic producers’
(including captive consumptions and sales in the domestic market on deemed export
basis) for the period 1994-95 to 1998-99.G/SG/N/8/IND/8
Page 28
Table 5
Domestic Sales in MT
Year HOC HCL Krishna Rajaram
(Walwa)Total
1994-95 21,411 11,567 0 0 32,978
1995-96 26,694 12,380 1,157 1,429 41,660
1996-97 19,817 14,089 0    166 34,072
1997-98 26,568 14,797 0 0 41,365
1998-99 25,839 16,068 0 0 41,907
(ii) It would be seen from this Table that the ‘affected domestic producers’ achieved
domestic sales (including captive consumption and sales on deemed export basis) of32,978 MT in 1994-95 which increased to 41,660 MT in 1995-96 and declined to
34,872 MT in 1996-97.  The domestic sales thereafter picked up in 1997-98 to
41,365 MT and then increased by about 1.3 per cent to 41,907 MT in 1998-99.  This
marginal increase in domestic sales in 1998-99 needs to be seen in the background of
the growth in the total apparent consumption (domestic sales + imports) of thedomestic market (Table 6) which registered a growth of about 21.1 per cent in 1998-
99 (72,483 MT) as compared to 1997-98 (59,842 MT).  The domestic producers
could achieve this meagre growth of 1.3 per cent in sales as compared to 21.1 per
cent increase in apparent consumption only at the cost of a drastic reduction in their
average sales price which was reduced to Re 18 per kg in March 1999 as compared toRe 28 per kg in March 1998. 
Table 6
Apparent Consumption in MT
Year /
CompanyHOC HCL NOCIL Cordite Krishna Rajaram Chalthan Sirsilk Imports Total
1994-95 21,411 11,567 7,277 300 - - - - 49,046 49,601
1995-96 26,694 12,380 6,731 425 1,157 1,429 - - 18,519 67,335
1996-97 19,769 14,089 3,209 425 - 166 - - 26,228 63,886
1997-98 26,568 14,797 1,523 380 - - - - 16,574 59,842
1998-99 25,839 16,068 1,021 375 - - - - 29,182 72,483
(iii) HOC and HCL lost on net sales realisation in 1998-99 as compared to 1997-98.  HOC
in 1997-98 made an average sales realisation of Re 21,713 PMT (Bulk) which in
1998-99 declined to Re 18,919 PMT (Bulk).  In the case of HCL, the average sales
realisation of Re 24,682 PMT (Bulk) in 1997-98 declined to Re 20,982 PMT (Bulk)in 1998-99.  (Average sales realisation in 1998-99 for HOC and HCL have been
worked out for Acetone in bulk on the basis of quarterly figures provided by them).
(e) Stocks
The closing stock of the ‘affected domestic producers’ was 1,148 MT at the end of 1997-98
which reduced to 437 MT at the end of 1998-99.  In this regard, it is observed that HOC and HCL
have claimed that Acetone is a hazardous chemical, storage capacity of which needs to be approved
by the Explosives Dept.  They, therefore, maintain the minimum stocks either by selling their
production or curtailing the production.  In view of this explanation, stocks position of Acetone
cannot be considered to be truly reflective of serious injury to them.G/SG/N/8/IND/8
Page 29
(f) Employment
The domestic producers have submitted that the talented, experienced and contributing
employees have started resigning from the services of the companies thereby leading to irreparable
loss to the knowledge pool and skills inventory of the domestic industry.  They are also facingdifficulties in attracting new recruits as they see lack of growth prospects in the limping Acetone
industry.  In this regard, it is observed that the number of employees working in the Acetone plant of
HOC reduced from 474 in 1995-96 to 447 in 1998-99 and in case of HCL, the number of employees
working in their Acetone plant has reduced from 62 in 1995-96 to 61 in 1998-99.
(g) Productivity
The ‘affected domestic producers’ have lost production from 42,358 MT in 1997-98 to
41,222 MT in 1998-99 and they have also lost on productivity i.e. quantum of production per
employee engaged by them which has come down from 82.89 MT per employee in 1997-98 to
81.15 MT per employee in 1998-99.
(h) Profitability
(i) HOC and HCL have submitted that they follow the pricing policy of fixing domestic
prices of Acetone in line with the expected landed cost of Acetone.  As a result of
increased imports and fall in the import prices, they had to make several adjustmentsin their Acetone prices to prevent their customers from shifting to imports
completely.  On an average, they reduced their selling price from Re 28 per kg in
March 1998 to Re 18 per kg in March 1999 i.e. a decline of about 36 per cent in the
list price.  HCL’s net realisation of Acetone (bulk), which was Re 25,883 PMT in the
first quarter of 1998-99 reduced to Re 17,787 PMT in the last quarter of 1998-99 i.e.a decline of more than Re 8,000 PMT.  In case of HOC, the net realisation dropped
from Re 22,626 PMT in the first quarter of 1998-99  to Re 15,230 PMT in the last
quarter of 1998-99 i.e. a decline of more than Re 7,000 PMT.  The reduction in net
realisation has had serious effect on profitability of HOC and HCL, both of whom
have started incurring losses as the reduction in Acetone prices was not accompanied
by corresponding reduction in raw material prices.
(ii) Some of the parties have claimed that safeguard proceedings are product-specific
proceedings and, therefore, the profitability of HOC and HCL should be considered
only as far as it relates to their Acetone production.  This is a valid argument.  Both
HOC and HCL have furnished their Acetone specific details of cost of production and
realisation etc. which have also been subjected to verification.  It is observed thatboth HOC and HCL have suffered severe loss of profit in 1998-99 and incurred losses
in later period of 1998-99.
(iii) HOC and HCL were also forced to offer more credit period to their Acetone
customers.  The debtors, in case of both  the companies have gone up substantially in
the later period of 1998-99, elongating the working capital cycle, which led to cash
crunch.  They have had to borrow funds as inter-corporate deposits at rates
substantially higher than the prevailing market rate, resulting in further loss of
profitability.  Their performance parameters for credit rating have also deteriorated
due inter-alia  to low Acetone prices making it further difficult to access funds at
reasonable cost, having an adverse impact on the profitability in future as the interest
cost component will go up.  The loss in profitability had also its impact on share
prices of both the companies which diminished in 1998-99 at a rate faster than the
BSE Sensex.  Due to the liquidity crunch and the consequent loss of profitability,G/SG/N/8/IND/8
Page 30
both the companies are also finding it difficult to access funds from the financial
institutions.  This is, in turn, resulting in delay of implementation of their long-term
plans to build Greenfield Acetone capacities.
(iv) In regard to profitability of HOC and HCL, some of the parties have made reference
to some Press Reports.  Business Line – 11 April 1999 reports HOC’s profitability
under pressure due to the high interest costs and depreciation on account of its
recently completed projects – Chloralkali and Hydrogen Peroxide.  Press Trust of
India – 8 July 1999 has reported for HOC 7 per cent increase in production, 16 per
cent in sales and 4 per cent in capacity utilisation.  Business Lines – 20 June 1999 in
the context of HCL reported that the co mpany would continue to get swamped by
global commodity price swings and demand-supply imbalances and that the adverseimpact of global commodity price swings has been aggravated by domestic
infrastructure-related problems.  The Report also refers to the impact on HCL from
other group companies or subsidiaries.  They have argued that loss of profitability of
the two companies HOC and HCL are thus on account of these factors enumerated in
the Press Reports and the same should not be attributed to the Acetone operations ofthe two companies.  In this regard, it is pertinent to mention that for the present
investigation what is considered relevant is the Acetone operations related
profitability of the two companies and not their overall profitabilities.  The Press
Reports refer to the overall operations of HOC and HCL and are not Acetone specific.
The findings in the present investigation are, however, based only on the Acetone-specific factors.
(v) It has also been argued by some of the parties that the Applicants have in the past
made huge profits and, therefore, they should not complain against the losses, if
suffered now.  As regards the present injury in the wake of past profits, it is observedthat for the determination of injury various factors have to be evaluated in an
objective manner.  If it appears that the domestic industry is suffering a significant
overall impairment, a determination of existence of serious injury can be made.  It
also needs to be kept in mind that the present investigation concerns determination of
existence of a threat of serious injury i.e. a situation where serious injury is clearly
imminent.  The turning of profits into losses is, therefore, to be viewed in the above
background and the past profits cannot stand in the way of determination of existenceof a threat of serious injury.
(i)    Threat of Serious Injury
As already mentioned, Clause 6(d) of Secti on 8B of the Customs Tariff Act, 1975 defines
‘threat of serious injury’ to mean a clear and imminent danger of serious injury and Clause 6(c) of this
Section defines ‘serious injury’ to mean an injury causing significant overall impairment in the
position of a domestic industry.  An analysis of various parameters as discussed above clearly brings
out that the ‘affected domestic producers’ in 1998-99 have witnessed severely depressed conditions of
operation.  As compared to 1997-98, they have lost  on account of production, capacity utilisation,
sales realisation, productivity and profitability.  They achieved a small growth in sales but which was
far below the growth in apparent consumption, that t oo only at the cost of a sharp reduction in the sale
price.  Serious injury to the domestic industry is thus clearly imminent.  It is, therefore, observed that
the domestic industry is suffering a threat of serious injury.G/SG/N/8/IND/8
Page 31
6. Cause of Injury
(a) Supply-Demand Gap
(i) A number of issues have been raised by various parties justifying the increased
imports or to show that the injury caused to the domestic industry was not on account
of increased imports but on account of other factors.  The most important amongst
these issues is the supply-demand gap.  Some of the parties have claimed that the
cause of injury to the domestic industry was not increased imports as the imports
were necessitated to meet the gap between domestic supply and domestic demand.  It
may be appropriate to mention at the outset that HCL, which was the first unit to
produce Acetone in India was set up in 1968 with an initial capacity of 6,000 MT paof Acetone.  In 1979 it requested for expansion of capacity to 12,000 MT pa, but the
request of the Company was turned down by the Government on 28.7.1980 as per the
then prevailing law, observing that HCL was a large undertaking due to
interconnection with EID Parry and had a dominant presence in the Indian market.
The question of substantial expansion, ther efore, did not arise till HCL came out of
MRTP clutches.  HCL tried for MRTP de-registration for several years but were
never successful till the scrapping of relevant Sections of MRTP Act (in 1991) related
to substantial expansion or new projects.  However, HCL gradually increased their
effective Acetone Capacity to 12,000 MT pa in 1994-95, mainly through investments
in debottlenecking financed entirely through internal accruals.  The capacity hasfurther been increased to 14,400 MT pa in 1995-96, 16,170 MT pa in 1996-97 and to
18,300 MT pa in 1998-99.  In the case of HOC, the effective Acetone capacity of
24,640 MT pa in 1994-95 has been increased to 27,650 MT pa in 1997-98.  The other
two units namely Krishna and Rajaram (Walwa) have capacity of 4,500 MT pa each
for the production of acetone.  Thus, in 1998-99, the ‘affected domestic producers’had an effective Acetone capacity of 54,950 MT pa available to the domestic
industry.  They collectively produced 41,222 MT of Acetone in 1998-99 which
accounted for 75 per cent capacity utilisation in 1998-99.  The apparent consumption
of Acetone during 1998-99 was 72,483 MT.  In the previous years, however, the
apparent consumption of Acetone was 49,601 MT in 1994-95, 67,335 MT in 1995-
96, 63,886 MT in 1996-97 and 59,842 MT in 1997-98.  It is clear from the above data
that the apparent consumption of Acetone increased substantially in 1995-96 ascompared to 1994-95, but declined thereafter in 1996-97 and 1997-98.  Obviously,
these figures are not reflective of the actual demand during the particular year as the
possibility of excess imports and carrying forward of stocks, to take maximum
advantage of the existing circumstances cannot be ruled out.  It is, therefore,
considered appropriate to average out the apparent consumption during this periodwhich works out to 60,166 MT pa.  As compared to this, the apparent consumption in
1998-99 was 72,483 MT which works out to about 20.5 per cent more than the
average apparent consumption during 1994-98.  The apparent consumption in 1998-
99 works out to be about 21.1 per cent more than 1997-98.  No one has envisaged or
claimed such a growth in the domestic Acetone consumption. M/s Crescent OrganicsLtd. have asserted that the actual consump tion pattern of Acetone in India is given in
an article on “Acetone : A Techno-Commercial Profile” by Dr. Ajit Joshi and Pankaj
Dutta, published in Chemical Weekly, 17 December 1996 issue, which stipulates a
total actual consumption of Acetone of 29,000 MT in 1985-86 which increased to
48,000 MT in 1990-91, 54,000 MT in 1994-95 and projected demand of 64,750 MTin 1999-2000.  It is observed from the data provided that the Acetone consumption
grew at an average of about 10.6 per cent per annum (compounded) during the period
1985-86 to 1990-91.  The growth, however, reduced to about 3 per cent per annum
(compounded) on an average during 1990-91 to 1994-95.  The growth between 1994-G/SG/N/8/IND/8
Page 32
95 to 1999-2000, as per the report works out to about 3.7 per cent per annum
(compounded).  The Acetone consumption in 1998-99 as per this report should have
been 62,440 MT. M/s Crescent, however, have mentioned that the available published
data has been based on very conservative estimates.  As compared to this calculation
of 62,440 MT in 1998-99, the Applicants have claimed the actual consumption ofAcetone to be 68,749 MT in 1998-99.  They have, however, worked out this figure by
simple extrapolation based on the past trend (and by using the material balance
method).  In view of the above analysis, it appears that the figure of 68,749 MT is a
more realistic estimate of Acetone consumption during 1998-99.
(ii)     The actual consumption figure of 68,749 MT in 1998-99 also includes the estimated
12,000 MT of Acetone requirement of NOCIL. NOCIL themselves accounted for aneffective Acetone capacity of 14,000 MT pa.  The ‘affected domestic producers’ had
a total of 54,950 MT pa effective Acetone capacity in 1998-99.  Taking NOCIL’s
capacity also into account, the ‘effective Acetone capacity’ would have been
68,950 MT.  Till some time back NOCIL were themselves a major producer of
Acetone.  They, however, curtailed their production drastically and turned into amajor user of imported Acetone.  It would, therefore, not be appropriate to expect the
‘affected domestic producers’ to have taken into account NOCIL’s requirement.
Excluding NOCIL’s requirement, the domestic demand in 1998-99 works out to
about 56,750 MT as against the effective Acetone capacity of 54,950 MT pa available
with the ‘affective domestic producers’, which more or less matches with thedomestic demand.
(iii) Crescent Organics Ltd. have dwelled at length about the inefficiency of the Alcohol
based Acetone producers.  They have also produced extracts from various reports and
have furnished data regarding cost of production of Acetone through Alcohol routeetc.  In this regard it is observed that the cost of production of Acetone through
Alcohol route has been worked out taking ma rket price of Alcohol as the basis.  This
does not appear to be relevant in the context of Krishna and Rajaram (Walwa) both of
which are sugar mills having in-house capabilities of producing Alcohol/Acetone.
Many factors such as freight, sales tax etc. would not be relevant for these units and
the cost of production in their case will be much lower.  Besides, these units already
have existing Acetone plants and they may have their own compulsions andcommitments to run these plants for production of Acetone.  The option to operate
their plants or not lies with them which cannot be denied by anyone else.  If they in
their wisdom have decided to re-commence production on imposition of safeguard
duty, it is their decision, which needs to be respected and to be taken into account.
They have operated their Acetone plants in the past and produced substantialquantities of Acetone.  There is, therefore, no reason now to believe that they shall
not do the same again once the safeguard duty is imposed.
(iv) As mentioned above, the Applicants have upgraded their production capacity
gradually from 36,640 MT pa in 1994-95 to 45,950 MT pa in 1998-99 i.e. animprovement of about 25 per cent in 1998-99 over 1994-95.  They, however, could
not utilise their production capacity to the full extent and were constrained to produce
only 41,222 MT in 1998-99.  The Applicants did in the past achieve over 100 per cent
capacity utilisation.  In 1995-96, the Applicants achieved 102 per cent capacity
utilisation.  They could have made use of the effective capacity available with them in1998-99 also.  HCL and HOC on a quarterly basis produced 7,811, 12,169, 10,177
and 11,071 MT in the 1st, 2nd, 3rd and 4th quarter of 1998-99 respectively.   In the
1st quarter the lesser production may have been on account of shut-down of the plants
of the Applicants for some time for upgrading their production facility etc. In the 2ndG/SG/N/8/IND/8
Page 33
quarter, however, they produced 12,169 MT.  On a pro-rata basis, they could have
produced 44,318 MT (7,811 + 12,169 X 3) but they produced only 41,222 MT.  The
Applicants thus lost about 3,000 MT of production and the other two units namely
Krishna and Rajaram (Walwa) did not produce any quantity of Acetone.  It is,
therefore, not correct to say that the domestic producers were not able to producemore Acetone to meet with the domestic demand and that whatever imports have
taken place were due to the inability of domestic producers to cater to the domestic
demand.  On the contrary, the cheaper imports restrained domestic producers to
achieve their full capacity utilisation and also caused  depression of the Acetone price
in the domestic market.
(b) Loss of Exports
It has also been claimed that the reason for the woes of the domestic industry is loss of its
export market that has declined to 26 MT in 1998-99 as compared to 2,263 MT in 1996-97 and
333 MT in 1997-98 and not the imports of Acetone.  In this regard it is important to keep in mind that
the production line for production of Acetone is common both for the domestic consumption and forthe export market.  A domestic industry that was not able to compete in the domestic market could
hardly have been expected to compete in the international market, specially when the domestic
supplies were the major market for the domestic industry and exports constituted only a fraction of its
market.  The injury caused to the domestic producers by the increased imports, therefore, had its
effect on the export performance of the domestic producers as well.  Nevertheless, the domesticproducers did supply 2,250 MT of Acetone in 1997-98 and 2,272 MT in 1998-99 under the Deemed
Export Scheme, which are considered as exports wi thout goods physically leaving the Indian shore.
This argument, therefore , is not  tenable.
(c) Market Share Taken Over by Imports
(i) The ‘affected domestic producers’ had a market share of 32,978 MT i.e 66.5 per cent
in the total apparent consumption of 49,601 MT in 1994-95.  Their market share fell down to 61.4 per
cent in 1995-96 and to 53.1 per cent in 1996-97 before rising to 69.1 per cent in 1997-98 and then
again falling to a low of 57.8 per cent in 1998-99.  The share of imports in the apparent consumption
during this period increased from 33.5 per cent in 1997-98 to 38.1 per cent in 1995-96 and 46.7 per
cent in 1996-97 which decreased to 30.9 per cent in 1997-98 but again increased to a high of 42.2 percent in 1998-99.  On a comparative basis the share of imports has increased by about 36.6 per cent in
1998-99 over 1997-98 whereas the share of domestic sales has decreased by about 19.6 per cent.  The
Table below gives the market share of the domestic producers from 1994-95 onwards.
Table 7
Share of Imports in Apparent Consumption
Year Domestic Sales
(MT)Total Apparent
Consumption (MT)Share of Dom.
Sales in App. Cons.
(%)Share of imports in
App. Cons. (%)
1994-95 32978 49601 66.5 33.5
1995-96 41660 67335 61.9 38.1
1996-97 34022 63886 53.3 46.7
1997-98 41365 59842 69.1 30.9
1998-99 41907 72483 57.8 42.2G/SG/N/8/IND/8
Page 34
The total import figures also include the figures of imports by NOCIL who have
represented as an importer in this investigation rather then as producer of Acetone.
Their demand of Acetone for use in the manufacture of downstream products as well
as their Acetone capacity have not been considered in analysing  the demand-supply
position of Acetone.  It would, therefore, have been useful to analyse market sharetaken over by imported Acetone by excluding NOCIL’s imports.  They were,
therefore, asked to furnish details of Acetone imported by them which they have not
provided.  In the absence of these figures, this analysis cannot, therefore, be carried
out.
(ii)    The total apparent consumption in 1997-98 stood at 59,842 MT which increased by
21.1 per cent to 72,483 MT in 1998-99.  The domestic sales, however, did not grow atthe same pace.  The ‘affected domestic producers’ who should have achieved sales of
(41,365 X 121.1 per cent) 50,093 MT could sale only 41,907 MT of Acetone in the
domestic market during this period (including 2,272 MT supplied on deemed export
basis by HOC).  The domestic producers thus lost a sale of 8,186 MT which was
taken over by the increased imports which captured an additional market of (29,182 –16,574 X 121.1 per cent) 9,111 MT taking into account the growth of 21.1 per cent in
the apparent consumption.
(d) Price of Imports
(i) It has been argued by some of the parties that the Applicants have complained of
cheaper imports and if the injury caused to them is on account of prices of the
imports, the remedy lies elsewhere and not by way of a safeguard action.  This
argument, however, does not appear to be reasonable.  Section 8B of the Customs
Tariff Act, 1975 which empowers the Central Govt. to impose safeguard dutystipulates that “If the Central Govt., after conducting such enquiry as it deems fit, is
satisfied that any article is imported into India in such increased quantities and under
such conditions so as to cause or threatening to cause serious injury to domestic
industry, then it may, by notification in the Official Gazette, impose a safeguard duty
on that article”.  It is amply clear from a plain reading of this Section that conditions
under which the increased imports take place needs to be investigated for imposition
of safeguard duty and, therefore, price at which imports entered into India needssurely to be looked into as price is one of the most important factor that needs
consideration in taking a decision to source material.  Besides, the Annex to the
Safeguard Duty Rules requires that “when factors other than increased imports are
causing injury to the domestic industry at the same time, such injury shall not be
attributed to increased imports.  In such cases, the Director General may refer thecomplaint to the authority for anti-dumping or countervailing duty investigations, as
appropriate”.  Even in accordance with this provision the price at which imports
entered into India would need to be co nsidered to find out whether factors like
dumping or subsidisation existed.  It is, therefore, considered necessary to examine
the prices at which the imports entered into India and whether those prices causedserious injury to the domestic industry and whether factors other than increased
imports existed at the same time.
(ii) No assertion by the Applicants or by any other party has been made, leave aside any
evidence having been produced that the Acetone imports into India were dumped orsubsidised.  From the import data provided in Table-2, it is observed that the landed
cost (c.i.f. + import duty) of imported Acetone during the period 1994-95 to 1998-99
on an average was about Re 22,200 PMT in 1994-95 (13,454 X 1.65),  Re 33,610
PMT (22,407 X 1.5) in 1995-96, Re 24,805 PMT (17,718 X 1.4) in 1996-97,G/SG/N/8/IND/8
Page 35
Re 30,698 (22,739 X 1.35) in 1997-98 and Re 18,698 (13,850 X 1.35) in 1998-99.
Tabulated below are the imports of Acetone into India during this period and the
landed cost.
Table 8
Landed Cost of Imports
Year Imports (MT) Average c.i.f. Re) Landed Cost (average)
Re / MT
1994-95 9,046 13,454 22,200
1995-96 18,519 22,407 33,610
1996-97 26,228 17,718 24,805
1997-98 16,574 22,739 30,698
1998-99 29,182 13,850 * 18,698
(* worked out from import data for 1998-99)
Both the Applicants and some Respondents have relied upon the ICIS-LOR data
according to which the average price of imported Acetone  for Asia – Pacific wasUS$488 PMT in 1994, US$820 PMT in 1995, US$427 PMT in 1996, US$433 PMT
in 1997, US$360 PMT in 1998 and US$265 PMT in the first quarter of 1999.  The
prices thus after peaking at US$820 PMT in 1995 have been sliding down year after
year.  The landed cost of imported Acetone, however, did not follow the same trend
exactly owing to changes in various factors such as exchange rate and rate of importduty etc.  The landed cost of imported Acetone peaked at Re 33,610 PMT in 1995-96
and declined to Re 24,805 PMT in 1996-97.  With the reduction in landed cost, the
imports increased from 18,519 MT in 1995-96 to 26,228 MT in 1996-97.  The landed
cost of imports in the next year i.e. 1997-98 increased to Re 30,698 PMT and the
imports declined to 16,574 MT.  In 1998-99 the landed cost reduced to Re 18,698PMT and the imports have shot up to 29,182 MT.  It is therefore, observed that the
quantum of imports of Acetone into India depended upon the landed cost and the
cheaper imports compelled the domestic producers to reduce their prices.  The
domestic producers have submitted that they had to make several adjustments in the
price in order to match the domestic prices with the expected landed cost of Acetone.Apart from reducing the list price of Acetone, the domestic producers had to offer
various additional discounts to prevent their customers from shifting to imports
completely.
(iii) Another argument that has been made by some of the parties in the context of price of
imported Acetone is the cyclic nature of Acetone prices.  They have submitted that
the chemical industry worldwide is a cyclical industry characterised by periodicalebbs and flows and that the cyclical trend is dependent on various factors which
affect the entire demand and supply situation in the context of the global market.  In
this regard, the Table below gives the details of c.i.f. prices of Acetone in US$ for the
period July 1994 to March 1999.G/SG/N/8/IND/8
Page 36
Table  9
c.i.f. Prices of Acetone
Month US sourced
c.i.f.Europe sourced
c.i.f.Far-East Asia c.i.f. India
July 1994 437 392 490
Nov. 1994 767 798 800
May 1995 909 840 880
July 1995 926 856 850
Oct. 1995 909 701 725
Mar. 1996 554 470 490
May 1996 442 420 490
Aug. 1996 365 360 380
Nov. 1996 348 360 380
Mar. 1997 403 403 400
May 1997 415 437 440
June 1997 435 465 440
Sept. 1997 552 522 470
Nov. 1997 588 559 570 530
Jan. 1998 595 625 560 480
Feb. 1998 540 606 540 470
Mar. 1998 461 550 480 450
April 1998 410 480 465 450
May 1998 360 465 390 360
June 1998 340 445 385 340
July 1998 300 440 350 305
Aug. 1998 283 420 340 275
Sept. 1998 273 270 335 260
Oct. 1998 270 260 300 260
Nov. 1998 270 255 295 260
Dec. 1998 270 275 290 260
Jan. 1999 266 275 292 260
Feb. 1999 270 280 295 250
Mar. 1999 270 285 297 240
Source:   Provided by the Applicants.
It is seen from the data in the Table above that the c.i.f. prices of Acetone in US$/MT
started rising sharply in late 1994 and were at their peak in 1995.  Thereafter theprices started coming down and reached a level of US$240 PMT in March 1999.  In
between the prices increased to some extent during the second half of 1997 and early
1998.  The rise, however, was much less than the peak prices prevailing in mid-1995.
The changes in c.i.f. prices of Acetone as seen from the Table above does not support
that the imported Acetone had any cyclical variations.  Besides, the past trends are noguarantee for future behaviour as the global scenario has been changing continuously.
The domestic industry suffering injury can also  not be left to fend for itself waiting
for the cycle to reverse.  The revival of the domestic industry may become difficult or
impossible, if the serious injury suffered by it is not redressed timely and left to the
mercy of import prices firming up.G/SG/N/8/IND/8
Page 37
(iv) Some of the parties have questioned the need of safeguard duty in the wake of recent
improvement in international and domestic prices of Acetone.  It has been claimed by
them that the prices of imported Acetone have firmed up to a level of about
US$450 PMT in the mid-1999.  This claim of US$450 appears to be much
exaggerated as the Applicants have mentioned actual imports during September 1999at c.i.f. price of US$310 PMT into India.  They have also provided details of
3,448 MT of Acetone imported through Mumbai port during April 1999 to August
1999 at c.i.f. prices ranging between US$245 PMT to US$252 PMT except one
consignment of 950 MT at US$284.74 PMT and another consignment of 12.64 MT at
US$8,34.27 PMT.  The Applicants have also submitted that imports into India are
transacted on spot mode and, therefore, only the Arrival prices in India are important
and relevant for pricing of Acetone in an apparently rising market.  On the otherhand, in a falling price situation, to prevent large quantities of imports being booked,
one has to go by the Booking Price Parity for fixation of domestic prices.  The
domestic industry, therefore, tends to lose out in both rising as well as falling
markets.  Besides, this argument, suffers from various infirmities.  The investigation
into the serious injury suffered by domestic industry is based on the facts prevailingduring the period specified in the Notice of Initiation which is 1994-95 to 1998-99.
All the parameters reflecting on the state of the domestic industry, including the cost
of production of Acetone by the domestic producers etc. have also been considered
for this period.  The Applicants have submitted that procurement prices for Propylene
and Benzene have gone up by 15 per cent in the case of HCL till end of June, 1999.In the case of HOC, the cracked LPG (Propylene) prices have gone up by 80 per cent
between April and beginning September 1999.  Benzene prices have gone up by
24 per cent and LSHS prices have gone up by 40 per cent during the same period.
The increase in the prices of raw materials will have its impact on the cost of
production pushing it up substantially.  If the import prices for Acetone areconsidered for the subsequent period, cost of production etc. will also have to be
considered for the subsequent period.  This is an impracticable situation and
depending upon to whom the changes favour, various parties may keep on asking to
refer to more recent data and so on. Various parties have made representations based
on the facts prevailing during the investigation period.  A reference to a fixed period
is necessary as otherwise there can be no common meeting ground.  The possibility of
subsequent imports being influenced by the fact of initiation of an investigation canalso not be ruled out.  In fact, the Applicants have submitted that the increase in the
import prices of Acetone is an attempt on the part of the respondents to thwart the
efforts of the Applicants to seek imposition of safeguard duty.  They have quoted
their experience of the recent safeguard proceedings for Phenol where as soon as the
investigation was initiated, the price of Phenol started showing up and went from alevel of about US$395 PMT to US$415 PMT and as soon as the duty was levied, the
prices started sliding from US$415 PMT on to US$385 PMT and below.  They have
mentioned that when they approached the Govt. for Phenol safeguard duty, it would
have been apparent to the interested parties that the Applicants would approach the
Govt. similarly for Acetone as well.  In any case, this price rise is going to be short-lived as new capacities are coming up that of Phenolchemie – 240,000 MT pa, Shell –
138,000 MT pa and Mitsui, Singapore –120,000 MT pa etc.  In view of the above, the
subsequent changes in price of imported Acetone is not considered relevant for the
present proceedings.
(v) It has also been submitted that the import price of US$240 PMT is not the
representative price of imported Acetone.  In this regard, it may be mentioned here
that these findings are not based on any isolated transaction but import prices
prevailing over a period of time have been considered on a weighted average basis forG/SG/N/8/IND/8
Page 38
the determination of the desirability of imposition of safeguard duty.  Another
submission that has been made in this regard is that the decline in price of imported
Acetone is not peculiar to India and it was keeping in trend of the decline in prices in
other parts of the world.  This argument, however, is considered irrelevant for the
present proceedings as safeguard measures are not targeted against unfair imports butseek to provide protection to the domestic industry, if the imports enter in increased
quantities and under such conditions so as to cause or threaten to cause serious injury
to domestic producers.
(vi) In the context of injury to the domestic industry, it is also useful to consider the stand
taken by NOCIL.  Although NOCIL have chosen not to be considered as a part of the
domestic industry affected by the imports of Acetone into India and their right cannotbe disregarded, yet it needs to be appreciated as to why have they chosen to do so.  Is
it a manifestation of injury that has compelled them to import Acetone rather than
produce it, or is it a voluntary decision independent of the prices of imported
Acetone.  NOCIL produced 7,277 MT of Acetone in 1994-95, 6,731 MT in 1995-96,
3,209 MT in 1996-97, 1,523 MT in 1997-98 and 1,021 MT in 1998-99.  It is seenfrom the above that the production of Acetone by NOCIL declined drastically in
1996-97 and thereafter.  This has to be seen in the background that on the one hand
the import prices started falling from an average of about US$425-430 PMT in 1996
and 1997 to US$360 PMT in 1998 and US$265 PMT in the first quarter of 1999, on
the other hand there was a reduction in import duty.  The Applicants have explainedthat the competition from increased imports was felt most severely by the Alcohol
based Acetone manufacturers followed by the IPA based Acetone producers.
NOCIL, who are a producer of both Benzene and Propylene chose to adopt IPA route
for the production of Acetone instead of Cumene route.  This perhaps explains the
background of NOCIL’s decision to import Acetone for use in the manufacture ofdownstream products rather than produce Acetone for captive consumption and to use
their resources otherwise in more beneficial activities.  This also finds support from
the fact that NOCIL have suggested fixi ng floor price for imposition of safeguard
duty on Acetone at a level which perhaps may encourage them to produce Acetone.
(vii) Some parties have claimed that Chemical Industry at large has been passing through a
global recession and the Indian Chemical Industry has also felt its impact.  Thedowntrend in business and prices is, therefore, not peculiar to India.  This argument,
however, does not appear to be borne out on facts as while on the one hand the
imports have increased substantially, the apparent consumption of the domestic
market, on the other hand has also increased substantially in 1998-99.  The depressed
condition of domestic Acetone industry thus is not due to lack of domestic demand ordue to general recession, if any, in the Chemical Industry but due to the increased
imports of Acetone at cheaper prices.
7. Other Issues
(a) Joint Product Evaluation
It has been argued that Phenol and Acetone are joint products and, therefore, it would not be
appropriate to assess injury to the domestic industry for Acetone  alone without assessing position
with regard to Phenol.  In this regard, it is ob served that both the domestic producers maintain their
records in accordance with the Generally Accepte d Accounting Principles (GAAP) and the injury in
respect of Acetone has been assessed in accordan ce with GAAP for joint products.  Assessment of the
position of the domestic industry with regard to Ph enol is, therefore, not relevant for the purpose of
present investigation.G/SG/N/8/IND/8
Page 39
(b) Monopoly/Duopoly of Domestic Producers
(i) Some of the parties have argued that the domestic producers of Acetone have enjoyed
monopolistic situation as they control up to 97 per cent of the domestic production ofAcetone and that the current complaint is with a view to secure and sustain the
complainant’s duopolistic dominance in the Indian market whereby they can continue
to exploit the domestic market.  In this regard it is observed that any monopoly is not
to be considered illegal ipso facto  but a balance needs to be struck between the injury
caused as a result of monopolistic or restrictive trade practices and the reasonableness
thereof in the context of benefits accruing th ereby.  Out of the four ‘affected domestic
producers’ of Acetone, HCL is in the private sector, Krishna and Rajaram (Walwa)are co-operative units and HOC is  in the public sector.  HOC  accounts for more than
50 per cent of the production capacity of Acetone.  Besides, the import of Acetone is
under Open General License.  Nearly 40 per cent of the total apparent consumption
has been catered to by the imports.  The petitioners have not requested for banning
the import of Acetone, instead they have requested for imposition of safeguard dutyon the imports of Acetone in accordance with the law so as to enable them to adjust to
the new situation of competition offered by the increased imports.  The domestic
Acetone industry with the assured domestic availability of Acetone has acted as a
catalyst in the development of a host of downstream industries such as
Pharmaceuticals, Pesticides, Explosives, Paints, Rubber chemicals and other down-stream chemical such as Methyl Methacrylate, Bisphenol – A etc. These important
sector of industry cover various important fields such as health, agriculture, defence
and construction etc.  It may also not be out of place to mention here that this
situation is not peculiar to India alone.  The current major suppliers of Acetone to
India namely South Africa have only one manufacturer owning 100 per cent of the
Acetone capacity.
(ii) It has also been alleged that the Applicants changed domestic Acetone prices in
unison.  The Applicants in this regard have submitted that they try and maintain
landed price parity with the imported Acetone, which is under OGL offering
tremendous competition to the Applicants.  The prices are market driven and if either
of the Applicants reduces the prices, the other has to follow suit immediately to
prevent loss of sale and the market share.  The products of the two companies are
identical and, therefore, they have to match the door-delivery prices by following
different discounts etc. as the two companies are located in different places and the
freight on transport of Acetone forms a significant component of the cost.  This
allegation, therefore, has no merits.
(c) Import Duty Structure in India
Some parties have submitted that in keeping with the growing policy of liberalisation, the
import duty of Acetone has been reduced over the years but still it is the highest in this region and,therefore, provides an in built protection and competitive parity to the manufacturers of Acetone in
India.  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
imports 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.  Eachcountry, therefore, decides the level of import duties according to its needs, which cannot be viewed
as a reference point for others.  It is also relevant here to mention that the import duty differential
between Acetone and its raw materials namely Benzene and Propylene has reduced from 70 per cent
in 1993-94 to 50 per cent in 1994-95 and to 20 per cent in 1998-99.  The import duty differentialG/SG/N/8/IND/8
Page 40
between Acetone and Cumene has been reduced from 45 per cent in 1993-94 to 20 per cent in 1998-
99.  The reduction in import duty of Acetone in India, therefore, has been much faster than the
reduction in import duty of Benzene and Propylene which came down from 15 per cent in 1993-94
and 1994-95 to 10 per cent in 1995-96 but has again been restored at the level of 15 per cent in
March, 1999.  In case of Cumene, the import duty has come down from 30 per cent in 1994-95 to10 per cent in 1998-99 and raised to 15 per cent in March 1999.
(d) Uncompetitive Sourcing of Raw Materials
It has been argued by some that the domestic producers have not procured their raw materials
competitively, which is one of the causes of injury  to them.  They have mentioned that the Indian
Acetone producers suffered because of uncompetitive price of Propylene – 65 per cent higher thaninternational prices and added transport costs, and uncompetitive in-house production of Cumene
rather than importing at cheaper costs by utilising 180 days credit facility etc.  In this regard, it is
observed that Acetone in India is produced using Cumene, Alcohol or IPA route.  The Applicants
produce Acetone using Cumene route.  They have submitted that it is necessary for them to have a
judicious mix of Cumene based on in-house production supplemented by imports.  The variable costof Cumene typically have been consistently comparing favourably with the landed price of imported
Cumene.  This is partly because imported Cumene prices have a high profit margin built in, which is
recovered from the Cumene purchasers and that for every import of Cumene, prices and terms are
sought from available sources and most competitive prices are obtained before taking a buying
decision.  The data regarding cost of production of Cumene has been verified and it is observed thatthe variable cost of Cumene produced in-house compares favourably with the landed cost of Cumene.
It, therefore, cannot be considered prudent to import 100 per cent of the Cumene requirement by the
domestic Acetone producers.  As regards the import of Propylene, it has been stated by the Applicants
that Propylene which is in gaseous form at normal temperatures and pressures has to be artificially
liquified making the freight charges very high which renders the import option unviable, particularlyfor the small parcel sizes.  In any case, Propylene is to be used in the manufacture of Cumene and so
long the Applicants produced Cumene at prices favourable as compared to imported Cumene, they
cannot be considered to be sourcing their raw materials uncompetitively.
(e) Self-Inflicted Injury
It has been claimed that the injury to the Applicants is self-inflicted as HCL have imported
substantial quantities of Acetone and HOC floated a tender and negotiated the import prices to be
brought down.  In this regard, it is observed that HCL imported around 2,700 MT of Acetone during
1998-99, most of which was imported against duty free entitlement for use in export production.  The
total imports of Acetone into India during 1998-99 were 29,182 MT and HCL’s imports constituted
less than 10 per cent of the total imports in 1998-99.  Imports by HCL during the previous year wereabout 4,900 MT.  The imports by HCL in 1998-99 have, therefore, come down substantially.  As
regards floating of tender by HOC, they have submitted that the tender was floated to shore up the
depleting stocks of Acetone and due to temporary uncertainty in production in forthcoming days due
to possible power shut-downs during monsoon.  They had floated the tender for 500 MT but
purchased only 250 MT at US$275 PMT.  These quantities were lower than normal parcel size.Generally the import parcels are much larger in size.  It, therefore, does not appear that the HOC’s
tender or the alleged negotiations had any effect on the import prices of Acetone into India or that the
injury is self inflicted.
(f) Other Capacities Remaining Idle
It has been alleged that HOC and HCL have made Alcohol based units unviable years ago.  In
this regard it is observed that production of Acetone based on Alcohol is not peculiar to India alone.
World over this is a well known route used for the production of Acetone and Acetone so producedG/SG/N/8/IND/8
Page 41
competes well with Alcohol produced through other routes.  It may also be mentioned that while the
domestic producers may face internal competition that is competition amongst themselves, the
purpose of imposition of safeguard duty to provide protection to the domestic producers from external
competition i.e. from competition offered by imports.  Safeguard duty cannot be denied on the ground
that the domestic producers suffer from internal competition.  In the present investigation, it isobserved that the domestic demand in 1998-99 was over 68,000 MT and HOC and HCL together
produced 41,222 MT which still left a gap of about 27,000 MT.  The Alcohol based units had
capacities far below this demand.  The Cumene based producers, therefore, did not take away their
market but the imports filled this gap.  The two Alcohol based producers namely Krishna and Rajaram
(Walwa) have specifically supported the Applicants in seeking imposition of safeguard duty on the
increased imports, which they have alleged to be the cause of injury suffered by them.  It was,
therefore, not because of HOC and HCL that the Alcohol based producers could not utilise theirAcetone capacities.
(g) Capacity Creation Cannot Be A Cause Of Injury
(i) It has been argued by Mitsui Chemicals Inc.  that if there has been capacity creation
then it cannot be said that there is causal link between imports and injury.  They have
in support cited the ‘Certain Categories of Glass Case’ - OJ 1986 C128/7.  At the
outset, it may be mentioned that this is an investigation report of the European
Commission which has no binding force in India.  The investigation has been
conducted in terms of Regulation (EEC) No. 288/82 and not under the Regulationreflecting the provisions of the Agreement on Safeguards which has been
incorporated only on 1.1.1995 under the WTO Regime.  The facts of that case are
quite distinguishable in as much as in that case there were imports into Greece other
than those investigated.  The authorities also considered the level of consumption of
glass in Greece, changes in the structure of demand, which were accompanied bytechnical adaptation by the Greek industry; and the effect of the price control system
set up by the Greek authorities on the profitability of the Greek industry.  The facts in
that case were that the Greek industry made major investments in 1980 in building a
drawn glass production line, and not one for float glass.  The consumption of drawn
glass fell mainly due to slow-down in the building sector and there was an alteration
in the structure of demand.  Between 1981 and 1984 consumption of drawn glass fell
by more than 17,000 tonnes, while that of float glass, for which the Greek industrydid not have the necessary technology, increased by 12,000 tonnes.  Drawn glass was
thus clearly replaced by float glass.  Clearly the facts in the present case are
distinguishable as the domestic producers have expanded capacity for the production
of Acetone whose demand has increased but the domestic producers have not been
able to increase their market share.
(ii) Mitsui Chemicals Inc. have also sought to draw support from this case to say that if
downward trend was earlier discernible then it cannot be said that there is causal link
between imports and injury.  This also does not help them since in the present case
there is no earlier discernible downtrend.  In the present investigation it is beingexamined whether the domestic producers have faced a threat of serious injury as
evident on comparison of their performance in 1998-99 with that of earlier period.
The case of the domestic producers is that they have faced a severe set-back in
performance in 1998-99 as compared to earlier years.  It may also be pertinent to
observe here that for the purpose of the present investigation,  what needs to beconsidered is the domestic industry as defined under Section 8B of the Customs
Tariff Act, 1975 and not individual units.  The performance of the ‘affected domestic
producers’ as a whole, therefore, needs to be considered which does not show any
earlier discernible downward trend.G/SG/N/8/IND/8
Page 42
(iii) Mitsui Chemical Inc. have also argued, relying  upon the pronouncement of the
European Commission, that if the production and sales have either remained constant
or gone up, no causal link can be claimed with imports.  This is not in accordance
with the provisions of the law which requires determination of injury to be made onan objective evaluation of various factors and not just upon production and sales.  In
fact, in determination of causal link between imports and injury, the Annex to
Safeguard Duty Rules requires the Director General to evaluate all relevant factors of
an objective and quantifiable nature having a bearing on the situation of that industry,
in particular, the rate and amount of the increase in imports of that article concerned
in absolute and relative terms, the share of the domestic market taken by increased
imports, changes in the level of sales, production etc.  If, therefore, the increasedimports enter in such condition that despite higher domestic production and sales, if
the imports occupy a higher market share and thus displace the domestic production,
the injury so caused is undoubtedly attributable to increased imports.  In the present
case, however, there is no increase in production in 1998-99 as compared to 1997-98
although sales have increased by 1.3 per cent in 1998-99 compared to 1997-98 butwhich were far below the growth of 21.1 per cent registered in apparent consumption.
(iv) Mitsui Chemicals Inc. have similarly argued that if there is loss of exports, imports
cannot be said to be causing injury.  On this count also the facts of the case
investigated by the EC were quite distinguishable as in that case the consumption ofwired or figured glass fell by about 4400 tonnes between 1981 and 1984 and exports
by the Greek industry was an indispensable outlet for the Greek industry, which could
not achieve any success on exports front.  In the present case, there is no fall in
consumption in the domestic market, rather there is an increase in consumption and
the Applicants although lost on actual exports but supplied comparable quantities inthe domestic market on deemed export basis.  Thus, Mitsui on no count succeeds in
drawing support from the ‘Glass case’.
(h)      Substantial Capacities Being Set Up Abroad
It has been submitted by the Applicants that Acetone demand growth worldwide,
which was 4.2 per cent per annum in the last few years will take off to 3.1 per cent per annum in theyears to come due to factors such as the switch over to water based paints from Solvent based System
etc.  The current capacity of about 5 million TPA is in excess of the demand estimated at 3.85 million
TPA.  There is thus a surplus of over 1 million TPA and further new capacities of around 1 million
TPA are expected to be set-up in the next 3-4 years.  The recent and near future expansion include
Phenolchemie, Gladbeck – 43,000 MT pa, DSM – 12,000 MT pa, Ertisa, Spain – 90,000 MT pa,Phenolchemie – Mobil – 244,000 MT pa, China – 60,000 MT pa and Mitsui, Singapore – 120,000 MT
pa.  The surplus 3-4 years hence is, therefore, expected to be over 1.75 million TPA which would
mean more than 40 per cent excess capacity over demand.  This excess capacity is going to have its
impact on the Acetone producers in India as well.  It has been claimed that Mitsui has technology to
convert Acetone back into Propylene.  In this regard, it is observed that this is one of the technicaloption available with Mitsui, but whether they would resort to this option and whether it will be
economical for them is to be seen in the future.  The impact of Mitsui’s setting up an Acetone plant on
the domestic producers, however, cannot be denied.
8. Adjustment Plan
(i) The Applicants have submitted a restructuring plan indicating details of efforts being
taken and planned to be taken to make a positive adjustment to improve their
competitiveness.  Both the domestic producers have categorically stated that theyG/SG/N/8/IND/8
Page 43
understand that the relief granted as safeguard duty is a short-term measure.  The
existing facilities were built in the pre-liberalisation, MRTP era and lacked
economies of scale leading to high fixed costs.  However, the Indian industry has
been regularly upgrading its technology and debottlenecking its manufacturing
facilities with the objective of reducing the operative costs per unit and increasing itseffective capacity to satisfy the increasing domestic demand from most of the sectors.
On the capacity enhancement front (with consequent reduction in the fixed costs of
manufacture), HCL, which has very recently increased its capacity from 12,000 MT
pa in 1994-95 to 18,300 MT pa in 1998-99 has active plans to increase it to
24,000 MT pa.  To reduce the power cost, steps have already been taken by HCL
towards setting up of captive power generation facilities by the Co-generation route.
The facility has already been installed and would get stabilised soon.  Apart from thisexternal consultants had been appointed to suggest various cost reduction measures.
Some such suggestions e.g. improvement in quality of feedstock (Cumene) are
extremely valuable from the point of view of reduction in the cost of manufacture of
Acetone.  All this is an ongoing exercise, which would continue.  In the medium term
Propylene will be imported by the industry through the new facilities being generatedat ports like the J.N.P.T. near Mumbai (for which both HOC and HCL have been the
promoters and which has got clearances from the Ministry of Surface Transport and
the Ministry of Environment and Forests) and GCPTL at Dahej.  The capacity of IOC
refinery at Panipat is being increased and the process would be completed by mid
1999.  Also the global sized refinery of Reliance Industries Limited at Jamnagar isexpected to be commissioned in 1999.  With the cracker complexes at GAIL and
Haldia also expected to be commissioned in the near future and with debottlenecking
of the existing facilities, the domestic Propylene availability could ease out and prices
could soften and sourcing would be possib le from the new sources.  HCL is also
planning to set up world scale Greenfield Phenol manufacturing facilities (either60,000 MT pa or 90,000 MT pa).  The HCL facility is being planned at Dahej in
Gujarat state.  Technologies have also been tied up.  State-of the-art Zeolite
technology for Cumene has been tied up with UOP of the United States.  Similarly,
latest generation technology has been tied up for Acetone manufacture with ABB
Lummus Global of the United States.  Bo th technologies are environment friendly
and would give HCL certain operational and cost advantages.  The raw materials
would either be imported or could be sourced from the new facilities such as the onesmentioned above.  Land has been allotted for the HCL project.  Environmental
Impact Assessment study has been completed.  The Gujarat Pollution Control Board
has granted N.O.C. for the project.  HCL’s water requirements have been included in
the common water supply schemes of GIDC at Dahej and they have made initial
payments towards the same.  Power is planned to be generated captively by the co-generation route.  On the funding aspect, HCL has already approached the financial
institutions.  The raw material and finished product traffic figures of the HCL project
have been factored in the overall traffic figures of Gujarat Chemical Port Terminal
Complex coming up at Dahej.  This port is expected to be operational by the end of
1999.  There is a further possibility of a co-operative effort on this front between thetwo manufacturers, HOC and HCL.
(ii) HOC in this regard have stated that on the capacity enhancement front (with
consequent reduction in the fixed costs of manufacture), HOC is planning to increase
its capacity to 39,000 MT pa accompanied by upgradation of technology formanufacture of Cumene by the use of modern Zeolite Catalyst System.  Apart from
this, various energy conservation schemes would be implemented by them at an
expected investment of Re 65 crores.  Al l this is an ongoing exercise which would
continue.  As a long term measure, HOC is  planning to set up world scale GreenfieldG/SG/N/8/IND/8
Page 44
Phenol manufacturing facilities of 60,000 MT pa or 90,000 MT pa.  The investments
would be in the region of Re 650 crores or more depending upon the size of the
facility.  A part of the quantity produced will be exported.  They have also mentioned
that there is a possibility of a co-opera tive effort on this front between HOC and
HCL.
(iii) Based on the schemes pursued by HOC to improve their competitiveness, they expect
to achieve a total cost saving of Re 3,939 PMT in 2001-2002.  They also expect to
achieve a further cost-saving of Re 655 PMT by pursuing Acetone specific
improvement measures, the full potential of which will be realised in 2002-2003.
Similarly, HCL expects to achieve a cost-saving of Re 5,956 in 2001-2002 and a
further cost saving of Re 1,511 PMT by pursuing Acetone specific improvements, thefull potential of which will be realised in 2002-2003.
(iv)    The Applicants have thus  identified the reasons for their being not able to meet with
the competition offered by the increased imports.  One of the reasons identified by
them is the lack of economies of scales.  The domestic producers have constantlybeen upgrading their production facilities.  During the last few years, they have
enhanced their capacity gradually from 36,640 MT pa in 1994-95 to 45,950 MT pa in
1998-99, which accounts for an increase of about 25 per cent in the capacity.  The
domestic producers have furnished essential details of cost saving schemes being
pursued by them and the cost reduction likely to be achieved therefrom in response tothe Questionnaire.  This appears to be a viable adjustment plan, which is likely to be
implemented and give results in 2001-2002 i.e. in two and a half years.  It is,
therefore, observed that the domestic industry is in the process of making positive
adjustment to compete with imports and that they require two and a half years to
become competitive.
9. Public Interest
(i) 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.  In this
regard, it is observed that the expression ‘public interest’ does not cover in its ambitconsumer 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 Acetone in the
hand of buyers and therefore, it may also effect the end products manufactured
therefrom, it is important to keep in mind the objective of imposition of safeguardduty.  The purpose of imposition of safeguard duty is to provide time to the domestic
industry to make positive adjustment to meet with the new situation of competition
offered by the increased imports.  The imposition of safeguard duty, for the period
and to the extent just adequate, would, therefore, not only minimise the adverse
effect, if any, for the customers but also allow them a wider choice to source theirrequirements, and at competitive prices.  The domestic producers who have set up
plants with huge public investments provide employment to a large number of people
and make valuable contribution to the national economy.  Safeguard duty, which
would enable the domestic producers to survive in the face of competition offered by
the increased imports, will, therefore, also be in the long-term interest of the buyers ofAcetone as well as of the buyers of products manufactured therefrom.  It is, therefore,
considered that imposition of safeguard duty on Acetone will be in the Public interest.G/SG/N/8/IND/8
Page 45
10. Provisional Safeguard Duty
In view of the fact that critical circumstances indicating that the domestic industry is likely to
suffer irreparable damage in case imposition of safeguard duty was delayed till the completion of the
investigation did not exist, no recommendation to impose provisional safeguard duty was made.
11. Share of Countries in Exports to India
The individual shares of countries/territories in the exports to India in 1998-99 were as under:
Table 10
Country/Territory Imports MT Percentage share
Germany                    1,603                      5.49
Japan                       583                      2.00
Netherlands                    2,572                      8.81
Russia                    2,040                      6.99
South Africa                  16,384                    56.15
South Korea                    2,975                    10.19
Taiwan                    1,005                      3.44
United States                    1,480                      5.07
Others                       540                      1.86
Total                  29,182                  100.00
G. CONCLUSION AND RECOMMENDATION
1. In view of the findings above, it is concluded that increased imports of Acetone into India
have threatened to cause serious injury to the domestic producers of Acetone and it will be in the
Public interest to impose safeguard duty for a period of two and a half years on imports of Acetone
into India.
2. In arriving at the amount of safeguard duty that would be adequate to prevent serious injury to
the domestic industry and to facilitate positive adjustment, weighted average cost of production forHCL and HOC has been taken into account for the entire 1998-99, being more reflective of the true
costs for the whole year.  The domestic producers have claimed a certain amount of profit on the basis
of expected return on capital employed etc. which is considered to be on the higher side and,
therefore, a lower amount of profit (confidential) based on the weighted average cost of production
has been considered appropriate and allowed.  Similarly, the c.i.f. import prices of Acetone also havebeen considered on weighted average basis for the last six months i.e. October 1998 – March 1999.
Adjustments have been made in the c.i.f. import price for credit terms and handling charges on an
average basis.  Change in the applicable rate of customs duty has been taken into account in working
out the landed price of imported Acetone.
3. Considering the need to progressively liberalise the safeguard duty in order to facilitate
positive adjustment by the domestic industry, it is recommended that safeguard duty be imposed on
imports of Acetone into India at the rates specified below on ad-valorem basis for a period of two and
a half years as under being the minimum necessary for the protection of the domestic industry from
the serious injury threatened to be caused by the increased imports of Acetone.G/SG/N/8/IND/8
Page 46
Period Level of total
protection
recommended %Existing protection
%Safeguard duty
recommended %
(2)-(3)
(1) (2) (3) (4)
First year 38.5 + 28 38.5 28
Second year 38.5 + 21 21
Balance six
months38.5 +  9  9
  (Signed)
(R.K.Gupta)
         Director General (Safeguards)
__________