Commission Regulation (EC) No 1741/2000

of 3 August 2000

imposing a provisional countervailing duty on imports of polyethylene terephthalate (PET) originating in India, Malaysia, Taiwan and Thailand

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation (EC) No 2026/97 of 6 October 1997 on protection against subsidised imports from countries not members of the European Community(1), and in particular Article 12 thereof,

After consulting the Advisory Committee,

Whereas:

A. PROCEDURE

(1) In November 1999 the Commission announced by a notice (hereinafter referred to as a "notice of initiation") published in the Official Journal of the Communities(2) the initiation of an anti-subsidy proceeding with regard to imports in to the Community of polyethylene terephthalate (hereinafter referred to as 'PET') originating in India, Indonesia, the Republic of Korea (hereinafter referred to as "Korea") Malaysia, Taiwan and Thailand, and commenced an investigation.

(2) The proceeding was initiated as a result of a complaint by the Association of Plastic Manufacturers in Europe on behalf of Community producers representing a major proportion of Community production of PET. The complaint contained evidence of subsidisation of the said product, and of material injury resulting therefrom, which was considered sufficient to justify the initiation of a proceeding.

(3) The complaint which was lodged also covered imports originating in Saudi Arabia. However, following the pre-initiation consultations with the government of Saudi Arabia, evidence was submitted that the volume of imports of PET from Saudi Arabia accounts for less than 4 % of total imports. In accordance with Article 14(4) of Regulation (EC) No 2026/97 (hereinafter referred to as the "Basic Regulation"), the Commission has excluded imports originating in Saudi Arabia from the scope of the present investigation.

(4) Prior to the initiation of the proceeding and in accordance with Article 10(9) of the Basic Regulation, the Commission notified to the Governments of India, Indonesia, Korea, Malaysia, Taiwan and Thailand that it had received a properly documented complaint alleging that subsidised imports of PET originating in India, Indonesia, Korea, Malaysia, Taiwan and Thailand are causing material injury to the Community industry. These Governments were invited for consultations with the aim of clarifying the situation as regards the contents of the complaint and arriving at a mutually agreed solution. The Government of Korea accepted the offer of consultation which was held with the Commission on 24 October 1999. Due note was taken of the comments made in regard to the allegations contained in the complaint regarding subsidised imports and material injury being suffered by the Community industry.

(5) The Commission officially advised the Community producers, exporting producers, importers and users known to be concerned, the representatives of the exporting country and the complainant of the initiation of the proceeding. The parties concerned had the opportunity to make their views known in writing and to request a hearing.

The Governments of India, Indonesia, Korea, Malaysia Taiwan and Thailand, a number of exporting producers as well as complainant Community producers, Community users and importers made their views known in writing. All parties so requested within the time limits set in the notice of initiation were granted a hearing.

(6) The Commission sent questionnaires to all parties known to be concerned and received replies from the Governments of India, Indonesia, Korea, Malaysia Taiwan and Thailand from nine complaining Community producers, twenty exporting producers in the countries concerned, as well as from their related importers in the Community. The Commission also received replies from three unrelated importers/traders in the Community as well as from nine users, five suppliers and five professional associations.

(7) The Commission sought and verified all the information it deemed necessary for the purpose of a preliminary determination of subsidisation and injury, and carried out, as appropriate, investigations at the premises of the following companies:

(a) Community producers

- Du Pont Polyesters Ltd (UK),

- Eastman Chemicals BV (NL),

- INCA International SpA (I).

- Italpet Preforme SpA (I),

- KOSA GmbH (D),

- Shell Chemicals Ltd (UK),

- Wellman PET Resins Europe (NL),

- Aussapol SpA (I),

- CEP (F);

(b) Government of India

- Ministry of Commerce, New Delhi,

- Ministry of Chemicals and Petrochemicals, New Delhi,

- Ministry of Finance, New Delhi,

- Central Board of Excise and Customs, New Delhi,

(c) Exporting producers in India

- Pearl Engineering Polymers Ltd., New Delhi,

- Futura Polymers Ltd, Chennai,

- Elque Polyesters Ltd, Calcutta,

- Reliance Industries Ltd, Mumbai,

(d) Government of Indonesia

- Ministry of Industry and Trade, Jakarta,

- Ministry of Finance, Jakarta,

- Investment Coordinating Board (BKPM), Jakarta,

- Agency for Export Facility Services (Bapeksta), Jakarta,

- Sucofindo, Jakarta;

(e) Producers/exporters in Indonesia

- PT. Bakrie Kasei Corporation, Jakarta,

- PT. Indorama Synthetics TbK., Jakarta,

- PT. Polypet Karyapersada, Jakarta;

(f) Government of Korea

- Ministry of Commerce, Industry and Energy (MOCIE),

- Ministry of Finance and Economy (MOF),

- Ministry of Foreign Affairs and Trade (MOFAT),

- Korea Asset Management Corporation (KAMCO),

(g) Exporting producers in Korea

- Honam Petrochemical Corporation,

- Samyang Corporation,

- SK Chemicals Co., Ltd,

- SK Global Co., Ltd (related company of SK Chemicals),

- Tongkook Corporation,

- Daehan Synthetic Fiber Co., Ltd;

(h) Government of Malaysia

- Ministry of International Trade and Industry (MITI),

- Malaysian Industrial Development Authority (MIDA),

- Bank Negara Malaysia,

- Malaysian Institute of Accountants,

- Malaysia External Trade Development Corporation,

- Ministry of Taxation (Customs and Excise Department, Inland Revenue Board);

(i) Exporting producers in Malaysia

- Hualon Corporation (M) Sdn. Bhd., Kuala Lumpur,

- MPI Polyester Industries Sdn. Bhd., Shah Alam (Selangor D.E.);

(j) Government of Thailand

- Department of Foreign Trade, Bangkok,

- Board of Investment, Bangkok,

- Customs Department, Bangkok,

- Revenue Department, Bangkok;

(k) Producers/exporters in Thailand

- Thai Shingkong Ltd;

(l) Government of Taiwan

- Ministry of Economic Affairs,

- Ministry of Finance,

- Chiao Tung Bank;

(m) Exporting producers in Taiwan

- Shinkong Synthetic Fibers Corporation, Taipei,

- Tuntex Distinct Corp., Hsichih, Taipei County,

- Far Eastern Textile Ltd, Taipei.

- Nan Ya Plastics Corporation, Taipei

(8) The investigation of subsidisation covered the period 1 October 1998 to 30 September 1999 (hereinafter referred to as the "investigation period" or "IP"). The examination of injury covered the period from 1 January 1996 to 30 September 1999 (hereinafter referred to as the "analysis period").

(9) In November 1999 the Commission initiated an anti-dumping investigation concerning imports of the same product originating in India, Indonesia, Korea, Malaysia, Taiwan and Thailand(3).

B. PRODUCT UNDER CONSIDERATION AND LIKE PRODUCT

1. Product under consideration

(10) The product under consideration is polyethylene terephthalate, normally used in the plastics industry, for the production of bottles and sheet.

(11) Another kind of polyethylene terephthalate, for use in polyester fibre production, is not covered by the present investigation.

(12) The production process of the two qualities of polyethylene terephthalate is identical up to a certain stage since they are both produced by the polycondensation of purified terephtalic acid (PTA) or dimethyl terephtalate with mono ethylene glycol (MEG). Polyethylene terephthalate for use in the plastics industry is polymerised in a similar way to that for fibre production, in some cases in common facilities.

(13) The difference between the two types of polyethylene terephthalate is primarily determined by the fact that the product concerned undergoes a further process called "solid state processing" which increases its "intrinsic viscosity" value (IV value or ItV value). It is thus the level of IV that differentiates the product concerned from the polyethylene terephthalate used in the polyester fibre industry. Polyethylene terephthalate used for the production of plastic bottles and sheet requires an IV value of 0,7 or above. Polyethylene terephthalate with an IV value below 0,7 is used for the production of polyester fibre and is thus not concerned by this anti-subsidy investigation.

(14) The viscosity of polyethylene terephthalate may also be expressed in a different form, namely in terms of the "coefficient of viscosity" or "viscosity number". During the investigation it was found that the equivalent of an IV value of 0,7 is a coefficient of viscosity of 78 ml/g as measured by tests performed according to DIN 53728 and not, as indicated by the complainant, a coefficient of 173. This value resulted from the incorrect use of the test standard DIN 53728 in a report issued by Hoechst in 1991. Consequently the Commission has decided to use the corresponding value of 78 ml/g, or higher, that according to the correctly applied DIN 53728 test is the coefficient of viscosity for the type of polyethylene terephthalate used in the production of plastic bottles and sheets.

(15) In view of the above, the product under consideration is hereby defined as polyethylene terephthalate with a coefficient of viscosity of 78 ml/g or higher, corresponding to an intrinsic viscosity value of 0,7 or higher ("PET" or "polyethylene terephthalate"), imported under CN code 3907 60 20 and CN code ex 3907 60 80.

2. Like product

(16) The Commission services found that PET produced by the Community industry and sold on the Community market as well as PET produced in the countries concerned and exported to the Community are like products, since there are no differences in the basic characteristics and uses of the different types of PET. The same is true with regard to the PET sold on the domestic market of the exporting countries and the types exported to the Community. It was therefore concluded that all are like products within the meaning of Article 1 (5) of the basic Regulation.

C. SUBSIDIES

I. India

1. Introduction

(17) On the basis of the information contained in the complaint and the replies to the Commission's questionnaire the following four schemes, which allegedly involve the granting of export subsidies were investigated:

- Duty Entitlement Passbook Scheme (DEPB),

- Export Promotion Capital Goods Scheme (EPCG),

- Export Processing Zones/Export Oriented Units (EPZ/EOU),

- Income Tax Exemption Scheme.

(18) The first three schemes are based on the Foreign Trade (Development and Regulation) Act 1992 (No 22 of 1992) which entered into force on 7 August 1992. The Foreign Trade Act (Section 5) authorises the Government of India (GOI) to lay down India's export and import policy. These notifications are summarised in the "Export and Import Policy" documents which are issued by the Ministry of Commerce every five years and updated every year. One Export and Import Policy document is relevant to the investigation period of this case, i.e. the five-year plan relating to the period 1 April to 31 March 2002. In addition, the GOI also specified the procedures governing India's foreign trade in the "Handbook of procedures for exports and imports - 1 April 1997 to 31 March 2002" (Volume 1).

(19) The last scheme, the Income Tax Exemption Scheme, is based on the Income Tax Act of 1961 which is amended yearly by the Finance Act.

(20) It is to be noted that four companies producing and exporting the product concerned were investigated. Only two of those companies exported this product to the EC during the investigation period i.e. Reliance Industries and Pearl Polymers. The two other co-operating exporters requested to be included in the investigation. Their exports to third countries allowed for their level of subsidisation to be properly established. It was therefore considered appropriate to include those two companies in the investigation i.e. Futura Polymers and Elque Polyester.

2. Duty Entitlement Passbook Scheme (DEPB)

Legal Basis

(21) The DEPB entered into force on 1 April 1997 by means of Customs Notification 34/97. Paragraphs 7.25 to 7.41 of the Exim Policy and paragraphs 7.32 to 7.50 of the Handbook of procedures contain a detailed description of the scheme. DEPB constitutes the successor scheme to the Passbook Scheme (PBS) which was terminated on 31 March 1997 and is of two types:

- DEPB on pre-export basis,

- DEPB on post-export basis.

DEPB on pre-export Basis

(a) Eligibility

(22) The DEPB on pre-export basis is available to manufacturers-exporters (i.e. every manufacturer in India who exports) or merchant-exporters (i.e. traders) linked with manufacturers. To be eligible under this scheme, the company must have exported during a three-year period prior to submitting a claim for credit.

(b) Practical implementation

(23) Any eligible exporter can apply for a licence which grants a credit amount to be used to offset customs duties due on future imports of goods. The licence granting the credit, which is equivalent to (i) 10 % of the average fob value of all exports during the previous three years, or (ii) the rate of credit actually permitted in the case of the exported product, is issued automatically. The granting of the licence carries with it an export obligation.

(24) The DEPB on pre-export basis allows duty-free imports of subsequent inputs (which are not on the "Negative list of imports") Required for production of goods in the factory of the company concerned ("Actual user condition"). Determination of what products may be imported duty free is made by reference to the inputs listed in the "Standard Input-Output Norm (SION)" and varies depending upon the product to be manufactured. Such duty-free imported inputs may not be transferred, loaned, sold, parted with, or disposed of in any manner whatsoever by the company, other than as a constituent part of the finished product.

(25) DEPB credits are not transferable. The DEPB licence is valid for a period of 12 months from the date of granting of the licence. Upon importation, the exporter undertakes to use the imported goods as inputs for the export of the finished product. Export will attract a benefit based on the type and quantity of finished product. The benefit is calculated by reference to the SION. Once the licence holder has made exports of such a value which will entitle him to a benefit equivalent to the credit already given under DEPB on pre-export basis, his obligation is fulfilled. When all credits have been used, the company has to pay a fee to the relevant authority. In that case, the company may apply for a further credit amount which will be calculated in the same manner as explained above.

(c) Conclusions on DEPB pre-export basis

(26) The DEPB on pre-export basis is not a permitted remission/drawback or substitution drawback scheme within the meaning of the provisions of the Basic Regulation despite the existence of an "Actual User Condition". The DEPB pre-export is a value and not a quantity based scheme where the credit granted is a percentage of the value of prior export performance. The DEPB is not calculated in relation to specific physical quantities of inputs actually consumed or to be consumed in the production process of the exported product. Concretely, inputs are determined on the basis of SIGN which set notional costings based on what are considered to be the value of inputs that have to be imported to manufacture a particular product.

(27) Once the DEPB rate has been set for a particular finished product, inputs can be imported duty-free under a DEPB pre-export licence. There is no mechanism in place which would prevent an exporting producer from shifting the ratios of his inputs actually imported, since he is only required to remain within the overall credit ceiling granted. In addition, there is no obligation to actually import all different inputs on the SION list for which credit has been granted. The only limit to the quantity of any particular product that may be imported under the scheme, is the value of the licence granted and the corresponding commitment to export a finished product manufactured by the company. Therefore, there is no requirement that the imported inputs being substituted must be equal in quantity to, and have the same quality and characteristics as the home market inputs.

(28) A company which can obtain its inputs at a lower price than that set in the SIGN programme, or which can obtain some of the inputs on the domestic market, would be able to import duty-free inputs that could be used in its domestic production or domestic sale since the actual imported quantities will have no relation to those set in the SION. There would appear to be no provision within the SION programme to prevent such a situation arising.

(29) No evidence was found of any other system or procedure in place to confirm either which duty-free inputs are actually consumed in the production process of the exported finished product or in what quantities. It is to be noted that the offset that may take place when goods are exported is not carried out on the basis of actual quantities of duty-free imported inputs used in the manufacturing process of the exported products, but rather on the basis of standard value assumptions concerning inputs of the exported product.

(30) The GOI believes that this scheme only permits remission of import charges on imported inputs used for export production in accordance with the provisions of Annexes II and III of the basic Regulation, and, as such, it cannot be considered as being a countervailable subsidy. Article 2(1)(ii) of the basic Regulation provides that the exemption of an exported product from duties/charges shall not be deemed a subsidy provided it is granted in accordance with the provisions of Annexes I to III of the basic Regulation. Item (i) of Annex I (the illustrative list of export subsidies) specifies that the remission or drawback of import charges in excess of those levied on imported inputs that are consumed in the production of the exported product constitutes an export subsidy.

(31) This provision is to be interpreted in accordance with Annex II to the basic Regulation. This Annex requires the Commission, in determining whether inputs are consumed in the production process, to determine whether the government of the exporting country has in place a system or procedure to confirm which inputs are consumed and in what amounts in the production of the exported product. In this case, no such verification system exists.

(32) Annex II(II)(5) and Annex III(II)(3) of the basic Regulation provide furthermore that, where it is determined that the government of the exporting country does not have a proper verification system in place, a further examination by the exporting country based on actual inputs involved, or actual transactions, respectively, will normally need to be carried out in the context of determining whether an excess payment occurred.

(33) The GOI did not carry out such an examination. Therefore, the Commission did not examine whether there was in fact an excess drawback of import charges on inputs consumed in the production of the exported product.

(34) In any event, the excess remission of import duties is the basis for calculating the amount of the benefit only in the case of bona fide drawback and substitution drawback schemes. Since it has been established that the DEPB pre-export scheme is not a drawback or substitution drawback scheme within the meaning of Annex I(i) and Annexes II and III to the basic Regulation, the benefit is the total remission of import duties, not any supposed excess remission. Therefore, it is considered that this scheme constitutes a countervailable export subsidy under Article 3(4)(a) of the basic Regulation. It involves a financial contribution by the GOI since government revenue (i.e. import duties on imports) otherwise due are not collected; there is also a benefit to the recipient since the exporting producers do not have to pay normal import duties; and the scheme is clearly contingent upon export performance since it cannot be obtained without an export commitment.

(d) Calculation of the benefit

(35) The benefit to the exporting producers has been calculated on the basis of the amount of customs duty normally due on imports made during the investigation period but which remained unpaid under the DEPB pre-export scheme.

(36) One company benefited from this scheme and obtained subsidies of 4,27 %.

DEPB on post-export basis

(a) Eligibility

(37) The DEPB on post-export is available to manufacturer-exporters (i.e. every manufacturer in India who exports) or merchant-exporters (i.e. traders).

(b) Practical implementation of DEPB post-export basis

(38) Under this scheme, any eligible exporter can apply for credits which are calculated as a percentage of the value of exported finished products. Such DEPB rates have been established by the Indian authorities for most products, including the products concerned, on the basis of the SION. A licence stating the amount of credit granted is issued automatically.

(39) DEPB on post-export basis allows for the use of such credits for any subsequent imports (e.g. raw materials or capital goods) except for goods the importation of which is restricted or prohibited. Such imported goods can be sold on the domestic market (subject to sales tax) or used otherwise.

(40) DEPB licences are freely transferable and, as a consequence, are frequently being sold. The DEPB licence is valid for a period of 12 months from the date of granting of the licence. When all credits have been used, the company has to pay a fee to the relevant authority.

(c) Conclusions on DEPB on post-export basis

(41) This scheme is clearly contingent upon export performance. When a company exports goods, it is granted a credit which can be used to offset amounts of customs duties due on future imports of any goods (whether raw materials or capital goods) or which can just be sold.

(42) The credit is automatically calculated on the basis of a formula, using SION rates, independently of whether inputs have been imported, duty has been paid on them or whether the inputs were actually used for export production and in what quantities. Indeed a company can claim a licence irrespective of whether it makes any imports or purchases imported goods from other sources.

(43) DEPB on post-export basis is not a permitted remission/drawback scheme within the meaning of the basic Regulation. In particular, the exporter is under no obligation to actually consume the goods imported free of duty in the production process and the amount of credit is not calculated in relation to actual inputs used.

(44) Furthermore, there is no system or procedure in place to confirm which inputs are consumed in the production process of the exported product or whether an excess payment of import duties occurred within the meaning of item (i) of Annex I and Annexes II and III of the basic Regulation.

(45) In the absence of a requirement that imported inputs be consumed in the production process and of a system of verification as required under Annex II of the basic Regulation, the DEPB on post-export basis cannot be considered as a permitted drawback or substitution drawback scheme. In fact, the remission of import duties is not limited to that payable on goods consumed in the production process of the exported product and therefore an excess remission is involved, in accordance with Article 2(1)(a)(ii) of the basic Regulation.

(46) The scheme constitutes a subsidy as the financial contribution by the GOI in the form of duties foregone on imports confers a benefit upon the DEPB holder who can import goods duty-free using credits earned on exports. It is a subsidy contingent in law upon export performance and is therefore deemed to be specific under Article 3(4)(a) of the basic Regulation.

(d) Calculation of the subsidy amount for DEPB post-export basis

(47) The benefit to the exporters can be calculated in two separate ways according to the use the company has made of the DEPB licences: sales of the licences or use of the licences to make duty-free imports.

(48) In this case, the companies concerned did not sell the licences, therefore the benefit was calculated, for the use of the licences to import duty-free goods, on the basis of the amount of customs duty normally payable due on imports made during the investigation period but which remained unpaid under the DEPB.

(49) Two companies benefited from this scheme during the IP and obtained subsidies of 5,01 % and 6,52 % respectively. These companies had claimed deductions for licence fees paid. The Commission services verified those claims and considered that they were justified. Consequently, in calculating the benefits, the fees necessarily incurred to obtain the subsidies have been deducted.

3. Export Promotion Capital Goods Scheme (EPCGS)

(a) Legal Basis

(50) The EPCG scheme originally entered into force on 1 April 1990. During the period of investigation the scheme was regulated by Customs Notification No 28/97 and 29/97 which entered into force on 1 April 1997. Details of the schemes are contained in chapter 6 of the 1997/2002 Export and import policies as well as the relevant Handbook of procedures.

(b) Eligibility

(51) The EPCGS is available to manufacturers/exporters (i.e. every manufacturer in India who exports) or merchants/exporters (i.e. traders). Since 1 April 1997, manufacturers linked with merchants/exporters can also avail themselves of the scheme.

(c) Practical implementation

(52) To benefit from the scheme, a company must provide to the relevant authorities details of the type and value of the capital goods to be imported. Depending on the level of export commitment which the company is prepared to undertake, the company will be allowed to import capital goods at either a zero rate of duty or a reduced rate. A licence authorising the import of capital goods at preferential rates is issued automatically. An application fee is payable to obtain the licence. In order to meet the export obligation, goods exported must have been produced using the imported capital goods.

(d) Conclusion on EPCGS

(53) The EPCGS is a subsidy as the payment by an exporter of a reduced or zero rate of duty constitutes a financial contribution by the GOI, since revenue otherwise due is foregone. It confers a benefit to the recipient by lowering the duties payable or by fully exempting him from paying the import duties.

(54) This subsidy is countervailable since it is contingent in law upon export performance within the meaning of Article 3(4)(a) of the basic Regulation. The licence cannot be obtained without a commitment to export goods, and is therefore deemed to be specific.

(e) Calculation of the subsidy amount

(55) The benefit to the exporting producers should be calculated on the basis of the amount of unpaid customs duty due on imported capital goods by spreading this amount across a period which reflects the normal depreciation of such capital goods in the industry of the product concerned. This period has been established by using the average of the depreciation periods for capital goods actually imported by each company, resulting in a normal depreciation period of 18 years.

(56) The amount so calculated which is attributable to the investigation period has been adjusted by adding interest during the investigation period in order to establish the full benefit to the recipient under this scheme, the commercial interest rate during the investigation period in India, i.e. 14 % being considered appropriate.

(57) For one company, this amount has then been allocated over total exports during the investigation period. Since the other exporter only provided verifiable information for capital goods allocated to the polyester sector, the benefit for this company has been allocated over the related sector export turnover during the investigation period. Two companies benefited from this scheme during the IP and obtained subsidies of between 0,79 % and 1,71 %.

4. Export Processing Zones (EPZ)/Export Oriented Units (EOU)

(a) Legal Basis

(58) Another instrument under the Export import policy involving export-related incentives is the EPZ/EOU scheme. This scheme was introduced in 1965. During the period of investigation the scheme was regulated by Customs Notification No 53/97, 133/94 and 126/94. Details of the schemes are contained in Chapter 9 of the 1997/2002 Export and Import Policies as well as the relevant Handbook of Procedures.

(b) Eligibility

(59) Companies undertaking to export their entire production of goods and services may be set up under EPZ/EOU scheme. Once the status is granted, those companies can avail themselves of certain benefits. There are seven identified EPZs in India; one of the companies under investigation is located in an EPZ (Falta EPZ). EOUs can be located anywhere in India. They are bonded units under the surveillance of Customs officials in accordance with Section 65 of the Customs Act. One manufacturer/exporter investigated has been granted the status of EOU. Although EOU/EPZ are to export their entire production, the GOI allows those units to sell also a part of their production on the domestic market under certain conditions.

(c) Practical implementation

(60) Companies requesting treatment as EOUs or located in an EPZ must apply to the relevant authorities. Such application must include details for a period of the next five years, on, inter alia, planned production quantities, projected value of exports, import requirements and indigenous requirements. If the authorities accept the company's application, the terms and conditions attached to the acceptance will be communicated to the company. Companies in EPZs and EOUs can be involved in the production of any product. The agreement to be recognised as a company in an EPZ/EOU is valid for a five-year period. The agreement may be renewed for further periods.

(61) EPZ/EOU units are entitled to the following benefits:

(i) exemption from import duties on all types of goods (including capital goods, raw materials and consumables) required for the manufacture, production, processing, or in Connection therewith, provided they are not prohibited items in the Negative list of imports;

(ii) exemption from excise duty on goods procured from indigenous sources;

(iii) exemption of income, on which income tax is normally due in accordance with section 10B of the Income Tax Act, for a period of 10 years;

(iv) reimbursement of central sales tax paid on goods procured locally;

(v) 100 % foreign equity ownership;

(vi) facility to sell a part of production in the domestic market.

(62) The importer should maintain in the specified format, a proper account of all imports concerned and of the consumption and utilisation of all imported materials and of the exports made. These should be submitted periodically, as may be required, to the Development Commissioner.

(63) The importer must also ensure minimum net foreign exchange earnings as a percentage of exports and export performance as stipulated in the policy. The entire operations of an EOU/EPZ are to be done in Customs bonded premises.

(d) Conclusions on EPZ/EOU

(64) In the present proceeding, the EPZ/EOU scheme was used for the import of capital goods, raw materials and consumables as well as for the procurement of goods on the domestic market. The Commission services found that only concessions related to the suspension of import duties and excise duties on capital goods, raw materials and consumables during the period of bonding were used by the exporting producers. Therefore, the Commission only examined the countervailability of these concessions. In this regard, the EPZ/EOU scheme involves the granting of subsidies as the concessions granted under the scheme constitute financial contributions by the GOI, since revenues otherwise due are foregone and a benefit is conferred on the recipient. In the case of suspension of the collection of duties, this suspension has the same effect as an exemption since, as long as the export requirements are fulfilled, it is solely within the discretion of the company if and when to de-bond the goods in question.

(65) This subsidy is contingent in law upon export performance within the meaning of Article 3(4)(a) of the basic Regulation, since it cannot be obtained without the company accepting an export obligation, and it is therefore deemed to be specific and thus countervailable.

(e) Calculation of the subsidy amount

(66) One company operated as a recognised EOU; the other company was located in an EPZ. Both companies used this scheme for the import of capital goods, raw materials and consumables.

(67) The benefit to these exporters has been calculated on the basis of the amount of duty or taxes normally due on imported or indigenously sourced goods (i.e. raw materials, consumables and capital goods) during the investigation period.

Capital goods

(68) With regard to the import of capital goods this has been done on the same basis as explained above for the EPCGS: the benefit to the exporting producers should be calculated on the basis of the amount of unpaid customs duty due on imported capital goods by spreading this amount across a period which reflects the normal depreciation of such capital goods in the industry of the product concerned. This period has been established by using the average of the depreciation periods for capital goods actually imported by each company, resulting in a normal depreciation period of 18 years.

(69) The amount so calculated which is attributable to the investigation period has been adjusted by adding interest during the investigation period in order to establish the full benefit to the recipient under this scheme, the commercial interest rate during the investigation period in India, i.e. 14 % being considered appropriate. The benefit has then been allocated over total exports during the investigation period for one of the cooperating companies. Due to unforeseen events, the commercial production of the other exporter ceased in early 1998. This led to unrealistic sales figures during the investigation period. It was therefore decided not to take the sales turnover during the investigation period for the calculation of the subsidy margin.

(70) The Commission services accordingly made an adaptation of the export sales figures for the calculation of the subsidy margin based on verified data from this company in a normal commercial production situation which was reflected in the turnover given for 1997.

Raw materials, spares and consumables

(71) For the import of raw materials and consumables the benefit was calculated on the same basis as explained above for the DEPB pre-export scheme: the benefit to the exporting producers has been calculated on the basis of the amount of customs duty normally due on imports made during the investigation period but which remained unpaid.

(72) Two companies benefited from this scheme during the IP and obtained subsidies of 16,81 % and 11,15 % respectively.

5. Income Tax Exemption Scheme (ITES)

(a) Legal Basis

(73) The Income Tax Act 1961 is the legal basis under which ITES operates. The Act, which is amended yearly by the Finance Act, sets out the basis for the collection of taxes as well as various exemptions/deductions which can be claimed. Among the exemptions which can be claimed by firms are those covered by sections 10A, 10B and 80HHC of the Act, which provide an income tax exemption on profits from export sales.

(b) Eligibility

(74) Exemption under section 10A can be claimed by firms located in Free Trade Zones. Exemption under section 10B can be claimed by Export Oriented Units. Exemption under section 80HHC can be claimed by any firm which exports goods.

(75) Since no exporting producer of the product concerned availed itself of section 10A, section 10B or section 80HHC exemptions, there is no need for the Commission to assess these exemptions in the context of this investigation.

6. Amount of countervailable subsidies

(76) All subsidies found were identified as being export subsidies. The level of cooperation for India appeared to be high (above 90 %). The countrywide weighted average subsidy margin is 12.97 % which is above the applicable de minimis margin of subsidisation of 3 %.

>TABLE>

(77) In view of the high level of cooperation, the residual rate for non-cooperating companies was determined as the rate of the cooperating company with the highest subsidy margin i.e. 16,81 %.

II. INDONESIA

(78) The amounts of subsidies found for the individual exporters vary from 0,07 % to 1,46 % and are therefore below the de minimis threshold for subsidisation for Indonesia, pursuant to Article 14(5)(b) of the basic Regulation, i.e. under 3 %. Therefore, the Commission does not need to consider whether the subsidies in question are countervailable.

III. KOREA

(79) The amount of subsidies granted to the individual Korean exporters did not exceed 0,46 %. This is below the de minimis threshold of 1 % and therefore the Commission does not need to consider whether the subsidies in question are countervailable.

IV. MALAYSIA

1. Introduction

(80) On the basis of the information contained in the complaint and in the replies to the Commission's questionnaire, the Commission services investigated the following alleged subsidy schemes:

- pioneer status

- investment tax allowance

- reinvestment allowance

- double deduction for the promotion of exports

- double deduction of export credit insurance premiums

- deduction granted for promoted activities

- double deduction for expenses on approved training

- double deduction of insurance premiums for exporters

- double deduction of insurance premiums for importers

- double deduction for Research and Development

- export credit refinancing

- import duty exemptions

- sales tax exemptions

- capital expenditure allowance

- incentives for strategic projects

- incentive for promoting Malaysian brand names

- infrastructure allowance

2. Pioneer status

(a) Legal basis

(81) The legal basis for a company to obtain pioneer status is the Promotion of Investments Act of 1986. This Act also contains the list of promoted activities and promoted products. The list of promoted areas is listed in the Promotion of Investments (promoted areas) Order of 1994. The Promotion of Investments Order of 1995 contains special rules for promoted products for high technology companies.

(b) Eligibility

(82) Pioneer status may be granted to all companies intending to produce a "promoted" product (manufacturing sector) or a "promoted" activity (service sector) including a product/activity which is of national and strategic importance to Malaysia. Promoted products are products which are listed in the schedule to the Promotion of Investments Act.

(83) Pursuant to section 4 of the Act, the Minister of International Trade and Industry "shall from time to time determine such activities or products as he may deem fit to be promoted activities or promoted products". According to the Act, in order to promote a certain product, the Minister may take into consideration the following criteria:

- activity to be carried out or the product to be produced in Malaysia on a commercial scale which is suitable to the economic requirements or development of Malaysia,

- favourable prospects for further development of the activity or product,

- national and strategic requirements of Malaysia.

(84) The promoted areas are the eastern corridor of the Malaysian peninsular, Sabah, Sarawak and the federal territory of Labuan. An additional list of promoted products was drafted for companies located in promoted areas. These areas are considered to be lesser-developed areas of Malaysia. Neither company concerned is located in the promoted areas.

(85) Pioneer status can only be granted if the promoted activity or promoted product is new for the company and it cannot be cumulated for the same tax year with investment tax allowance or reinvestment allowance.

(c) Amount of benefit

(86) Any company which is granted pioneer status enjoys a tax exemption on 70 % of its statutory income (= gross income less allowable expenses and incentives for double deductions on certain expenses) from the "production day".

(87) Companies with pioneer status and which are located in a promoted area obtain a tax exemption on 85 % of their income. The "production day" is fixed by the Minister of International Trade and Industry by means of the pioneer certificate; it determines the commencement of the pioneer period for implementation of the tax benefit with the Inland Revenue Board. The tax exemptions granted are limited to a five-year period. In principle, no extensions for the benefits are given except where the Minister decides that the activity is of national and strategic importance to Malaysia. Finally, companies which produce promoted products for high technology will obtain a 100 % tax exemption for a period of 10 years.

(d) Practical implementation

(88) In order to obtain the pioneer status, a company makes an application to the Malaysian Industrial Development Authority (MIDA), a statutory body reporting directly to the Minister of International Trade and Industry.

(89) It is verified whether the future production falls within the list of promoted products and whether at least two out of the four following conditions are met by the company:

- value added,

- local content,

- industrial linkage, and

- technology measures by way of an increase in the number of managerial, supervising and technical employees in the company.

(90) If the above requirements are fulfilled, the Action Committee on Industries, a committee composed of representatives of MITI and the Department of Treasury will recommend the Ministers of International Trade and of Finance to approve the granting of pioneer status to that company.

(91) If a company is granted pioneer status, it submits a claim to the Inland Revenue Board together with the annual tax return containing the calculation of the claim for the tax incentive.

(92) The company can claim the first tax exemption in the tax year following the year of first production.

(e) Countervailability

(93) The tax exemptions under the Promotion of Investments Act constitute countervailable subsidies in the sense of Article 3(2)(a) of the basic Regulation. The GOM has limited the access to the subsidy to enterprises that manufacture a promoted product. Since the GOM has made the incentive available for the production of a limited number of products, it automatically limits the access to these enterprises producing the products as defined in the Act. The product under investigation in this proceeding is listed as a promoted product.

(94) Furthermore, the GOM has wide discretion in the designation of promoted products. The criteria, i.e. the suitability to the economic development of Malaysia, favourable prospects for further development and the national and strategic requirements of Malaysia, under which a product can be classified as a promoted product are vague and cannot be considered as objective criteria. It was established that there is no further definition of these criteria. Furthermore, the GOM has provided for differentiated rates of tax exemption depending on the type of promoted product and the location in a promoted area. As a consequence, the GOM favours certain enterprises over other enterprises whether it is because of the production of a "more" promoted product or the location in a certain geographical area. Finally, since local content is one of the criteria which in practice is taken into account, this programme aims to promote the use of domestic over imported goods.

(95) The scheme constitutes a subsidy, as the financial contribution by the GOM in the form of tax exemption confers a benefit. It is a subsidy that is specific to certain enterprises in Malaysia pursuant to Article 3(2)(a) of the basic Regulation.

(f) Calculation of the benefit

(96) The benefit to the exporting producers should be calculated on the basis of the corporate income tax exemption and the resulting tax saving that was effectively granted to the exporting producers during the investigation period. The amount of benefit should be allocated over the total turnover during the investigation period.

(97) One company benefited from this scheme and obtained a subsidy of 4 %

3. Investment Tax Allowance and Double deduction of insurance premiums for exporters

(98) Although one company was eligible under these programmes, it did not obtain a benefit since the company was loss making. Therefore, it is not necessary to further evaluate these schemes.

4. Double deduction of insurance premiums for importers

(a) Legal Basis

(99) This programme is regulated by subsection 154 of the Income Tax Act of 1967 and the Income Tax Rules of 1982.

(b) Eligibility

(100) The double deduction is available for manufacturing or agricultural companies in respect of premiums payable for insurance of cargo imported by that person or company, provided that the insurer is a company incorporated in Malaysia. All importers are eligible to apply for this double deduction regardless of whether the imported products are to be consumed domestically or subsequently re-exported.

(c) Countervailability

(101) The double deduction of insurance premiums for importers constitutes a subsidy as there is a financial contribution by the GOM in the form of double deduction of expenses (i.e. a reduced tax liability) which confers a benefit.

(102) However, this double deduction of insurance premium for importers does not constitute a countervailable subsidy in the sense of the basic Regulation because it is not specific. The GOM has not limited the access to the subsidy to certain enterprises and applies objective criteria in the granting of the subsidy.

5. Double deduction for research and development

(a) Legal basis

(103) This programme is regulated by sections 34A and 34B of the Income Tax Act of 1967.

(b) Eligibility

(104) The double deduction is available for manufacturing or agricultural companies in respect of expenses incurred directly for R & D purposes except with regard to capital expenditures in R & D.

(105) However, the double deduction of this type of expenses does not constitute a countervailable subsidy in the sense of the basic Regulation because it is not specific. The GOM has not limited the access to the subsidy to certain enterprises and applies objective criteria in the granting of the subsidy.

6. Import duty exemption and sales tax exemption

"Licensed manufacturing warehouse" (LMW)

(a) Legal basis

(106) Pursuant to Item 88 of the Customs Duties (Exemption) Order 1988, which is part of the Customs Act 1967, imported raw materials, machinery and equipment of a "Licensed manufacturing warehouse" (LMW) are exempted from import duties. The sales tax exemption for LMW companies is regulated by Item 83 Schedule B of the Sales Tax (Exemption) Order 1980.

(107) One co-operating producer/exporter is identified as a LMW.

(b) Eligibility

(108) LMW companies are manufacturing companies which are export oriented, i.e. companies having in 1998 an obligation to export a minimum 80 % of their production; this rate has become 50 % since 1 January 1999.

(109) In order to qualify for the import duty exemption and the sales tax exemption on raw materials, machinery and equipment (including accessories and spare parts), an LMW company has to use those directly in the manufacturing process of an approved finished product which is, at least for a major part, exported to a third market and the equipment is to be used for environmental control, recycling, maintenance and quality control. The manufacturing process starts from the initial stage of manufacturing until the finished product is finally packed ready for export; this includes packaging materials and casings.

(c) Practical implementation

(110) As regards the imported raw materials, it was found that the main raw materials for the manufacturing of the product concerned, imported by the cooperating company, were subject to "nil" import duty rate and sales tax rate.

(111) For the imported machinery and equipment (including accessories and spare parts), the procedure is as follows:

(112) The company, prior to importation, files an application to the State Director of Customs which verifies whether the input can be directly used in the manufacturing process of the finished product

(113) After approval, the imports made under this scheme are declared through import declaration form 1 to the customs authorities. The imports are registered and examined by customs to verify if they are in compliance with the declaration approved by the State Director of Customs.

(114) Exemptions (import duty and sales tax) are consequently granted by the customs authorities by means of a "stamp" on the import declaration form.

(d) Countervailability

(115) This scheme constitutes a subsidy under Article 2 of the basic Regulation since it consists of a financial contribution by the GOM in the form of import duties and sales taxes foregone that are otherwise due and it confers a benefit to the recipient.

(116) Since, for LMW, it is limited to companies located in certain areas and furthermore it is contingent upon export performance, it is deemed to be specific within the meaning of Article 3(2)(a) and 3(4)(a) of the basic Regulation.

(e) Calculation of the benefit

(117) The amount of subsidy is the difference between the amount of import duties and sales tax actually paid on machinery/equipment and the amount of import duties and sales tax which would normally be payable without the benefit of the exemption.

(118) The benefit should be allocated over the normal lifetime of the machinery which is on average 10 years in Malaysia. The amount pertaining to the investigation period should be allocated over the total export turnover during the period of investigation for LMW companies. One company benefited from this scheme and obtained subsidies of 0,21

"Principal customs area" (PCA)

(a) Legal basis

(119) Section 14(2) of the Customs Act 1967 provides for customs duties exemption on imported raw materials, machinery and equipment for all companies not considered as LMW companies nor as "free zone" companies which can then only be companies located in a "Principal customs area" (PCA). The legal basis for the sales tax exemption on imported raw materials, machinery and equipment is section 10 of the sales Tax Act. One co-operating producer/exporter is located in a "principal customs area".

(b) Eligibility

(120) With regard to PCA companies, the import duty exemption and sales tax exemption on raw materials, machinery and equipment (also including accessories and spare parts) is granted by the Minister for Finance only to manufacturing companies fulfilling "the conditions he may deem fit to impose".

(121) These conditions include, amongst others, the requirement that the machinery and equipment concerned should be used directly in the manufacturing process of the finished goods.

(c) Practical implementation

(122) As regards the imported raw materials, it was found that the main raw materials used in the manufacturing process of the product concerned, imported by the cooperating company, were subject to "nil" import duty rate and sales tax rate.

(123) The raw materials concerned are consequently not subject to an import duty and sales tax exemption.

(124) For the imported machinery and equipment (including accessories and spare parts) the practical procedure is as follows:

(125) The company, prior to importation, files an application (form PC 1 (97)) to the Malaysian Industrial Development Authority (MIDA), a government body, which verifies whether the equipment can be directly used in the manufacturing process of the finished product. After approval, MIDA proposes to the Minister for Finance to grant import duty and sales tax exemptions to the applicant company for the specified machinery/equipment. The Minister for Finance issues an exemption letter listing all machinery/equipment approved to be imported without paying the normal duties (import and sales tax). The approval to import the listed equipment is valid for one year. When the machinery is imported, the company completes and files the Import declaration form 1 with the customs authorities. The imports are registered and examined by customs to verify if they are in compliance with the authorisation granted by the Minister for Finance. Exemptions (import duty and sales tax) are consequently granted by the customs authorities by means of a "stamp" on the import declaration form.

(d) Countervailability

(126) This scheme constitutes a subsidy under Article 2 of the basic Regulation since it consists of a financial contribution by the GOM in the form of import duties and sales taxes foregone that are otherwise due and it confers a benefit to the recipient.

(127) For PCA companies, the import duty exemptions and sales tax exemptions are only available to manufacturing companies which import specific equipment under conditions set by the GOM "which it may deem fit to impose". These conditions are not considered to be objective since they are not neutral and economic in nature and horizontal in application. These criteria are furthermore not clearly set out by law. Since the eligibility is expressly limited to certain enterprises and not based on neutral criteria within the meaning of Article 3(2)(b) of the basic Regulation, the scheme is considered specific in accordance with Article 3(2)(a) of the basic Regulation.

(e) Calculation of the benefit

(128) The amount of subsidy is the difference between the amount of import duties and sales tax actually paid on machinery and the amount of import duties and sales tax which would normally be payable without the benefit of the exemption.

(129) The benefit should be allocated over the normal lifetime of the machinery which is on average 10 years in Malaysia. The amount pertaining to the investigation period should be allocated over the total turnover during the period of investigation for PCA companies.

(130) One company benefited from this scheme and obtained subsidies of 0,91 %

7. Programmes found not to be used

(131) The complainant alleged that the exporting producers of the product concerned benefited from a number of other subsidy programmes. The questionnaire response and the verification revealed that the exporting producers did not use the programmes listed below:

- reinvestment allowance

- double deduction for the promotion of exports

- double deduction of export credit insurance premiums

- deduction granted for promoted activities

- double deduction for expenses on approved training

- export credit refinancing

- capital expenditure allowance

- incentives for strategic projects

- incentive for promoting Malaysian brand names

- infrastructure allowance

Therefore, the Commission has not made an assessment as regards these programmes.

8. Amount of countervailable subsidies

(132) The level of cooperation for Malaysia was very high (above 90 %). The two companies producing PET in Malaysia did cooperate. The countrywide weighted average subsidy margin is 4,2 % which is above the applicable de minimis level of 2 %.

>TABLE>

(133) In view of the high level of cooperation, the residual rate for non-cooperating companies was determined as the rate of the cooperating company with the highest subsidy margin i.e. 4,2 %

V. TAIWAN

1. Introduction

(134) On the basis of the information contained in the complaint and the replies to the Commission's questionnaire, the Commission services investigated the following alleged subsidy schemes:

1. tax credits and exemptions,

2. import duty exemption,

3. loans at preferential interest rates,

4. matching funds.

(135) The tax credits, loans and matching funds are based on the Statute for Upgrading Industries as last amended on January 27, 1995. The implementation of these programmes is regulated by the Enforcement Rules of the Statute for Upgrading Industries as last amended on 22 January 1997. Finally, the practical implementation of these programmes is regulated by Measures enacted by the Executive Yuan of Taiwan. The import duty exemptions are based on the Customs Code.

2. Tax credits and exemptions

2.1. Tax credits for the purchase of automation and pollution control equipment

(a) Legal basis

(136) The basic instrument involving economic development of the Taiwanese industry is the Statute for Upgrading Industries (SUI) which entered into force on 1 January 1991 and was last amended on 27 January 1995. The Statute is supplemented by the Enforcement Rules of the Statute for Upgrading Industries as last amended on 27 January 1995. The tax credits are covered by Article 6 of the SUI. Furthermore, the practical implementation of the scheme is regulated by the Measures Governing the Application of Tax Deductions promulgated on 15 April 1991 by the Executive Yuan which was last amended on 27 February 1995.

(b) Eligibility

(137) The tax credits are available to all manufacturing companies. There is no specific export requirement nor is availability dependent on certain product types or minimum production quantity or turnover.

(138) However, pursuant to Article 6 of the SUI, tax exemptions are only granted for the following limited number of investments:

- investment in equipment for automation of production,

- investment in equipment for pollution control.

(139) The SUI states that the investment in the equipment should exceed 600000 new Taiwanese dollars (NTS). The tax credits for the different types of investment can be cumulated. The amount of tax credit is limited to 50 % of the total amount of tax payable in any current year.

(c) Amount of tax credit

(140) Any eligible company which invests in the abovementioned equipment types may credit 10 to 20 % of the purchase amount against the corporate income tax payable for the current year. In case the amount of income tax payable is less than the deductible amount, the benefit may be carried over during the next four years.

(141) The amount of tax credit is determined as follows:

- for the purchase of domestically manufactured automated equipment or pollution control equipment, the credit rate is 20 %,

- for the purchase of foreign-made automated or pollution control equipment, the credit rate is 10 %,

- for the purchase of technology for automation production, the permissible credit is at the rate of 10 %.

(d) Practical Implementation

(142) In order to obtain the tax credits, a company makes an application for the issuance of a tax deduction certificate to the Industrial Development Bureau (IDB) of the Ministry of Economic Affairs within six months of the date of delivery of the equipment or the date of completion of the project. Prior to issuing the tax deduction certificate, the local tax authorities will verify whether the equipment falls within the criteria of Article 6 of the SUI and has been installed effectively. Once the certificate is issued, the tax credit can be deducted in the tax declaration for the current year (item 95 on the tax declaration).

(e) Countervailability

(143) The tax credits under Article 6 of the SUI constitute countervailable subsidies in the sense of Article 3(4)(b) of the basic Regulation. The tax credits constitute subsidies which are contingent upon the use of domestic over imported goods. Although the programme provides for a tax credit for imported as well as domestically produced equipment, the subsidy is doubled for the purchase of domestic equipment and therefore, directly provides an incentive for the purchase of Taiwanese made equipment. The verification revealed that the Taiwanese authorities intend to favour the purchase of domestically manufactured equipment over imported machinery by providing for a differentiated level of benefit (20 % for domestic versus 10 % for imported equipment).

(144) The scheme constitutes a subsidy as the financial contribution by the Government of Taiwan (GOT) in the form of tax credits confers a benefit upon exporters. It is a subsidy contingent in law upon the use of domestic over imported goods and is therefore deemed to be specific under Article 3(4)(b) of the basic Regulation.

(145) For the abovementioned reasons, it is considered that the tax credits constitute countervailable subsidies.

(f) Calculation of the benefit

(146) The benefit to the exporters was calculated on the basis of the difference between the tax credit for imported machinery and domestically purchased machinery i.e. 10 % that was granted to the exporters during the investigation period. The amount of benefit should be allocated over the total turnover of the product concerned during the investigation period.

(147) Two companies benefited from this scheme and obtained benefits of 0,41 % and 0,43 %.

2.2. Tax credits for investment in certain enterprises

(a) Legal basis

(148) The tax credits are regulated by Article 8 of the SUI.

(b) Eligibility

(149) The tax credit is available to any investor which buys registered stocks issued by an important technology-based enterprise or an important invested enterprise designated by the government (invested company). The investing company should hold the registered stocks for a period of at least two years. There is no precise definition of important technology-based enterprise. An important invested enterprise may be any enterprise with a capital of NTS2 billion providing it has been designated as such by the GOT.

(c) Amount of tax credit

(150) Any eligible company which invested in the abovementioned enterprises may credit 20 % of the price paid for the acquisition of such stocks against the corporate income tax payable.

(d) Practical implementation

(151) In order to obtain the tax credits, the invested company makes an application for the issuance of a tax deduction certificate to IDB. Prior to issuing the tax certificate, IDB will verify whether the company qualifies as a technology-based enterprise or whether the invested enterprise was designated as an important invested company by the government authorities. Once the certificate is issued to the invested company, the investor may claim the tax credit which can be deducted in the tax declaration for the current year (item 95 on the tax declaration).

(e) Countervailability

(152) The tax credits under Article 8 of the SUI constitute countervailable subsidies in the sense of Article 3(2)(a) of the basic Regulation. The GOT has limited the access to the subsidy to enterprises which make a specific investment. In addition, the GOT has large discretion in the designation of eligible investments. There are no objective criteria to determine what constitutes a technology-based or important invested enterprise. The verification revealed that the Taiwanese authorities intend to favour certain types of investment without establishing clear criteria.

(153) The scheme constitutes a subsidy as the financial contribution by the GOT in the form of tax credits confers a benefit to the exporters. It is a subsidy which is specific to certain enterprises in Taiwan pursuant to Article 3(2)(a) of the basic Regulation.

(154) One company alleged that this scheme is not specific since a large number of private persons and companies have benefited from this scheme. The Commission is of the view that the number of beneficiaries is not a criterion for determining specificity in accordance with Article 3 of the basic Regulation. A large number of companies may benefit from an export subsidy and this does not render a programme not countervailable. Therefore, this claim cannot be accepted.

(f) Calculation of the benefit

(155) The benefit to the exporters should be calculated on the basis of the tax credit that was effectively granted to the exporters during the investigation period. The amount of benefit should be allocated over the total turnover of the company during the investigation period.

(156) One company benefited from this scheme and obtained a benefit of 0,69 %.

2.3. Tax credits for r & d and personnel training

(157) The tax credits for R& D and personnel training under Article 6 of the SUI do not constitute countervailable subsidies. The tax credits are generally available for all manufacturing, agricultural and service industries investing in R& D and personnel training.

2.4. Tax credit for establishing international brands

(158) Only one company availed itself of this scheme and obtained a negligible benefit. Therefore, the countervailability of this scheme does not need to be addressed.

3. Import duty exemption

3.1. Import duty exemption for machinery

(a) Legal basis

(159) Chapters 84, 85 and 90 of the Customs import tariff and classification of import and export commodities of the Republic of China (hereinafter "the Customs Code").

(b) Eligibility

(160) Pursuant to the abovementioned provisions of the Customs Code, a manufacturing company which imports machinery for the development of new products, quality upgrading, increase of production, achievement of energy conservation, promotion of recycling or improvement of production techniques, which is not yet being manufactured locally, is exempt from import duties.

(c) Practical implementation

(161) A company which intends to import machinery or equipment makes an application to IDB prior to the importation of the machinery. If IDB is satisfied that the machinery is not produced in Taiwan, it will issue a certificate which is sent to the applicant and the customs department. The customs services will verify whether the imported machinery is identical to the machinery described in the IDB certificate. This verification is undertaken on a random basis.

(d) Amount of duty exemption

(162) The amount of subsidy is the amount of import duties which would normally be payable without the benefit of the exemption. The normal duty rate for machinery lies between 2 % and 20 %.

(e) Countervailability

(163) The import duty exemption pursuant to the Customs Code constitutes a countervailable subsidy. Due to the nature of the subsidy, the programme will automatically be disproportionately used by certain industry sectors. The industry sectors whose machinery is produced in Taiwan will not be eligible to use this programme. Consequently, eligibility for the import duty exemption is limited to industries who are obliged to import machinery since the machinery is not available on the local market. Industries which import machinery which is also produced in Taiwan cannot obtain the benefit.

(164) Therefore, it is considered that the import duty exemption on machinery constitutes a countervailable subsidy in the sense of Article 3(2)(a) of the basic Regulation.

(f) Calculation of the benefit

(165) The benefit to the exporters should be calculated as the amount of import duties payable without the benefit of the exemption under this scheme. This amount should be allocated over the normal service life of the machinery in this industry, i.e. seven years.

(166) All companies made use of this programme and obtained benefits of 0,07 % to 1,92 %.

3.2. Imports of raw material

(167) The Customs import tariff offers tax exemptions for imports of main raw materials of chemicals and sub-material, and that access to the tax exemption is explicitly limited to certain enterprises, including the producers of PET chips.

(a) Eligibility

(168) Manufacturing companies which import certain specific raw materials exhaustively described in the Customs Code and which are not yet produced or sufficiently available on the local market are exempted from paying import duties on the purchases of those raw materials.

(b) Practical implementation

(169) A company which intends to import the specified raw material files an application to IDB prior to the importation of the raw material. If IDB has established that the raw material to be purchased is not produced in Taiwan or is not supplied sufficiently in Taiwan, it will issue a certificate enabling the company to import the raw material without payment of import duties. The customs services randomly check that the imported raw material is as described on the certificate.

(c) Countervailability

(170) There is a financial contribution by the GOT in the form of import duties foregone. Consequently this scheme confers a direct benefit to the recipient in the form of unpaid import duties. The import duty exemption pursuant to the Customs Code constitutes a subsidy. Due to its nature, the programme can only be used by limited sectors of the Taiwanese industry importing specific raw materials. The industry sectors whose raw material is produced in Taiwan will not be able to use this programme. The scheme is not a general duty suspension scheme. Utilisation of the scheme is dependent upon individual applications from each company, for each product manufactured, and for each raw material to be imported duty free. The GOT has discretion in the granting of certificates. Further, it is considered that access to this scheme is limited to certain companies. Therefore, this scheme is specific within the meaning of Article 3(2)(a) of the basic Regulation and the subsidy is countervailable.

(d) Calculation of the subsidy amount

(171) The benefit to the companies was calculated as the amount of import duties normally payable without the benefit of the exemption for the production of the product concerned. The total amount of subsidy so attributed to the investigation period was allocated over the total sales turnover for the product concerned since this subsidy benefits both domestic and export sales. All companies benefited from this programme and obtained benefits from 0,12 % to 0,73 %

4. Loans at preferential interest rates

(172) It was alleged that there are several programmes regarding preferential loans available to the companies under investigation. The Commission established that only loans for automation and loans for anti-pollution incentives were used by the producers of the product concerned.

(a) Eligibility

(173) These schemes are covered by Article 21, paragraph 1, item 3 of the SUI. The GOT has established a development fund and makes use of such a development fund for providing loans in line with the government industrial policy for assisting the sound development of industries.

(b) Practical implementation

(174) A company has to file an application to the Chiao Tung Bank (which is partly State owned), or to certain other designated banks. The bank will verify whether the application falls within the criteria. Based on the financial situation of the applicant, the Chiao Tung Bank will decide on the amount of the loan.

(c) Countervailability

(175) The Commission established that there is a financial contribution by the GOT since the executive Yuan of the Development Fund, which is responsible for drafting and amending the rules relating to these types of loans is State controlled. Furthermore, the Chiao Tung Bank, which is also State-controlled, channels the loans to the companies. In addition, a benefit is conferred on the recipient of the loan since the interest rates of these loans are generally lower than comparable commercial loans. Low-interest loans are only available to companies which purchase specific equipment under specific conditions set by the executive Yuan of the Development Fund. Since the eligibility is expressly limited to certain enterprises and not based on neutral criteria within the meaning of Article 3(2)(b) of the basic anti-subsidy Regulation, the scheme is considered specific in accordance with Article 3(2)(a) of the basic Regulation.

(d) Calculation of the subsidy amount

(176) The subsidy is the difference between the amount of interest paid on the loan during the investigation period and the interest normally payable on a comparable commercial loan during the investigation period. The comparable loan should be a loan of a similar amount with a similar repayment period actually obtained by the recipient from a representative private bank operating on the domestic market. In this investigation there were no such comparable commercial loans granted to the respective companies. Therefore the Commission considered that the appropriate benchmark would be the average commercial interest rate during the investigation period (9 %). All companies availed themselves of this scheme and obtained a benefit of 0,02 % to 0,09 %.

5. Matching funds and assistance funds

(177) Only one company availed itself from this scheme and obtained a negligible benefit. Therefore, the issue of countervailability does not need to be addressed.

6. Other subsidies

(178) The Commission determined that there were no other subsidy programmes used by the exporting producers.

7. Amount of countervailable subsidies

(179) The amount of subsidy was calculated according to the methodology set out above. In this respect, the following subsidy rates for the co-operating companies were established:

>TABLE>

(180) For information, it should be noted that the weighted average country-wide subsidy margin for the exporting producers investigated, which represent the totality of the exports to the Community originating in Taiwan, expressed as a percentage of the cif price at Community frontier level is 1,08 % which is above the de minimis threshold for Taiwan (i.e. 1 %). In view of the high level of cooperation (above 90 %), the residual rate for non-cooperating companies was determined as the rate of the cooperating company with the highest subsidy margin i.e. 2 %.

VI. THAILAND

1. Introduction

(181) On the basis of the information contained in the complaint and the replies to the Commission's questionnaire, the Commission services investigated the following schemes:

- exemption or reduction on duties on imports of machinery,

- exemption from corporate income tax,

- additional incentives for enterprises in special investment promotion zones,

- exemption of import duties on raw and essential materials,

- incentives for enterprises in special investment production zones,

- other subsidies such as packing credits, pre-shipment finance facilities and investment inducements.

(182) It was established that, during the investigation period, the cooperating exporting producer availed itself only of schemes under the Investment Promotion Act.

2. General

(183) The Investment Promotion Act (IPA) B.E. 2520 of 1977 and its amendment B.E. 2534 of 1991 provides incentives to promote development of the Thai economy. The IPA, which is administered by the Board of Investment (BOI), grants the exemption of import duties and other taxes with respect to qualifying projects. According to the BOI, the Investment Promotion Scheme is used as a tool to encourage companies to relocate to less developed areas in Thailand.

(184) In order to receive IPA benefits, each company makes an application to the BOI for a "certificate of promotion" (licence), which specifies the goods to be produced and the benefits granted.

(185) The BOI stressed that its major political aim was decentralisation and counteracting the danger of the development of a dual economy, with the Bangkok area absorbing most investment due to its competitive advantage in infrastructure. This policy is spelled out in the five-year national development plan (as regards the period of investigation the eighth version is relevant, running from 1997 to 2001).

(186) In response to the general framework of regional development set out in the seventh national social and economic development plan, the BOI divided the entire country into three zones since April 1993. The classification into zones is based on the level of economic development, with zone 1 being the most developed and zone 3 being the least developed one.

(187) Zone 1 covers Bangkok and vicinities (Samut Prakan, Samut Sakhon, Pathum Thani, Nontha Buri, and Nakhon Pathom); zone 2 covers Samut Songkram, Ratchaburi, Kanchanaburi, Suphanburi, Ang Thong, Ayuthaya, Sara Buri, Nakhon Nayok, Chachengsao and Chonburi; zone 3 covers the rest of the country.

(188) The production facility of Thai Shingkong Ltd, the only cooperating exporter, is located in zone 3.

(189) Approved projects located in zone 1 are eligible for a 50 % reduction of import duties on machinery that is not included in the tariff reduction notification of the Ministry of Finance (notification No C.3/2533) and is subject to a tariff greater than or equal to 10 % if they export at least 80 % of total sales or are located in industrial estates or promoted industrial zones; a three-year exemption of corporate income tax if they export at least 80 % of total sales or are located in industrial estates or promoted industrial zones; and exemption of import duties on raw materials and essential materials used in the manufacture of exports.

(190) Approved projects located in zone 2 will receive 50 % reduction of import duties on machinery that is not included in the tariff reduction notification of the Ministry of Finance (notification No C.3/2533) and is subject to a tariff greater than or equal to 10 %; three-year exemption of corporate income tax or seven-year exemption of corporate income tax if they are located in industrial estates or promoted industrial zones; and exemption of import duties on raw materials and essential materials used in the manufacture of exports.

(191) Approved projects located in zone 3 will receive exemption on the import duty on machinery, eight-year exemption of corporate income tax, exemption of import duties on raw materials and essential materials used in the manufacture of exports, and special privilege for investment promotion zone (i.e. double deduction of transportation, electricity and water supply cost; deduction of 25 % of infrastructure, installation or construction costs).

Regional specificity

(192) Since firms located in zones 2 and 3 are entitled to more generous incentives than those located in zone 1, all subsidies granted in zones 2 and 3 by the BOI are by definition regionally specific, in accordance with Articles 3(2)(a) of the basic Regulation.

Sector specificity

(193) As regards sector specificity, the BOI claimed that it has established objective criteria in granting incentives, and that these criteria are clearly set out in BOI announcements and publications and consistently adhered to. The list of activities eligible for investment promotion is contained in chapter 5 of the Guide to the Board of Investment. The GOT claims that it does not promote particular sectors, and that these incentives are therefore not specific. The BOI argued that any projects undertaking activities eligible for promotion announced by the BOI can apply for incentives, and that the BOI applies objective criteria governing the eligibility for incentives. Projects applying for incentives are required to meet the objective project approval criteria which are based on economic and technological factors, namely "value-added" (minimum 20 %), debt-equity ratio not exceeding 4 to 1, technological level of production process and machinery involved, and environmental protection systems.

(194) The sectors eligible for promotion are enumerated in a list of activities. It was claimed that this list of activities was open-ended and updated on a relatively regular basis if the market shows demand for promotion for new sectors. The list has been updated about 30 times since 1987. It is clear that although a wide range of activities are eligible, the Thai Government has used its discretion to determine which sector can obtain benefits, including in which zones the companies had to be located.

(195) The BOI is empowered to decide which activities should be promoted. The BOI may temporarily or permanently suspend activities on the Investment Promotion List if it considers that promotion is no longer needed; or the BOI may add new activities to the list if it considers that such activities should be promoted. This was the case when the BOI decided to exempt machinery in 61 categories of activities from import duty, for projects located in zones 1 and 2 (BOI announcement No 12/2540 effective from 27 October 1997). Furthermore, sectors or industries, which are not listed in the activities list are excluded from investment promotion. As already mentioned, it is the discretion of the BOI to decide which industries are eligible for promotion. In excluding certain industries, the GOT has limited the access to the subsidy to certain enterprises.

Import substitution condition

(196) Any subsidy to an enterprise or industry would therefore by definition be specific. The 20 % value-added criterion effectively encourages enterprises to use domestic over imported goods and will effectively mandate the use of domestic goods in cases where the value added is less than 20 %. Therefore, any subsidy linked to this requirement is specific according to Article 3(4)(b) of the basic Regulation.

Conclusion on specificity

(197) BOI incentives are therefore specific in accordance with Articles 3(2)(a) and 3(4)(b). Therefore, in addition to regional specificity for zones 2 and 3, all BOI subsidies in the whole of Thailand including zone 1 are specific.

Green-light claim

(198) It was claimed that zone 3 qualifies as a disadvantaged region within the meaning of the provisions of the ASCM and the basic Regulation. Most notably, it was claimed that per capita income of zone 3 was less than 85 % of the country's average, and that this per capita income has always been well below the national average.

(199) In order to assess the merits of this claim, it is necessary to evaluate the implementation of the criteria set out in Article 4(3) of the basic Regulation in Thailand.

(200) It is acknowledged that zone 3 is a clearly designated contiguous geographical area. It is not disputed that zone 3 meets the definition of disadvantaged region in accordance with Article 4(3) of the basic Regulation. Indeed, evidence was provided that the per capita income in zone 3 between 1994 and 1996 were in the region of 50 % of the national average.

(201) However, it has already been established that the BOI incentive system limits the access and is therefore specific. As a result, none of the regions qualify for green light treatment. As regards zone 3, the fact that only sectors listed are eligible for promotion, plus the value-added requirement makes incentives within the zone specific. Consequently, the green-light claim has to be rejected.

3. Exemption or reduction on duties on imports of machinery

(a) General

(202) Section 28 of the IPA is the legal basis to grant the exemption of import duties on machinery provided that such machinery is not being produced or assembled in Thailand and will be used in the promoted activity. Section 29 of the IPA provides the legal basis for the 50 % reduction on import duties on imported machinery.

(b) Eligibility

(203) The company under investigation was subject to the criteria effective from April 1993, based on current zoning. Different criteria in granting exemption and reduction of import duties on imported machinery are applied to different zones. Investments in zone 1 will be granted a 50 % reduction of import duties in case of import duties greater or equal to 10 % if they export at least 80 % of total sales. Investments in zone 2 will be granted a 50 % reduction of import duties in case of import duties greater or equal to 10 %. Investments in zone 3 will be granted exemption of import duties on machinery.

(204) Thai Shingkong Co. Ltd was granted an exemption of import duties on machinery issued in 1994 due to its location in zone 3 (Investment Promotion Certificate No 1823/2537).

(c) Practical implementation

(205) In order to avail itself of this scheme, the company must possess a Certificate of promotion which specifies that it is entitled to an exemption or reduction on taxes on imports of machinery pursuant to Article 28 or 29 of the IPA. The Customs Department will receive a copy of the licence, and will, on importation of the machinery declared to be BOI exempted, check that it is for the promoted activity.

(d) Countervailability

(206) The import duty exemption is a subsidy because government revenue which is otherwise due is foregone by the government. As explained in the general part, the programme is limited to firms located in certain zones and to certain sectors and requires companies to have 20 % value added. Therefore, the import duty exemption is specific and countervailable under Article 3(2)(a) and 3(4)(b) of the basic Regulation.

(e) Calculation of the subsidy amount

(207) The benefit to the exporters should be calculated on the basis of the amount of unpaid customs duty due on imported capital goods, by spreading this amount across a period which reflects the normal depreciation of such capital goods in the industry of the product concerned. This period has been established by using the average of the depreciation periods for capital goods actually imported under this scheme by the company, resulting in a normal depreciation period of 11 years. The amount so calculated which is attributable to the investigation period has been adjusted by adding interest during the investigation period in order to establish the full benefit to the recipient under this scheme, the commercial interest rate during the investigation period in Thailand, i.e. 12,04 % being considered appropriate. This amount has then been allocated over total sales during the investigation period.

(208) Thai Shingkong Ltd received a benefit of 0,35 %.

4. Exemption from corporate income tax

(a) General

(209) Sections 31 and 34 of the IPA provides the legal basis for corporate income tax exemption and exclusion, from taxable income, of dividends derived from promoted activity during the corporate income tax exemption period respectively.

(b) Eligibility

(210) By virtue of Section 31 of the IPA, the BOI is authorised to provide three to eight year exemptions from the corporate income tax depending on the location of investments. Different eligibility criteria are applied to different zones.

(211) Investments located in zone 1 exporting at least 80 % of total sales and located in industrial estates or promoted industrial zones will be granted three-year corporate income tax exemption. Projects in zone 2 will receive three-year seven-year corporate income tax exemption respectively depending on whether they are located in industrial estates or promoted industrial zones. Investments in zone 3 will be granted eight-year corporate income tax exemptions.

(212) Thai Shingkong Ltd located in zone 3, has been granted an eight year tax exemption from corporate income tax pursuant to Section 31 of the IPA.

(c) Practical implementation

(213) In order to avail itself of the exemption of corporate income tax, the company must fill out all costs and income derived from the promoted activity in a special column (non-taxable). The claim must be made on line 46 of the tax return and accompanied by supporting documents.

(d) Countervailability

(214) The income tax exemption is a subsidy since government revenue which is otherwise due is foregone by the government. As stated above, this scheme is countervailable pursuant to Article 3(2)(a) and 3(4)(b) of the basic Regulation.

(e) Calculation of the benefit

(215) Thai Shingkong Ltd claimed on the tax return, income tax exemption under the licence for the financial year ending 31 December 1998, which ended within the period of investigation. The company claims that it was not liable to pay corporate income tax in 1998 since net losses were carried forward from previous tax years. However, the BOI and the Revenue Department confirmed that a company which can carry forward losses and benefits from income tax exemption can choose either to claim the benefit under the BOI certificate or offset its profits against previous year's losses. In the present case, Thai Shingkong opted to use the income tax exemption and not to offset profits with accumulated net losses. Therefore, it is concluded that an effective benefit was granted to the company under this scheme.

(216) The benefit should be calculated as the taxes which were not paid on profits realised on BOI activity.

(217) Thai Shingkong obtained a benefit of 8,13 %.

5. Additional incentives for enterprises in special investment promotion zones

(218) Section 35(3) of the IPA provides the legal basis for double deduction of transportation, electricity and water supply costs while Section 35(4) provides the legal basis for deduction of up to 25 % of infrastructure, installation and construction costs.

(219) It was established that the exporting producer did not benefit from these additional incentives. Therefore, it is not necessary to make an assessment of these schemes.

6. Exemption of import duties on raw and essential materials

(a) General

(220) Section 36(1) of the IPA provides the legal basis for exemption of import duties on the raw and essential materials imported for use specifically in producing, mixing, or assembling products or commodities for export.

(b) Eligibility

(221) Under Section 36(1) of the IPA, the BOI is authorised to grant the exemption of import duties on raw materials and essential materials used in the manufacture for exports. Companies in every zone are eligible for this scheme provided that they are promoted.

(c) Countervailability

(222) As mentioned above, the schemes in zone 3 are specific. However, it was established in the present case that the import duty exemption did not result in an excess remission of import duties for the exporter concerned. Therefore, there is no subsidy according to Article 2 of the basic Regulation and it is not necessary to further evaluate this scheme since no benefit was conferred on the exporting producer.

7. Other subsidies

(223) It was established that the exporting producer in Thailand did not benefit from any other subsidy schemes. Therefore it is not necessary to make an analysis as regards the countervailability of these schemes.

8. Amount of countervailable subsidies

(224) The amount of countervailable subsidies in accordance with the provisions of the basic Regulation, expressed ad valorem, for the investigated exporting producer is as follows.

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(225) It was established that the level of cooperation in this proceeding has been very high. The cooperating exporting producer covers virtually all exports from Thailand to the EC during the investigation period, as shown by the comparison of import figures provided by Eurostat with export figures supplied by the cooperating exporting producers. In view of the large cooperation, the residual rate for non-cooperating companies was determined as the rate of the cooperating company with the highest subsidy margin i.e. 8,4 %.

D. COMMUNITY INDUSTRY

(226) The following nine Community producers cooperated in the investigation, i.e. replied to the Comission's questionnaires, allowed on the spot verifications and provided the Commission with additional information when requested:

- Du Pont Polyesters Ltd (UK),

- Eastman Chemicals BV (NL),

- INCA International SpA (I),

- Italpet Preforme SpA (I),

- KOSA GmbH (D),

- Shell Chemicals Ltd (UK),

- Wellman PET Resins Europe (NL),

- Aussapol SpA (I).

- CEP-Tergal Fibre (F).

(227) It should be noted that, although Aussapol SpA and CEP-Tergal Fibre were not among the companies on whose behalf the complaint was lodged, these companies supported the complaint and cooperated in the investigation.

(228) It should also be noted that, although it operates a plant in Malaysia, Eastman has been considered part of the Community industry because its affiliated company has exported only insignificant quantities of PET to Eastman itself. No other cooperating companies imported PET from the countries concerned during the IP.

(229) None of the three other European producers replied to the Commission's questionnaires or expressed opposition to the proceeding.

(230) The cumulated production of the nine cooperating producers during the investigation period was 1042350 tonnes out of an estimated total Community production of 1220000 tonnes, i.e. 85 % of the Community production.

(231) The Commission, therefore, considers that the nine cooperating producers constitute the Community industry within the meaning of Article 4(1) of the basic Regulation.

E. INJURY

1. Preliminary remarks

(a) Information used

Import data

(232) Eurostat information, together with data submitted by exporting producers, was used as the source of the import data. The Combined Nomeclature heading used, CN 3907 60 00, includes polyethylene terephthalate under primary forms i.e. not only the product concerned but also polyethylene terephthalate chips used to produce polyester fibres. As the Community production of the polyester fibres in which they are used was stable between 1996 and the beginning of the IP(4), the Commission estimated that imports of PET chips used for the production of polyester fibres remained stable too.

(233) According to the complaint, the product concerned represented, in terms of quantity, 90 % of all imports in 1998, the remaining 10 % (approximately 47000 tonnes) being used to produce polyester fibres. This information was confirmed during the investigation on the basis of estimates established by various Community producers and market research publications. For all the years under review, the same estimated amount of imports of PET chips used for the production of polyester fibres (47000 tonnes) was deducted from imports shown in Eurostat to establish the total quantities imported into the Community of the product concerned.

(234) On a country basis, imported quantities were established by the same methodology but also taking into account data submitted by cooperating exporting producers.

Community industry data

(235) Community industry data were obtained from the verified questionnaire responses of the nine cooperating Community producers. Data were requested for the period 1995 to the IP; however, during this period, the Community industry was considerably restructured with several mergers and demergers. As a consequence, it was not possible for all the companies to provide data as far back as requested. As a result, 1996 is the earliest year for which data are sufficiently complete for the Community industry in the structure it had in the IP.

(236) However to have a full understanding of the situation of the Community industry, especially concerning prices and profitability, it is necessary to have a view on the development of the Community PET market over a longer period. Data submitted by the Community industry and obtained from external professional sources were thus used wherever necessary.

2. Development of the Community PET market since the beginning of the 1990s

(237) PET is a product which started to be widely used in the Community to bottle soft drinks in the late 1980s and mineral and spring water progressively thereafter. As a consequence, Community demand for PET has been growing very quickly since the beginning of the 1990s (by more than 10 % per year). The growth potential of this market is still considerable, with the water market not yet mature in many Community countries and demand for other applications (beer, milk, prepared food) starting to develop.

(238) At the beginning of the 1990s, the Community PET industry started to develop through the conversion of existing polyester fibres or yarn plants. Rapidly, however, growing demand required completely new production lines to be built specifically for PET and for its major raw materials. Despite the rapid expansion of investments in new facilities, supply did not meet demand, and this was also the case in other parts of the world. As a result, during the first half of 1995, there was a worldwide shortage of PET. This resulted in huge increases in the prices of PET and of its major raw materials. These increases proved temporary because sufficient capacities for PET and its raw materials came into production in the Community a few months later. Users of PET, anticipating that prices would drop, stopped purchasing as soon as the summer 1995 peak was over (the consumption of PET follows the same seasonality as the consumption of soft drinks and water). Prices started then to decrease dramatically. This drop came earlier and was more significant than the drop in prices of raw materials. As a result of this gap, the Community industry registered losses at the beginning of 1996. These losses were expected to be temporary, but as a result of the arrival of subsidised imports on the Community market, as will be shown below, the situation in fact deteriorated further.

3. Consumption

(239) Apparent consumption of PET in the Community was established on the basis of the total imports of the product concerned into the Community, plus the total verified sales of the Community industry on the Community market, and estimates of sales of the non-cooperating Community producers (based on their known production capacities and the average sales to capacity rates calculated for the Community industry).

(240) Community consumption of PET reached approximately 1350000 tonnes during the IP. As shown in the table below, it increased by 63 % from 1996 to the IP. Compared with 1998, consumption in the IP remained almost stable, due mainly to the building of stocks by users in 1998, taking advantage of the very low level of prices at that time.

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4. Imports into the Community from the countries concerned

(a) Cumulative assessment of the effects of the imports concerned

(241) It was first examined whether imports from all countries concerned should be assessed cumulatively, taking into account the findings on subsidy as established above.

Imports originating in Korea and Indonesia

(242) The subsidy margins found for Korea and Indonesia are below de minimis, therefore, both countries should be provisionally excluded from the injury assessment.

Imports originating in India, Malaysia and Thailand

(243) It was found that:

- the subsidy margins found were more than de minimis for all three countries,

- the volumes of imports were not negligible during the IP, as is illustrated by the market shares of these countries that ranged from 2,6 to 3,3 % (more than 9 % in terms of import shares),

- the cumulative assessment appeared appropriate in view of the conditions of competition both between the imports originating in these countries, and between these imports and the like Community product. This is evidenced by the fact that volumes and market shares of these imports have been multiplied by at least a factor of 3 between 1996 and the IP. Their price behaviour was similar, with a decrease ranging f