Commission Regulation (EC) No 1204/98 of 9 June 1998 imposing a provisional countervailing duty on imports of certain broad spectrum antibiotics originating in India
Date: 1998-06-09
Institutions: European Commission
Subjects: CCT duties, India, antibiotic, countervailing charge, import, originating product

11. 6. 98

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Official Journal of the European Communities

L 166/17

COMMISSION REGULATION (EC) No 1204/98

of 9 June 1998

imposing a provisional countervailing duty on imports of certain broad spectrum
antibiotics originating in India

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(4)

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 subsidized imports
from countries
the European
not members
Community (1) and in particular Article 12 thereof,

of

After consulting the Advisory Committee,

Whereas:

(5)

(6)

A. PROCEDURE

1. Initiation

(1)

(2)

(3)

12

1997,

September

the European Communities (2)

On
the Commission
announced by a notice published in the Official
the
Journal of
initiation of an anti-subsidy proceeding with regard
to imports into the Community of certain broad
spectrum antibiotics (amoxicillin trihydrate, ampi-
cillin trihydrate and cefalexin) originating in India,
and commenced an investigation.

The proceeding was initiated as a result of a
complaint lodged in July 1997 by six Community
producers, i.e. Antibioticos SA, Spain, Antibioticos
SpA, Italy, Biochemie GmbH, Austria, Biochemie
SA, Spain, Biochemie SpA, Italy, and ACS Dobfar
SpA, Italy, whose collective output of
the said
a major proportion of
product
Community production of these broad spectrum
antibiotics.

represented

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.

2. Investigation

complainants

The Commission officially advised the exporting
producers and importers known to be concerned,
the representatives of the exporting country and
the
the
proceeding and gave the parties concerned the
opportunity to make their views known in writing
and to request a hearing within the time limits set
in the notice of initiation.

initiation of

the

of

(1) OJ L 288, 21. 10. 1997, p. 1.
(2) OJ C 277, 12. 9. 1997, p. 2.

The Government of India and the exporting produ-
cers made their views known in writing and
requested hearings, which were granted.

The Commission sent questionnaires to all parties
known to be concerned and received replies from
the
complainant Community producers,
the
Government of
Indian exporting
India, nine
producers and one related and one unrelated
importer in the Community.

The Commission sought and verified all the infor-
mation it deemed necessary for the purpose of a
subsidisation and
provisional determination of
injury, and carried out verification visits at
the
premises of the following interested parties:

(a) Complainant Community producers:

(cid:190) Antibiotics SA, Madrid (Spain) which also
replied to the Commission’s questionnaire
on behalf of Antibioticos SpA (Italy),

(cid:190) Biochemie GmbH, Kundl (Austria), which
also replied to the Commission’s question-
naire on behalf of Biochemie SA (Spain)
and Biochemie SpA (Italy),

(cid:190) ACS Dobfar SpA, Tribiano (Italy).

(b) Government of India:

(cid:190) Ministry of Commerce, New Delhi,

(cid:190) Undersecretariat for Customs, New Delhi,

(cid:190) Ministry of Finance, New Delhi.

(c) Producing exporters in India:

(cid:190) Ranbaxy Laboratories Ltd, New Delhi,

(cid:190) Vitara Chemicals Ltd, Mumbai,

(cid:190) Kopran Ltd, Mumbai,

(cid:190) Lupin Laboratories Ltd, Mumbai,

(cid:190) Gujarat Lyka Organics Ltd, Mumbai,

(cid:190) Torrent Pharmaceuticals Ltd, Ahmedabad,

(cid:190) Biochem Synergy Ltd, Indore,

(cid:190) Orchid Chemicals & Pharmaceuticals Ltd,

Chennai,

(cid:190) Harshita Ltd, New Delhi.

(d) Related importer in the Community:

(cid:190) Ranbaxy (Netherlands) BV, Netherlands (a
related importer of Ranbaxy Laboratories
Ltd).

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Official Journal of the European Communities

11. 6. 98

(7)

(8)

(9)

The investigation period for the determination of
subsidization was 1 July 1996 to 30 June 1997
(hereinafter referred to as the ‘investigation period').
The examination of injury covered the period 1
January 1993 up to the end of the investigation
period (hereinafter referred to as the ‘period exam-
ined').

B. PRODUCT UNDER CONSIDERATION AND

LIKE PRODUCT

1. Product under consideration

This proceeding covers certain broad-spectrum
antibiotics, namely amoxicillin trihydrate, ampi-
cillin trihydrate and cefalexin, presented in bulk,
which fall within CN codes ex 2941 10 10, ex
2941 10 20, and ex 2941 90 00 respectively.

The abovementioned antibiotics are betalactam
antibiotic bulk pharmaceutical substance which are
used to manufacture finished dosage forms, the
purpose of which is the treatment of a variety of
infectious diseases. They are produced from the
same raw materials, penicillin G or penicillin V,
which are obtained through fermentation. The
resulting penicillin is then converted by chemical
or biochemical syntheses into downstream inter-
mediaries (called ‘6-APA' or ‘7-ADCA'), which are
themselves converted into the three bulk active
substances mentioned above. In spite of certain
technical differences between these three anti-
biotics, they all belong to the same category of
product,
i.e. bulk semisynthetic broad spectrum
antibiotics and have the same use, that of being
incorporated into finished dosage forms which are
effective in treating a variety of infectious diseases.
Even though a given antibiotic may sometimes be
preferred to another for the treatment of a specific
disease, all three antibiotics are interchangeable to
a large extent and are therefore considered, for the
purpose of the present proceeding, as forming one
single category of product.

2. Like product

(10)

The investigation established that the broad spec-
trum antibiotics produced in India and sold domes-
tically or exported to the Community and the
broad spectrum antibiotics produced and sold in
the Community by the complainant Community
producers had effectively identical physical charac-
teristics and uses and where thus like products
within the meaning of Article 1(5) of Regulation

(EC) No 2026/97 (hereinafter referred to as the
‘Basic Regulation').

C. SUBSIDIES

1. Introduction

(11) On the basis of the information contained in the
complaint and the replies to the Commission’s
questionnaire,
the Commission investigated the
following five schemes, which allegedly involve the
granting of export subsidies:

(12)

(cid:190) Passbook Scheme,

(cid:190) Duty Entitlement Passbook Scheme,

(cid:190) Export Promotion Capital Goods Scheme,

(cid:190) Export Processing Zones Export Oriented

Units,

(cid:190) Income Tax Exemption Scheme.

Further details of these schemes are set out below.

The first four schemes are based on the Foreign
Trade (Development and Regulation) Act 1992
(effective from 7 August 1992) which repealed the
Imports and Exports Control Act of 1947. The
Foreign Trade Act authorises the Government of
India (hereinafter referred to as the ‘GOI') to issue
notifications regarding export and import policy.
These are summarised in ‘Export and Import
Policy' documents which are issued every five years
and updated every year. Two Export and Import
Policy documents are relevant to the investigation
period of this case i.e. the five-year plans relating to
the years 1992 to 1997 and 1997 to 2002.

The last scheme, the Income Tax Scheme, is based
on the Income Tax Act of 1961 which is amended
yearly the Finance Act.

(13)

The declared objectives of India’s current Export
and Import Policy are:

(cid:190) to accelerate the country’s

transition to a
globally-oriented vibrant economy with a view
to deriving maximum benefits from expanding
global market opportunities,

(cid:190) to stimulate sustained economic growth by
providing access
raw materials,
intermediates, consumables and capital goods
required for augmenting production,

to essential

(cid:190) to enhance the technological strength and effi-
ciency of
industry and
Indian agriculture,
services, thereby improving their competitive
strength while generating new employment
opportunities, and to encourage the attainment
of internationally accepted standards of quality,

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(cid:190) to provide consumers with good quality prod-

ucts at reasonable prices.

(14)

The Commission examined these five schemes in
the light of the policies set out in the relevant
‘Export and Import Policy' plans and in the
Income Tax Act of 1961 as amended.

2. Passbook Scheme

(15) One instrument under the Export and Import
Policy involving export related assistance is the
PBS which entered into force on 30 May 1995.

(a) Eligibility

(16)

The PBS is available to certain categories of ex-
porters, i.e. those which manufacture in India and
subsequently export (‘manufacturer-exporters') and
exporters, whether manufacturer or only trader,
granted an ‘Export House/Trading House/Star
Trading House/SuperStar Trading House certi-
ficate'. The latter category of exporters, which is
defined in the Export and Import Policy document,
has to provide in particular proof of prior export
performance.

(b) Practical implementation

(17) Any eligible exporter can apply for a Passbook.
This takes the form of a book in which credit and
debit amounts of duty are entered. It is issued
automatically if the company is a recognised manu-
facturer/exporter or an approved Export/Trading
House.

(18) Upon the export of finished goods, the exporter is
eligible to claim credit which can be be used to pay
customs duties on subsequent
imports. Various
elements are taken into consideration in calcu-
lating the amount of credit to be granted in accord-
ance with ‘Standard Input/Output norms' which
are issued by the GOI for exported products.
Standard Input/Output norms set out quantities of
normally imported raw materials
required to
produce one unit of
the finished product. The
norms are established by the special Advance
Licensing Committee on the basis of a technical
analysis of the production process and global stat-
istical
information. By applying the Standard
Input/Output norms, the credit is granted up to an
amount corresponding to the basic customs duty

payable on the normally imported inputs used by
the Indian antibiotics industry in producing the
exported product. One other element
the
‘minimum value addition' (MVA). The MVA is the
minimum value which the Indian producer must
add (i.e.
through indigenously sourced inputs/
labour costs) to the value of imported inputs in
producing the finished goods. The MVA for exports
of the products concerned is fixed at 33 % by the
Indian authorities.

is

(19)

(20)

The credit granted is entered in the Passbook and
is available to be offset against customs duties due
on future imports of any goods (e.g. raw materials,
capital goods, etc.) except those contained in the
‘Negative List of Imports' as laid out in the Export
and Import Policy. This list sets out goods which
either may not be imported or which may only be
imported after the GOI has issued a special licence
to the importer. The imported goods need not have
any relation to the actual production of
the
exporter and may be sold on the Indian market.

Passbook credits are not transferable. The passbook
is valid for a period of 2 years from the date of
issue. Any credit at the end of the two-year period
is allowed to be utilised within a period of 12
months thereafter. At the end of the third year, any
unutilised credit lapses. Within this general time-
table there is no time limit for claims for credit to
be made for a particular export transaction.

(21) When all credits in the Passbook have been used,
the passbook is closed and the Passbook holder has
to pay a fee to the relevant authority.

(22)

The GOI has stated in its reply to the quationnaire
in relation to the PBS that:

‘Under this scheme, the exporter retrieves import
charges on the exported product, whereas there is
no remission of import charges on the like product
destined for consumption within the exporting
country. In this respect the Scheme is in accord-
ance with Council Regulation (EC) No 3284/94
(the anti-subsidy Regulation)'.

(23)

In response to this point, it should be noted that
there is no difference on this point between this
latter Regulation, which has since been repealed,
and its replacement, the Basic Regulation. Article
2(1)(ii) of the Basic Regulation provides that the
exemption of an exported product form duties/

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11. 6. 98

investigating authorities,

import charges in excess of

charges shall not be deemed to be a subsidy
provided that it is granted in accordance with the
provisions of Annexes I to III of the Basic Regula-
tion. Item (i) of Annex I (the Illustrative List of
Export Subsidies) specifies that the remission or
drawback of
those
levied on imported inputs that are consumed in the
production of the exported product constitutes an
export subsidy. Furthermore, Annex II to the Basic
in
Regulation requires
determining whether inputs are consumed in the
production process,
the
government of the exporting country has in place a
system or procedure to confirm which inputs are
the
consumed in the production process of
exported product. In this case, no such system
exists. In fact, the benefit granted in India to ex-
porters of the products concerned in the form of
Passbook credits is automatically calculated on the
Input/Output norms
basis
the
independently of whether
inputs have been
imported, duty has been paid on them or whether
the inputs were actually used for export production.

to establish whether

Standard

of

actual

import

Furthermore, the export is under no obligation to
either
inputs or consume the
imported goods in the production process under
the PBS. What happens in the PBS, is that upon
export of a finished product, an exporter is granted
an amount of credit based on the amount of
customs duty which is deemed to have been paid
on normally imported inputs used in producing
the finished product. This credit amount can be
used to offset customs duty due on future imports
of any product. A benefit accrues to the exporter in
the form of unpaid customs duty on imports of any
product (whether raw materials or capital goods).
This scheme therefore allows an exporter to import
goods without paying customs duty once it has
previously exported some goods. Hence, the PBS is
remission/drawback scheme within the
not
meaning of item (i) of Annex I or Annex II to the
Basic Regulation.

a

(25)

(26)

(c) Conclusions on PBS

it were assumed that

the
In any case, even if
scheme in question constituted a remission/draw-
back or substitution drawback scheme, there is no
system or procedure in place to confirm which
inputs are consumed in the production process of
the exported product within the meaning of item
(i) of Annex I and Annexes II and III to the Basic
Regulation. Annex II(II)(5) and Annex III(II)(3) of
that Regulation provide that where it is determined
that the government of the exporting country does
not have such a system in place, a further exam-
ination by the exporting country based on actual
inputs involved, or actual transactions, respectively,
will normally need to be carried out in the context
an excess payment
of determining whether
occurred. The GOI did not carry out such an exam-
ination. Hence, the Commission did not examine
whether there was in fact an excess drawback of
import charges on inputs consumed in the produc-
tion of the exported product.

The schemes constitutes a subsidy as the financial
contribution by the GOI in the form of duties
forgone on imports confers a benefit upon the
Passbook 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. In addition, the
MVA requirement (see recital 18) is considered to
require the use of domestic over imported goods.
In this regard, the PBS is a specific subsidy within
the meaning of Article 3(4)(b) of the Basic Regula-
tion.

In early 1997, the GOI announced that the PBS
was effectively terminated and credit claims could
no longer be made for export transactions taking
place after 31 March 1997. An exporter may,
however, continue to use a Passbook which has
already been issued, for a period of three years after
the date of issue. Additionally, there is no time
limit within which claims for credit must be made
for export transactions made before 31 March 1997.
While the scheme in that form has techincally
been terminated, exporters can continue to benefit
from this scheme by importing goods,
free of
customs duties, until
credits have been
exhausted or until 31 March 2000 at the latest. In
the
these circumstances,
scheme can be countervailed.

is considered that

all

it

(24)

The PBS is not a permitted remission/drawback or
substitution drawback scheme within the provi-
sions of the Basic Regulation since the Passbook
credit is not calculated in relation to inputs actually
to be consumed in the production process. Further-
more, the exporter is under no obligation to import
goods free of duty which must be consumed in the
production process.

(d) Calculation of the subsidy amount

(27)

The benefit to the exporters has been calculated on
the basis of the amount of customs duty normally
due on imports made during the investigation

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period but which remained unpaid under the PBS.
In order to establish the full benefit to the recipient
under this scheme, this amount has been adjusted
by adding interest during the investigation period.
Since the benefits from import duty exemptions
are obtained regularly during the investigation
period, they are equivalent to a series of grants. It is
normal practice to reflect the benefit to the reci-
pient of one-time grants by adding the annual
commercial interest to the nominal amount of the
grant, on the assumption that the grant is consid-
ered to have been made on the first day of the
investigation period. However, in the present case,
it is clear that individual grants can be made at any
the
time between the first and the last day of
investigation period. Consequently,
instead of
adding annual interest to the whole amount, it is
considered appropriate to assume that an average
grant would have been received at the mid-point of
the investigation period, and therefore the interest
should cover a period of six months, equivalent to
the annual commercial rate during the
half of
investigation period in India,
i.e. 7,575 %. This
amount (i.e. unpaid customs duty plus interest) has
been allocated over total exports during the invest-
igation priod.

scheme
Three companies benefited from this
during the investigation period and obtained sub-
sidies of between 0,01 and 5,89 %. None of the
companies claimed a deduction for the application
fee or other costs necessarily incurred in order to
qualify for, or to obtain,
the subsidy. Biochem
Synergy did not provide any verifiable information
relating to this scheme. In accordance with the
provisions of Article 28(1) of the Basic Regulation,
provisional findings relating to subsidies received
by this company under the PBS have been made
on the basis of the facts available. In view of the
absence of other reliable information from in-
dependent sources and in order to avoid rewarding
non-cooperation, it was considered appropriate to
apply the highest rate of benefit under the PBS
established for other cooperating exporters to this
company, i.e. 5,89 %.

3. Duty

Entitlement

Passbook

Scheme

(DEPB)

(28) Another

the Export

instrument under

Import
Policy involving export related assistance is the
DEPB which became effective on 7 April 1997.
The DEPB constitutes the successor to the PBS
which was terminated on 31 March 1997. The
DEPB is of two types:

(cid:190) DEPB on pre-export basis,

(cid:190) DEPB on post-export basis.

(a) Eligibility for DEPB on pre-export basis

(29)

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

scheme,

this

(b) Practical implementation of DEPB pre-export

basis

(30) 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 calculated on the basis
of 5 % of the average yearly value of all exports
during the previous three years,
is issued auto-
matically. The granting of the licence carries with
it an export obligation. When the DEPB holder has
made exports of such a value which will entitle
him to credit equivalent to the credit already given
under DEPB on pre-export basis, his obligation
against such DEPB is offset.

(31) Unlike the PBS, the DEPB on pre-export basis
allows for the use of such credits only for customs
duties payable for subsequent imports of inputs
(which are not on the ‘Negative List of Imports')
required for use in the production of goods in the
factory of the company concerned (‘Actual User
condition'). Such imported inputs may not be
transferred, loaned, sold, parted with, or disposed of
in any manner.

(32) DEPB credits are not

transfereable. 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 inputs for the
export of the finished product. When a company
uses all of the credits granted, the company may
apply for a further credit amount calculated on the
basis of 5 % of the average value of exports during
the previous three years.

(33) When a company is granted a credit amount, it is
then allowed to import
inputs free of customs
duties. The GOI states that the Indian Customs
Authorities are usually aware of the general import
requirements of the importer with regard to the
Actual User condition. However, there is no verif-
ication procedure in place to ensure that the Actual
User condition is respected.

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(34) When all credits have been used, the company has

to pay a fee to the relevant authority

(35)

(c) Conclusion on DEPB pre-export basis

The DEPB is not a permitted remission/drawback
or substitution drawback scheme within the provi-
sions of the Basic Regulation since, despite the
existence of the ‘Actual User condition', the DEPB
credit is not calculated in relation to inputs actually
to be consumed in the production process. Further-
more there is no system or procedure in place to
confirm which inputs are consumed in the produc-
tion process of the imported product and in what
amounts. Annex II(II)(5) and Annex III(II)(3) to the
Basic Regulation provide that where it is deter-
mined that
the exporting
country does not have such a 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 there an excees
payment occurred. The GOI did not carry out such
an examination. Hence, the Commission did not
examine whether there was in fact an excess draw-
back of import charges on inputs consumed in the
production of the exported product.

the government of

(36)

This scheme constitutes a subsidy as the financial
contribution by the GOI in the form of duties
forgone on imports confers a benefit upon a
company which can import goods free of customs
duty. 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

pre-export basis

(37)

The benefit to the exporters 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. In order to establish the full benefit to the
recipient under this scheme, this amount has been
adjusted by adding interest during the investigation
period. Given the nature of this subsidy, which is
equivalent to a series of grants, a rate of 7,575 %,
i.e. half the commercial interest rate during the
investiation period in India, was considered appro-
priate for the same reasons as stated above in recital
27. The amount of benefit has been allocated over
total exports during the investigation period.

One company availed of this scheme during the
investigation period and obtained a benefit of
0,05 %. In calculating the benefit, the fee neces-
sarily incurred to obtain the subsidy has been
deducted as claimed by the company. Another
company, Biochem Synery did not provide any
verified information relating to this scheme. In
accordance with the provisions of Article 28(1) of
the Basic Regulation, provisional findings relating
to subsidies received by this company under the
DEPB on pre-export basis have been made on the
basis of the facts available. In view of the absence
of other reliable information from independent
sources and in order
to avoid rewarding non-
coorperation, it was considered appropriate to apply
the highest rate of benefit established for other
cooperating exporters to this company, i.e. 0,05 %.

(e) Eligibility for DEPB on post-export basis

(38)

The DEPB on post-export basis is virtually iden-
tical to the PBS described above. It is available to
manufacturer/exporters (i.e. very manufacturer in
India who exports) or merchant/exporters
(i.e.
traders).

(f) Pratical
basis

implemention of DEPB post-export

(39) 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 prod-
ucts concerned, on the basis of the Standard Input/
Output norms. A licence stating the amount of
credit granted is issued automatically.

DEPB on post-export basis allows for the use of
such credits for any subsequent imports (e.g. raw
materials or capital goods) not on the Negative List
of Imports. Such imported goods can be sold on
the domestic market (subject to sales tax) or used
otherwise.

DEPB credits are freely transferable. The DEPB
licence is valid for a period of 12 months from the
date of granting of the licence.

(40) When all credits have been used, the company has

to pay a fee to the relevant authority.

(g) Conclusion 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

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amounts of customs duties due on future imports
of any goods (whether raw materials or capital
goods). Like the PBS, it is not a permitted drawback
or substitution drawback scheme for
the same
reasons as stated above in recital 24. The scheme
constitutes a subsidy as the financial contribution
by the GOI in the form of duties forgone on
imports confers a benefit upon a company which
can import goods free of customs duty. It is a
export
in
subsidy
performance and is therefore deemed to be speci-
fied under Article 3(4)(a) of the Basic Regulation.

contingent

upon

law

(b) Pratical implementation

(45)

To benefit
from the scheme, a company must
provide to the relevant authorities, details of the
type and value of capital goods which are 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 license authorising the import at
preferential rates is issued automatically.

(46)

In order to meet
the export obligation, goods
exported must have been produced using the
imported capital goods.

(h) Calculation of the subsidy amount for DEPB

post-export basis

(47) An application fee is payable to obtain a licence.

(42) No evidence was found that the companies bene-
fited from the DEPB on post-export basis during
investigation period. However, Biochem
the
Synergy did not provide any verifiable information
relating to this scheme. In accordance with the
provisions of Article 28(1) of the Basic Regulation,
provisional findings relating to subsidies received
by this company under the DEPB on post-export
basis have been made on the basis of the facts
available. In view of the absence of other reliable
information from independent sources and in order
to avoid rewarding non-cooperation, a rate of
3,75 % has been applied. This rate was calculated
on the basis of the actual DEPB rate applicable for
exports of cefalexin (the only product exported by
the company) of 15 % and acknowledging the fact
that the scheme was only in force the last quarter
of the investigation period.

4. Export Promotion Capital Goods Scheme

(EPCGS)

(43) Another

instrument under

Import
Policy involving export related assistance is the
EPCGS introduced on 1 April 1990 and amended
on 5 June 1995.

the Export

(a) Eligibility

(44)

The EPCGS is available to manufacturer/exporters
(i.e. every manufacturer in India who exports) or
traders). Since 1 April
merchant/exporters
1997, manufacturers
linked with merchant/ex-
porters can also benefit from the scheme.

(i.e.

(48)

(49)

(50)

(c) Conclusions on EPCGS

The EPCGS is a countervailable subsidy as the
payment by an exporter of a reduced or zero rate of
duty constitutes a financial contribution by the
revenue otherwise due is forgone and a
GOI,
benefit is conferred on the recipient by lowering
the duties payable or fully exempting him from
paying the import duties.

in law upon export
The subsidy is contingent
performance within the meaning of Article 3(4)(a)
of the Basic Regulation, since it cannot be obtained
without committing to export goods, and is there-
fore deemed to be specific.

(d) Calculation of the subsidy amount

The benefit to the exporters has been 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 antibiotics
industry. This period has been established by using
the weighted average (on the basis of production
volume of the products concerned) of depreciation
periods for capital goods actually imported under
the EPCGS by each company, resulting into a
normal depreciation period of 10 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. Given the nature of this subsidy, which is
equivalent
the commercial
interest rate during the investigation period in
India,
i.e. 15,15 % was considered appropriate.
This amount has then been allocated over total
exports during the investigation period.

to a one-time grant,

L 166/24

EN

Official Journal of the European Communities

11. 6. 98

scheme
Three companies benefited from this
during the investigation period and obtained sub-
sidies of between 0,03 % to 1,17 %. None of the
companies claimed a deduction for the application
fee or other costs necessarily incurred in order to
qualify for, or to obtain, the subsidy.

5. Export Processing Zones

(EPZ)/Export

(54)

Oriented Units (EOU)

(51) Another

instrument under

Import
Policy involving export related assistance is the
EPZ/EOU scheme which was introduced on 22
June 1994.

the Export

(a) Eligibility

(52) Companies located in any of the seven identified
EPZs which undertake to export at least 75 % of
their production can avail themselves of certain
benefits. The same benefits are available to EOUs
which can be located anywhere in India (also
referred to as
‘stand-alone EPZs'). EOUs are
bonded units under the surveillance of customs
officials. With effect from 1 April 1997, companies
located in electronic hardware technology parks
and software technology parks are also eligible for
benefits similar to those available to companies in
EPZs and EOUs.

an EPZ/EOU is valid for a five-year period. The
agreement may be renewed for further periods.

(c) Conclusion on EPZ/EOU

The EOU/EPZ scheme involves the granting of
countervailable subsidies as the concessions granted
under the scheme constitute financial contributions
by the GOI, since revenues otherwise due are
forgone and a benefit is conferred on the recipient.
The concessions granted relate to the suspension of
collection of duties due on capital goods during the
period of bonding, the exemption from customs
duty on raw materials and consumables,
the
exemption from excise duty on goods procured
from indigenous sources, and the reimbursement of
central sales tax paid on goods procured locally. In
the case of the suspension of the collection of
duties on capital goods, this suspension is consid-
ered to have 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 capital goods.

(55) All the above subsidies are contingent in law upon
export performance within the meaning of Article
3(4)(a) of the Basic Regulation, since they cannot be
obtained without the company accepting an export
obligation, and are therefore deemed to be specific.

(b) Practical implementation

(53) Companies located in EPZs and EOUs can obtain

the following benefits:

(56)

(cid:190) suspension of collection of duties due on
purchases of capital goods during the period of
bonding,

(cid:190) exemption from customs duties due

on
purchases of raw materials and consumables,

(cid:190) exemption from excise duty on goods procured

from indigenous sources,

(cid:190) reimbursement of central sales tax paid on

goods procured locally.

located in EPZs

Companies
and companies
requesting treatment as EOUs, 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, imports requirements and indig-
enous 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

(d) Calculation of the subsidy amount

The benefit to the 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 and capital goods) during the
investigation period. In order to establish the full
benefit to the recipient under this scheme, this
amount has been adjusted by adding interest
during the investigation period. Given the nature of
this subsidy, which is equivalent
to a series of
grants, a rate of 7,575 %, i.e. half the commercial
interest rate during the investigation period in
India, was considered appropriate, in so far as raw
materials were concerned, for the same reasons as
stated above in recital 27. In the case of capital
interest rate during the
goods,
the commercial
investigation period in India,
i.e. 15,15 % was
considered appropriate since the subsidy is equi-
valent to a one-time grant, and this amount has
been spread across a period which reflects the
normal depreciation of such capital goods in the
antibiotics industry (i.e. 10 years), as explained in
recital 50. The amount of benefit so determined
which is attributable to the investigation period has
been allocated over total exports during the invest-
igation period.

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Official Journal of the European Communities

L 166/25

One company, Orchid Chemicals & Pharmaceu-
ticals Ltd.,
is a recognised EOU. This company
received all available benefits under this scheme at
a rate of 34,38 %.

6. Income Tax Exemption Scheme (ITES)

(61)

the form of direct taxes which would otherwise be
due if the income tax exemptions were not claimed
by the
contribution
confers a benefit on the recipient by reducing its
income tax liability.

company. This

financial

The subsidy is contingent
in law upon export
performance in the meaning of Article 3(4)(a) of the
Basic Regulation, since it exempts profits from
export sales, and is therefore deemed to be specific.

(57)

(58)

(59)

The Income Tax Act 1961 is the legal basis under
which the 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.

(a) Eligibility

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.

(b) Practical implementation

To benefit from the abovementioned deductions/
exemptions from paying tax, a company will make
the relevant claim when submitting its tax return to
the Tax Authorities at the end of the tax year. The
tax year runs from 1 April to 31 March. The tax
return must be submitted to the authorities by the
following 30 November. The final assessment by
the authorities can take up to three years after
submitting the tax return. A company can only
claim one of the deductions available under the
three sections mentioned above.

Under Sections 10A, 10B and 80HHC companies
can claim exemption from taxable income for
profits realised on export sales. Under Sections 10A
and 10B only, for companies established after 1
April 1994, 25 % of sales may be made in India
but the company can still receive 100 % exemp-
tion from taxable income for profits realised on all
sales (i.e. sales for export and sales in India);
companies established before 1 April 1994 may
claim pro rata deduction from taxable income
based on the ratio of domestic sales to export sales.

(c) Conclusion on ITES

(60)

Item (e) of the illustrative list of export subsidies
(Annex I to the Basic Regulation) refers to the ‘full
or partial exemption . . . related to exports, of direct
taxes' as constituting an export subsidy. Under the
ITES, the GOI confers a financial contribution to
the company by forgoing government revenue in

(d) Calculation of the subsidy amount

(62) As stated in recital 59, claims for benefit under
Sections 10A, 10B and 80HHC are made when
submitting a tax return at the end of the tax year.
As the tax year in India runs from 1 April to 31
March, it is considered appropriate to calculate the
benefit under this scheme on the basis of the tax
year 1996/97 (i.e. 1 April 1996 to 31 March 1997)
which covers nine months of
the investigation
period. The benefit to the exporters has therefore
been calculated on the basis of
the difference
between the amount of taxes normally due with
and without the benefit of the exemption. Account
has been taken of the fact that some companies are
liable to the payment of minimum alternate tax
which is an alternative method of calculating tax
the Income Tax Act. The rate of
due under
corporate tax applicable during this tax year was
43 %. In order to establish the full benefit to the
recipient, this amount has been adjusted by adding
interest during the investigation period. Given the
nature of this subsidy, which is equivalent to a
one-time grant, the commercial interest rate during
the investigation period in India, i.e. 15,15 % was
considered appropriate. The amount to benefit has
been allocated over total exports during the tax year
1996/97. In the case of exemptions under Articles
10A and 10B of the Act, while proportional tax
savings related to domestic sales can be made
under these sections, it is considered that as the
scheme is contingent upon export performance,
total tax savings should be allocated over export
sales only.

During the tax year 1996/97 one company bene-
fited from this scheme under Section 10B and
obtained a benefit of 2,88 % and six companies
benefited from this scheme under Section 80HHC
and obtained subsidies of from 0,82 % to 6,46 %.

7. Amount of countervailable subsidies

(63)

The amount of countervailable subsidies for each of
the investigated exporters is as follows:

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EN

Official Journal of the European Communities

11. 6. 98

%

Passbook

EPCGS

EPZ/EOU

Pre-export

Post-export

DEPB

Income
tax

Total

Entry into force

30.5.1995

7.4.1997

1.4.1990
(amended
5.6.1995)

22.6.1994

Annually

Ranbaxy Laboratories
Ltd

0,01

0,05

Vitara Chemicals Ltd

0

Kopran Ltd

Lupin Laboratories Ltd

Gujarat Lyka Organics
Ltd

Torrent Pharmaceut-
icals Ltd

5,43

5,89

0

0

0

0

0

0

0

0

0

0

0

0

0

Biochem Synergy Ltd

5,89

0,05

3,75

Orchid Chemical &
Pharmaceuticals Ltd

Harshita Ltd

0

0

0

0

0

0

0,15

0

1,17

0,03

0

0

0

0

0

0

0

0

0

0

0

0

6,46

6,67

1,08

2,23

5,34

0

1,08

8,83

11,26

0

0,82

0,82

0

9,69

34,38

2,88

37,26

0

9,61

9,61

D. COMMUNITY INDUSTRY

(64) On the basis of the information available to the
Commission at the time of initiation, the com-
plainant Community producers accounted for a
major proportion of the total production of the
product concerned in the Community. They were
therefore deemed to constitute the Community
industry in accordance with Article 10(8) of the
Basic Regulation.

(65) Certain interested parties claimed that the com-
plainant Community producers did not represent a
major proportion of Community production of the
like product with the meaning of the Basic Regula-
tion because the company Gist-Brocades BV, Delft,
The Netherlands, which is a leading producer of
antibiotics, was not a party to the complaint. These
parties contested the standing of the complainants
and any subsequent injury findings in relation to
the Community industry.

it was established that

Upon further investigation of this claim by means
of a questionnaire,
the
company Gist-Brocates BV had been steadily
decreasing its production of the product concerned
in the Community during the period examined
and had instead concentrated on importing this
product from subsidiaries and joint venture com-
panies located outside the Community.

are no other major producers

in the
there
the product under investigation
Community of
since the only other
in the
such producers
Community do not sell the product under invest-
igation as such but rather produce it for captive use,
i.e. they incorporate it into finished dosage forms.

It can therefore be concluded that the complainant
‘Community
Community producers
industry')
the
all
Community production of
the product under
investigation.

(hereinafter

represent

almost

all

or

E. INJURY

1. Consumption in the Community

(66)

In calculating the apparent Community consump-
tion of the product concerned, the Commission
added:

(cid:190) the total sales volume in the Community of the
complainant Community producers of
the
product concerned,

(cid:190) the total imports into the Community of the
third countries,

product concerned from all
including India.

In addition, the Commission established, on the
basis of available information, that, apart from the
and Gist-Brocades BV,
complainant producers

(67) With a view to establishing, for the whole period
examined, consistent figures covering the enlarged
Community of 15, the total imports were based on

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Official Journal of the European Communities

L 166/27

relevant Eurostat statistics, as declared under CN
codes ex 2941 10 10, ex 2941 10 20,
and ex
2941 90 00, combined with national statistics of
Austria, Finland and Sweden before their accession
to the Community. It should be noted that the
confidentiality of import statistics of the product
under investigation had been requested by one
Member State and therefore these statistics were
not readily available. However, this Member State
agreed to provide these figures to the Commission,
on a confidential basis and for the sole purpose of
the present
figures
concerning imports of the product under invest-
igation into the Community which are mentioned
below are given in an indexed form.

investigation. Therefore all

(68) On this basis, the apparent Community consump-
tion of the product under investigation was found
to have increased by 54,6 % between 1993 and the
investigated period.

2. Factors and considerations relating to the

subsidised imports

(a) Volume and market share of the subsidised

imports

(69)

The volume of subsidised imports of the product
concerned originating in India increased by almost
300 % between 1993 and the investigation period.
The share of the Community market held by these
increased by 157 % during the same
imports
period. With regard to the developing country
status of India and the provisions of Article 14(4) of
the Basic Regulation, it was found that the volume
of imports from India in the investigation period
the
represented significantly more than 4 % of
total
in the
the
Community.

like product

imports

of

(b) Prices of the subsidised imports

(70) Aggregate data from Eurostat and the National
Statistical Offices of Austria, Finland and Sweden
show that the import price of the product under
investigation originating in India fell by around
40 % between 1993 and the investigation period. It
should be noted however that since the abovemen-
tioned CN codes may also cover the broad-spec-
trum antibiotics in question in finished dosage
forms, a price comparison on the basis of Eurostat
data is not really meaningful but should be seen as
a mere indication of a downward trend of prices.

(71)

the investigation period,

For
the Commission
services compared the sales prices of the exporting
producers’ prices of the complainant Community
in the
producers. For the exporting producers,
on
customs
absence
importation, prices were based on export prices at
cif
the prices
charged to the first independent customer in the

level. For one related importer,

payable

duty

any

of

Community were compared to the prices of the
complainant Community producers.

(72)

The prices of the complainant Community produ-
cers were adjusted, on the basis of available infor-
mation, at a level known to be comparable to the
level of
i.e. ex factory, by
deducting transport and insurance costs. Any
rebated, discounts or sales commissions which were
granted or paid have been equally deducted.

the Indian exports,

(73) Certain

that

claimed

interested

in
parties
comparing the prices of the exporting producers to
the prices of the Community industry, an adjust-
ment for differences in the level of trade should be
made since it was claimed that the majority of
exporting producers’ sales are made to traders
whilst the majority of sales by the Community
industry are made to end-users. However, insuffi-
cient justification was provided to substantiate such
a claim and it could not, at this stage, be taken into
consideration. Moreover, the information provided
by the cooperating exporting producers themselves
in their replies to the Commission’s questionnaire
indicates that the exporting producers sell to both
wholesalers and end-users in the Community. In
addition, on the basis of this information, it was not
possible to distinguish consistently different price
levels according to whether sales were made to
traders or end-users.

(74)

It should be noted that sales are carried out on a
spot basis and therefore prices vary throughout the
year according to pressure on the market. Some
factors such as exchange rate fluctuations can have
have an impact on market trends according to the
moment when a contract is concluded. The price
levels of the Indian imports were analysed, on a
monthly basis, throughout the investigation period.
This analysis showed the existence of price under-
cutting throughout the entire investigation period
with a peak during the second quarter of 1997.
Consequently, the margins of price undercutting
are an indication of continuous price pressure
exerted by the Indian imports on the Community
market.

(75)

The results of the comparison, when expressed as a
percentage of the complainant Community produ-
cers’ selling prices during the investigation period,
showed significant price undercutting margins. On
a company basis these margins were found to range
between 0 and 11,8 %.

3. Situation of the Community industry

(a) Production, production capacity and capacity

utilisation

(76) Overall, the production of the product concerned
by the Community industry increased from 3 698

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Official Journal of the European Communities

11. 6. 98

tonnes in 1993 to 4 795 tonnes in the investigation
period, an increase of 30 %. Most of the increase in
production is attributable to export markets with
exports outside the Community increasing from
2 122 tonnes in 1993 to 3 215 tonnes in the invest-
igation period, i.e. an increased of 52 % of exports
of
the
Community industry.

the product under

investigation by

in research and development

particularly serious in the present case in view of
the need for the Community industry to be able to
invest
(hereinafter
‘R&D') in order to improve the production process
to
of existing products and, more importantly,
finance research in order to bring new products to
the market.

(77)

(78)

(79)

(80)

(81)

The capacity utilisation rate has been stable at a
relatively high level. Capacity utilisation stood at
92 % in 1993, in then fell to 87 % in 1994, was
increased to 95 % in 1995 and 1996 and then
slightly fell again to 92 % of
the investigation
period. Such a high rate of utilisation is common
in this
the
Community industry has succeeded in increasing
output without significantly increasing its produc-
tion capacity should be underlined, since it is due
to an increased efficiency, mainly in the form of
improved yields.

industry. The fact

type of

that

(b) Sales and market share

The volume of sales by the Community industry
on the Community market increased during the
period under consideration from 1 040 tonnes in
1993 to 1 253 tonnes in the investigation period,
representing an increase of only 21 %. These
trends should be seen against the increase of the
total apparent Community consumption which, for
the same period, stood at 54,6 %.

The volume of sales in the Communitry compared
to the apparent Community consumption shows
that
the market share held by the Community
industry decreased from 25 % in 1993 to 18,1 % in
1996 and then slightly increased to 19,5 % in the
investigation period, i.e. an overall decrease by 5,5
percentage points representing at 22 % decline.

(c) Stocks

Even though it is not the policy of the Community
industry to carry stocks of active substances such as
broad spectrum antibiotics
to
‘expiry dates'), and the level of these was found to
be marginal throughout the period of investigation,
certain increases in stock levels were identified,
which coincided with the periods of
increased
Indian imports.

(indeed subject

(d) Prices and profitability of the complainant

Community producers

The selling prices of the Community industry fell
by 4 % between 1993 and the investigation period.

The overall profitability of the product concerned
on the Community market increased from 16,8 %
of turnover in 1993 to 21,1 % in 1994 and then
steadily decreased to 5,6 % during the investigation
period. This decline in profitability is considered as

(82)

improved yields,

It should also be borne in mind that without the
increased efficiency reached by the Community
industry in the form of
is
considered that
the Community industry would
have made losses. It cannot be assumed, however,
that
the Community industry will be able to
continue to achieve, in future, such productivity
gains. This is particularly true in view of
the
declining levels of profits which will affect the level
of resources available for R&D.

it

(e) Employment

(83)

Employment has been stable throughout the period
examined. The number of people employed by the
Community industry in the production of
the
product under investigation was 1 166 in 1993 and
1 173 in the investigation period, i.e. an increase of
0,5 %.

4. Conclusion

(84) Despite increasing its production and thereby
reducing its costs per unit,
the Community
industry has seen as steady erosion of its share of
the Community market from 25 % in 1993 to
18,1 % in 1996, followed by an increase to 19,5 %
in the investigation period.

(85) Under these circumstances, it is considered that the
pressure exerted on the prices of the Community
industry, which decreased by 4 % beween 1993
and the investigation period, led to the weak finan-
cial situation of the Community industry. It should
be noted that the market for the semisynthetic
antibiotics under investigation, which are a bulk
commodity product, is highly price-sensitive and
reacts swiftly to any downward pressure.

(86)

This price pressure has lead to a decrease in the
profitability of the Community industry, which has
fallen by 66,5 % between 1993 and the invest-
igation period. This last figure is a particular cause
for concern since the minimum return on turnover
required in the pharmaceutical industry is 15 %. A
continued impediment of the Community industry
to reach this target would have a snowball effect
and will, ultimately, affect
the
Community industry to compete.

the ability of

(87)

the foregoing analysis,

it was
In the light of
concluded that, overall, the Community industry
has suffered material injury within the meaning of
Article 8(1) of the Basic Regulation.

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L 166/29

F. CAUSATION OF INJURY

1. Introduction

(88)

(89)

In accordance with Article 8(7) of the Basic Regula-
tion, the Commission examined whether the injury
suffered by the Community industry had been
caused by the subsidised Indian imports and
whether other factors had caused or contributed to
that injury.

It should be recalled that the antibiotics produced
in the Community and imported antibiotics are in
direct competition with each other, essentially on
the basis of price competition. Indeed, the product
under investigation is a bulk product, with more-
over no significant differences of quality or applica-
tions between the imported product and the
Community produced product. In this context,
price difference is the major factor determing sales.
Even relatively small quantities offered at prices
undercutting the prices offered by the complainant
producers can have a significant downward effect
on the market.

2. Effect of the subsidised imports

(90)

The Community industry has been facing the
subsidised
adverse effects of
the presence of
imports on the Community market
since the
beginning of
the period examined and more
acutely since 1995.

It appeared indeed that over the period examined
the Indian imports increased by almost 300 %.
India has now become the second largest exporter
the
of
Community.

the product under

investigation to

(91) With regard to price, it was also established, on the
basis of verified export transactions, that the prices
of Indian imports decreased over the period exam-
ined.

(92)

(93)

It was moreover established that the impossibility
for the Community industry to maintain its profit-
ability coincided with the growth in volume of the
subsidised imports from India. In a price-sensitive
market,
this low-price policy had the effect of
depressing the prices of the Community industry.

Indian imports,

It was indeed found that, as a result of price under-
cutting by
the Community
industry had to adjust its prices downward. This
defensive behaviour on the part of the Community
industry is explained by the fact that for this high
fixed cost production, the industry strongly needed
to protect its production volume by maintaining
market share and could not risk seeing its unit
costs increase as a result of lost sales volumes.

(94)

It was therefore concluded that
the subsidised
imports from India had a considerable negative
impact on the situation of the Community industry

(95)

(96)

(97)

(98)

during the period examined, in particular in terms
of profitability.

3. Effect of other factors

Factors other than the low-priced imports from
India which might have led or contributed to the
weak situation of the Community industry and in
particular the impact of imports from countries
other than India were also examined.

(a) Imports from other third countries

to the Community market was

Imports from countries not concerned by this
proceeding increased by 56,4 % between 1993 and
the investigation period, i.e. at a rate which is close
to the increase of 54,6 % of Community consump-
tion. Amongst
these third countries the United
States of America (USA) was the major supplier to
the Community market and increased its market
share by
important
almost 100 %. Another
the
supplier
People’s Republic of China which has seen its
share of the Community market decline by 43 %
between 1993 and the investigation period. As
regards prices, the average price of imports other
than those originating in India, as given by Euro-
stat, was considerably higher than the prices of the
Indian imports even though this statement must be
qualified since it is thought that imports from the
USA include substantial quantities of higher-value
products in finished-dosage forms.

It is therefore considered that imports from sources
other than India could not be considered to have
caused the precarious situation of the Community
industry. This led to the conclusion that the impact
of imports from other third countries was not such
as to have broken the causal
link between the
subsidised Indian imports and the injury suffered
by the Community industry.

(b) Development

of

consumption

of

the

Community market

It should be recalled that consumption of
the
product under investigation on the Community
market increased by 54,6 % between 1993 and the
investigation period. Therefore, the injury suffered
by the Community industry cannot be attributed to
a contradiction of demand on the Community
market.

(c) Over-capacity of the Community industry

(99) Certain interested parties

claimed

the
Community industry had developed an over-
capacity for the product under investigation and
that this was one of the main causes of the negative
shown
trend in prices. The investigation has

that

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Official Journal of the European Communities

11. 6. 98

however, that the increase in production capacity
by the complainant Community producers,
far
from being excessive has in fact been lower than
the increase in Community consumption. It should
the Community
also be borne in mind that
industry must increase its capacity at a rate which
will enable it to meet the forecasted increase in
demand on the Community and world markets.
Indeed, it is very difficult to remedy capacity short-
ages in the short term because of the very im-
portant capital costs and long time periods neces-
sary for the commissioning of new plants. If there
is an over-capacity in the world market for the
product under investigation, it has been caused by
the building up of new production capacities in
India and the People’s Republic of China rather
than in the Community.

(d) Competitiveness of

the Community industry

(100) The competitiveness of the Community industry,
which is amongst the world leaders for this product
is not
in doubt. This is evidenced by both its
performance on export markets and also the reduc-
tion of costs and consequent gains in productivity
which are at least in part due to its efforts in the
field of R&D. It should also be noted that the
Community industry has succeeded in increasing
its production volume by 30 % whilst maintaining
employment at a stable level.

Moreover, although the production processes are
difficult to compare per se, it could be established
that no inefficiency was to be found in terms of
cost per tonne for the product concerned produced
in the Community.

(e) Fluctuation in the price of certain raw mate-

rials

(101) Certain interested parties have argued that

the
injury suffered by the Community industry was
mainly due to the fluctuations of the price of the
raw materials penicillin G on the world market.

(102) Careful consideration has been given to this argu-
ment. It should be recalled, first of all, that whilst
penicillin G is an essential raw material for the
production of the product under investigation, it is
not indispensable since alternative raw materials
exist. In this respect the investigation established
that one of the complainant Community producers
which uses penicillin V rather than penicillin G for
the production of amoxicillin and ampicillin was
not in a situation which significantly differed from
that of
the two other complainant Community
producers using penicillin G, as far as the injury

findings are concerned. Moreover, the parties which
raised this argument stressed that
the rationale
behind their reasoning was that in a period of
decreasing prices for the raw material (penicillin
integrated producers were suffering, while
G),
producers purchasing penicillin G from external
sources were less affected. However the invest-
igation showed that one of
the complainant
Community producers using the raw material peni-
cillin G was not an integrated producer and
purchased this raw material at market prices. Since
the situation of this producer did not significantly
differ from the average of the Community industry,
it was not possible to attribute the injury suffered
by the Community industry to the falling prices of
penicillin G. Finally it should be recalled that the
fall in prices of penicillin G is largerly attributable
to the building up of new capacities in India.

(103) Therefore, and without prejudice to any further
evidence on this point, it has been concluded that
the effect of the fluctuations on the world market
of the price of the raw material penicillin G, if any,
could not have broken the causal link between the
subsidised imports originating in India and the
injury suffered by the Community industry.

4. Conclusion

(104)

In view of the above, the Commission considers
that, even though other factors may have contrib-
the product
uted to depress
for
the market
concerned,
from India,
the subsidised imports
when taken in isolation, have nevertheless caused
material injury to the Community industry. Indeed,
it is considered that without the benefit of sub-
sidies, undercutting of the Community industry’s
prices by Indian imports could not have taken
place or at least reached its established magnitude
and thus would not have been able to cause the
Community industry to suffer injury. This conclu-
sion is based on the various elements set out above,
especially the quantities and prices concerned,
which resulted in a strong downward price pressure
on the Community market
the product
concerned and in particular on the prices and pro-
fitability of the Community industry.

for

G. COMMUNITY INTEREST

1. Preliminary remark

(105) The Commission examined, on the basis of all
evidence submitted, whether, despite the conclu-
sions on the injurious effects of
the subsidised
imports, compelling reasons existed which would

11. 6. 98

EN

Official Journal of the European Communities

L 166/31

lead to the conclusion that it would not be in the
Community interest to impose measures in this
particular case. For this purpose, and pursuant to
Article 31(1) of the Basic Regulation, the Commis-
sion considered the impact of possible measures for
all parties involved in the proceeding, and also the
consequences of not taking measures. In order to
assess whether
the
Community that measures be imposed, question-
the
naires were sent
product concerned, to upstream suppliers of raw
materials, as well as to Gist-Brocades BV.

to users and importers of

interest of

in the

is

it

2. Interest of the Community industry

(106) As has been shown above, the Community industry
investigation has
producing the product under
been facing difficulties which are linked to the
presence of subsidised Indian imports. The fact
that the complainant Community producers are
world leaders for the product under investigation
the
good export performances
and the
Community industry should be recalled, as they are
a clear indicator of their ability to compete.

of

(107)

of

the

effects

imports

subsidised

It is considered that without measures to correct
the
the
Community industry will continue to face price
undercutting and the consequent price depression
which has lead to the deterioration of its profit-
ability. In the event that such a situation were
allowed to continue, the complainant Community
producers would be left with no other alternative
but to close down certain production lines or even
entire plants which are devoted exclusively to the
production of the antibiotics which are the subject
of the present investigation.

volume of production in the Community and its
volume of imports from third countries and also to
assess the impact that the imposition of measures
could have on this company. It should be recalled
the company Gist-Brocades BV was not a
that
complainant and was therefore not (and moreover
could not have been) included in the definition of
the Community industry for the purpose of the
injury investigation. In its reply this company,
which has been reducing its production volume of
the product under investigation in the Community
in recent years, stated that it fully supported the
imposition of countervailing measures, should the
investigation conclude that
such measures are
warranted.

4. Interest of importers/traders

(109) As has been mentioned above, questionnaires were
sent to all known importers/traders of the product
under investigation but only one meaningful reply
was received. On the basis of
the information
obtained thus far it appears that importers/traders
in the Community purchase the product under
investigation from a variety of
sources which
include India and the Community industry.

Since there are no fundamental quality differences
between the product imported from India or other
origins and that produced in the Community, it is
considered that
in the
Community would have no difficulty obtaining the
product from other sources as well as from India,
especially since there is no shortage of supply on
the world market.

importers/traders

the

Whilst the survival of the complainant Community
producers would probably not be endangered by
the absence of measures in view of the fact that in
most cases the Community industry produces other
products and is part of large groups, the above
mentioned plants which could face imminent
closure employ 1 173 people and are in most cases
situated in areas of the Community with little or no
alternative source of employment.

It goes without that such closures which, in any
event, would not be the result of normal conditions
of competition, would not be in the interest of the
Community.

(110)

In addition, when asked to comment on the effects
that a likely imposition of countervailing measures
could have on their business, no importer/trader
alleged that the imposition of such measures was
likely to affect it negatively.

it should thus be provisionally
On this basis,
concluded that the imposition of countervailing
measures is not likely to significantly affect im-
porters/traders in the Community.

5. Interest of up-stream suppliers

3. Interest

of

other
companies

Community-based

(111)

(108) As has been mentioned above, a questionnaire was
addressed to the Community producer Gist-
Brocades BV, which is a world leader in the field of
semisynthetic antibiotics, in order to establish its

In order to assess the likely effect that the imposi-
tion of countervailing measures could have on the
up-stream suppliers of the Community industry,
questionnaires were sent
such known
suppliers. In total six questionnaires were sent out
and three replies were received. The three com-
panies
raw materials
which

replying produce various

to all

L 166/32

EN

Official Journal of the European Communities

11. 6. 98

are incorporated into the product under invest-
igation such as sugar syrups, salts an numerous
chemicals. These producers but they are also, in the
case of one company, exported to India. When
asked to comment on the expected impact of any
countervailing measures on their business,
the
three companies which replied to the questionnaire
stated that they expected such measures to have a
positive impact in the form of increased orders
from the Community industry.

It can thus be provisionally concluded that the
imposition of countervailing measures would in
any event have no negative impact but could be
impact on the
expected to have
Community producers of raw materials which are
incorporated into the product under investigation.

a positive

6. Interest of users of the product concerned

(112) Questionnaires were also sent

to five known
the product under invest-
Community users of
igation. There of these users which are pharmaceut-
ical companies manufacturing down-stream prod-
ucts incorporating the product under investigation
provided meaningful replies. It appears from these
replies that the down-stream users, even though
they concede that the imposition of measures may
increase the price of their raw materials, are not
opposed to the imposition of countervailing meas-
ures on Indian imports. One of the users even
seemed to welcome the imposition of counter-
vailing measures since this company had problems
selling its products because of
the competition
from products incorporating low-priced subsidised
imports.

(113)

In view of the above, the Commission considers
that the impact of any possible measures on users
of the product under investigation would be neg-
ligible.

7. Conclusion

(114)

In examining the various interests involved and all
the above aspects, the Commission provisionally
considers that there are no compelling reasons not
to take action against the imports in question by
restoring a competitive market situation of
fair
pricing practices and preventing further injury to
the Community industry.

1. Injury elimination level

(116) Since the injury was mainly in the form of
declining prices and profits, it was considered that
the removal of such injury would be achieved
through the establishment of a non-injurious price
level, i.e. a price level which would prevail in the
absence of subsidised imports from India. In the
circumstances of this case, it can be assumed that
such non-injurious price levels would allow the
Community industry to cover its costs and achieve
a reasonable profit.

In this respect, it was considered that a price level
adequate to remove the injury should be based on
the weighted cost of production of the complainant
Community producers, together with a profit of
15 % on turnover. This profit rate was considered
to be an appropriate minimum in order to allow
the Community industry to invest in R&D and
thus to remain competitive and, in the long term,
viable. Such a rate of return could reasonably be
expected by the Community in the absence of
injurious subsidisation.

This injury elimination level was then compared
with the weighted average cif import price reported
by the exporters concerned.

2. Form and level of the provisional measures

(117) Since the injury elimination margins

thus es-
tablished are, in the case of four companies, higher
than the subsidy margins,
for these companies,
duties corresponding to the subsidy margins are
imposed. For two other companies, for which the
injury elimination margins are lower
than the
subsidy margins, duties corresponding to the injury
elimination margins in accordance with Article
12(1) of the Basic Regulation are imposed. For two
other companies,
the level of subsidisation was
found to be de minimis, i.e. below 3 %, in accord-
ance with Article 14(5)(b) of the Basic Regulation,
and one other company did not receive any subsi-
dies. For these latter three companies, the rate of
duty is set at 0 %.

(118) As regards the form of the measures, particular
consideration was given to the fact that the injury
established consisted mainly of a depression of the
complainant
prices,
together with the negative impact of these low
prices on their profitability. It was therefore provi-
sionally considered that
the appropriate way to
remedy injury would be the imposition of an ad
valorem duty.

Community

producers’

H. PROPOSED MEASURES

(115) For the purpose of establishing the level of the
provisional duty, account was taken of the level of
subsidisation found and the amount of duty neces-
sary to eliminate the injury suffered by the
Community industry.

(119) Since the cooperating exporters did not represent a
majority of Indian exports to the Community and
in order not to grant a bonus for non-cooperation,
the residual duty should be set at the level of the
average injury elimination margin established for
the cooperating exporters,
i.e. 14,6 % which is
above the highest individual duty imposed on a
cooperating.

11. 6. 98

EN

Official Journal of the European Communities

L 166/33

I. RIGHTS OF INTERESTED PARTIES

(cid:190) 12 % for Orchid Chemicals & Pharmaceuticals Ltd,

(120)

In the interests of sound administration, a period
should be fixed within which the parties concerned
may make their views known in writing and
request a hearing. Furthermore, it should be stated
that the findings made for the purposes of this
Regulation are provisional and may have to be
reconsidered for the purposes of any definitive duty
which the Commission may propose,

HAS ADOPTED THIS REGULATION:

Article 1

1. A provisional countervailing duty is hereby imposed
on imports of amoxicillin trihydrate, ampicillin trihydrate
and cefalexin presented in bulk falling within CN codes
ex
ex
ex
2941 10 20
2941 90 00 (TARIC code 2941 90 00 30) originating in
India.

2941 10 10 *10)
and

(TARIC code

(TARIC code

2941 10 20*10)

2941 10 10

The rate of duty applicable to the net

2.
free-at-
Community-frontier price, before duty for imports manu-
factured by the companies mentioned, shall be:

(cid:190) 9,6 % for Biochem Synergy Ltd., Indore (TARIC addi-

tional code: 8219),

(cid:190) 9,6 % for Harshita Ltd, New Delhi (TARIC additional

code: 8219)

(cid:190) 8,8 % for Kopran Ltd, Mumbai (TARIC additional

code: 8220),

(cid:190) 6,6 % for Ranbaxy Laboratories Ltd, New Delhi

(TARIC additional code: 8221),

(cid:190) 4,6 % for Lupin Laboratories Ltd, Mumbai (TARIC

additional code: 8222),

Chennai (TARIC additional code: 8224),

(cid:190) 0 % for Torrent Pharmaceuticals Ltd, Ahmedabad

(TARIC additional code: 8225),

(cid:190) 0 % for Vitara Chemicals Ltd, Mumbai (TARIC addi-

tional code: 8225),

(cid:190) 0 % for Gujarat Lyka Organics Ltd, Mumbai (TARIC

additional code: 8225),

(cid:190) 14,6 % for other companies (TARIC additional code:

8900).

3. Unless otherwise specified, the provisions in force
concerning customs duties shall apply.

The release for free circulation in the Community of
4.
the products referred to in paragraph 1 shall be subject to
the provision of a security, equivalent to the amount of
the provisional duty.

Article 2

Without prejudice to Article 30 of Regulation (EC) No
2026/97, the parties concerned may make known their
views in writing and apply to be heard orally by the
Commission within 15 days of the date of entry into force
of this Regulation.

Pursuant to Article 31(4) of Regulation (EC) No 2026/97,
the parties concerned may comment on the application of
this Regulation within one month of the date of the date
of its entry into force.

Article 3

This Regulation shall enter
into force on the day
following its publication in the Official Journal of the
European Communities.

This Regulation shall be binding in its entirety and directly applicable in all Member
States.

Done at Brussels, 9 June 1998.

For the Commission

Leon BRITTAN

Vice-President