Council Regulation (EC) No 2164/98 of 5 October 1998 imposing a definitive countervailing duty on imports of certain broad spectrum antibiotics originating in India and collecting definitively the provisional duty imposed
Date: 1998-10-05
Institutions: Council of the European Union
Subjects: CCT duties, India, antibiotic, countervailing charge, import, originating product

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Official Journal of the European Communities

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I

(Acts whose publication is obligatory)

COUNCIL REGULATION (EC) No 2164/98

of 5 October 1998

imposing a definitive countervailing duty on imports of certain broad spectrum
antibiotics originating in India and collecting definitively the provisional duty
imposed

THE COUNCIL OF THE EUROPEAN UNION,

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
the European
Community (1) (hereinafter referred to as ‘the Basic Regu-
lation'), and in particular Article 15 thereof,

not members

of

Having regard to the proposal submitted by the Commis-
sion after consulting the Advisory Committee,

Whereas:

(1)

(2)

A. PROCEDURE

By Commission Regulation (EC) No 1204/98 (2)
(hereinafter referred to as ‘the Provisional Duty
Regulation'), a provisional countervailing duty was
imposed on imports into the Community of certain
broad spectrum antibiotics originating in India,
namely amoxicillin trihydrate, ampicillin trihydrate
and cefalexin presented in bulk falling within CN
ex 2941 10 20 and ex
codes
2941 90 00.

ex 2941 10 10,

Subsequent to the imposition of the provisional
countervailing duties,
Indian cooperating
the
exporting producers Kopran Ltd, Orchid Chem-
icals and Pharmaceuticals Ltd, Ranbaxy Labora-
tories Ltd, and Vitara Chemicals Ltd (hereinafter
referred to as ‘the Indian exporting producers'), the
Government of India (hereinafter referred to as
‘GOI') and the complainant Community producers
(hereinafter referred to as ‘the Community indus-
try') submitted comments in writing.

(3)

In accordance with the provisions of Article 11(5)
of the Basic Regulation, all above parties requested
and were granted hearings.

Indian

The
the
Community industry also presented their opposing
views in a meeting organised by the Commission

producers

exporting

and

(1) OJ L 288, 21. 10. 1997, p. 1.
(2) OJ L 166, 11. 6. 1998, p. 17.

(4)

(5)

(6)

(7)

(8)

(9)

the Community industry in
upon request of
accordance with Article 11(6) of the Basic Regula-
tion.

Certain importers and traders, some of which did
not make themselves known at an earlier stage,
reacted further to the imposition of the provisional
measures.

The Commission continued to seek and verify all
information it deemed necessary for the definitive
findings.

Parties were informed of the essential facts and
considerations on the basis of which it was
intended to recommend the imposition of defin-
itive countervailing duties and the definitive collec-
tion of amounts secured by way of provisional
duties. They were also granted a period within
which to make representations subsequent to the
disclosures.

The oral and written comments submitted after the
imposition of provisional measures and after the
above disclosures were considered and, where
deemed appropriate,
in the
definitive findings.

taken into account

B. PRODUCT UNDER CONSIDERATION AND

LIKE PRODUCT

No comments or new facts were submitted by any
interested party in relation to the provisional find-
ings as regards the definition of the product under
consideration and the like product as set out in
recitals 8 to 10 of the Provisional Duty Regulation.

The Commission, however, was informed of certain
problems of interpretation in respect of the defini-
tion of the term ‘presented in bulk'. It appeared
that the antibiotics subject to the provisional duty
are classified under CN heading 2941 because they
are not put up in measured doses or in forms or
packings for retail sale. Otherwise, they would be
classified under CN heading 3004. It was therefore
decided to replace this definition. This proceeding

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Official Journal of the European Communities

9. 10. 98

consequently covers certain broad-spectrum antibi-
otics, namely amoxicillin trihydrate, ampicillin
trihydrate and cefalexin, not put up in measured
doses or in forms or packings for retail sale, which
fall within CN codes ex 2941 10 10, ex 2941 10 20
and ex 2941 90 00 respectively.

tion drawback schemes and it has been established
that the PBS is not a drawback or substitution
drawback scheme in the meaning of Annex I(i) and
Annexes II and III of the Basic Regulation.

C. SUBSIDIES

1. Passbook scheme (PBS)

(a) Nature of the scheme

(10)

The Governments of India (GOI) stated that this
scheme, which is described in recitals 15 to 23 of
the Provisional Duty Regulation, was a permitted
drawback system within the meaning of Annex I(i)
and Annexes II and III of the Basic Regulation.
there was no requirement under
Furthermore,
Annex I(i) that imported inputs are used for export
production.

However, Annex I(i) clearly states that imported
inputs must either be consumed in the production
of the exported product (i.e. a drawback scheme as
provided for within the meaning of Annex II) or
the imported inputs must have the same quantity
and the same quality and characteristics as home
market inputs (i.e. a substitution drawback scheme
as foreseen within the meaning of Annex III). The
PBS in fact allows the importation of goods free of
duty which are not inputs used in producing goods
for export or inputs having the same quantity and
the same quality and characteristics as home
market inputs actually incorporated in the exported
product. It is therefore considered that the PBS is
not a permitted drawback or substitution drawback
scheme under the provisions of the Basic Regula-
tion.

The GOI further referred to the existence of a
verification procedure based on ‘Standard input/
output norms' as described in recital 18 of the
Provisional Duty Regulation. These norms were
issued for exported products and set out quantities
of normally imported raw materials required to
produce one unit of the finished product. The GOI
argued that the system was in place to ensure that
there was no excess drawback of import duties as
required by Annex I(i) and Annexes II and III of
the Basic Regulation and that, furthermore, the
Commission had the opportunity to verify all
actual transactions to determine whether there was
an excess drawback.

This argument cannot be accepted as the issue of
excess remission only arises in the context of
assessing properly constituted drawback/substitu-

(11)

(12) One Indian exporting producer also referred to the
fact that there was a verification system in place
through the very existence of standard input/output
norms and also through the requirement to provide
documentation of input content for each export
transaction, in order to obtain credit. Additionally,
documentation regarding the production process
had to be provided to obtain a certain rate of credit
and an export declaration for the international
prices of inputs had to be provided. The system was
enforced through sanctions in the case of non-
compliance. The denial of some credit claims
showed that the system was operated restrictively.

However, as stated above, the question of whether
the rules governing the working of the PBS in their
totality are such as to qualify as a verification
system within the meaning of Annexes II and III
of the Basic Regulation is irrelevant, since overall
the system allows for transactions which make clear
that it falls outside the definition of an allowable
drawback system.

In any event,
it is considered that the standard
input/output norms only allow the setting of a
notional duty amount. A verification system has to
be based on actual transactions. This is not the case
in the PBS procedure which does not contain a
verification of
inputs actually
the quantities of
contained in the exported product but only the
input
international price for a notional
actual
amount, resulting in a notional duty amount for
which credit is given.

(13)

The GOI furthermore argued that the fixing of
standard input/output norms precisely corresponds
with the requirements of Annexes I to III of the
Basic Regulation. First, these norms were adjusted
to allow for the drawback of basic but not special or
additional duty, and because the use of the lowest
international price for the standard inputs provided
the most conservative calculation which does not
allow for an excess drawback of import duty. Sim-
ilarly, one Indian exporting producer argued that
the criteria for derogation provided by Article
2(1)(a)(ii) of
in
Annex III are met and that the Commission did
not address the issue of ‘over-rebate', in particular
by assessing the relevance of standard input/output
norms for this issue.

the Basic Regulation as set out

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(14)

(15)

(16)

In response to the first point, it is considered that
the nature of the scheme, which allows for the
import, free of duty, of goods other than inputs,
involves in itself ‘excess' remission and/or ‘over-
rebate'. The excess payment is due to the fact that
the PBS allows imports, free of duty, which would
not be allowed under permitted drawback or substi-
tution drawback systems since the loss of duty
represents a revenue foregone by the Government
on all imports under the scheme. This fact alone
renders the scheme countervailable.

The GOI also states that the requirement for inputs
to be ‘consumed' in the production process of the
exported product (footnote 1 to Annex II of the
Basic Regulation) is also satisfied where the calcula-
tion of the amount of import charges for remission
is based on statistical information regarding inputs
normally required for the production of the prod-
ucts concerned,
the standard input/output
norms and is not limited to those situations where
only the imported inputs necessary for the produc-
tion of exported products are imported duty-free
under the scheme.

i.e.

cannot be

In reply to this second argument, it is considered
that the requirements of Annexes II and III of
physical incorporation of imported inputs under
drawback systems, or the use of inputs having the
same quantity and the same quality and character-
istics as the imported inputs in the case of a substi-
achieved
tution drawback system,
through a notional concept based on statistical
information since it has no bearing on the actual
transactions for the particular companies involved.
It is also in contrast to the clear wording of the
Basic Regulation, which requires ‘physical incorp-
oration' of imports under the drawback scheme and
the import of inputs having the same quantity and
the same quality and characteristics as the home
market
exported
product.

incorporated in the

inputs

(17)

the GOI argued that

Finally,
the element of
minimum value addition (MVA) in the standard
input/output norms does not render the PBS an
import substitution subsidy since there was no
minimum prescribed domestic input and the MVA
could also be achieved by the use of, for example,
imported inputs.

This argument is certainly in contradiction with
the statements made by the GOI that the standard
input/output norms are calculated on the basis of

that

all inputs which are normally imported but, as this
scheme is already considered countervailable on
the basis
is contingent upon export
performance within the meaning of Article 3(4)(a)
of the Basic Regulation, it is not necessary to make
a further finding on the issue of an import substitu-
tion subsidy.

it

(18)

The GOI claimed that the benefits under the PBS
should not be countervailed since the PBS had
been abolished as from 31 March 1997 and only a
limited number of companies could continue to
avail themselves of credits previously granted. The
GOI made reference to Article 17 of the Basic
Regulation, which provides that a countervailing
measure remains in force only as long as, and to
the extent that, it is necessary to counteract the
countervailable subsidies which are causing injury,
and also referred to previous Community practice.
One Indian exporting producer claimed, using
similar arguments, that benefits under this scheme
should not be countervailed after 17 months from
the entry into force of definitive duties because at
that point no credits under the PBS could be used.

In response to these points, it should be noted that
even though the PBS has been abolished, com-
panies can still claim credits under this scheme for
export transactions made up to 31 March 1997, and
may use these credits up to 31 March 2001.
Substantial benefits under this scheme will, there-
fore, continue to be granted until that date and
they constitute countervailable subsidies. With
regard to countervailability of benefits after that
date, it is considered that the principle stated in
Article 5 of the Basic Regulation applies, i.e. that
the amount of countervailable subsidies shall be
calculated in terms of the benefit conferred on the
recipient in the investigation period. During the
investigation period, the PBS was, as stated by the
GOI, abolished and replaced by its successor, the
duty entitlement passbook scheme (DEPBS), which
is also considered countervailable. Since benefits
will continue to be granted in the future under the
DEPBS it is considered necessary to impose meas-
ures based on the benefits received during the
investigation period under both the PBS and the
DEPBS because, as prescribed by Article 17 of the
Basic Regulation, it will still be necessary to coun-
teract
the countervailable subsidies which are
causing injury.

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(19)

The GOI provided information that, following an
instruction in July 1998 from the Ministry of
Commerce,
the relevant Indian authorities have
only until 30 September 1998 at the latest to grant
passbook credits, and not 31 March 2001 as previ-
ously provided for (see recital 18). The GOI asked,
therefore,
this development be taken into
consideration in making a final determination.

that

It is considered that, as the PBS has been replaced
by a successor scheme, the DEPBS (which is also
considered to be a countervailable subsidy) and
benefits will continue to be granted in future under
the DEPBS, it is not appropriate to disregard bene-
fits which accrued to exporters under the PBS
during the investigation period. Therefore, meas-
ures should be imposed on benefits received during
the investigation period under both the PBS and
the DEPBS.

(b) Calculation of the subsidy amount

(20) One Indian exporting producer claimed that the
Commission should have, in any case, only used
the debits for the products concerned for calcu-
lating the subsidy as set forth in Article 7(2) of the
Basic Regulation. In the alternative, the Commis-
sion should have calculated the subsidy by adding
the credits utilised for imports of raw materials
used in producing the products concerned minus
duty paid for imports of raw materials used in
producing the products concerned.

In response to this, it is considered that the full
benefit under the scheme to the recipient had to be
the basis for the calculation of the subsidy as set
forth in Article 5 of the Basic Regulation. The
benefit is the amount of duty unpaid which would
have been payable on all imports in the invest-
igation period if they had not been imported under
the scheme. This benefit must be allocated over
total exports during the same period since it is
contingent upon total export performance. Further-
the
is considered inappropriate,
more,
purpose of calculation, to identify and deduct the
inputs imported under the scheme for the produc-
tion of the products concerned, since, once the
scheme is determined to be countervailable, the
calculation of
the benefit under the scheme is
determined by the amount of revenue foregone on
all imports.

for

it

2. Duty

entitlement
(DEPBS) — pre-export basis

passbook

scheme

(21) Arguments

regarding this
scheme, which is described in recitals 28 to 34 of

raised by the GOI

the Provisional Duty Regulation, need not be
addressed, given that this scheme provided only a
negligible amount of subsidy during the invest-
igation period. Consequently, no measures will be
imposed on benefits under this scheme and, there-
fore, no definitive finding is required.

3. Duty

entitlement
(DEPBS) — post-export basis

passbook

scheme

(22)

The GOI claimed that to countervail benefits under
the DEPBS as described in recitals 28 and 38 to 40
of the Provisional Duty Regulation, was in violation
of Article 5 of
the Basic Regulation since the
proceeding was initiated in September 1997 i.e.
within six months of the start of the scheme which
was introduced in April 1997. The GOI claimed
that
the investigation
period chosen should end six months prior to the
initiation date.

this Article required that

It is however considered that Article 5 does not
create the obligation to choose an investigation
period which must end six months prior to the
the proceeding but rather sets the
initiation of
minimum duration of
the whole investigation
period (i.e. six months); consequently, there is no
violation of Article 5.

(23)

The GOI also argued that the Indian exporting
producers could have used cash remission for their
imported inputs instead of using the DEPBS. Such
cash remission could have subsequently been used
for payment of import duties on any goods without
any restrictions whatsoever. The mode or method
of remission, it is therefore claimed, should not be
considered a factor in determining whether or not
such remission was a countervailable subsidy.

This argument has to be rejected. The existence of
a permitted cash remission system had neither
been alleged nor been found during the course of
the investigation and could not be considered more
fully at such a late stage of the procedure. In any
event, since the Indian exporting producers have
chosen to avail
themselves of a countervailable
scheme the benefits thereunder are countervailable.

(24)

The GOI stated that since no company availed
itself of
scheme during the investigation
period, it could not be countervailed.

this

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It is considered that, since the finding of subsidisa-
tion for the one non-cooperating company had to
be made on the basis of the best facts available,
benefits under this scheme, which was available to
the company during the investigation period, could
have accrued. Therefore, since it was verified that
the scheme itself is countervailable, the benefits
under the scheme were considered to have been
received by that company and the amount was
established on the basis of best facts available.

(25)

The GOI argued that since Annex II of the Basic
Regulation does not cover situations where exports
are made before imports, as was the case with the
DEPBS, this scheme was not countervailable.

that
this situation is
It
is considered, however,
the Basic Regulation.
covered by Annex III of
Since the DEPBS does not conform with the
requirements of either Annex II or Annex III as an
exporter is under no obligation to import goods
free of duty which must be consumed in the
inputs having the same
production process or
quantity and the same quality and characteristics as
home market inputs, the scheme is countervailable.

(26)

The GOI also claimed that there was an obligation
for the exporter to incorporate the goods imported
under the DEPBS in the exported products as
stated in the Indian Customs Notice No 34/97
dated 7 April 1997 at paragraph (v).

However, this provision refers to the DEPBS on
pre-export basis but not to the DEPBS on post-
export basis for which it was verified that such an
‘actual user condition' does not exist.

4. Export promotion capital goods scheme

(EPCGS)

(27)

export promotion capital goods

The GOI has made a number of claims regarding
scheme
the
(EPCGS), which is described in recitals 43 to 47 of
the Provisional Duty Regulation. These concern
the qualification of the scheme as a subsidy and the
calculation of the subsidy amount.

(a) Nature of the scheme

(28)

It was argued that there is no requirement under
the law that capital goods purchased under this
scheme should be exclusively used for the manu-
facture of export goods and that, consequently, the
exemption from import charges of goods imported
under
this scheme cannot be considered as a
subsidy.

contingent
i.e.

In regard to this claim, the investigation has shown
that to avail itself of the EPCGS, a company must
make a commitment to export a certain value of
goods within a certain time period. As this scheme
in law upon export
therefore
is
performance,
it cannot be obtained without
committing to export goods, it is deemed to be
specific under the provisions of Article 3(4)(a) of
the Basic Regulation and, therefore, countervail-
able. In the light of these facts, the question of
whether capital goods are used exclusively or not
for the manufacture of goods for export is of no
relevance.

(29)

It is further argued that the scope of the term
‘input' under paragraph (i) of Annex I (Illustrative
list of export subsidies) of the Basic Regulation also
covers capital goods and that, under this paragraph,
the remission of any duty cannot per se be consid-
ered as a subsidy unless there is an excess remis-
sion.

However, capital goods do not constitute ‘inputs'
within the meaning of
the Basic Regulation
because they are not physically incorporated into
the exported products.

(30) According to the GOI, upon importation of capital
goods under this scheme, the collection of duties is
merely postponed pending the fulfilment by the
exporter of
In these
circumstances, the question of government revenue
foregone and benefit to the recipient would not
arise until the end of the period for which the
exporter has given a commitment.

the export commitment.

In regard to this claim, it is considered that when a
company requests permission to use this scheme
and thereby gives a commitment to export goods, it
must be presumed that the export obligation will
be met and final exemption from the payment of
import duties will be granted. Indeed, there must
be an expectation on the part of the companies
that they will not have to pay duties which will be
reflected in their prices. To assume otherwise
would render the scheme meaningless. It is consid-
ered, therefore, that at the time of importation of
capital goods, government revenue is foregone and
the importing company receives a benefit in the
form of unpaid duties.

(b) Calculation of the subsidy

(31)

The GOI submitted that the depreciation period
used by the Commission in making its provisional
findings (i.e. 10 years as mentioned in recital 50 of

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is incorrect. If

the
the Provisional Regulation)
Commission had taken into account the useful life
of capital goods as provided under the laws in India
and of the cost of the bank guarantee which the
exporter must provide to the authorities when
importing goods under this scheme, the benefit, if
any, from the scheme would have been de minimis.

In reply to this claim, the Commission, in estab-
lishing its provisional
findings, determined the
normal depreciation period of capital goods in the
antibiotics industry, i.e. 10 years on the basis of
information provided by the cooperating Indian
exporting producers. This is in accordance with the
requirements of Article 7(3) of the Basic Regulation
which states that where a subsidy can be linked to
the acquisition of fixed assets, the amount of the
countervailable subsidy shall be calculated by
spreading the subsidy across a period which reflects
the normal depreciation of such assets in the
industry concerned. It is noted that no evidence
has been provided in support of a different period
for depreciation of capital goods in the pharma-
ceutical sector from the 10 years period used by the
Commission in making its provisional
findings.
Concerning the issue of the cost of the bank guar-
antee which the exporter bears when importing
goods under this scheme, this claim is rejected as
no claims for such costs to be taken account of
have been made by the cooperating exporters
concerned as required by Article 7(1) of the Basic
Regulation. The claim is therefore rejected.

(32)

The GOI contested the fact that, for calculating the
subsidy amount per unit, the Commission in its
provisional findings spread the benefits from the
scheme only over export turnover. It claimed that
as capital goods imported under the EPCGS are
used for producing goods for both the export and
domestic markets, benefits under
the scheme
should be spread over total turnover.

However, it has been determined that this scheme
is contingent solely upon export performance (see
recital 28 above). In conformity with Article 7(2) of
the Basic Regulation, it is considered appropriate
that the benefit for this scheme should be spread
over export
turnover only since the subsidy is
granted by reference to a certain value of exports of
goods within a certain time period. The claim,
therefore, that benefits under the scheme should be
spread over total turnover is rejected.

(33)

Finally, the GOI claimed that the inclusion of an
amount for interest which the Commission took
account of in arriving at the total benefit to com-
panies which availed themselves of this scheme is

not contemplated under the Agreement on subsi-
dies and countervailing measures (ASCM) of the
World Trade Organisation (WTO). Neither is it the
Community’s practice to include such an amount
in calculating the amount of benefit to companies
availing themselves of such subsidy schemes.

In regard to this claim, the interest element is
added in order to reflect the benefit to the recipient
obtained by not having to raise an equivalent
amount of money from commercial
sources.
Indeed, Article 6 of the Basic Regulation makes it
clear that the benchmark for the calculation of the
funds on the
subsidy is the equivalent cost of
commercial market. Thus, the Community’s prac-
tice in this area is to add an amount for interest in
calculating the total benefit in such cases. This
claim is therefore rejected.

(34) One Indian exporting producer claimed that the
information which it had provided to the Commis-
sion concerning imports of capital goods, which
was
subsequently verified by the Commission
services and formed the basis on which the amount
of benefit
calculated,
from the EPCGS was
contained certain errors. After imposition of provi-
this Indian exporting producer
sional measures,
provided new information relating to certain
imports of capital goods and claimed that this new
information should be taken into account
in
making a final determination.

However, in accordance with Article 28(3) of the
Basic Regulation, as this new information had not
been submitted in due time and was not verifiable,
it must be disregarded.

5. Export processing zones

(EPZ)/Export-

oriented units (EOU)

(a) Capital goods

(35)

(36)

Regarding the importation of capital goods under
the GOI has made the
the EPZ/EOU scheme,
same claims as those outlined in recitals 29 to 34
concerning the EPCGS. These claims are rejected
for the same reasons outlined in the same recitals.

The GOI has also claimed that capital goods
imported under this scheme, which is described in
recitals 51 to 53 of the Provisional Duty Regula-
tion, are not exempt from import duties, given that
they enter a customs-bonded area. The duties were
merely deferred until the goods leave bond and it
would not be appropriate to consider that govern-

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ment revenue has been foregone. It is claimed that
no subsidy exists given the definition of a subsidy
contained in Article 2 of
the Basic Regulation
which requires that a subsidy shall be deemed to
exist if, inter alia, government revenue is foregone.

the payment of

In regard to this claim, it is considered that, as in
the case of the EPCGS, when a company imports
import
capital goods without
charges, the company expects that it will meet its
export obligations and consequently will not anti-
cipate having to pay import charges. The company
is then in a position to reflect these lower costs (i.e.
unpaid duties) in its prices. In these circumstances,
a benefit is conferred on the company through the
government’s willingness to forego revenue at the
time of importation as the company has committed
is
itself
considered,
of
importation of capital goods when the collection of
import duties is postponed, government revenue is
foregone and the importing company receives a
benefit in the form of unpaid duties. This claim is
therefore rejected.

to meet certain export obligations. It
that

therefore,

time

the

at

ings in relation to this scheme must also be based
facts available in accordance with
on the best
Article 28(1) of
the
the Basic Regulation. For
purposes of the definitive findings it is however
considered reasonable to base these findings on the
information which was provided by other cooper-
ating Indian exporting producers for other schemes
(outside the provisions of the EPZ/EOU scheme)
which similarly provide for the importation of raw
materials free of duty (i.e. the PBS and the DEPBS).
An appropriate adjustment has accordingly been
made to the amount of subsidy for the one recog-
nised EOU.

(38)

The GOI has also made reference to the fact that
the existence of export processing zones is not
unique to India. However, the principle of export
processing zones is not at stake as such: it has to be
stressed that Indian exporting zones investigated in
the present case were found to have conferred
countervailable subsidies on an Indian company
exporting antibiotics.

(b) Raw materials

6. Income tax exemption scheme

(37)

The GOI and one Indian exporting producer have
claimed that, as raw materials which are imported
without payment of import charges are consumed
and physically incorporated in goods produced for
export, a situation which is allowed under Article
2(1)(a)(ii), the scheme is not a subsidy.

In reply to this argument, it should be first recalled
that one recognised EOU, Orchid Chemicals and
Pharmaceuticals Ltd, replied to the Commission’s
questionnaire in this proceeding but did not supply
verifiable information during the investigation. In
making its provisional findings, the Commission,
in the absence of such information, had to use the
best facts available in order to calculate the amount
of benefit which this EOU exporter had received
under the raw material duty exemption provisions
of the EPZ/EOU scheme. These facts were consid-
ered to be the global company data contained in
the audited accounts for all purchases of raw ma-
terials since it was not possible to assess on the
basis of verifiable information whether the raw
materials which were imported without payment of
import charges by this company were consumed
and physically incorporated in goods produced for
export. In these circumstances, the definitive find-

(39)

The GOI and one Indian exporting producer have
claimed that, as the rate of corporate tax which is
described in recitals 57 to 61 of the Provisional
Duty Regulation, has been reduced since the 1996/
97 tax year (i.e. the period on which the Commis-
sion made its provisional finding for this scheme),
account should now be taken of the reduced rate in
calculating any benefit
to the Indian exporting
producers concerned.

findings,

In this regard, it is noted that Article 5 of the Basic
Regulation provides that the amount of counter-
vailable subsidies shall be calculated in terms of the
benefit conferred on the recipient which is found
to exist during the investigation period for subsid-
isation. As stated above, in the case of the provi-
sional
the Commission calculated the
benefit on the basis of the tax year 1996/97 (i.e. 1
April 1996 to 31 March 1997) which corresponded
most closely to the investigation period. During
this tax year, the rate of corporate tax applied was
43 %. For the subsequent tax year (i.e. from 1 April
1997 to 31 March 1998), the rate of tax to be
applied was reduced to 35 %. It is considered that,
as part of this latter tax year falls within the invest-
igation period of this proceeding, it is appropriate

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to make the calculation of the amount of counter-
vailable subsides on the basis of a pro rata of the
two tax rates which applied in the investigation
period. Appropriate adjustments have accordingly
the
been made to the amount of subsidy for
companies which availed themselves of
this
scheme.

(40)

The GOI has also claimed that, in arriving at its
provisional findings, the Commission was in viola-
tion of previous Community practice as well as
both the ASCM and the Basic Regulation by
adding an amount for interest in arriving at the
total benefit to companies which availed of this
scheme. In assessing this scheme, it was considered
that the amount of tax which remained unpaid by a
company in the tax year corresponding most
closely to the investigation period was the most
reasonable indicator of benefit to a company under
this scheme. This amount is considered to equate
to a one-time grant which is available to a company
during the investigation period. An amount
is
added to this grant for interest for the reasons set
out in recital 34 and this claim has accordingly to
be rejected.

has asked that
account of in making a final determination.

this new information be taken

Another Indian exporting producer provided new
information relating to its claim for exemption
from tax on export profits under Section 80HHC of
the Indian Income Tax Act.

In accordance with Article 28(3) of the Basic Regu-
lation, as
this new information has not been
submitted in due time and is not verifiable, it must
be disregarded and both claims have to be rejected.

(42) One Indian exporting producer also claimed that,
as the Indian Income Tax Act provides for the
payment of tax in quarterly instalments, account
should be taken of this when adding interest to
calculate the total amount of benefit.

is considered that, when a
it
On this point,
company submits its tax assessment
to the tax
authorities, presumably in accordance with the law
in force at that time, the company has a legitimate
expectation that
it will be accepted by the tax
authorities, even though the assessment will first be
subject to scrutiny by them. In this sense, a benefit
accrues immediately to a company in the form of
the total amount of tax which will remain unpaid
as a result of its claim under the relevant section of
the Income Tax Act. It is appropriate, therefore, to
apply interest to the full amount of benefit which
accrues to the company for the relevant tax year.

(41) One Indian exporting producer claimed that the
information which it had provided to the Commis-
sion concerning its claim for income tax exemp-
tion under Section 80HHC of the Income Tax Act
contained certain errors. This information was veri-
fied by the Commission services and subsequently
formed the basis on which the amount of benefit
from this
Indian
exporting producer has now provided new informa-
tion relating to its income tax exemption claim and

scheme was calculated. This

7. Amount of countervailable subsidies

(43)

Taking account of the definitive findings relating
to the various schemes as set out above, the amount
of countervailable subsidies for each of the invest-
igated exporting producers is as follows.

Passbook

DEPB

EPCGS

EPZ/EOU

Pre-export

Post-export

(%)

Income
tax

Total

Ranbaxy
Laboratories Ltd

Vitara
Chemicals Ltd

Kopran Ltd

Lupin
Laboratories Ltd

0,01

negligible

0

5,43

5,89

0

0

0

0

0

0

0

0,15

0

1,17

0,03

0

0

0

0

6,16

0,46

2,12

5,09

6,32

0,46

8,72

11,01

9. 10. 98

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Official Journal of the European Communities

L 273/9

Passbook

DEPB

EPCGS

EPZ/EOU

(%)

Income
tax

Total

Gujarat Lyka
Organics Ltd

Torrent
Pharmaceuticals
Ltd

Biochem
Synergy Ltd

Orchid
Chemicals &
Pharmaceuticals
Ltd

Harshita Ltd

Pre-export

Post-export

0

0

0

0

0

0

5,89

negligible

3,75

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0,78

0,78

0

9,64

12,58

2,74

15,32

0

9,16

9,16

D. COMMUNITY INDUSTRY

(44) As no comments or new facts were submitted by
any interested party with regard to the definition of
the Community industry, the findings made as set
out in recitals 64 and 65 of the Provisional Duty
Regulation are hereby confirmed.

E. INJURY

1. Consumption, import volumes and market

share

(45)

The Indian exporting producers claimed that the
Commission’s analysis of imports of the product
concerned into the Community from India was
incorrect, it being claimed that Eurostat data was
unreliable, mainly because the CN-codes referred
to comprise a larger number of antibiotics or
presentations
actually
covered by this proceeding.

than the ones

thereof

A complete set of computations based on Indian
export statistics as well as information from Indian
exporting producers was submitted, and it was
claimed that these data represented the most ac-
curate data concerning actual
the
product concerned originating in India.

imports of

(46)

The CN codes referred to can indeed comprise
antibiotics or presentations thereof different from
to the proceeding.
the specific product subject

However, these antibiotics or presentations thereof
were either not produced in India in the case of
metampicillin and pivampicillin, or insignificant in
terms of Community market share in the case of
amoxicillin and ampicillin sodium sterile and
ampicillin anhydrous. Concerning cefalexin, other
antibiotics and presentations thereof may have a
larger impact. However, all products covered by the
relevant CN code represented only a small propor-
tion of the total Indian exports of the product
concerned. In view of the above, it was concluded
that the Indian export statistics did not reveal a
significant difference with the provisional findings
of the Commission concerning consumption in the
Community of the product concerned, volume of
imports and market shares for this product. This
was also confirmed by a tentative determination of
the relevant indicators on the basis of the data
submitted by the Indian exporting producers. This
calculation showed an almost 200 % increase of
total Indian exports of
the product concerned
between 1993 and the investigation period where
Eurostat figures showed an almost 300 % increase.
the
During the
Community market held by these imports prac-
tically doubled while Eurostat figures were showing
a 157 % increase in market share.

same period,

share of

the

It
the
is therefore concluded that regardless of
source of the data used, the conclusions reached by
the Commission at the provisional stage, notably
the existence of very large increases of total Indian
the product concerned, and a very
exports of
substantial
the
their
increase
Community market, are confirmed.

share

of

of

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9. 10. 98

(47)

The Indian exporters also claimed that practically
all imports are, as such or after further processing,
re-exported out of the Community.

importation (e.g.

temporary
this

While it is admitted that the fact that the products
concerned are not
liable to customs duty on
importation (0 % duty rate) does not encourage
traders or processors to resort to customs regimes
covering
inward
fact can nevertheless not be
processing),
construed as supporting the allegation made by the
Indian exporting producers in respect of re-ex-
portations. Since no sufficient evidence has been
submitted in this regard, the Commission had to
disregard these allegations. Consequently, the find-
ings as set out in recitals 66 to 69 of the Provisional
Duty Regulation and which are based on statistical
Eurostat data which reflect
import
volumes of products released into free circulation
in the Community are confirmed.

the actual

industry are negative, notably in relation to market
share and prices, giving a clear
indication of
material injury. In addition, it is important to note
that the positive trend for some indicators simply
the market and the
reflects overall growth of
performance of the Community industry oil export
markets. It can therefore be concluded that the
Community industry has suffered material injury.

4. Conclusion on injury

(53)

Based on the above considerations, it is confirmed
that the Community industry has suffered material
injury within the meaning of Article 8(1) of the
Basic Regulation.

2. Prices of the subsidised imports

(48)

The Indian exporting producers claimed that the
price comparison made in the Provisional Duty
Regulation based on Eurostat data was not reliable,
mainly because the price for dosage forms or
formulations would differ significantly from the
price of bulk products.

(54)

(49) However since, as explained in recital 9, finished
dosage forms, or formulations, are not covered in
the CN codes referred to in this proceeding, it can
be concluded that no comparisons were made
between bulk and finished products.

the

(50) Moreover, it should be noted that in their submis-
sions,
Indian exporting producers have
admitted that their export prices had fallen, and
have not questioned the magnitude of this price
decrease as established in recital 70 of the Provi-
sional Duty Regulation, i.e. around 40 %.

(51)

In view of the above, the reference to finished
dosage forms in recital 70 of the Provisional Duty
Regulation is withdrawn and the remaining find-
ings as set out in recitals 70 to 75 of the Provisional
Duty Regulation are confirmed.

3. Situation of the Community industry

(52)

The GOI claimed that most
injury indicators
analysed in the Provisional Duty Regulation
showed positive
the Community
industry, while there were few negative indicators.
However, as appears from recitals 84 to 87 of the
Provisional Duty Regulation, the investigation has
shown that the overall trends for the Community

trends

for

F. CAUSATION

1. Effect of the subsidised imports

The Indian exporting producers claimed that there
was no obvious correlation between the Indian
subsidised exports and any of the subsidy schemes
found during the investigation. It was argued that
this circumstance was such as to break the causal
link between the subsidised imports and the injury
suffered
industry. The
the Community
reasoning behind this argument was based on the
following considerations.

by

First, Eurostat import statistics were unreliable and
ought to be replaced by the Indian export statistics
as reported in an Indian official publication, which
show that the main increase in volume, as well as
the peak of exports, occurred during the period
April 1994 to March 1995.

Second, during that period,
the main subsidy
schemes were not in place. As it appears on the
basis of Indian export statistics that a decline of
Indian deliveries took place after the entry into
force of the subsidy schemes concerned, it would
be obvious that the implementation of the subsidy
schemes failed to foster exports. In these circum-
stances, it is claimed that it was impossible to at-
tribute any injury suffered by the Community
industry to the subsidised Indian imports.

Finally, for the sake of a proper causation assess-
ment, the above elements called for a shortening of
the period considered for the injury assessment:
instead of a four-year period it was claimed that a
two and a half year period, starting in 1995, should
be adopted, on the basis of which it was alleged
that a finding of no injury would be made, due to
the absence of any significant increase in imported
volumes.

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Official Journal of the European Communities

L 273/11

(55)

(56)

The above reasoning calls
remarks.

for

the following

First of all, as regards import trends, the Commis-
sion has already explained that
there are no
grounds for substituting Community import stat-
istics by Indian export statistics. The reliability of
Eurostat
statistics being reasonably ascertained,
while the source of Indian data could not be veri-
fied, it is considered that the trends established at
the provisional stage must be confirmed. It is worth
recalling that according to Eurostat, Indian imports
reached a peak in 1996 and only slightly decreased
during the investigation period.

such findings have to be put

The second and third step of the reasoning made
by the Indian exporting producers raises a question
of principle, namely what should be considered as
a reasonable period for the assessment of injury in
the context of an anti-subsidy investigation. In this
respect, it is stressed that any injury assessment
entails a two-step examination: firstly, it should be
established whether the domestic industry has been
suffering injury during the investigation period.
Secondly,
into
perspective in the light of the development of the
specific indicators over previous years. For that
purpose, it is consistent practice to assess the situ-
ation of the Community industry during a period
of at least three years prior to the investigation
period. It is only by undertaking such an exam-
ination that the trend in injury indicators can be
examined. It is therefore confirmed that in the
context of the injury assessment, the period exam-
ined should not be tailored. In the present case it
has been found that the imports reached their peak
before the investigation period. Contrary to the
claims put forward, this is not per se sufficient to
weaken the causal
link between the subsidised
imports and the injury suffered by the Community
industry; a continuous increase in imports is not a
prerequisite to a finding that
injury has been
caused by those imports. Price undercutting by the
imports
the
concerned, depressed prices
Community industry and depressed profitability
were all observed during the investigation period
during which also subsidisation has been deter-
mined. Moreover, even if the peak in volume had
been reached before the main subsidy schemes
entered into force, it may well be the case that such
export performance, would have been achieved in
the absence of undercutting and might thus not be
injurious. In this respect, it is worth noting from a
legal point of view that the Basic Regulation does
not require that the injury caused by e.g. undercut-
ting practices be traced so as to show that the
exporting producers actually used the money
earned from the government to lower their prices.

of

The reason for this is obvious as subsidies may as
well be used to compensate for existing or previous
losses and may not, thus, imply a direct decrease in
price. Conversely,
even stable or decreasing
imports, but traded at aggressive prices, can be
injurious. This is precisely the case here, where the
injury mostly relates to prices and took the form of
price depression which does not necessarily require
high volumes for taking place in a price-sensitive
and price-transparent market. In other words, it is
considered that subsidised imports of the product
concerned, irrespective of their trend in volume,
had a material negative impact on the Community
industry during the investigation period.

(57)

It is therefore concluded that the elements brought
forward by the Indian exporting producers do not
undermine the finding in the provisional Regula-
tion of a causal link between the subsidised imports
from India
injury suffered by the
Community industry.

and the

2. Effect of other factors

2.1. Imports from other third countries

(58)

The Indian exporting producers submitted that
more expensive imports originating in the United
States of America (USA) had increased in volume
by 100 %, and that this would indicate that the
market for the product concerned would not be
price-sensitive as stated in the Provisional Duty
Regulation as well as in recital 56.

(59) As regards imports originating in the USA,

it
should be noted that
the explanation originally
given (recital 96 of the Provisional Duty Regula-
tion) in respect of its comparatively high prices per
kilogram should be disregarded since products in
finished dosage form cannot be declared under the
heading concerned. However, it appears that most
of these imports are taking place in the framework
of an intra-group relationship between an EU
company and its affiliate in the USA and that
prices may be affected by this relationship. As
regards imports originating in third countries other
than the USA, no allegation was received and no
finding was made that they could have had a signi-
ficant impact on the situation of the Community
industry.

It is therefore confirmed 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.

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2.2. Competitiveness of the Community industry
and fluctuation in the price of raw materials

Community industry, being mostly integrated,
could not.

(60)

The Indian exporting producers reiterated their
claim that the injury suffered by the Community
industry had been caused by downward fluctu-
ations, notably from 1996 onward, of the price of
penicillin G, which is the main raw material used
for the production of the product concerned. More
precisely, they claimed that the decrease in export
prices during the investigation period reflected no
more than passing on to customers their produc-
tivity gains and the decrease in the price of peni-
cillin G. In other words,
the Indian exporting
producers argued that the undercutting established
during the investigation period occurred indepen-
dently of any subsidies granted. It was equally reit-
the Community industry was not
erated that
competitive in the segment of the product under
consideration.

The Community industry claimed that the Indian
exporting producers had lowered prices for the
product concerned to a considerably larger extent
than the reduced cost for penicillin G would have
allowed for.

A downward trend in prices of penicillin G could
indeed be observed from 1996 onward. Since peni-
cillin G represents a considerable proportion of
total input cost of the finished product, a decrease
in its price would be likely to be reflected at least
to some degree in the price of
the product
concerned.

However, submissions concerning price levels of
penicillin G were inconsistent and even contra-
dictory. Most notably, following the imposition of
provisional measures, the Indian exporting produ-
cers submitted a full set of quotations of weighted
average purchase prices for penicillin G but sub-
sequently claimed that
they had been able to
purchase penicillin G at prices considerably lower
than those quoted in the submission.

Consequently, it has not been possible to establish
the falling
a precise and quantifiable effect of
prices of penicillin G on the prices of the product
concerned.

Furthermore, a reduction in the cost of penicillin G
would be likely to have an effect only in those
companies which are not vertically integrated, i.e.
which source this material externally instead of
producing it (see also recitals 64 to 66). The Indian
exporting producers claimed that they were not
integrated and could thus fully benefit from this
advantage and reflect it in their prices, while the

However, an analysis of the situation of a non-in-
tegrated Community producer that has an equal
benefit from lower world market prices of peni-
cillin G revealed that this producer was equally
suffering from strongly depressed profitability and
facing price undercutting by the Indian
was
exports, most notably in the second half of the
investigation period.

It should furthermore be noted that the aim of the
investigation of the causal link between subsidised
imports and the injury of the Community industry
is not to assess any underlying reasons for the
behaviour of exporting producers as it has been
established in the course of the investigation that
they benefited from countervailable subsidies.

(61) As far as the competitiveness of the Community
industry is concerned, it is difficult to raise any
doubt since this industry is amongst the world
leaders for the product under consideration. This is
evidenced by both its performance on export
markets and the reduction of costs and consequent
gains in productivity. The Community industry has
increased its production volume by 30 % whilst
maintaining employment at a stable level. More-
over, the investigation revealed no inefficiencies in
terms of cost of production. As regards the inte-
grated companies, there was also every indication
that their production process for penicillin G was
highly efficient on a worldwide level.

(62)

(63)

In order to substantiate the renewed claim that the
Community industry had not been able to improve
its efficiency, it was submitted that even companies
that were known to be very efficient producers such
as the Dutch company Gist-Brocades BV were
having problems as a result of the price drop of
penicillin G. A statement of Gist-Brocades’ latest
annual report was cited, saying that ‘the profit fore-
cast issued in March 1997 had to be adjusted from
a marked increase to a slight fall. This was caused
by the fall of world penicillin prices to a historical
low'.

The comparison of the situation of the Community
industry manufacturing the product under invest-
igation with the situation of Gist-Brocades BV is
misleading in this context. Gist-Brocades is selling
very considerable amounts of penicillin G, and a
fall in prices for this product is therefore likely to
have a significant negative effect on its profitability
for
segment. The Community
industry, however, is not selling any penicillin G,
but producing it for captive use.

this business

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(64)

The Indian exporting producers submitted that the
negative impact of falling penicillin G prices would
be greater on those producers that have vertically
integrated production, i.e. are producing the raw
material penicillin G themselves, since they would
not have been able to benefit from the price drop
and therefore were forced to improve their effi-
ciency in their production processes. It was stated
that the Community industry had not been able to
do so.

(65) Admittedly,

falling prices of raw materials may
have a different impact on integrated producers
compared to producers
sourcing the materials
externally. Non-integrated producers should almost
immediately benefit from a drop of procurement
costs, while integrated producers are somewhat
insulated from the direct effect of price movements
on those costs, although they may be affected by
the impact of these on the selling prices that their
non-integrated competitors
the
processed products.

can offer

for

(66)

(67)

(68)

Furthermore,
in the case of rising raw material
prices, being integrated, which is the situation of
most Community producers, clearly constitutes an
advantage. The decision of investing in a fully in-
tegrated plant
is therefore a legitimate business
decision. It is worth noting in this respect that the
Indian exporting producers did not openly suggest
that the Community industry should shut down
and re-open their high-investment plants and
change
their production techniques whenever
short-term movements in the prices of raw ma-
terials occur.

In view of the above, although it cannot be fully
excluded that the drop of raw material prices may
have had a negative impact on the profitability of
some Community producers, it can be concluded
that the price drop of the raw material penicillin G
cannot be construed to be the reason for the injury
in terms of depressed profitability and loss of
market share of the Community industry. The fact
remains that the Indian exports of the products
concerned were subsidised, which explains that the
competitive situation was distorted in favour of the
Indian product.

It is therefore concluded that, taken in isolation,
the subsidised imports, in particular in view of their
low prices, have caused material
injury to the
Community industry. This conclusion is reached
although decreasing raw material costs may have
had a negative impact. Any such impact, however,
was not such as to break the causal link between
the subsidised imports and the injury caused to the
Community industry.

3. Conclusion on causality

(69)

In view of the above, the conclusion of recitals 88
to 104 of
the Provisional Duty Regulation are
confirmed. The reference to finished dosage forms
in recital 96 is however withdrawn.

G. COMMUNITY INTEREST

1. Preliminary remark

(70) No comments or new facts were submitted by any
party with regard to
the
Community industry, of up-stream suppliers, of the
users of the product concerned or of the other,
producer,
non-complainant Community-based
Gist-Brocades BV.

interests

the

of

The findings of the Provisional Duty Regulation
are therefore confirmed, notably the conclusions
that the impact of measures on those groups would
either be beneficial, have no negative impact, but
possibly a positive one, or would be negligible.

2. Arguments made by importers/traders

(71)

importers or

traders made submissions
Several
following the imposition of the provisional meas-
ures. In essence, the following claims were made.

There was no injury to Community producers
caused by Indian exports since the Indian prices
went down due to lower prices of penicillin G, and,
in addition, there was an excess production in the
Community in which Indian companies were not
involved. The quantity of Indian material sold in
the Community was very small compared to the
sales of producers based in the Community, which
moreover made high profits. The imposition of
countervailing duties may result in price increases
to unreasonable levels by the producers based in
the Community.

The Community producers missed opportunities
for modernisation, and should have developed a
range of more sophisticated products
product
instead of continuing to produce commodities
available on the world market.

the Community-based manufacturers of
Also,
finished dosage forms would no longer have
competitive options,
since their possibility to
source cheaper products of Indian origin would be
diminished.

One trader, while confirming some of the above
claims, also complained about the Indian ban on
imports of penicillin G for local consumption.

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9. 10. 98

the imposition of countervailing duties
Finally,
would have a negative effect on the profitability of
the importers and traders and limit their choice of
sourcing options. One importer pointed out that,
being an exclusive agent for an Indian exporting
producer,
it had no possibility at all to import
material from alternative sources.

(72)

The claims relating to the decrease in price of
penicillin G and the quantities of imports of the
product concerned originating in India have been
addressed in detail above. The low level of profit-
ability of the Community industry has also been
demonstrated and will be further addressed below.
Furthermore, any price increase resulting from the
imposition of countervailing measures is aimed at
subsidised
correcting the
imports.

effects of

injurious

In certain cases, however, the impact of counter-
vailing duties may indeed be significant, notably
for
traders using exclusive
agency or similar arrangements for the product
concerned from India.

those importers or

(76)

This should, however, be put in balance with the
interest of the Community industry which, without
the
the remedial effects of measures to correct
negative effects of subsidised imports, is likely to
continue to be confronted with continued price
undercutting and the consequent price depression
which has led to the deterioration of its profit-
ability. In the event that this situation were allowed
to continue, the Community industry may well be
left with no alternative but to close down certain
production lines or even entire plants. It should be
recalled that production lines or plants devoted
the product
exclusively to the production of
concerned employ almost 1 200 persons.

(73)

The suggestion that the Community industry ought
to abandon the production of commodities appears
to allege that it would not be efficient and compet-
itive in this field. The competitiveness of
the
Community industry, however, is not in doubt.

Moreover, the market for generic pharmaceutical
products is an expanding one and there is no
reason why Community-based industries would
have to abandon this promising market segment.

3. Conclusion on Community interest

(77)

In conclusion, and having examined the various
interests involved, it is considered that there are no
compelling reasons not to take action against the
imports in question by restoring a competitive
fair pricing practices and
market
injury to the Community
preventing further
industry.

situation of

(74)

(75)

since they imply that

The allegations relating to the manufacturers of
finished dosage forms cannot be sustained in their
generalised form,
these
companies generally use antibiotics from India in
order to manufacture finished dosage forms, which
is not the case. As appears from the replies to
questionnaires from some of these companies, they
are in fact not all opposed to the imposition of
countervailing measures. One
even
appeared to support the imposition of measures
since it had encountered problems to sell its prod-
ucts because of
the competition from products
incorporating low-priced subsidised imports.

company

The imposition of countervailing duties may have a
negative impact on importers and traders. This
impact will vary depending on the degree of their
specialisation on products and originating coun-
tries. It appears that most importers and traders are
not
product
specialised
concerned originating in India, but rather cover a
much larger range of bulk pharmaceutical products
and source on a world-wide basis. In general, the
impact of measures on importers and traders
should therefore be limited.

exclusively

the

in

H. DEFINITIVE MEASURES

1. Injury elimination level

(78) As regards the profit margin used in establishing
the non-injurious price level of the Community
industry, the Indian exporting producers submitted
that the Community industry had no need to invest
in research and development (hereinafter ‘R&D'),
since the pharmaceutical industry would not and
should not fund its research from the sale of off-
patent commodities such as the product concerned,
and that the suggested minimum profit level of
15 % of turnover would therefore be exaggerated.

(79) While it

is admitted that profit

levels can be
expected to be significantly different depending on
whether a drug is still under the protection of a
patent or other form of intellectual property right
i.e. has become a ‘generic' product, the
or not,
statement
from the sale of non-
protected products should not contribute in any
way to R & D expenditure cannot be accepted.

that profits

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Official Journal of the European Communities

L 273/15

(80)

It should be recalled that almost all R & D ex-
penditure is financed by the industry itself. It is
therefore the long-term capacity to generate the
resources needed to improve production processes
of existing products and bring new products to the
market that determines the ability to compete in
the future, and this capacity depends on the poss-
ibility to achieve sufficient profit on those products
that are already on the market.

(81) Without the increased efficiency achieved by the
Community industry through R & D expenditure
and resulting investments in process and yield
the
improvements,
Community industry would already have made
losses.

it can be considered that

It is clear that the current depressed profit level
would constitute a serious impediment for any such
investment
in the future, and thus, ultimately,
affect the ability of the Community industry to
compete.

It should moreover be kept in mind that the phar-
maceutical industry represents an industrial sector
with a very high level of investment. In order to
maintain a reasonable return on investment, the
return on turnover must be higher than the one
typically achieved in sectors requiring lower levels
of investment.

(82)

In the light of the above, a profit level of 15 % on
turnover is considered to be a reasonable minimum
for an integrated pharmaceutical industry.

2. Form and level of duty

(83) No comments were submitted regarding the form
the measures. Changes from the provisional
of
determination of
the amount of countervailable
subsidies have been made where appropriate. The
rate of definitive countervailing duty is accordingly
lower than the level of provisional duty for three of
the cooperating Indian exporting producers.

Recitals 117 to 119 of the Provisional Duty Regula-
tion are confirmed.

I. COLLECTION OF THE PROVISIONAL DUTY

(84)

In view of the magnitude of the countervailable
subsidies found for the exporting producers and in
light of the seriousness of the injury caused to the
Community industry,
is considered necessary
it
that the amounts secured by way of provisional
countervailing duty under Regulation (EC) No
1204/98 be definitively collected to the extent of
the amount of definitive duties imposed,

HAS ADOPTED THIS REGULATION:

Article 1

1. A definitive countervailing duty is hereby imposed
on imports of amoxicillin trihydrate, ampicillin trihydrate
and cefalexin not put up in measured doses or in forms or
retail sale falling within CN codes ex
packings for
2941 10 10 (TARIC code 2941 10 10*10), ex 2941 10 20
(TARIC code 2941 10 20*10), and ex 2941 90 00 (TARIC
code 2941 90 00*30) originating in India.

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:

— 9,6 % for Biochem Synergy Ltd, Indore (TARIC addi-

tional code: 8219),

— 9,1 % for Harshita Ltd, New Delhi (TARIC additional

code: 8788),

— 8,7 % for Kopran Ltd, Mumbai (TARIC additional

code: 8220),

— 6,3 % for Ranbaxy Laboratories Ltd, New Delhi

(TARIC additional code: 8221),

— 4,6 % for Lupin Laboratories Ltd, Mumbai (TARIC

additional code: 8222),

— 12 % for Orchid Chemicals and Pharmaceuticals Ltd,

Chennai (TARIC additional code: 8224),

— 0 % for Torrent Pharmaceuticals Ltd, Ahmedabad

(TARIC additional code: 8225),

— 0 % for Vitara Chemicals Ltd, Mumbai (TARIC addi-

tional code: 8225),

— 0 % for Gujarat Lyka Organics Ltd, Mumbai (TARIC

additional code: 8225),

— 14,6 % for other companies (TARIC additional code:

8900).

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

Article 2

The amount secured by way of provisional countervailing
duty pursuant to Regulation (EC) No 1204/98 shall be
definitively collected at the duty rate definitively imposed.

Amounts secured in excess of the definitive rate of coun-
tervailing duty shall be released.

Article 3

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

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Official Journal of the European Communities

9. 10. 98

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

Done at Luxembourg, 5 October 1998.

For the Council

The President

W. SCH(cid:154)SSEL