Commission Regulation (EC) No 1810/1999 of 17 August 1999 imposing a provisional countervailing duty on imports of polyethylene terephthalate (PET) film originating in India
Date: 1999-08-17
Institutions: European Commission
Subjects: India, import, monetary compensatory amount, originating product, plastics, thin sheet

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Official Journal of the European Communities

19. 8. 1999

COMMISSION REGULATION (EC) No 1810/1999

of 17 August 1999

imposing a provisional countervailing duty on imports of polyethylene terephthalate (PET) film
originating in India

(4)

(5)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community,

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

After consulting the Advisory Committee,

Whereas:

(1)

(2)

A. PROCEDURE

In November 1998 the Commission announced by a
notice (hereinafter referred to as ‘notice of initiation’)
published in the Official Journal of the European Commun-
ities (2) the initiation of an anti-subsidy proceeding with
regard to imports into the Community of polyethylene
terephthalate film (hereinafter referred to as ‘PET film’)
originating in India and commenced an investigation.

The proceeding was initiated as a result of a complaint
lodged by Du Pont de Nemours International SA, Mitsu-
bishi Polyester Film GmbH (formerly Hoechst Diafoil
GmbH), Toray Plastics Europe SA and Nuroll SpA.
the Community
representing a major proportion of
production of PET film. The complaint contained
evidence of subsidisation of the said product, and of
material injury resulting therefrom, which was consid-
ered sufficient to justify the initiation of a proceeding.

Prior to the initiation of the proceeding and in accord-
ance with Article 10(9) of Council Regulation (EC) No
2026/97 (hereinafter referred to as the ‘Basic Regula-
tion’), the Commission notified the Government of India
(hereinafter ‘GOI’) that it had received a properly docu-
mented complaint alleging that subsidised imports of
PET film originating in India are causing material injury
to the Community industry. The GOI was invited for
consultations with the aim of clarifying the situation as
regards the contents of the complaint and arriving at a
mutually agreed solution. The GOI accepted the offer of
consultations which were held with the Commission on
9 November 1998 in Brussels. Due note was taken of
the comments made by the GOI in regard to the allega-
tions contained in the complaint regarding subsidised
imports and material
injury being suffered by the
Community industry.

(3)

The Commission officially advised the Community
importers and users
producers, exporting producers,
the
known to be concerned,

the representatives of

(1) OJ L 288, 21.10.1997, p. 1.
(2) OJ C 357, 21.11.1998, p. 12.

exporting country and the complainant of the initiation
of the proceeding. The parties concerned had the oppor-
tunity to make their views known in writing and to
request a hearing.

The GOI, a number of exporting producers as well as
some Community producers, importers and users made
their views known in writing. All parties who so
requested within the time limits set in the notice of
initiation were granted a hearing.

The Commission sent questionnaires
to all parties
known to be concerned and received replies from the
GOI and a number of Community producers, importers,
users and exporting producers in India.

The Commission sought and verified all the information
it deemed necessary for the purpose of a preliminary
determination of subsidisation and injury, and carried
the following
out
companies:

the premises of

investigations at

(a) Community producers

— DuPont Polyester Films, Contern, Luxembourg

and Wilton, United Kingdom

— Mitsubishi Polyester Film GmbH, Wiesbaden,

Germany

— Nuroll Spa, Caserta, Italy

— Toray Plastics Europe SA, St-Maurice de Beynost,

France

(b) Government of India

— Ministry of Commerce

— Department of Revenue

— Government of Gujarat

— Government of Maharashtra

— Government of Uttar Pradesh

(c) Exporting producers in India

— Ester Industries Ltd, New Delhi

— Flex Industries Ltd, Noida

— Garware Plastics & Polyesters Ltd, Mumbai

— India Polyfilms Ltd/Jindal Polyester Ltd, New

Delhi (related companies)

— MTZ Polyesters Ltd, Mumbai

— Polyplex Corp. Ltd, New Delhi

(d) Importers in the Community related to Indian exporting

producers

— Garware Polyester
United Kingdom

International Ltd, Harrow,

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(6)

(7)

(8)

(9)

(e) Importers

in the Community not

related to Indian

exporting producers

— Coveme SpA, San Lazzaro di Savena, Italy

— Isolcavi Sas, Monteveglio, Italy.

The investigation of subsidisation covered the period
from 1 October 1997 to 30 September 1998 (herein-
after referred to as the ‘investigation period’ or ‘IP’). The
examination of injury covered the period from 1995 to
the end of the investigation period (hereinafter referred
to as the ‘period considered’).

B. PRODUCT UNDER CONSIDERATION AND LIKE

PRODUCT

1. Product under consideration

The product under consideration is polyethylene tereph-
thalate (‘PET’) film, and is currently classifiable within
CN codes 3920 62 19 and 3920 62 90.

range can be split

This product
into a variety of
segments typically identified within the industry as
magnetic, packaging, electrical, imaging and other indus-
trial segments. Depending on the segment PET film can
be further processed to be used in video cassettes,
photographic films, as packaging material for foodstuffs,
as insulation for electrical motors, cables etc. For the
the products were
investigation,
purposes of
grouped in types according to market segment, thick-
ness, coating properties, surface treatment, mechanical
properties and clarity/opacity.

the

2. Like product

and sold domestically or

The investigation established that PET film produced in
India
exported to the
Community and PET film produced and sold by the
Community industry on the Community market were
found to have the same physical and technical character-
istics and uses and were thus like products within the
meaning of Article 1(5) of the Basic Regulation.

C. SUBSIDIES

1. Introduction

(a) Nationwide schemes

(10) On the basis of

the Commission

the information contained in the
complaint and the replies to the Commission's question-
naire,
the
following five schemes that are available on a nation-
wide basis, and which allegedly involve the granting of
export subsidies:

investigated

services

— passbook scheme

— duty entitlement passbook scheme

— export promotion capital goods scheme

— export processing zones/export oriented units

— income tax scheme.

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 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. The document relevant to
the investigation period of this case covers the policies
for the years 1997 to 2002.

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

(b) Regional schemes

(11) On the basis of

the information contained in the
complaint and the replies to the Commission's question-
naire,
the Commission services also investigated a
number of schemes which allegedly involve the granting
of subsidies by regional governments or authorities in
certain Indian States.

(i) State of Gujarat

— sales tax incentive scheme

— refund of electricity duty.

The first scheme is based on Gujarat's new industrial
incentive policy, 1995 to 2000. The second scheme
is based on Section 3(2)(vii)(a) and (b) of the Bombay
Electricity Duty Act 1958, as adapted by the Gujarat
Adaptation of Laws (State and Concurrent Subjects)
Order, 1960.

(ii) State of Maharashtra

— sales tax incentive scheme

— octroi refund

— special capital

incentive scheme

— exemption from electricity duty.

The first, second and third schemes are all based on
the Government of Maharashtra's dispersal of indus-
incentives. The fourth
tries package scheme of
scheme is based on a notification by the Govern-
ment of Maharashtra relating to exemption of elec-
tricity duty.

(iii) State of Uttar Pradesh

— trade tax incentive scheme.

This scheme is based on the Government of Uttar
Pradesh's trade tax incentive (notifications No 311
and No 312 of 31 March 1995).

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2. Passbook Scheme (PBS)

actual production of the exporter and could be sold on
the domestic market.

(12) One instrument under the export and import policy
involving export-related assistance is
the Passbook
scheme (hereinafter 'PBS') which entered into force on
30 May 1995 and remained in force until 31 March
1997.

(17)

(a) Eligibility

(13)

The PBS is available to certain categories of exporters,
i.e. those which manufacture in India and subsequently
export
(exporting producers) and exporters, whether
manufacturers or only traders, granted an ‘export house/
trading house/star trading house/superstar trading house’
certificate. The latter category of exporters, which is
defined in the export and import policy document, has
to provide proof of prior export performance.

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

(18) When all credits in the passbook had been used, the
passbook was closed and the passbook holder had to
pay a fee to the relevant authority.

(b) Practical

implementation

(19)

(14) Any eligible exporter could apply for a passbook, which
takes the form of a book in which credit and debit
amounts of duty are entered. It was issued automatically
if the company is a recognised exporting producer or an
approved export/trading house.

(15) On the export of

the exporter was
finished goods,
eligible to claim credit which can be used to pay
customs duties on subsequent imports. Various elements
were taken into consideration in calculating the amount
of credit to be granted in accordance with ‘standard
input/output norms’ which were 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
were established by the Special Advance Licensing
Committee on the basis of a technical analysis of the
production process and global statistical information. By
applying the standard input/output norms, the credit
was granted up to an amount corresponding to the basic
customs duty payable on the normally imported inputs
used by the Indian industry producing the exported
product
the
‘minimum value addition’ (hereinafter ‘MVA’). The MVA
is the minimum value which the Indian exporting
producer had to add (i.e. through indigenously sourced
inputs/labour costs) to the value of imported inputs in
producing the finished goods.

in question. One other element was

(16)

The credit granted was entered in the passbook and was
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
licence to the importer. The
imported goods did not need to have any relation to the

issued a special

the remission or drawback of

The GOI argued that the PBS is not countervailable
because it was a permitted duty drawback scheme.
Article 2(1)(ii) of the Basic Regulation provides that the
exemption of an exported product from duties/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 Regulation. Item (i) of Annex I (the
Illustrative list of export subsidies) to that Regulation
specifies that
import
charges in excess 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 Regulation requires investigating authorities, in
determining whether
inputs are consumed in the
production process, to establish whether the govern-
ment of the exporting country has in place a system or
procedure to confirm which inputs are consumed in the
production process of the exported product. In this case,
no such system exists. In fact, the benefit granted in
India to exporters of the product concerned in the form
of passbook credits was automatically calculated on the
basis of the standard input/output norms independently
of whether inputs were imported, duty was paid on
them or whether the inputs were actually used for
export production.

Furthermore, the exporter was under no obligation to
either import actual
inputs or consume the imported
goods in the production process under the PBS. What
happened under the PBS in effect, was that on export of
a finished product, an exporter was granted an amount
of credit based on the amount of customs duty which
was deemed to have been paid on normally imported
inputs used in producing the finished product. This
credit amount could be used to offset customs duty due
on future imports of any product. A benefit accrued to
the exporter in the form of unpaid customs duty on
imports of any product (whether raw materials or capital
goods). This scheme therefore allowed an exporter to
import goods without paying customs duty once it had
already exported some goods.

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(c) Conclusion on PBS

PBS was terminated. Although the DEPB is a revised
version of the PBS, it was possible to obtain benefits
under hoth programmes during the investigation period.

(20)

The PBS was not a permitted remission/drawback
scheme within the provisions of the Basic Regulation
since the passbook credit was not calculated in relation
to inputs actually to be consumed in the production
process. Furthermore, the exporter was under no obliga-
tion to import goods free of duty which had to be
consumed in the production process.

(23)

In any case, even if it were assumed that the scheme in
question constituted a remission/drawback or substitu-
tion scheme, there was no system or procedure in place
to confirm which inputs were consumed in the produc-
tion 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 examination by the
exporting country based on actual inputs involved, or
actual transactions, respectively, will normally need to
be carried out in the context of determining whether an
excess payment occurred. The GOI did not carry out
such an examination. 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.

(21)

(22)

The scheme constitutes a subsidy as the financial contri-
bution by the GOI in the form of duties foregone on
imports conferred a benefit on the passbook holder who
could import goods duty free using credits earned on
exports. It was 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 is considered to require the use of
domestic over imported goods. In this regard, the PBS
was also a specific subsidy within the meaning of Article
3(4)(b) of the Basic Regulation.

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 tech-
nically been terminated, exporters can continue to be-
free of
nefit
customs duties, until all credits have been exhausted or
until 31 March 2000 at the latest.
In these circum-
stances, it is considered that the scheme can be counter-
vailed.

from this scheme by importing goods,

(d) Calculation of the subsidy amount

It

is normal practice to reflect

The benefit to the exporting producers has been calcu-
lated on the basis of
the amount of customs duty
normally due on imports made during the investigation
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 bene-
fits from import duty exemptions are obtained regularly
during the investigation period, they are equivalent to a
series of grants.
the
benefit to the recipient of one-time grants by adding the
annual commercial interest to the nominal amount of
the grant, on the assumption that the grant is considered
to have been made on the first day of the investigation
period. However,
it is clear that
in the present case,
individual grants can be made at any time between the
first and the last day of the investigation period. Conse-
quently, 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 half
of the annual commercial rate during the investigation
(i.e. unpaid
period in India,
customs duty plus interest) has been allocated over total
exports during the investigation period.

i.e. 7 %. This amount

(24)

Two companies benefited from this scheme during the
investigation period and obtained subsidies of 0,02 %
and 0,09 %. Given that India is a developing country
falling under Annex VII of the WTO Subsidies Agree-
ment, and given that it is considered appropriate to
grant a favourable approach vis-à-vis such countries,
while not substantially reducing the legitimate protec-
tion against subsidised imports to which the Community
the benefits obtained under this
industry is entitled,
scheme will not be included in the computation of the
total amount of subsidies obtained by the two com-
panies.

3. Duty entitlement passbook scheme (DEPB)

(25) Another instrument under the export

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:

It should be stressed that the PBS was substituted by the
duty entitlement passbook scheme (hereinafter DEPB
(see recital 25)). The DEPB came into effect when the

— DEPB on pre-export basis

— DEPB on post-export basis.

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(a) Eligibility for DEPB on pre-export basis

tion to inputs actually consumed in the production
process.

(26)

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

(b) Practical

implementation

(27) Any eligible exporter can apply for a licence. The
licence, which is issued automatically, grants a credit
amount that may be used to offset customs duties due
on future imports of goods. The value of the licence is
calculated on the basis of 5 % of the average yearly value
of all exports, made by the applicant, during the
previous three years.

(28)

(29)

(30)

The licence, which is not transferable,
is valid for a
period of 12 months from the date of issue. Once the
credit on the licence has been exhausted, a fee is payable
to the relevant authority. The company may then apply
for a further credit amount, again calculated on the basis
of 5 % of
the average value of exports during the
previous three years.

The DEPB on pre-export basis allows duty-free imports
of inputs required for the production of goods. The
products that may be imported depend on the product
to be manufactured and are determined by a standard
input/output norm. The duty-free inputs may not be
used for any other purpose than the manufacture of the
product.

The use of the schemes also carries with it an export
obligation. When the licence is used, the holder under-
takes to use the goods as inputs for finished products
destined for export. Once the licence-holder has made
exports of such a value which will entitle him to a credit
equivalent to the credit already given under DEPB on
pre-export basis, his obligation is fulfilled.

(32)

(33)

the government of

Furthermore, there is no system or procedure in place to
confirm which inputs are consumed in the production
process of the exported product and in what amounts.
Annex II(II)(5) and Annex III(II)(3) provide that where it
is determined 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 deter-
mining whether an excess payment occurred. The GOI
the
did not carry out such an examination. Hence,
Commission did not examine whether there was in fact
an excess drawback of
import charges on inputs
consumed in the production of the exported product.

To benefit from the scheme a company must give a
commitment to export. This is clearly an export subsidy.
It is therefore provisionally concluded that this scheme
is countervailable under Article 3(4)(a) of
the Basic
is able to provide
Regulation. However,
evidence of an effective verification system or offer other
relevant information, the Commission may, at the defin-
itive stage, alter its conclusions on this scheme.

the GOI

if

(d) Calculation of the subsidy amount

(34)

The benefit to the exporting producers has been calcu-
lated as explained in recital 23.

(35)

Two companies benefited from this scheme during the
investigation period and obtained subsidies of 1,31 %
and 6,84 %.

(e) Eligibility for DEPB on post-export basis

(36)

The DEPB on post-export basis is in effect very similar
to the PBS described above. As explained, it has replaced
the PBS and is effectively a substitute programme. It is
available to exporting producers (i.e. every manufacturer
(i.e.
in India who exports) or merchant-exporters
traders).

(c) Conclusion on DEPB pre-export basis

(f) Practical

implementation of DEPB post-export basis

(31)

The DEPB on pre-export basis is not a permitted remis-
sion/drawback or substitution drawback scheme within
the meaning of the provisions of the Basic Regulation
despite the existence of an ‘actual user condition’. This is
owing to the fact that, most notably, the DEPB credit is
calculated as a percentage of the value of prior export
performance. The DEPB credit is not calculated in rela-

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

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(38) 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.

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

(g) Conclusion on DEPB on post-export basis

(40)

(41)

(42)

(43)

is

on

scheme

contingent

export
This
clearly
is
it
performance. When a company exports goods,
granted a credit which can be used to offset amounts of
customs duties due on future imports of any goods. Like
the PBS, it is not a permitted drawback or substitution
drawback scheme for the same reasons as stated in
recital 20. The scheme constitutes a subsidy as the finan-
cial contribution by the GOI
in the form of duties
forgone on imports confers a benefit on a company
which can import goods free of customs duty. It is a
subsidy contingent in law on export performance and is
therefore deemed to be specific under Article 3(4)(a) of
the Basic Regulation.

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

basis

The benefit to exporters has been calculated in two
separate ways according to the use the company has
made of the DEPB licences.

In the event that the company used the licences to make
duty-free imports, the benefit was 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 the event the company sold its licences, the benefit
was calculated on the basis of the amount of credit
granted in the licence regardless of the sales price of the
licence. Some companies claimed that the benefit should
be limited to the effective sales price of the licence
which is sometimes less than the face value of
the
credits in the licence. However, this claim cannot be
granted since the sale of a licence at a price less than the
face value is a purely commercial decision which does
not alter the amount of benefit received from the
scheme.

(44)

In order to establish the full benefit to the recipient
under this scheme, this amount has been adjusted by
adding interest of 7 % during the investigation period;
the rate of interest is calculated as described in recital

23. The amount of subsidy has been allocated over total
exports during the investigation period.

(45)

Four companies benefited from this scheme during the
investigation period and obtained subsidies of between
2,85 % and 17,81 %.

4. Export promotion capital goods scheme (EPCGS)

(46) Another instrument under the export

import policy
involving export related assistance is the export promo-
tion capital goods scheme (hereinafter ‘EPCGS’) intro-
duced on 1 April 1990 and amended on 5 June 1995.

(a) Eligibility

(47)

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

(b) Practical

implementation

(48)

To benefit from the scheme, a company must provide to
the relevant authorities details of the type and value of
the capital goods to be imported. Depending on the
level of export commitment which the company is
prepared to undertake, the company will be allowed to
import capital goods at either a zero rate of duty or a
reduced rate. A licence authorising the import at prefer-
ential rates is issued automatically.

(49)

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

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

(c) Conclusion on EPCGS

(51)

(52)

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

The subsidy is contingent in law on export performance
within the meaning of Article 3(4)(a) of the Basic Regu-
lation, since it cannot be obtained without a commit-
ment to export goods, and is therefore deemed to be
specific.

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(53)

(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 of 18 years, which reflects the depreciation for
capital goods actually imported under the EPCGS by
each company. The amount so calculated which is attri-
butable 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 scheme which is
equivalent to a one-time grant, the commercial interest
rate during the investigation period in India, i.e. 14 %
was considered appropriate. This amount has then been
allocated over total exports during the investigation
period.

(54)

Six companies availed themselves of this scheme during
the investigation period and obtained subsidies of
between l,44 % and 27,66 %.

5. Export processing zones (EPZ)/export oriented

units (EOU)

(55) Another instrument under the export

import policy
export
is
related assistance
involving export
processing zones (hereinafter ‘EPZ’)/export oriented units
(hereinafter ‘EOU’) scheme which was introduced on 22
June 1994.

the

(a) Eligibility

(56)

Companies located in any of seven geographically identi-
fied EPZ which undertake to export at least 75 % of their
production can avail themselves of certain benefits. The
same benefits are available to EOU which can be located
anywhere in India (referred to as ‘stand-alone EPZ’). EOU
are bonded units under the surveillance of Customs
officials.

(b) Practical

implementation

(57)

Companies located in EPZ and EOU can obtain the
following benefits:

— suspension of collection of duties due on purchases
of capital goods during the period of bonding,

— exemption from customs duties due on purchases of

raw materials and consumables,

and indigenous requirements. If the authorities accept
the company's application, the terms and conditions
attached to the acceptance will be communicated to the
company. Companies in EPZ and EOU can be involved
in the production of any product. The agreement to be
recognised as a company in an EPZ/EOU is valid for a
five-year period. The agreement may be renewed for
further periods.

(c) Conclusion on EPZ/EOU

Since the EOU/EPZ scheme was used by the companies
exclusively for the import of capital goods, the Commis-
sion services only assessed the countervailability of the
suspension of collection of duties due on capital goods
during the period of bonding.

regard,

the EOU/EPZ scheme involves

In this
the
granting of subsidies as the concessions granted under
the scheme constitute financial contributions by the
GOI, since revenues otherwise due are foregone and a
benefit is conferred on the recipient.

The suspension of the collection of duties on capital
goods has the same effect as an exemption since, as long
as the export requirements are fulfilled, it is solely within
the discretion of the company if and when to de-bond
the capital goods.

This subsidy is contingent in law on export performance
within the meaning of Article 3(4)(a) of the Basic Regu-
lation, since it cannot be obtained without the company
accepting an export obligation, and is therefore deemed
to be specific and countervailable.

(59)

(60)

(61)

(62)

(d) Calculation of the subsidy amount

(63) One company operated as a recognised EOU, and used
this scheme for the import of capital goods. The benefit
to this exporter has therefore been calculated on the
same basis as explained for the EPCGS in recital 53.

(64) On this basis, the company received benefits under this

scheme at a rate of 0,7 %.

— exemption from excise duty on goods procured from

(65)

indigenous sources,

— reimbursement of central sales tax paid on goods

procured locally.

(58)

Companies located in EPZ and companies requesting
treatment as EOU must apply to the relevant authorities.
Such application must include details for a period of the
next five years, on, inter alia, planned production quant-
import requirements
ities, projected value of exports,

The Commission established that another exporting
producer of the product concerned, a related company
to the one established as an EOU, was also established as
an EOU, and equally imported capital goods under this
scheme during the first half of the investigation period.
Subsequently, this company renounced its EOU status
and converted the capital goods imported under the
EOU scheme into capital goods imported under the
EPCGS. Consequently, the capital goods imported by
this company have been examined fully under the
EPCGS.

19. 8. 1999

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L 219/21

7. Regional schemes — sales tax/trade tax incentive

(73)

schemes

6. Income tax exemption scheme (ITES)

(66)

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, which provide an income
tax exemption on profits from export sales. 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 and exemption under
Section 80HHC can be claimed by any firm which
exports goods.

(67) However, no exporter of the product concerned made
use of these exemptions. There is therefore no need for
the Commission to assess this scheme in the context of
the investigation.

The States of Gujarat, Maharashtra and Uttar Pradesh
grant to eligible industrial enterprises incentives in the
form of exemption and/or deferment of sales or trade
tax in order to encourage the industrial development of
economically backward areas within these States. Since
these schemes are virtually identical, they are assessed
jointly.

(a) Eligibility

In order to be eligible, companies must invest in back-
ward areas either by setting up a new industrial estab-
lishment or by making a large-scale capital investment in
expansion or diversification of an existing industrial
establishment. These areas, which represent certain ter-
ritorial units in the three States are classified according
to their economic development into different categories
(e.g. most backward area, backward area, other eligible
area, but also excluded or ‘banned’ areas). The main
criteria to establish the amount of the incentives are the
size of the investment and the area in which the enter-
prise is or will be located.

(b) Specificity

These schemes are only available to companies having
invested within certain designated geographical areas
within the jurisdiction of the State concerned. They are
not available to companies located outside these areas.
The level of benefit is different according to the area
concerned.

(68)

(69)

(70)

(71)

favour certain enterprises over
application and not
others. The schemes are not horizontal in application,
since some regions of the country or regional entity
concerned are ineligible. Consequently, an enterprise in
an eligible region will be eligible to receive aid, while an
identical enterprise in a non-eligible region will not. In
addition,
two identical enterprises both situated in
eligible regions or areas may receive different amounts
of aid,
the regions or areas
concerned are different.

the aid ceilings of

if

(72)

The schemes are therefore specific in accordance with
Article 3(2)(a) of the Basic Regulation.

(c) Green-light test

The GOI claimed that these schemes are non-counter-
vailable subsidies since they met the criteria of Article
4(3) of the Basic Regulation, and thus qualified as ‘green-
light’ regional subsidies granted within each of the States
concerned.

(2)

(74) Under this Article, in order not to be subject to counter-
vailing measures, subsidies to disadvantaged regions
within the territory of
the country of origin and/or
export would have to comply with certain criteria; most
notably, they would have to be: (1) pursuant to a general
framework of regional development,
the regions
concerned would have to be clearly designated contig-
uous geographical areas with a definable economic and
administrative identity, and (3) be regarded as disadvan-
taged on the basis of neutral and objective criteria which
must be clearly spelled out by law or other official
document. These criteria shall include a measurement of
economic development which shall be based on at least
one of
income per capita, or
household income per capita, or GDP per capita (in each
case, not above 85 % of the average for the territory of
the country concerned), or unemployment rate as meas-
ured over a three-year period (at least 110 % of the
average for the country concerned).

the following factors:

(75)

It should be noted that the information supplied by the
GOI, in so far as regional schemes are concerned, was
incomplete. During the verification visit and on sub-
sequent occasions, the Commission services requested
from the GOI the information which would be required
in order to examine whether these programmes meet the
green-light criteria as outlined in recital 74. The GOI has
so far not submitted any information in this respect.

The schemes do not fall within the exceptions under
Article 3(2)(b) of
the Basic Regulation, whereby aid
limited to certain enterprises may nevertheless be non-
specific if its eligibility is based on objective criteria or
conditions, since these should, inter alia, be horizontal in

(76) Moreover, when questioned by the Commission during
the neutral and objective
the verification visit about
criteria used to determine a disadvantaged area,
the
Indian authorities were not able to produce any statistics
allowing to establish such criteria.

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Official Journal of the European Communities

19. 8. 1999

(77)

the
In the absence of more precise information,
Commission services were obliged to make use of facts
available and conclude that the green-light claim made
by the GOI in respect to these regional schemes is not
sufficiently supported.
therefore provisionally
It
concluded that these schemes are countervailable.

is

(d) Calculation of the subsidy amount

(78)

The benefit to the exporting producers has been calcu-
lated on the basis of the amount of sales tax or trade tax
normally due during the investigation period but which
remained unpaid under these schemes. In order to estab-
lish 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 these sub-
sidies, which is equivalent to a series of grants, a rate of
7 %,
interest rate during the
investigation period in India, was considered appro-
priate. The amount of benefit has been allocated over
total sales during the investigation period.

i.e. half the commercial

(79)

Six companies benefited from these schemes during the
investigation period and obtained subsidies of 0,15 %
It should be noted that the subsidy of
and 5,47 %.
0,15 % received by one company has been excluded
from the calculation of the total subsidy amount of this
company for the reasons stated in recital 24.

8. Regional schemes — electricity duty exemption

(80)

The States of Gujarat and Maharashtra grant to eligible
industrial enterprises incentives in the form of exemp-
tion from the payment of electricity duty in order to
encourage the industrial development of economically
backward areas within these States, and in particular the
Marathwada Region as far as Maharashtra is concerned.
Since these schemes are virtually identical,
they are
appraised jointly.

(a) Eligibility

(81)

In order to be eligible, companies must invest in back-
ward areas either by setting up a new industrial estab-
lishment or by making a large-scale capital investment in
expansion or diversification of an existing industrial
establishment.

(b) Specificity

(82)

These schemes are only available to companies having
invested within certain designated geographical areas
within the jurisdiction of
the States of Gujarat and
Maharashtra. The schemes are specific in accordance

with Article 3(2)(a) of the Basic Regulation for the same
reasons as explained in recitals 70 and 71.

(c) Green-light test

(83)

The GOI claimed that these schemes are non-counter-
vailable subsidies since they met the criteria of Article
4(3) of the Basic Regulation.

(84)

The criteria of Article 4(3) of the Basic Regulation have
been described in recital 74.

(85)

(86)

It is recalled that the information submitted by the GOI,
in so far as regional schemes are concerned, was incom-
plete. In the absence of more precise information, the
Commission services were obliged to make use of facts
available and conclude that the green-light claim made
by the GOI with respect to electricity duty exemption
schemes is not sufficiently supported.
is therefore
provisionally concluded that these schemes are counter-
vailable.

It

(d) Calculation of the subsidy amount

The benefit to the exporting producers has been calcu-
lated on the basis of the amount of electricity duty
normally due during the investigation period but which
remained unpaid under these schemes. In order to estab-
lish 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 these sub-
sidies, which is equivalent to a series of grants, a rate of
7 %,
interest rate during the
investigation period in India, was considered appro-
priate. The amount of benefit has been allocated over
total sales during the investigation period.

i.e. half the commercial

(87)

Two companies benefited from these schemes during
the investigation period and obtained subsidies of
0,25 % and 4,13 % respectively. It should be noted that
the subsidy of 0,25 % received by one company has
been excluded from the calculation of the total subsidy
amount of this company for the reasons stated in recital
24.

9. Regional schemes — octroi refund

(88)

The State of Maharashtra grants to eligible industrial
enterprises incentives in the form of a refund of octroi.
Octroi is a tax levied by local authorities in India on
goods that enter the territorial
limits of a town or
district. The total amount
that may be refunded is
restricted to 100 % of the fixed capital investment. The
period during which this refund can be availed of differs
according to the area in which a company is located.

19. 8. 1999

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Official Journal of the European Communities

L 219/23

(a) Eligibility

(89)

In order to be eligible, companies must invest in back-
ward areas either by setting up a new industrial estab-
lishment or by making a large-scale capital investment in
expansion or diversification of an existing industrial
establishment.

(b) Specificity

This scheme is only available to companies having
invested within certain designated geographical areas
within the jurisdiction of the State of Maharashtra. The
scheme is specific in accordance with Article 3(2)(a) of
the Basic Regulation for the same reasons as explained
in recitals 70 and 71.

(c) Green-light test

which can take the form of either a cash grant or a sales
tax incentive. The total amount granted depends on the
area and the scale of the enterprise.

(a) Eligibility

(97) Any new unit or ‘pioneer units’ set up after 1 October
1988 in certain areas, but not units having expanded or
diversified their operations, are eligible for this scheme.

(b) Specificity

(98)

This scheme is only available to companies having
invested within certain designated geographical areas
within the jurisdiction of the State of Maharashtra. The
scheme is specific in accordance with Article 3(2)(a) of
the Basic Regulation for the same reasons as explained
in recitals 70 and 71.

The GOI claimed that this scheme is a non-counter-
vailable subsidy since it met the criteria of Article 4(3)
of the Basic Regulation.

(c) Green-light test

The criteria of Article 4(3) of the Basic Regulation have
been described in recital 74.

(99)

The GOI claimed that this scheme is a non-counter-
vailable subsidy since it met the criteria of Article 4(3)
of the Basic Regulation.

It is recalled that the information submitted by the GOI,
in so far as regional schemes are concerned, was incom-
plete. In the absence of more precise information, the
Commission services were obliged to make use of facts
available and provisionally conclude that the green-light
claim made by the GOI in respect to the octroi refund
scheme is not sufficiently supported.
is therefore
this scheme is counter-
provisionally concluded that
vailable.

It

(d) Calculation of the subsidy amount

The benefit to the exporting producers has been calcu-
lated on the basis of the amount of octroi tax normally
due during the investigation period but which remained
unpaid under this scheme. In order to establish the full
benefit to the recipient under this scheme, this amount
has been adjusted by adding interest during the invest-
igation period. Given the nature of
these subsidies,
which is equivalent to a series of grants, a rate of 7 %,
i.e. half the commercial interest rate during the invest-
igation period in India, was considered appropriate. The
amount of benefit has been allocated over total sales
during the investigation period.

(95) One company benefited from this scheme during the
investigation period and obtained subsidies of 1,46 %.

(100) The criteria of Article 4(3) of the Basic Regulation have

been described in recital 74.

(101)

It is again recalled that the information submitted by the
GOI, in so far as regional schemes are concerned, was
incomplete. In the absence of more precise information,
the Commission services were obliged to make use of
facts available and conclude that the green-light claim
made by the GOI with respect to the special capital
incentive scheme is not sufficiently supported.
is
therefore provisionally concluded that
the scheme is
countervailable.

It

(d) Calculation of the subsidy amount

(102) The benefit to the exporting producers has been calcu-
lated as explained for EPCGS in recital 53 on the basis of
a one-time grant during the investigation period, linked
to the acquisition of fixed assets. The amount of benefit
has been allocated over total sales during the invest-
igation period.

(103) One company benefited from this scheme during the
investigation period and obtained subsidies of 0,01 %,
which has been excluded from the calculation of the
total subsidy amount for the reasons stated in recital 24.

(90)

(91)

(92)

(93)

(94)

10. Regional schemes — special capital

incentive

11. Amount of countervailable subsidies

scheme

(96) Another scheme that is made available by the State of
incentive scheme,

Maharashtra is the special capital

(104) The amount of countervailable subsidies in accordance
with the provisions of the Basic Regulation, expressed ad
valorem, for each investigated exporter is as follows.

L 219/24

EN

Official Journal of the European Communities

DEPB

State schemes

PBS

EPCGS

EPZ/EOU

Pre-export

Post-export

Sales-tax

Capital-incent-
ive

Octroi refund

Electricity-
refund

6,84

2,85

2,92

10,48

2,24

1,31

1,48

1,12

2,48

1,46

Ester
Industries Ltd

Flex
Industries Ltd

Garware Plas-
tics &
Polyester Ltd

India
Poly-
films Ltd &
Poly-
Jindal
ester Ltd

MTZ
Polyester Ltd

Polyplex
Corporation
Ltd

4,31

1,58

0,70

0,51

27,66

17,81

1,44

5,47

1,09

19. 8. 1999

(en %)

Total

12,6

13,8

6,7

7,1

4,13

37,2

20,3

D. INJURY

1. Definition of the Community industry

total imports onto the Community market of PET film.
For this latter information the Commission relied on
Eurostat statistics and, in the case of India, on the export
sales data provided by the Indian exporting producers.

(a) Community producers

(105) Within the Community, the product concerned is manu-

factured by:

(108)

— producers who lodged the complaint and cooperated
in the investigation, (listed in recital 5), and
— other Community producers who were not com-
plainants but were not opposed to the proceeding.

All these companies therefore constitute the Community
production within the meaning of Article 9(1) of the
Basic Regulation.

(b) Community industry

for more than 80 % of

(106) The four complainant producers fulfil the requirements
the Basic Regulation, since they
of Article 10(8) of
account
total Community
production of the product concerned and are therefore
deemed to constitute the Community industry within
the meaning of Article 9(1) of the said regulation and
are hereinafter referred to as ‘the Community industry’.

2. Community consumption

(107) The consumption of PET film on the Community
market during the period considered was established on
the basis of the combined volume of sales of the own-
produced PET film of the Community industry and of
the non-complainant Community producers plus the

In assessing consumption in the Community, captive
production, which amounts to around 60 000 tonnes
(1998), was not taken into consideration as this produc-
tion is not sold as PET film. A captive producer further
processes the film into a final product of which PET film
is only one of
the components. The investigation
showed that
there were no sales from the Indian
exporting producers to the captive market. Furthermore,
it was established that on the one hand there were only
modest sales by one captive producer to the non-captive
market and on the other hand from the Community
industry to the captive market. Therefore sales of PET
film produced for and used in the captive market did not
come into competition with PET film produced for and
sold in the non-captive market and were thus not likely
to be subject
to the effects of subsidised imports.
However, the modest non-captive sales made by one
captive producer were taken into account in establishing
the total consumption.

(109) On this basis, the Community consumption of PET film
was found to have increased by 15,1 % during the
period considered. Expressed in tonnes the consumption
amounted
in
1995, 178 734
1996, 206 772 in 1997 and 210 914 in the IP.

to 183 241

in

19. 8. 1999

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Official Journal of the European Communities

L 219/25

3. Market shares and import volumes from India

5. Situation of the Community industry

(110) The market share of the Indian exporting producers was
calculated as a percentage of total Indian exports into
the EC (as declared by the exporting producers) of the
consumption in the Community. Hence, it was estab-
lished that the Indian market share amounted to 3,6 %
in 1995, 3,l % in 1996, 8,2 % in 1997 and 9,6 % in the
IP. This corresponds to an increase of 167 % during the
period considered.

In absolute figures, it was found that the import volume
in tonnes developed as follows: 6 534 in 1995, 5 574 in
1996, 17 011 in 1997 and 20 250 tonnes in the IP.
This corresponds to an increase of 210 %.

4. Prices of subsidised imports

(a) Price evolution

(111) Prices of the Indian exporting producers have steadily
decreased since 1995.
In 1995 the average price
amounted to ECU 3 219/t the price dropped to 2 425
in 1996, 1 865 in 1997 and 1 674 during the IP, which
corresponds to an overall decrease of 48 %.

(b) Price undercutting

(112)

In order to establish whether the Indian exporting
producers undercut the sales prices of the Community
industry, a detailed analysis was carried out. Weighted
average export prices per PET film type within each
market segment listed in recital 8 were compared with
the weighted average sales prices of the Community
industry types, sold in both cases to unrelated parties.
When imports were made through related companies,
resale prices to first independent customers were used.

(113) Adjustments to the Indian exporting producers' prices
were made, where appropriate,
transport costs,
handling and import charges in order to arrive at a free
Community-frontier level, duty paid. The Community
industry's sales prices were similarly adjusted, where
appropriate, to arrive at ex-factory level.

for

(114) The comparison of the weighted average Indian export
prices, duly adjusted, with the weighted average sales
the
prices of
Indian
the
Community producers on weighted average by 40.1 %
(ranging between 28,2 % and 50,5 %).

the Community industry showed that

producers

exporting

undercut

have

(a) Capacity

(115) The capacity of

the Community industry showed a
steady growth during the period considered with an
in 1995
increase of 20 % (from 145 756 tonnes
to 148 726 tonnes in 1996, 157 683 tonnes in 1997
and 175 075 tonnes in the IP). The Community industry
decided to install new production lines in 1995 in line
with the increased demand for PET film. The invest-
ments became operational with a delay of two to three
years.

(b) Production volume

(116) Total production of the Community industry fluctuated
slightly during the period considered with an increase of
2 %. Whereas 1995 ( 132 948 tonnes) can be described
as a positive year for the Community industry owing to
very high demand, 1996 ( 122 977 tonnes) showed a
significant drop in the level of production. In 1997 the
production of the Community industry increased again
to 128 741 tonnes, consistent with higher demand. The
production of the IP amounted to 135 287 tonnes.

(c) Capacity utilisation

(117) The capacity utilisation of

the Community industry
declined from 91 % in 1995 to 83 % in 1996, 82 % in
1997 and 77 % in the IP,

i.e. a decrease of 15 %

(d) Sales volume (own produced PET film)

(118) Between 1995 and 1996 the volume of sales to unre-
lated parties in the Community showed a 7,8 % drop
(from 104 750 to 96 572 tonnes). The following year
sales almost
( 103 629
tonnes). During the period considered sales increased by
1 % amounting to 106 138 tonnes in the IP.

recovered their 1995 level

(e) Sales volumes of traded products

industry

from non-member

(119) During the period considered PET film purchases by the
Community
countries
increased signiticantly: whereas in 1995 the share of
such traded products of total EC-sales volume of PET
in the IP it was 16,0 %. Sales
film was only 7,6 %,
volumes of traded products,
in tonnes, amounted to
8 595 in 1995, 7 011 in 1996, 17 029 in 1997 and
20 197 in the IP, which corresponds to an increase of
135 %.

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Official Journal of the European Communities

19. 8. 1999

(f) Market share

(120) The Community's industry market share, calculated on
the basis of sales of own produced PET film in the
Community market, showed a negative development
during the period considered. The Commission found
that whereas the Community industry accounted for
57,2 % of the market in 1995, its share decreased to
54,1 % in 1996 and 50,6 % in 1997, reaching its lowest
in the IP with 50,4 %. This corresponds to an
level
overall decrease of 12 %.

(g) Sales prices

(121) The investigation showed that the Community industry
has to lower its prices by 23 % since 1995. Sales prices
(ECU/t) decreased from 4 429 in 1995 to 4 286 in
1996, 3 631 in 1997 and 3 393 in the IP.

(h) Profitability

(122) As regards profitability,

it was established that

the
Community industry was in a better financial situation
in 1995 compared with the IP. Profitability for all
companies dropped sharply during the period consid-
ered and in particular two companies faced significant
losses in the IP. It should be noted that all the costs of
the investments in new production lines mentioned in
recital 115 were excluded by the Commission in the
calculation of profitability for PET film. The profit
margin decreased from 16,1 % in 1995 to 10,6 % in
1996, 4,0 % in 1997 and became a loss of - 0,7 % in the
IP.

value of

on its projects years after the market took a downward
trend. The
increased from
ECU 24 702 million in 1995 to ECU 96 450 million in
1996, ECU 170 007 million in 1997 and ECU 203 699
million in the IP;

i.e. a increase of 725 %.

investments

(k) Stocks

(125)

It was established that stocks increased by 23 % during
the period considered reaching 21 783 tonnes at the end
of the IP compared with the 17 664 tonnes of 1995,
19 121 tonnes of 1996 and 18 434 tonnes of 1997. At
the same time the share of stocks, expressed as a
percentage of production, increased from 13 % to 16 %.

6. Conclusion on injury

(126) Community industry sales remained, by and large, stable
between 1995 and the IP. After a decrease in 1996, they
did not follow the expansion of Community consump-
tion which increased substantially,
i.e. by more than
15 %, from 183 000 tonnes to 211 000 tonnes during
the period considered. This resulted in a continuous
drop in the Community industry's market share, which
would have decreased more
significantly had the
Community industry not cut its sales prices by 23 %.
Lack of sales volume also led to an increase of 23 % in
stocks.

(127) Despite a small increase in production and its relatively
the Community

stable sales volumes, profitability of
industry fell between 1995 and the IP.

(128) Consequently,

the above injury factors

between 1995 and the
Community industry deteriorated.

IP the

show that
the

situation of

(i) Employment

(123) As regards employment, the Community industry did
not substantially reduce its workforce as the sales
volume was kept at a steady level by continuous price
reductions. In fact the workforce was increased owing to
new investments up to 1997 after which the number of
employees declined. The workforce grew from 2 445 in
1995 to 2 519 in 1996 and 2 588 in 1997. In the IP
the workforce was cut to 2 514. The overall increase in
the number of employees amounted to 3 %.

(129) The Commission has therefore provisionally concluded
that
the Community industry has suffered material
injury within the meaning of Article 8(1) of the Basic
Regulation.

E. CAUSATION

1. Preliminary remark

(j) Investment

(124) As regards investment there was a continuous upward
trend. The Community industry made its investment
decision in 1995, when there was insufficient supply in
the market owing to increasing demand. Investments in
new production lines took a long time to be operational
and required the Community industry to spend money

(130) According to Article 8(6) and (7) of the Basic Regula-
tion, the Commission has examined whether the imports
concerned have caused material injury. Known factors
other than the subsidised imports, which could at the
same time have injured the Community industry, were
also examined to ensure that possible injury caused by
these other factors was not attributed to the subsidised
imports.

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Official Journal of the European Communities

L 219/27

2. Effect of the subsidised imports

(131) The significant increase in the Indian market share from
3,6 % in 1995 to 9,6 % during the IP and the substantial
price undercutting found (up to 50,5 %) coincided with
the deterioration in the situation of the Community
industry, in particular in terms of loss of market shares
and price depression, as well as deterioration of profit-
ability.

the

subsidised

(132) When faced with low-priced imports originating in
India, the Community industry had the choice of either
maintaining its prices with a negative development of
sales and market share or of following the trend of low
imports, with negative
prices of
consequences
complainant
Community producers decided to cut their prices already
in 1996. During the following years and especially
during the IP, all of them lowered their sales prices
further with negative impact on their profitability. This
shows the price sensitivity of the market and the impor-
tant impact of price undercutting as practised by the
Indian exporting producers.

profitability. Most

for

(133) The Indian exporting producers have argued that the
Community industry is active primarily in the upper
segment of the PET film market, while they are only
active in the lower segment. They have also claimed that
their channels of sales are different from those of the
Community industry. These arguments are contradicted
by the information the Indian exporting producers and
the importers of
Indian PET film themselves have
provided to the Commission in their questionnaire
replies.

Firstly, it should be recalled that the Community market
for PET film is divided into five segments as mentioned
in recital 8 and that the Indian exporting producers are
present in all of them except the magnetic segment, the
Community industry being present in all segments. The
investigation has shown that within the four segments
common to all operators higher quality speciality films
are offered by both the Community industry and the
Indian exporting producers.

the Indian exporting producers and the
Secondly,
Community industry are using the same sale channels,
namely traders and converters.

the arguments put

Thus,
exporting producers must be rejected.

forward by the

Indian

3. Effect of other factors

(a) Imports from other third countries

(134)

from countries not

Imports
this
proceeding increased by 31 % during the period consid-
ered, i.e. at a rate higher than the increase of 15,1 % of
Community consumption, but lower than the increase
of 210 % of imports from India. Among these non-

concerned

by

member third countries South Korea, the major supplier
to the Community market,
increased its market share
from 8,3 % in 1995 to 12,9 % in the IP. Two other
important suppliers to the Community market during
the period considered were Japan, whose share of the
Community market declined from 5,8 % to 3,6 %, and
the USA, whose share increased by one percentage point
from 9,1 % to 10,1 % (imported mainly by Community
industry). As regards prices, the average price of these
imports, as provided by Eurostat, was considerably
higher than the prices of the Indian imports.

(b) Development of consumption on the Community market

(135)

It should be recalled that consumption of the product
under investigation in the Community increased by
the
15,1 % during the period considered. Therefore,
injury suffered by the Community industry cannot be
attributed to a
contraction of demand on the
Community market.

(c) Overcapacity of the Community industry

(136) The Indian exporting producers have claimed that the
Community industry has developed an overcapacity for
PET film and that this is one of the main causes of its
difficulties. In this respect, the investigation has shown
that an increase of 20,1 % in production capacity by the
Community producers occurred between 1995 and the
IP. This increase was based upon a sound analysis of
future market trends, which turned out to be roughly in
line with the actual increase in Community consump-
tion. It should also be noted that capacity is not only
destined for sales in the Community but also for
exports. Finally the investment decision has to be seen in
the light of the very significant capital costs and long
periods of time necessary for commissioning new plants.
In any event, if there is an overcapacity in the world
market for PET film it has probably been caused more
by the building up of new production capacities in India
than in the Community.
the
capacity of the Indian exporting producers increased by
97 % during the period considered (from 62 100
to 122 600 tonnes).

It was established that

(137) The investigation has shown that the capacity utilisation
rate of
the Community industry went down from
91,2 % in 1995 to 77,3 % in the IP, whilst capacity was
increased only slightly more than the increase in
Community consumption.

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Official Journal of the European Communities

19. 8. 1999

(d) Competitiveness of the Community industry

especially during the last two years of the period consid-
ered.

it

is alleged,

(138) The Indian exporting producers have claimed that the
its de facto monopoly
Community industry has lost
because the Indian imports have entered into the
Community market. As a result,
the
Community industry has not been able to compete
successfully. The investigation has clearly established
that the producers in the Community, as a whole, have
never dominated the market. As early as 1995, when the
Indian market share was still small, the Community
market covered by imports was more than 30 %. Besides
imports, six Community producers were present on the
market in competition with each other. The entry of the
Indian exporting producers in the European market
created unfair competition with subsidised imports.

(e) Fluctuation in the price of raw materials

(139) The Indian exporting producers have argued that the
decrease in prices of PET film in the Community market
is mainly due to the declining prices of the raw material
on the world market.

(140) The investigation showed that raw material prices had
indeed declined: the raw material cost per tonne of PET
film sold by the Community industry decreased by 17 %
during the period considered. However during the same
period the average sales price per tonne of finished PET
film decreased by more than 23 %. Given that the share
of raw materials in the total production cost varied
between 33 % and 38 % depending on the year, the
decrease in total production cost of PET film attributable
to lower raw material prices amounts to around 6 %.
This shows that a decrease in raw material prices may
have led to a reduction in the total cost of production
and therefore also justified a decrease in sales prices to a
limited extent. This, however, neither explains the actual
sales price decrease of 23 % overall nor the negative
development of the Community industry's profitability.

(f) General difficulties in the polyester sector

(141) The Indian exporting producers submitted that

the
injury the Community industry claimed to have suffered
might have been partly caused by difficulties in polyester
sectors other than PET film. It should be noted that three
the four complainant Community producers
out of
operate exclusively in the PET film sector (1). Concerning
the company also involved in other sectors, it was estab-
lished that these were more profitable than PET film,

(1) Except for by-products, which are sold in small quantities.

(g) Situation of the non-complainant Community producers

(142) During the course of the investigation it was also consid-
ered whether
the non-complainant
the situation of
Community producers operating on the non-captive
market in the Community was different from that of the
Community industry. In this respect it was established
that the non-complainant Community producers had
also lost market share, from 12,4 % in 1995 to 9,4 % in
the IP. Their average sales price per tonne of PET film
had declined by 24 %, i.e. one percentage point more
than the Community
is
concluded that the non-complainant Community produ-
cers have followed the negative trend of the Community
industry.

industry's. Therefore

it

(h) Traded PET film by complainant Community producers

sites worldwide,

(143) As mentioned in recital 119 the Community industry
has been purchasing more and more PET film from
sources outside the Community. The increased trading is
explained by the fact that three complainant Community
producers have been acquired by United States or Japan
based companies between 1996 and 1998. These large
multinationals are organised in such a way that the
production of their overall PET film product range is
increasingly specialised and takes place in different
production
the
Community. Therefore, the Community based compa-
nies have concentrated on certain PET film product
types, thus complementing the overall product range
offered in the Community with products produced by
companies belonging to the same group but located
outside the Community. At the same time, companies
outside the Community buy those product types for
which production is concentrated in the Community in
order to sell it on their respective geographical markets.
This two-way trading within a group can be seen both
in the increased purchases and in the increased export
the Community producers. Owing to this,
sales of
increased trading is considered to be a normal phenom-
enon resulting from the globalisation of the industry.

including

in

(144) The trading activity represented 14,0 % of the total sales
volume of
the Community industry during the IP.
Export sales of own-produced PET film, which increased
by 7,4 % during the period considered, represented
16,7 % of total sales volume during the IP.

19. 8. 1999

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Official Journal of the European Communities

L 219/29

4. Conclusion on causation

Community industry were to start closing down its
plants.

(145)

It cannot be ignored that factors other than subsidised
imports from India, in particular imports originating in
South Korea, may have contributed to the difficult state
of the Community industry. However, the substantial
increase in import volume from India, the increase in
market share of the Indian imports, the considerable
price decreases and price undercutting by these imports
had material negative consequences on the situation of
the Community industry. The Commission has therefore
concluded that these imports, taken in isolation, have
caused material injury to the Community industry and
possible injury caused by other factors was not such as
to break this causal

link.

F. COMMUNITY INTEREST

1. Preliminary remark

(146) The Commission provisionally examined, on the basis of
all the evidence submitted, whether, despite the injurious
effects of the subsidised imports, compelling reasons
existed which would 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 Commission
considered, on the basis of the information available, the
impact of possible measures for all parties involved in
the proceeding, and also the consequences of not taking
measures. In this context, particular consideration was
given to the effect that anti-subsidy measures,
if any,
would have on the Community industry, on the non-
complainant Community producers, on importers and
on users of the product concerned.

2. Interest of the Community industry

(147) As has been shown above, the Community industry has
been facing difficulties linked to the presence of subsi-
dised Indian imports.

the subsidised imports,

It is considered that, without measures to correct the
the Community
effects of
industry will continue to face price undercutting and the
consequent price depression which led to the deteriora-
tion of its profitability. In the event that such a situation
were allowed to continue, the Community producers
would be left with no other alternative but to close
down certain production lines or even entire plants
devoted exclusively to the production of PET film.

(148)

In the long run even the survival of three complainant
Community producers could be endangered by the
absence of measures in view of
those
companies do not produce other products. The jobs of
the
approximately
by
people
the
Community industry would be endangered if

employed

the fact

2 500

that

3. Interest of other Community producers

(149) As mentioned above the Commission received three
responses from non-complainant Community producers.
However, only one non-captive producer took a position
on the effects of the PET film imported from India. The
company submitted that, although the Indian companies
are not exporting into the segments where they are
operating, the indirect effect on their prices is consider-
able. The investigation has confirmed that this is owing
to the transparency of the PET film market. Any change
of price in one segment has an immediate effect in all
the others.

It is therefore to be provisionally concluded that the
imposition of countervailing measures will have a posi-
tive effect on the profitability of other non-captive
Community producers through increased prices, and on
the basis of the evidence available,
it is not likely to
affect the captive producers in the Community.

4. Interest of importers

i.e.

(150) As mentioned above, the Commission sent question-
naires to all known importers of the product under
investigation,
to 12 companies, but only four
substantiated replies were received. On the basis of the
information obtained it appears that importers in the
Community purchase the product under investigation
from a variety of sources, which include India and the
Community industry.
It can be thus concluded that,
apart from importing PET film originating in India, they
also trade in PET film purchased from the Community
industry. For three companies that replied to the ques-
tionnaires PET film sales represented less than 50 % of
their total turnovers.

(151) When asked to comment on the effects that a likely
imposition of countervailing measures could have on
their business, only two importers claimed that
the
imposition of such measures was likely to affect them in
a negative manner.

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

On this basis,
the Commission has provisionally
concluded that the imposition of countervailing meas-
ures is not likely to have a serious effect on importers in
the Community.

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Official Journal of the European Communities

19. 8. 1999

5. Interest of users of the product concerned

(157)

(153) The Commission also sent questionnaires

to 29
Community users of PET film and received two substan-
tiated responses. In general, and on the basis of the
responses received and the low response rate,
it was
concluded that the outcome of the investigation will
most likely not have an important impact on the user
industry, either because PET film as a raw material is not
a significant cost
factor for them or because their
production of downstream products based on PET film
only accounts for a small proportion of
their total
production. It can be added that users buying PET film
from India often buy it from other sources as well,
including both Community producers and other third
countries.

6. Conclusion on Community interest

(154)

In examining the various interests involved and all the
above aspects, the Commission has provisionally estab-
lished that there are no compelling reasons not to take
action against the imports in question.

G. PROVISIONAL DUTY

(155) On the basis of the conclusions on subsidisation, injury,
causal
link and Community interest, the Commission
considers it necessary to adopt provisional counter-
vailing measures.

(156) For the purpose of determining the level of these meas-
ures, the Commission took account of the fact that the
weighted average Community industry's price on the
Community market declined significantly over
the
period considered and was at a non-profitable level. In
order to remove the effects of injurious subsidisation in
this situation, the Commission considered that the prices
of the subsidised imports should be increased to a non-
injurious level. This level was determined on the basis of
the Community industry's weighted average cost of
production plus a 6 % profit margin. The investigation
established that such a profit margin should be regarded
as representing an appropriate minimum, taking into
account the need for long-term investment in what is a
capital-intensive industry, and the amount which the
Community industry could reasonably be expected to
make in the absence of
injurious subsidisation. By
comparing, on a type-by-type basis the non-injurious
import prices thus established with the actual
import
prices used for the price undercutting calculation, the
amount necessary to remove the injury or injury margin
was determined. This amount was then expressed as a
percentage of
the
Community
customs duty unpaid level,
resulting in the injury margin.

import price at

the actual cif

frontier,

In accordance with Article 12(1) of the Basic Regulation,
the countervailing duty rate should correspond to the
subsidy margin, unless the injury margin is lower. The
following rates of duty therefore apply for the cooper-
ating producers:

— Ester Industries Ltd

— Flex Industries Ltd

— Garware Plastics & Polyesters Ltd

— India Polyfilms Ltd

— Jindal Polyester Ltd

— MTZ Polyesters Ltd

— Polyplex Corporation Ltd

12,6 %,

13,8 %,

6,7 %,

7,1 %,

7,1 %,

37,2 %,

20,3 %.

(158) Given the high level of cooperation, which covered
more than 80 % of imports into the Community of the
product concerned originating in India, it was consid-
ered appropriate to establish the duty rate for non-coop-
erating companies at the same rate as the highest rate
that has been established for the cooperating companies,
i.e. 37,2 %. This level will ensure that no bonus is
granted for non cooperation and that duty evasion will
be minimised.

(159) The individual duty rates specified in this Regulation
were established on the basis of the findings of the
present anti-subsidy investigation. Therefore, they reflect
the situation found during that investigation. These duty
rates are thus exclusively applicable to imports of prod-
ucts originating in the country concerned and produced
entities mentioned. Products
by the
specific
produced by any other
specifically
this Regulation,
mentioned in the operative part of
including related entities, cannot benefit from these rates
and shall be subject to the residual duty rate.

company not

legal

(160) Any claim requesting the application of these individual
duty rates (e.g. following a change in the name of the
entity) should be addressed to the Commission forthwith
with all relevant information, in particular any modifica-
tion in the company's activities linked to production,
domestic and export sales associated with that name
change.

H. FINAL PROVISION

(161)

In the interests of sound administration, a period should
be fixed within which the interested parties which made
themselves known within the time limit specified in the
notice of initiation 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 reconsid-
ered for the purposes of any definitive duty,

19. 8. 1999

EN

Official Journal of the European Communities

L 219/31

HAS ADOPTED THIS REGULATION:

Article 1

A provisional countervailing duty is hereby imposed on
1.
imports of polyethylene terephthalate (PET) film falling within
3920 62 19 10,
CN codes
3920 62 19 30,
3920 62 19 15,
3920 62 19 45,
3920 62 19 35,
3920 62 19 60,
3920 62 19 50,

3920 62 19 25,
3920 62 19 40,
3920 62 19 55,

(TARIC codes

3920 62 19

3920 62 19 70,
3920 62 19 81,

3920 62 19 75,
3920 62 19 65,
3920 62 19 85,
3920 62 19 80,
3920 62 19 87,
and
3920 62 90 (TARIC codes 3920 62 90 30, 3920 62 90 91)
and originating in India.

3920 62 19 91)

3920 62 19 89,

The rate of duty applicable to the net free-at-Community-

2.
frontier price, before duty, shall be as follows:

Producer

Rate of duty
(%)

Taric additional code

Ester Industries Ltd
75-76, Amrit Nagar, Gehind
NDSE-I, New Delhi, 10 003, India

Flex Industries Ltd
A-1, Sector-60
Noida, 201 301 (UP), India

Garware Plastics & Polyesters Ltd
Western Express Highway,
Bombay, 400 057, India

India Polyfilms Ltd
112, Indra Prakash Building
21, Barakhamba Road
New Delhi, 110 001, India

Jindal Polyester Ltd
115-117, Indra Prakash Building,
21, Barakhamba Road
New Delhi, 110 001, India

MTZ Polyesters Ltd
Sarnath Center,
Upvan Area, Upper Govind Nagar,
Malad (E),
Numbai, 400 097, India

Polyplex Corporation Ltd
75, Amrit Nagar,
Nueva Delhi, 110 003, India

All other Indian companies

12,6

13,8

6,7

7,1

7,1

A026

A027

A028

A029

A030

37,2

A031

20,3

37,2

A032

A999

Unless otherwise specitied,
3.
concerning customs duties shall apply.

the provisions

in force

writing and apply to be heard orally by the Commission within
15 days of the date of entry into force of this Regulation.

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

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 its entry into force.

Article 3

Article 2

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

Without prejudice to Article 30 of Regulation (EC) No 2026/
97, the parties concerned may make known their views in

Article 1 of this Regulation shall apply for a period of four
months.

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Official Journal of the European Communities

19. 8. 1999

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

Done at Brussels, 17 August 1999.

For the Commission

Karel VAN MIERT

Member of the Commission