Commission Regulation (EC) No 573/2002 of 3 April 2002 imposing a provisional countervailing duty on imports of sulphanilic acid originating in India
Date: 2002-04-03
Institutions: European Commission
Subjects: India, chemical product, countervailing charge, import, originating product

4.4.2002

EN

Official Journal of the European Communities

L 87/5

COMMISSION REGULATION (EC) No 573/2002

of 3 April 2002

imposing a provisional countervailing duty on imports of sulphanilic acid originating in India

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)

(3)

(4)

A. PROCEDURE

the Commission announced, by a
On 6 July 2001,
notice (‘notice of
initiation’) published in the Official
Journal of the European Communities (2), the initiation of an
anti-subsidy proceeding concerning imports into the
Community of sulphanilic acid originating in India.

The proceeding was initiated as a result of a complaint
lodged in May 2001 by Sorochimie Chimie Fine, repre-
senting a major proportion, in the current case more
than 65 %, of the Community production of sulphanilic
acid. The complaint contained evidence of subsidisation
of
injury resulting
therefrom, which was considered sufficient to justify the
initiation of a proceeding.

the said product and of material

The initiation of a parallel anti-dumping proceeding
concerning imports of the same product originating in
the People's Republic of China and India was announced
by a notice published in the Official Journal of the Euro-
pean Communities (3) on the same date.

Prior to the initiation of the proceeding and in accord-
ance with Article 10(9) of Regulation (EC) No 2026/97
(‘basic Regulation’),
the Commission notified the
Government of India (‘GOI’) that it had received a prop-
erly documented complaint alleging that
subsidised
imports of sulphanilic acid originating in India are
causing material injury to the Community industry. The
GOI was invited for consultations with the aim of clari-
fying the situation as regards the contents of
the
complaint and arriving at a mutually agreed solution.
Consultations with the GOI were subsequently held with
the Commission at its offices in Brussels, where no

(1) OJ L 288, 21.10.1997, p. 1.
(2) OJ C 190, 6.7.2001, p. 5.
(3) OJ C 190, 6.7.2001, p. 2.

(5)

(6)

(7)

(8)

(9)

conclusive evidence was provided by the GOI which
could refute the allegations made in the complaint.
However, due note was taken of the comments made by
the GOI in regard to the allegations contained in the
complaint regarding subsidised imports and material
injury being suffered by the Community industry.

The Commission officially advised the exporting produ-
cers and importers/traders known to be concerned, the
representatives of the exporting country, users, suppliers
and Community producers of sulphanilic acid of the
initiation of the proceeding. Interested parties were given
an opportunity to make their views known in writing
and to request a hearing within the time limit set in the
notice of initiation.

The GOI and the exporting producers, as well as
Community producers, Community users and importers/
traders made their views known in writing. All parties
who so requested within the above time limit and
showed that there were particular reasons why they
should be heard were granted the opportunity to be
heard.

the apparent

large number of exporting
In view of
producers of the product concerned in India, known
from the complaint, the application of sampling tech-
niques for the investigation of subsidisation was envis-
aged in the notice of initiation.

However, only a limited number of exporting producers
made themselves known and provided the information
requested in the notice of initiation. Therefore, the use
of sampling techniques was not considered necessary.

the GOI

The Commission sent questionnaires
to all parties
known to be concerned and to all other companies who
made themselves known within the deadlines set in the
initiation. Replies were received from two
notice of
Indian
Community producers,
and one
exporting producer and its related importer
in the
Community. The Commission also received replies from
seven users, one supplier and one distributor providing
information which was sufficiently complete and repres-
entative to use in the assessment of Community interest.
Several companies chose to submit only comments in
preference to completing the Commission's question-
naires. These comments have been taken into account
where appropriate.

L 87/6

EN

Official Journal of the European Communities

4.4.2002

(10)

The Commission sought and verified all information it
deemed necessary for the purpose of a determination of
subsidisation, injury and Community interest. Verifica-
tion visits were carried out at the premises of the GOI
and the following companies:

(a) Community producers

— Sorochimie Chimie Fine, Givet, France,

— Quimigal SA, Estarreja, Portugal;

(b) Exporting producer in India

— Kokan Synthetics and Chemical Private Ltd,

Dapoli, Ratnagiri, Maharashtra;

(c) Users

— Bayer AG, Leverkusen, Germany.

(11)

The investigation of subsidisation and injury covered the
period from 1 July 2000 to 30 June 2001 (‘IP’). The
examination of trends relevant for the assessment of
injury covered the period from January 1997 to the end
of the IP (‘analysis period’).

as the same uses and are therefore considered as like
products within the meaning of Article 1(5) of the basic
Regulation.

C. SUBSIDIES

1. Introduction

(14) On the basis of

the information contained in the
complaint and the replies to the Commission's question-
naire,
schemes, which allegedly
involve the granting of export subsidies, were investi-
gated:

the following four

(i) Export Processing Zones/Export Oriented Units

(EPZ/EOU);

(ii) Duty Entitlement Passbook Scheme (DEPB);

B. PRODUCT UNDER CONSIDERATION AND LIKE

PRODUCT

(iii) Export Promotion Capital Goods Scheme (EPCG);

(iv) Income Tax Exemption Scheme.

(12)

(13)

1. Product under consideration

H
6

The product under consideration is sulphanilic acid.
There are basically two grades of sulphanilic acid which
are determined according to their purity: a technical
grade and a purified grade.
In addition, the purified
grade is sometimes commercialised as a salt of sulpha-
nilic acid. Technical and purified acid share the same
basic chemical characteristics
in terms of chemical
formula (C
S) and molecular structure although
NO
3
7
they differ slightly in terms of purity (the range of purity
may start from 96 % for the technical grade and from
99 % for the purified grade and for the acid content of
its salt; the major impurities being residual aniline and
alkali insoluble materials ranging from 2 % to less than
0,1 %). Technical and purified grades of sulphanilic acid
are available as dry free flowing powders. The salt of
purified sulphanilic acid is sold in powder or solution
form according to customer requirements. Sulphanilic
acid is used as raw material in the production of optical
brighteners, concrete additives,
food colorants and
speciality dyes. Although there are different uses of
sulphanilic acid, all grades and forms are perceived by
users to be reasonably substitutable, are used inter-
changeably in most applications and should be, there-
fore, treated for the purpose of the present proceeding
as one single product.

2. Like product

The product sold in the domestic market of India and
the one exported to the Community from India as well
as
in the
Community by the Community producers were found to
have basically the same chemical characteristics as well

the product manufactured

sold

and

(15) Moreover, two other schemes which were not initially
alleged in the complaint, were discovered during the
verification visit and appeared to have conferred coun-
tervailable benefits
exporting
producer. The schemes in question are the:

cooperating

to the

(v) Advance Licence — Advance Release Orders

scheme;

(vi) Package Scheme of Incentives of the Government of

Maharashtra.

On the basis of these findings the GOI was offered
consultations which took place on 22 January 2002.
Following these consultations, the Commission included
these schemes in the investigation concerning subsidisa-
tion.

(16)

The schemes (i), (ii), (iii) specified in recital 14 and (v) of
recital 15 are based on the Foreign Trade (Development
and Regulation) Act 1992 (No 22 of 1992) which
entered into force on 7 August 1992. The Foreign Trade
Act
India
(Section 5) authorises the Government of
(‘GOI’) to issue notifications regarding the export and
import policy. These are summarised in the ‘Export and
Import Policy’ documents which are issued by the
Ministry of Commerce every five years and updated
annually. One Export and Import Policy document is
relevant to the investigation period of this case, i.e. the
five-year plan relating to the period 1.4.1997 to
31.3.2002. In addition, the GOI also set out the proced-
ures governing India's foreign trade in the ‘Handbook of
Procedures for Exports and Imports — 1.4.1997 —
31.3.2002’ (Volume 1).

4.4.2002

EN

Official Journal of the European Communities

L 87/7

(17)

(18)

(19)

The Income Tax Exemption Scheme (iv) specified in
recital 14,
is based on the Income Tax Act of 1961
which is amended yearly by the Finance Act. Scheme (vi)
mentioned in recital 15, is based on the Government of
Maharashtra's Package of Incentives to new/expansion
units set up in developing regions of the State which
was first introduced in 1964.

least

is to be noted that at

It
two companies are
producing and exporting the product concerned. Only
one of those companies, Kokan Synthetics & Chemicals
Pvt. Ltd. cooperated with the Commission services in
this proceeding. However, this company represents more
than 80 % of imports of the product concerned from
India.

terms

application,

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

(21)

EPZ/EOU units are entitled to the following benefits:

(i) exemption from import duties on all types of goods
(including capital goods, raw materials and consum-
ables) required for the manufacture, production,
processing, or in connection therewith, provided
they are not prohibited items in the Negative List of
Imports;

2. Export Processing Zones (EPZ)/Export Oriented

Units (EOU)

(a) Legal basis

The EPZ/EOU scheme, which was introduced in 1965, is
an instrument under the ‘Export Import Policy’ involving
export-related incentives. During the IP the scheme was
regulated by Customs Notification No 53/97, 133/94
and 126/94. Details of the schemes are contained in
Chapter 9 of the 1997/2002 ‘Export and Import Policy’
document, as well as
relevant Handbook of
the
Procedures.

(b) Eligibility

their
In principle, companies undertaking to export
entire production of goods and services may be set up
under the EPZ/EOU scheme. Once the status is granted,
those companies can avail themselves of certain benefits.
There are seven identified EPZs in India. EOUs can be
located anywhere in India. They are bonded units under
the surveillance of Customs officials in accordance with
Section 65 of
the Customs Act. The cooperating
exporting producer has been granted the status of EOU
for two of its three production units. Although compa-
nies operating within the EOU/EPZ scheme are normally
expected to export their entire production, the GOI does
allow these units to sell a part of their production on the
domestic market under certain conditions.

(22)

(23)

(ii) exemption from excise duty on goods procured

from indigenous sources;

(iii) exemption from income tax normally due on profits
realised on export sales in accordance with Section
10A or 10B of the Income Tax Act, up to 2010;

(iv) reimbursement of central sales tax paid on goods

procured locally;

(v) 100 % foreign equity ownership;

(vi) facility to sell a part of production on the domestic

market.

EOUs or companies located in an EPZ should maintain,
in the specified format, a proper account of all imports
concerned and of the consumption and utilisation of all
imported materials and of all exports made. These
should be submitted periodically, as may be required, to
the Development Commissioner.

as

a percentage of

They must also ensure minimum net foreign exchange
earnings
and export
performance as stipulated in the Policy. The entire
operations of an EOU/EPZ must take place in customs
bonded premises.

exports

(c) Practical

implementation

(d) Conclusions on EPZ/EOU

(20)

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

(24)

In the present proceeding, the EPZ/EOU scheme was
used for the import of raw materials and for the
procurement of goods on the domestic market. The
Commission found that only concessions related to the
exemption from customs duties on raw materials, the

L 87/8

EN

Official Journal of the European Communities

4.4.2002

exemption from excise duty on goods procured from
indigenous sources and the reimbursement of central
sales tax paid on goods procured locally were used by
the exporting producer. Therefore, the Commission only
examined the countervailability of these concessions. In
this regard, the exemption from customs duties on raw
materials and the reimbursement of central sales tax
involves the granting of subsidies as these concessions
constitute financial contributions by the GOI, since
government revenues otherwise due are forgone and a
benefit is conferred on the recipient. In the case of the
excise duty exemption, it was found that the duty paid
on purchases by a non-EOU unit is credited as a draw-
back (CENVAT/MODVAT)
and is utilised towards
payment of excise duty on domestic sales. Thus, by
exempting excise duty on purchases by an EOU unit, no
additional government revenue is forgone and conse-
quently no additional benefit accrues to the EOU.

(25)

contingent

subsidy is

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

(e) Calculation of the subsidy amount

E x e m p t i o n
m a t e r i a l s

f r o m i m p o r t

d u t i e s

o n

r a w

(26) During the verification visit, the nature and quantities of
these imported materials were verified. The company
was able, for all raw materials which were imported
during the IP and were exempted from import duties, to
demonstrate that they were used in the production of
exported goods. Moreover, the company demonstrated
that no imports in excess of
imported quantities of
inputs actually used in the exported products had taken
place.

(27)

In view of the above, it was concluded that the exemp-
tion from import duties on raw materials was granted to
the company concerned in accordance with the provi-
sions of Annexes I to III of the basic Regulation since all
the raw materials which were imported free of duty were
incorporated into the exported product and no excess
remissions of import duty have occurred.

R e i m b u r s e m e n t o f c e n t r a l s a l e s t a x p a i d o n
g o o d s p r o c u r e d l o c a l l y

3. Duty Entitlement Passbook Scheme (DEPB)

(a) Legal basis

(29)

The DEPB entered into force on 1 April 1997 by means
of Customs Notification 34/97. Paragraphs 7.14 to 7.17
of the ‘Export and Import Policy’ document and para-
graphs 7.32 to 7.53 of the Handbook of Procedures
contain a detailed description of the scheme. The DEPB
is the successor to the Passbook Scheme (PBS) which
was terminated on 31 March 1997. There are two types
of the DEPB:

— DEPB on pre-export basis,

— DEPB on post-export basis.

D E P B o n p r e - e x p o r t b a s i s

(30)

The GOI states that the DEPB on pre-export basis was
abolished on 1 April 2000 and therefore the scheme is
not applicable during the period of investigation. It was
established that the company did not avail of any benefit
under DEPB on pre-export scheme. Therefore, it is not
necessary to establish the countervailability of
this
scheme.

D E P B o n p o s t - e x p o r t b a s i s

(b) Eligibility

(31)

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

(c) Practical

implementation of DEPB post-export basis

(32) Under this scheme, any eligible exporter can apply for
credits which are calculated as a percentage of the value
of exported finished products. Such DEPB rates have
been established by the Indian authorities for most prod-
ucts, including the product concerned, on the basis of
the Standard Input-Output Norms (SION). A licence
stating the amount of credit granted is issued automati-
cally.

(28)

The benefit was calculated on the basis of the amount of
central sales tax refundable for purchases during the IP.
The amount of subsidy has been allocated over total
exports during the IP. The company obtained a benefit
of 1,4 %.

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

4.4.2002

EN

Official Journal of the European Communities

L 87/9

(34) DEPB licences are freely transferable and, as a conse-
quence, are frequently sold. A DEPB licence is valid for a
period of 12 months from the date on which it is
granted. The company has to pay a fee equivalent to
0,5 % of
received to the relevant
authority.

the DEPB credit

(d) Conclusions on DEPB on post-export basis

The amount of subsidy has been allocated over total
exports during the IP. The company obtained a subsidy
of 1,7 %. In calculating the benefit, the necessary fees
incurred to obtain the subsidy were deducted.

4. Export

Promotion Capital Goods
(EPCGS)

Scheme

(35)

(36)

is

clearly

scheme

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

it

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

(37) DEPB on post-export basis is not a permitted remission/
drawback scheme within the meaning of the basic Regu-
lation. In particular, the exporter is under no obligation
to actually consume the goods imported free of duty in
the production process and the amount of credit is not
calculated in relation to actual inputs used. It appears
therefore that an excess remission is involved, in accord-
ance with the meaning in Article 2(1)(a)(ii) of the basic
Regulation. In fact, the remission of import duties is not
limited to that payable on goods consumed in the
production process of the exported product.

(38)

In this case, the company concerned did not use the
licences to import duty-free goods but obtained benefits
by selling the licences.

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

(a) Legal basis

(41)

The EPCG scheme was announced on 1 April 1992.
During the IP the scheme was regulated by Customs
Notifications No 28/1997, 29/1997 and 49/2000.
Details of the schemes are contained in Chapter 6 of the
1997/2002 ‘Export and Import Policy’ documents, as
well as the relevant Handbook of Procedures.

(b) Eligibility

(42)

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

(c) Findings

(43)

(44)

established that

It was
cooperating exporting
producer of the product concerned did not avail itself of
this scheme. Therefore, this scheme was not considered
further in the context of this investigation.

the

5. Income Tax Exemption Scheme (ITES)

(a) Legal basis

The Income Tax Act 1961 is the legal basis under which
ITES operates. The Act, which is amended yearly by the
Finance Act, sets out the basis for the collection of taxes
as well as the 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.

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

basis

(b) Eligibility

(40)

The benefit for the company was calculated on the basis
of the amount of credit granted in the licence regardless
of the sales price of the licence, since the sale of a
licence is a pure commercial decision which does not
alter the amount of benefit received from the scheme.

(45)

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. Exemp-
tion under Section 80HHC can be claimed by any firm
which exports goods.

L 87/10

EN

Official Journal of the European Communities

4.4.2002

(c) Practical

implementation

6. Advance Licence — Advance Release Orders

Scheme

(46)

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

(a) Legal basis

(52)

The scheme is based on the Foreign Trade (Development
and Regulation) Act 1992 (No 22 of 1992) which
entered into force on 7 August 1992. The scheme is
specified in paragraphs 7.2 to 7.17 of the Export and
Import Policy and paragraphs 7.2 to 7.32 and 7.54 of
the Handbook of Procedures.

(47) Under Sections 10A, 10B and 80HHC companies can
claim exemption from taxable income for profits real-
ised on export sales.

(b) Eligibility

(48)

(49)

(50)

(d) Conclusion on ITES

Item (e) of the Illustrative List of export subsidies (Annex
I to the basic Regulation) refers to the ‘full or partial
exemption … related to exports, of direct
taxes’ as
constituting an export subsidy. Under the ITES, the GOI
confers a financial contribution to the company by
forgoing government revenue in the form of direct taxes
which would otherwise be due if the income tax exemp-
tions were not claimed by the company. This financial
contribution confers a benefit on the recipient by
reducing its income tax liability.

is

subsidy

contingent

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

(e) Calculation of the subsidy amount

Claims for benefit under sections 10A, 10B and 80HHC
are made when submitting a tax return at the end of the
tax year. As the tax year in India runs from 1 April to
31 March, it was considered appropriate to calculate the
benefit under this scheme on the basis of the tax year
2000/2001 (i.e. 1 April 2000 to 31 March 2001) which
covers 9 months of the IP. The benefit to the exporter
has therefore been calculated on the basis of the differ-
ence between the amount of taxes normally due with
and without the benefit of the exemption. The rate of
corporate tax applicable during this
tax year was
39,55 %. The amount of subsidy has been allocated over
total exports during the tax year 2000/2001.

(53) Advance licences are available to exporters (manufac-
turer-exporters or merchant-exporters) to enable them to
import inputs used in the production of exports, duty-
free.

(54)

(55)

(56)

(c) Practical

implementation

The amount of imports allowed under this scheme, is
determined as a percentage of the amount of exported
finished products. The advance licences measure the
units of authorised imports either in terms of
their
quantity or in terms of their value. In both cases the
rates used to determine the allowed duty free purchases
are established, for most products including the product
covered by this investigation, on the basis of the SION.
The input items specified in the advance licences are
items used in the production of the relevant exported
finished product.

The advance licence holder intending to source the
inputs from indigenous sources, in lieu of direct import,
has the option to source them against Advance Release
Orders (ARO). In such cases the advance licences are
validated as AROs and are endorsed to the supplier
upon delivery of
specified therein. The
endorsement of the ARO entitles the supplier to the
benefits of deemed export such as deemed exports draw-
back and refund of terminal excise duty.

the items

(d) Conclusions on the scheme

is

clearly

scheme

contingent

The
upon export
performance. Only exporting companies are granted
licences which can be used to offset amounts of customs
duties due on imports or otherwise purchases of inputs
on the basis of anticipated exportation.

(51) During the tax year 2000/2001 the company benefited
under Section 80HHC of this scheme and obtained a
benefit of 0,3 %.

(57) During the verification, it was established that the AROs
were used during the IP for purchases of inputs that
were not consumed in the production of sulphanilic acid
(the relevant product
for which they were issued).
Instead, these inputs were sold on the domestic market.

4.4.2002

EN

Official Journal of the European Communities

L 87/11

(58)

Furthermore, it was established that there was no system
or procedure in place to confirm whether and which
inputs, sourced against AROs, are consumed in the
production process of the exported product or whether
an excess benefit of import duties occurred within the
meaning of item (i) of Annex I and Annexes II and III of
the basic Regulation.

(59) On the basis of these findings, the ARO element of the
Advance Licence scheme is not a permitted remission/
drawback scheme within the meaning of the basic Regu-
lation. In particular, the exporter is under no obligation
to actually consume the inputs sourced against AROs in
the production process. Since the remission of import
duties is not limited to that payable on goods consumed
in the production process of the exported product, the
condition that only goods actually consumed in the
production process of the exported product may benefit
from such remission,

is not fulfilled.

(60)

(61)

In this case, the cooperating company made very limited
use of advance licences to import duty-free inputs.
Instead, the company converted the licences into AROs
and endorsed them to local suppliers obtaining commer-
cial benefits. The commercial benefits of
the AROs
correspond to the amount of duties they enable the
supplier to forgo under the deemed export drawback
facility.

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

(e) Calculation of the subsidy amount

(62)

The amount of subsidy was calculated on the basis of
the import duties applicable to the inputs sourced,
during the IP, against the AROs. This amount was then
allocated over total exports during the IP. The company
obtained a subsidy of 3,2 %.

7. Package Scheme of Incentives of the Government

of Maharashtra

(a) Legal basis

(63)

In order to encourage the dispersal of industries to the
less developed areas of the State, the Government of
Maharashtra has been granting incentives to new-expan-
sion units set up in developing regions of the State, since
1964, under a scheme commonly known as the ‘Package

Scheme of Incentives’. The scheme has been amended
several
times since its introduction and the ‘1993
Scheme’ was operative from 1 October 1993 to 31
March 2001 whereas the latest amended,
the ‘2001
Scheme’, was introduced on 31 March 2001 and will be
operative up to 31 March 2006. The main component
of the successive Package Schemes of Incentives (up to
31 March 2001) has been the granting of sales tax
benefits
in developing and backward
regions of the State.

to industries

(b) Eligibility

(64)

In order to be eligible, companies must invest in less
developed areas either by setting up a new industrial
establishment or by making a large scale capital invest-
in expansion or diversification of an existing
ment
industrial
classified
establishment. These areas, are
according to their economic development into different
categories (e.g. less developed area, lesser developed area,
least developed area). The main criterion to establish the
amount of incentives is the area in which the enterprise
is or will be located and the size of investment.

(c) Green-light test

(65)

The GOI claimed that this scheme is a non-countervail-
able subsidy since it meets the criteria of Article 4(3) of
the basic Regulation, and thus qualifies as a green-light
regional subsidy granted within the State of Mahar-
ashtra.

(ii)

(66) 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: (i) 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 (iii) 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
income per capita, or
one of
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:

L 87/12

EN

Official Journal of the European Communities

4.4.2002

(67)

It should be noted that the Indian authorities did not
provide any meaningful
information concerning the
neutral and objective criteria used to determine the
disadvantaged areas within the State in question. In the
absence of such information,
the Commission was
obliged to make use of facts available and conclude that
the green-light claim made by the GOI in respect to this
regional scheme is not sufficiently supported.
It was
therefore provisionally concluded that this scheme does
not meet the criteria of Article 4(3) of the basic Regula-
tion.

(71) All three units of the investigated company were located
in developing regions as notified under
the 1993
Package Scheme of Incentives of the Government of
Maharashtra. Under
the company was
the scheme,
exempted from the sales tax for its domestic purchases
and was allowed to defer the payment of State sales
taxes collected on its domestic sales for a period of 12
years from the year of collection.

(d) Conclusions on the scheme

(68)

The scheme is only available to companies having
invested within certain designated geographical areas
within the jurisdiction of the State of Maharashtra. It is
not available to companies located outside these areas.
The level of the benefit is different according to the area
concerned. The scheme is therefore specific in accord-
ance with Article 3(2)(a) and Article 3(3) of the basic
Regulation.

(69) Goods are normally subject to central sales tax (for
inter-state sales) or state sales tax (for sales within the
state) at varying levels depending upon the state/states in
which transactions are being made. There is no sales tax
on the import or export of goods, while domestic sales
are subject to the sales tax at the applicable rates.

(e) Calculation of the subsidy amount

(72)

(73)

The benefit to the exporting producer, under the sales
tax exemption incentive, has been calculated on the
basis of sales tax normally due during the IP, but which
was forgone by the Government of Maharashtra. The
amount of benefit was allocated over the total sales
during the IP.

The deferred amount of States sales taxes, under the
deferral incentive, is considered equivalent to an interest-
free loan of the same amount granted by the Govern-
ment of Maharashtra. Thus, the benefit to the exporting
producer has been calculated on the basis of the interest
payable on a comparable commercial loan during the IP.
The amount of benefit was allocated over the total
domestic sales during the IP.

(74) On the basis of the above, the amount of subsidy that
the company has obtained under this scheme is 2,6 %.

8. Amount of countervailable subsidies

(70) According to the scheme, designated units are either
exempted or can defer the payment of state sales tax on
domestic transactions. Payment may be deferred up to a
for a specified period,
specified monetary limit or
depending on which is
the
exemption scheme the unit was not required to collect
and pay any sales tax, whereas under the deferral scheme
the sales tax was collected and its payment was due after
a period of 12 years from the day of collection and not
on the regular monthly due dates.

reached earlier. Under

(75)

(76)

The amount of countervailable subsidies in accordance
with the provisions of the basic Regulation, expressed ad
valorem, for the investigated exporting producer is 9,2 %.

The level of cooperation for India appeared to be high
(above 80 %). In view of the high level of cooperation, it
was decided to set the residual subsidy margin at the
level of the subsidy found for the cooperating exporting
producer,

i.e. 9,2 %.

Type of subsidy

EOU

DEPB

EPCGS

ITES

Advance
Licence
/ARO

Maha-
rashtra
State
scheme

TOTAL

Kokan Synthetics and Chemicals
Private Limited

All others

Post-
export

1,4 %

1,7 %

0

0,3 %

3,2 %

2,6 %

9,2 %

9,2 %

4.4.2002

EN

Official Journal of the European Communities

L 87/13

D. COMMUNITY INDUSTRY

(77)

Sulphanilic acid is manufactured in the Community by two companies: the complainant, Sorochimie
Chimie Fine (‘Sorochimie’) and Quimigal S.A.(‘Quimigal’).
It should be noted that Sorochimie
manufactured sulphanilic acid throughout the analysis period. Quimigal, however, only began to
produce and sell sulphanilic acid in 1999. There were several other Community producers of
sulphanilic acid active on the market at the start of the analysis period. However, all these other
producers subsequently ceased production during the period either to focus on their other activities
or to source sulphanilic acid from external sources. They have therefore not been taken into account
It should be borne in mind that these important
when determining ‘Community production.’
developments on the Community market allowed both Sorochimie and Quimigal to increase their
production and sales.

(78) Although Quimigal is not a party to the complaint, it has expressed its support for the proceeding
and fully cooperated in the investigation. It is therefore considered that Quimigal and Sorochimie
fulfil the requirements of Article 10(8) of the basic Regulation, since they accounted for 100 % of the
Community production of sulphanilic acid on the date the proceeding was initiated. They are
therefore provisionally deemed to constitute the ‘Community industry’ within the meaning of Article
9(1) of the same Regulation and will hereinafter be referred to as such.

E. INJURY

1. Community consumption

(79) Apparent consumption of sulphanilic acid in the Community was established on the basis of:

— imports of the product concerned into the Community as established according to recital 81,

— the total verified sales of the Community industry on the Community market,

— the verified responses of former Community producers of the product concerned which co-

operated in the investigation and

— evidence contained in the complaint for other former producers which did not cooperate.

(80)

Community consumption of sulphanilic acid in the IP was approximately 11 000 tonnes. This figure
is some 13 % higher than at the start of the analysis period. After two years of relative stability in
1997 and 1998, there was a slight decline in consumption in 1999 before a clear upturn in 2000
and the IP.

2. Imports into the Community from India

2.1. Import data

(81)

The CN heading, under which the product under investigation is currently classified covers a variety
of other products. The Commission therefore made use of the best facts available and established
figures for both the volumes and prices of imports of sulphanilic acid on the following basis. Data
for imports from India were established on the basis of the reply of the cooperating exporting
producer to the Commission's questionnaire. The volumes of imports from the People's Republic of
China (‘PRC’) and the United States of America (‘USA’) were taken from information contained in the
complaint given the low level of cooperation from producers in the PRC and the fact that the sole
exporting producer in the USA gave an estimate in confidence of its exports to the Community for
the analysis period. The prices of these imports were predominantly derived from Eurostat data with
the response of the cooperating Chinese producer to the Commission's questionnaire also being
taken into account for the IP only. Information concerning the volume and prices of imports
originating in Hungary and Japan was derived by comparing Eurostat data to responses of users to
the Commission's questionnaires. The investigation also established that the major part of imports
originating in India was produced by the sole cooperating exporting producer. It has therefore been
necessary to present data relating to such imports in an indexed form in order to protect the
confidential nature of this information. With the exception of the countries noted above, the
investigation established that there were no imports from other third countries during the analysis
period.

L 87/14

EN

Official Journal of the European Communities

4.4.2002

3. Volume and prices of the imports concerned

(82)

The volume of the imports concerned almost doubled during the analysis period to reach a figure of
more than 1 700 tonnes in the IP. Their market share grew by approximately 50 % over the same
period to represent a figure of approximately 15 % of Community consumption.

(83)

The average price of the imports concerned increased by 7 % during the analysis period. They
reached their lowest level

in 1999.

Imports
tonnes
(indexed)

Market share
(indexed)

1997

1998

1999

2000

100

149

119

118

IP

192

100

143

124

113

171

cif price ECU/EUR per

100

92

88

91

107

Average
tonne
(indexed)

3.1. Price undercutting

(84)

(85)

For the purposes of analysing price undercutting, the weighted average sales prices per grade of the
Community industry to unrelated customers on the Community market were compared to the
corresponding weighted average export prices of the imports concerned. The comparison was made
after the deduction of rebates and discounts. The prices of the Community industry were adjusted to
an ex-works basis. The prices of the imports concerned were on a cif basis with an appropriate
adjustment for customs duties and post importation costs.

In view of the high level of cooperation received from the exporting producer in India, the level of
price undercutting for India as a whole has been established on the basis of this company's data. The
level of price undercutting for Imports originating in India is therefore 13 %. It should be noted the
imports concerned exerted a price depressive and suppressive effect on the prices of the Community
industry which suffered losses throughout the analysis period.

4. Situation of the Community industry

4.1. Preliminary remarks

(86)

In order to respect confidential business information, it has been necessary to present information
concerning the two companies forming the Community industry in an indexed form. In addition, as
the second member of the Community industry began production only in 1999, i.e. midway through
the analysis period, it has been decided to present its data separately from that of Sorochimie so as to
allow a more meaningful analysis of trends. As a result, two indices, both starting at 100, are
presented for each indicator with 1997 as the base year for Sorochimie and 1999 as the base year
for Quimigal (except in the case of investments which started to be made earlier).

(87)

In accordance with Article 8(5) of the basic Regulation, the examination of the impact of the
subsidised imports on the Community industry included an evaluation of all economic factors and
indices having a bearing on the state of the industry.

4.4.2002

EN

Official Journal of the European Communities

L 87/15

4.2. Production, production capacity and capacity utilisation

(88)

The Community industry's level of production in the IP was more than double the level recorded at
the start of the analysis period. This reflected an increase of 51 % in Sorochimie's production over
the analysis period and the entry of Quimigal onto the market in 1999. The Community industry's
production capacity also increased over the analysis period but to a lesser degree than its actual
production. The combination of these two factors led to an overall increase in the capacity utilisation
rate of the Community industry during the period. Quimigal's capacity utilisation rate increased
sharply as it came out of its start-up phase. Both companies achieved a satisfactory level of utilisation
of their capacity in the IP.

Indexed

1997

1998

1999

2000

IP

Sorochimie

100

126

Quimigal

0

0

Sorochimie

100

115

Quimigal

0

0

Sorochimie

100

110

Quimigal

0

0

125

100

115

100

109

100

142

288

115

133

124

216

151

348

115

133

132

261

Production
(tonnes)

Capacity
(tonnes)

Increase in capacity
utilisation

(%)

4.3. Stocks

(89)

Sorochimie's year-end stock levels were higher in absolute terms at the end of the IP than in 1997.
However, when expressed as a percentage of production they decreased over the period (from 15 %
to 11 %). Quimigal's stock levels decreased after its entry onto the market so that its stocks
represented approximately 5 % of production in the IP. The Community industry's year-end stock
levels are not considered to be abnormal for such an industry.

Indexed

1997

1998

1999

2000

IP

Stocks
(tonnes)

Sorochimie

100

Quimigal

0

94

0

76

100

69

73

108

59

4.4. Sales volume, market share and growth

(90)

The sales of the Community industry in the IP were more than 75 % higher than recorded in 1997.
It should be borne in mind that part of the increase is due to the appearance of Quimigal on the
market in 1999. Considered in isolation, Sorochimie increased its sales on the Community market
by nearly 40 % during the analysis period.

L 87/16

EN

Official Journal of the European Communities

4.4.2002

(91)

The Community industry increased its share of the Community market by nearly 50 % during the
analysis period. The highest market share was recorded in 2000. However, some market share was
lost to the subsidised imports in the IP as their volume grew at a faster rate than the overall market.
Most of the Community industry's increase in market share resulted from the effect of Quimigal's
production coming on stream. However, Sorochimie was also able to increase its market share
during the analysis period because a number of other producers in the Community withdrew from
the market. Both companies, therefore, were able to experience a more rapid growth than consump-
tion. This, however, was done by pushing capacity utilisation to high levels and developing sales of
salts as the presence of subsidised imports prevented them from fully benefiting from the restruc-
turing of the Community production of sulphanilic acid and implementing their planned capacity
expansion (see recital 96).

Indexed

1997

1998

1999

2000

IP

Sales
(tonnes)

Sorochimie

100

Quimigal

0

Market share (%)

Sorochimie

100

Quimigal

0

93

0

92

0

96

135

138

100

243

238

103

132

126

100

222

202

4.5. Sales prices and costs

(92)

Sorochimie's average selling price decreased by 9 % over the analysis period. There was a sharp
decline between 1997 and 1998 before prices began to rise again, albeit very slowly. The develop-
ment between 1997 and 1998 reflects both a slight fall in the price of aniline (the most important
raw material in price terms) as well as the price pressure exerted on the Community market by the
subsidised imports which increased by over 50 % in volume at this time. Sorochimie's average selling
price increased marginally from 1999 onwards as the company was able to take advantage of both
an increase in Community consumption and the exit of certain producers from the market. However,
this increase was at a lower rate than the increase in the price of aniline, which is the most
significant raw material for the production of sulphanilic acid in cost terms. In this way, the level of
undercutting established for the imports concerned in the IP demonstrates the price depressing effect
they had on the level of Sorochimie's own prices as it was unable to recover the full amount of the
increase in its main raw material. Quimigal's average selling price increased at a faster rate than
Sorochimie's but it should be borne in mind that the company had to start from a relatively low
selling price in 1999 with relatively low sales volume as it attempted to establish itself in the market.
In spite of its rising sales price, it was nonetheless unable to cover its full costs of production and
remained loss making in the IP.

Indexed

1997

1998

1999

2000

Average sales price
(ECU/EUR per tonne)

Sorochimie

100

Quimigal

0

85

0

86

87

IP

91

100

103

119

4.4.2002

EN

Official Journal of the European Communities

L 87/17

4.6. Profitability

(93)

The Community industry was loss making throughout the analysis period, with the most important
losses recorded in 2000. It is to be recalled that the imports concerned have been present on the
Community market in significant volumes and at low prices since the beginning of the analysis
period as demonstrated by their market share of approximately 10 % in 1997 and their prices some
13 % below those of the Community industry in the IP. Sorochimie's losses on net sales to unrelated
customers in the Community during the IP, when expressed as a percentage of the same sales, were
in single digits whilst Quimigal's losses were in double digits. Quimigal's net return on sales include a
recalculation of their depreciation on a straight line over a period of 10 years in order not to take
into account exceptional start-up costs in the form of accelerated amortisation. Furthermore, as
capacity utilisation was fairly high in the IP, no impact of low start-up volumes on unit costs is
included in the data examined.

(94)

It is clear that the viability of the Community industry depends on it being able to achieve higher
selling prices for its production and thereby put an end to its prolonged loss making period.

4.7. Investments and ability to raise capital

(95)

(96)

The table below indicates that the Community industry continued to make investments in its
sulphanilic acid activities throughout the analysis period. In the case of Sorochimie, these invest-
ments were primarily related to the maintenance of existing capital assets. It should be noted that
Quimigal made substantial investments in advance of its start-up in 1999. This company made the
decision to enter the sulphanilic acid market several years earlier when prices on the Community
market were higher.

Sorochimie's ability to raise capital has been affected by the subsidised imports as investment plans
to increase capacity have been deferred since the necessary expenditure could not be justified in the
current environment of insufficient returns on sulphanilic acid activities. Quimigal had also to delay
its expansion plans because of the current market situation.

Indexed

1997

1998

1999

2000

Investments
(ECU / EUR)

Sorochimie

100

39

92

91

Quimigal

100

826

291

100

IP

81

99

4.8. Return on investments and cash flow

(97) As the Community industry has been loss making throughout the analysis period, the figure for the
return on investments, which expresses the after tax result as a percentage of the average opening
and closing net book value of assets employed in the production of sulphanilic acid, has also
remained negative.

(98)

Sorochimie was cash generative throughout the analysis period, although only marginally so in
1998, 1999 and 2000. Quimigal was cash generative in the year it commenced sales (1999) but
then cash flow became negative in 2000 and the IP.

4.9. Employment, productivity and wages

(99)

The following table shows the development in the number of workers employed in the sulphanilic
activities of both companies forming the Community industry and the average total employment
cost per employee. The figure for productivity is calculated on the basis of tonnes produced per
employee.

(100) For the Community industry as a whole, employee numbers were the same in the IP as at the
beginning of the analysis period. However, it should be noted that the two companies experienced
divergent trends in that Sorochimie lost a number of jobs incidentally equal to that created by
Quimigal when it came onto the market.

L 87/18

EN

Official Journal of the European Communities

4.4.2002

(101) The Community industry considerably improved its productivity during the analysis period. This
occurred as Quimigal reached its planned level of production in the IP and efforts were made overall
to improve competitiveness.

Indexed

1997

1998

1999

2000

Employees
(number)

Average employment
cost per employee
(ECU /
person)

EUR per

Productivity
(tonnes per person)

Sorochimie

100

Quimigal

0

Sorochimie

100

Quimigal

0

Sorochimie

100

Quimigal

0

96

100

121

100

131

0

89

100

133

278

140

100

86

133

134

208

166

216

IP

86

133

132

208

177

261

4.10. Magnitude of subsidisation

direct consequence of this situation,
from implementing its expansion plans.

it was prevented

(102) Given the volume and the price of

the subsidised
imports, the impact of the actual margin of subsidy,
which is significant, cannot be considered negligible.

4.11. Conclusion on injury

(103) During the analysis period, the volume of imports from
India increased by more than 90 %. Their market share
increased by 50 % to reach a level of more than 15 % in
the IP. They experienced a rapid growth in market share
between 1997 and 1998. It was also at this time that
Sorochimie suffered the sharpest drop in its average
sales prices as it was forced to compete aggressively
against the subsidised imports in an effort to maintain
its position on the market.

(104) Although Sorochimie was later able to raise its selling
prices and also increase its sales volumes as other opera-
tors were forced out of the market,
it remained loss
making due to the low price levels prevailing on the
market. This was in spite of the efforts made to improve
efficiency as demonstrated by its increased productivity.

(105) Quimigal was never able to cover its costs although the
extent of its losses reduced somewhat due to an increase,
albeit an insufficient one,

in its selling price.

(107) On the basis of

it

is provisionally
the foregoing,
concluded that the Community industry has suffered
injury, characterised by price depression and
material
suppression, a prolonged period of losses,
insufficient
returns on investment and the deferment of expansion
plans, within the meaning of Article 8 of the basic
Regulation.

F. CAUSATION OF INJURY

1. Introduction

(108)

the

In accordance with Article 8(7) of the basic Regulation,
the Commission examined whether
subsidised
imports originating in India have caused injury to the
Community industry to a degree that enables it to be
classified as material. Known factors other than the
subsidised imports, which could at the same time be
injuring the Community industry, were also examined to
ensure that possible injury caused by these other factors
was not attributed to the subsidised imports.

2. Effect of the subsidised imports

(106)

It is thus clear that the volume and prices of the subsi-
dised imports prevented the Community industry from
generating an adequate return on its sulphanilic acid
activities. This is demonstrated by the fact
it
the analysis period. As a
suffered losses throughout

that

(109) The volume of the subsidised imports increased by more
than 90 % during the analysis period. They enjoyed a
particularly rapid rate of growth between 1997 and
1998 when their prices decreased by 8 %. This increase
was to cause a rapid drop in Sorochimie's selling price

4.4.2002

EN

Official Journal of the European Communities

L 87/19

as it tried to maintain its market share. Subsequently, the
low price level of
the subsidised imports and their
increasing presence on the Community market had a
price suppressing effect on the prices of the Community
industry in that it was unable to reflect the full increase
in its own cost of production in its selling price. Finally
the Community industry could not increase its produc-
tion capacity as should have been the case given the
withdrawal of other Community producers from the
market and the increase in demand observed over the
analysis period as a whole.

3. Effects of other factors

3.1. Dumped imports originating in the PRC

(110)

In the parallel anti-dumping investigation, it was provi-
sionally established that dumped imports originating in
injury to the Community
the PRC caused material
industry.

(111) Dumped imports originating in the PRC are therefore
provisionally considered as having contributed to the
injury suffered by the Community industry.

3.2. Imports originating in third countries other than India

and the PRC

(112) With the

exception of 1999 when Community
consumption fell
in the analysis
to its lowest point
period, the volume of imports originating in other third
countries remained relatively stable at approximately
2 000 tonnes. Overall, they therefore lost market share
from approximately 21 % in 1997 to 18 % in the IP. On
the basis of the facts available, only imports from the
USA and Hungary were at
levels above 1 % of
Community consumption in the IP. It should be noted
that the sole producer of sulphanilic acid in Japan ceased
manufacturing the product during the analysis period.
Imports from this country in the IP were not significant
(less than 100 tonnes). Imports from Japan have there-
fore not been further considered in this investigation.

(113)

Imports originating in the USA increased significantly to
reach a market share of around 10 % in the IP. This
came about following the relocation of some production
in the
that had previously taken place
activities
Community. The prices of imports originating in the
USA were significantly higher
the
Community industry.

than those of

(115) On the basis of the above, it is provisionally concluded
that imports originating in other third countries and in
particular the USA and Hungary did not contribute to
the material injury suffered by the Community industry.

3.3. Changes in the pattern of consumption

(116) The apparent consumption of sulphanilic acid in the
Community increased during the analysis period from
approximately 10 000 tonnes
in 1997 to around
11 000 tonnes in the IP. The Community industry was
able to increase its market share over the same period as
other Community producers left the market. The devel-
opment of consumption did not, therefore, contribute to
the injury suffered by the Community industry.

3.4. The export performance of the Community industry

(117) Sorochimie's exports as percentage of total sales in the
IP was similar to that recorded at the start of the analysis
period at approximately one third. There was an increase
in 1998 and 1999 due to certain one-off contracts. The
level of Quimigal's exports expressed by the same
measure was higher in the IP at approximately one half
of total sales. The Community industry's price level for
exports during the IP was similar to that experienced for
sales on the Community market. It has therefore been
provisionally concluded that the export performance of
the Community industry did not contribute to the injury
it suffered.

3.5. The entry of Quimigal onto the Community market

(118)

is

recalled that Quimigal,

the second company
It
forming part of
the Community industry, began
producing and selling sulphanilic acid in 1999 as a
result of an earlier decision taken at a time when prices
on the Community market for sulphanilic acid were
higher. It has been alleged that at least part of the injury
suffered by the Community industry should be attrib-
uted to Quimigal and not to the imports concerned in
that Quimigal had relatively low sales prices and high
unit costs in its first years of operation. This claim had
to be rejected since it is the presence of the very low
priced dumped imports, that forced the company to
offer its production at fairly similar prices in order to
gain market share in a reasonable length of time. Prices
of Quimigal were afterwards able to slightly increase.

(114)

Imports originating in Hungary decreased by nearly half
during the analysis period. Their average selling price
was significantly higher than that of
the subsidised
imports and broadly similar to that of the Community
industry.

(119) Furthermore, in order to ensure that the injury suffered
by the Community industry was not incorrectly attrib-
uted to the dumped imports, the impact of any excep-
tional start-up costs from Quimigal's operating results
were removed as explained at section 4.6 on profit-
ability.

L 87/20

EN

Official Journal of the European Communities

4.4.2002

(120)

In view of the above, it is provisionally concluded that
the entry of Quimigal onto the market did not contri-
bute to the material injury suffered by the Community
industry.

4. Conclusion on causation

(121) The investigation has shown that the arrival of sub-
sidised imports from India in large quantities on the
Community market caused severe price depression of
the Community industry's average selling prices. The
Community industry was forced to considerably lower
its prices in order to maintain its share of the market
and ensure a satisfactory capacity utilisation. The fact
that it was able to increase its market share can be
attributed to the exit of a number of other Community
producers from the sulphanilic acid market. Although
the Community industry was able to raise its prices from
1998 onwards, these increases were not sufficient to
return it to profitability as the dumped and subsidised
imports had a price suppressing effect. Over the same
period, the volume of subsidised imports from India
continued to increase.

(122) Notwithstanding the fact that imports from the PRC
contributed to the material
injury suffered by the
Community industry in that their increasing presence on
the Community market and low prices exerted a price
suppressing effect, it is provisionally considered that the
imports from India, considered in isolation, caused
material injury to the Community industry. During the
analysis period,
imports from India increased signifi-
cantly both in terms of volume and market share. It is
also recalled that the average price of such imports in
the IP was 13 % below that of the Community industry.
imports
It
originating in India have caused material injury to the
Community industry, which has been characterised by
low selling prices,
lack of profitability and negative
returns on investments.

is therefore provisionally concluded that

2. The investigation

(125) The Commission sent questionnaires

raw materials,

to importers,
suppliers of
the
product concerned as well as other interested parties
who made themselves known within the time limit set
in the notice of initiation.

industrial users of

(126)

In total, 27 questionnaires were sent out, but only 9
replies were received within the time limits set. As noted
above in recital 9, several companies chose to submit
only comments
to completing the
Commission's questionnaires. These comments have
been taken into account where appropriate.

in preference

(127) Questionnaire responses were received within the time

limits from seven users of the product concerned:

— Bayer AG, Leverkusen, Germany,

— Ciba Spezialitätenchemie Grenzach GmbH, Grenzach

Wyhlen, Germany,

— Manuel Vilaseca SA, Barcelona, Spain,

— SA Robama, Barcelona, Spain,

— Sika Limited, Welwyn Garden City, United Kingdom,

— SIPO srl, Milan, Italy,

— SKW Polymers GmbH, Trostberg, Germany;

one trader:

— Twinstar Chemicals Ltd., Harrow, United Kingdom;

one supplier of raw materials to the sulphanilic acid
industry:

— Quimigal SA, Estarreja, Portugal.

3. Likely

effect

of

the

imposition

on

the

Community industry

(123) Furthermore, the changes in the pattern of consumption
and the export performance of the Community industry
did not contribute to the injury suffered by the
Community industry.

(128)

It is recalled that the Community industry comprises
two companies with production facilities in France and
Portugal.

G. COMMUNITY INTEREST

1. General remarks

(124) The Commission examined whether, despite the conclu-
sion on injurious
subsidisation, compelling reasons
existed that could lead to the conclusion that it is not in
the Community interest to adopt measures in this partic-
ular case. For this purpose and in accordance with
Article 31(1) of the basic Regulation, the impact of
possible measures on all parties
involved in this
proceeding and also the consequences of not taking
measures were considered on the basis of all evidence
submitted.

(129)

the material

In spite of
injury suffered by the
Community industry during the IP, there is no reason to
doubt its long-term viability and competitiveness in a
market where normal conditions of fair trade exist. The
Community industry has plans to increase its production
capacity in the Community to be able to meet growing
domestic demand. However, these plans have had to be
deferred because of
the low level of prices in the
Community brought about by the presence of the sub-
sidised imports.

(130)

It should be noted that the Community industry's loss-
making situation has resulted from its difficulty to
compete with the low-priced, subsidised imports, which
have increased their market share considerably during
the analysis period. The pressure of
the subsidised
imports has also forced a number of Community produ-
cers to cease production of sulphanilic acid.

4.4.2002

EN

Official Journal of the European Communities

L 87/21

(131)

It is considered that the imposition of measures will
restore fair competition on the market. The Community
industry should then be able to increase the volume and
prices of its sales, thereby generating the necessary level
of return to justify continued investment in its produc-
tion facilities.

(137)

In view of the low level of cooperation from suppliers of
raw materials to the sulphanilic acid industry and the
situation of the one cooperating supplier, it is provision-
ally concluded that
the imposition of countervailing
measures would not have either major beneficial or
prejudicial consequences for suppliers.

(132) Should measures not be imposed, it is almost certain
that the losses of the Community industry observed over
the analysis period will continue. It will not be able to
invest in new production capacity and compete effec-
tively with imports from third countries.
It is to be
noted that Sorochimie has filed for protection from its
creditors because of difficulties in its business and that
its current trading activities are being overseen by an
administrator
of
Commerce. It may be impossible for the company to
continue if measures are not imposed.

local Court

appointed

the

by

(133)

In this context, it is noted that exports from India have
been subject to anti-dumping and anti-subsidy measures
in the USA since March 1993. With the exception of the
Community market, there are considered to be limited
additional third country markets for these exports.

(134)

It is therefore provisionally concluded that the imposi-
tion of countervailing measures is in the interest of the
Community industry.

4. Likely effect of the imposition of measures on

traders

(135) The Commission received one reply from a company
which imported the product concerned until recently
and also traded sulphanilic acid produced by the
Community industry. The company noted that
the
imposition of measures in the Community could lead
some users to relocate their production facilities outside
the Community or move away from certain end-product
markets. It therefore feared that it would lose business in
the Community. As concluded below with regard to
users of the product concerned, such developments are
unlikely to occur and therefore it was provisionally
concluded that the imposition of measures would not
have a serious impact on Community traders of sulpha-
nilic acid.

5. Likely effect of the imposition of measures on
suppliers of raw materials to the sulphanilic acid
industry

(136) The Commission received only one questionnaire reply
from a supplier of raw material (aniline) to the sulpha-
nilic acid industry. This reply was from Quimigal, which
is also one of the two Community producers of sulpha-
nilic acid. In the IP, its aniline sales to sulphanilic acid
producers represented a very small percentage of
its
total aniline sales in the Community. In spite of this, the
company stressed the importance of
its sales (both
internal and external) to the sulphanilic acid industry.

6. Likely effect of the imposition of measures on

users

exporting

(138) Sulphanilic acid has a wide range of applications. It is
used in the manufacture of optical brighteners, additives
for concrete and speciality dyes and colorants. An
analysis of data provided by the Community industry,
cooperating
former
Community producer of sulphanilic acid, showed the
optical brightener sector to be the most important user
sector with
estimated
Community consumption. Concrete additives accounted
for approximately 15 % of Community consumption
and speciality dyes and colorants for 10 %. The intended
application of the remainder, which also included sales
to traders, was unknown.

approximately

65 % of

producers

and

a

(139) The Commission sought to quantify the possible finan-
cial impact of measures on the operations of the cooper-
ating users by taking into account both the origins of
their sulphanilic acid purchases and its share in their
overall manufacturing costs in the IP. For the purpose of
this exercise, it was considered that the prices of imports
from India would increase by the amount of the duty
proposed in this investigation and in the parallel anti-
dumping investigation, as indeed would imports from
China.

(140) As a number of users have made the same point
opposing the imposition of measures on the grounds
that production capacity in the Community is insuffi-
cient to meet domestic demand, it has been decided to
address this concern for all user sectors in section 7.

6.1. Optical brighteners

(141) Three

received

questionnaire

replies were

from
Community companies producing optical brighteners
and written comments from a fourth. Optical bright-
eners are general fluorescent whitening agents used by
external customers primarily in the paper and detergent
industries. Although one of the questionnaire respon-
dents did not provide comprehensive information on its
the trends
profitability during the analysis period,
observed for the other two companies are considered to
be meaningful in that the two accounted for half of the
sulphanilic acid used by all three respondents in the IP.

(142) The cooperating producers of optical brighteners use
either pure grade sulphanilic acid or pure grade in a salt
solution. In the IP, approximately half of their purchases
were sourced from the Community industry and half
from other sources including the countries concerned.

L 87/22

EN

Official Journal of the European Communities

4.4.2002

(143) Sulphanilic acid is only used in certain types of optical
brighteners and in varying quantities. When the infor-
mation provided by the three cooperating users was
combined, it was found that sulphanilic acid accounted
for in the region of 10 % of their manufacturing costs of
those optical brighteners in which sulphanilic acid is a
constituent. It was consequently established using the
methodology detailed in recital 139 that measures
would increase the manufacturing costs for optical
brighteners containing sulphanilic acid by just over 1 %
and that the increase in their full costs (i.e. after taking
sales, general and administration expenses (SG&A) into
account) would be somewhat less than 1 %.

(144) The producers of optical brighteners argued that there is
little differentiation between the types available on the
market. As a result, optical brighteners are treated like a
is
commodity and competition between producers
intense. This appeared to be supported by the profit-
ability data provided by two of the respondents which
showed that the returns on sales of optical brighteners
containing sulphanilic acid had declined significantly
over the analysis period in spite of the availability of
sulphanilic acid at dumped prices and a more general
decline in total manufacturing costs observed over the
same period.

(145)

It was argued that if measures were imposed, producers
of optical brighteners in third countries where there
were no measures would gain a significant price advan-
tage. One producer claimed that if the already low level
of return from its optical brightener's business were
further reduced by measures, it would have to reconsider
its presence in the market.

(146)

advantage

against Community

It is not evident that producers of optical brighteners in
countries outside the Community will derive a distinct
based
competitive
competitors if measures are imposed. This is particularly
true if one considers that the market for sulphanilic acid
in one of the largest optical brightener producing coun-
tries, the USA, is already subject to a number of anti-
dumping and anti-subsidy duties on imports of sulpha-
nilic acid.
taking into
It should also be noted that,
account the fact that the possible increase in the overall
costs of Community based optical brightener producers
would be somewhat less than 1 %, and that optical
brighteners only account for a small part of the cost of
paper production,
it has not been demonstrated that
continued production in the Community of these prod-
ucts would be endangered. In view of the substantial
they have made in their Community
investments
production facilities in recent years,
the
market and their customer base, it is evident that these
producers will maintain a substantial presence in the
Community.

the size of

(147)

It is therefore provisionally considered that the imposi-
tion of measures would not have a major adverse impact
on this user group.

6.2. Concrete additives

(148) The Commission received replies to its questionnaire
from two companies producing concrete additives and
written comments from a third. Concrete additives or
admixtures are used to improve certain characteristics of
concrete and thereby the way in which it performs
under a variety of conditions.

(149) The data of the cooperating users showed that sulpha-
nilic acid was used in the production of all types of
concrete additives. When the data of the two companies
were combined and account was taken of their respec-
tive product mix and size, it was found that sulphanilic
acid represented roughly 15 % of their manufacturing
costs. It was consequently established using the meth-
odology detailed in recital 139 that measures would
increase the manufacturing costs for concrete additives
by just over 2 % and that the increase in their full costs
(i.e. after taking SG&A into account) would be some-
what less than this figure.

(150) Only one of the respondents provided data concerning
the profitability of products sold containing sulphanilic
acid. The Commission has therefore not been able to
make a precise assessment of the financial
impact of
measures on this user group. Nevertheless, it is to be
noted that the turnover of products containing sulpha-
nilic acid represents a very small part (i.e. less than 5 %)
of the total turnover of the two companies that replied
to the Commission's questionnaire. Therefore, although
it
is acknowledged that measures would have some
impact on their concrete admixture business, the compa-
nies' overall activities would not be endangered. This is
supported by the fact that neither company submitted
that it would be unable either to absorb the increase in
its costs or to pass such an increase onto customers.

(151) The same two cooperating users were very much against
the imposition of measures. Apart from raising concerns
about the adequate availability of sulphanilic acid in the
Community which are addressed below in section 7,
they alleged that they would lose competitiveness on
world markets to producers of concrete admixtures in
third countries where there was access to supplies of
sulphanilic acid from India and China without duties.

first

instance, neither

(152) This claim had to be rejected for a number of reasons. In
the
company provided any
evidence, such as information relating to the degree of
competitive threat posed by producers of concrete addi-
tives in other third countries, with which to substantiate
their claim. In addition, having taken account of the
anticipated increase in these companies' overall costs as
noted in recital 149, it was not considered that measures
would have such a prejudicial effect on their competi-
tiveness.

4.4.2002

EN

Official Journal of the European Communities

L 87/23

(153) The third producer was more equivocal

in its stance.
Whilst underlining that its competitiveness depended to
a certain extent on the price at which it was able to
purchase its raw materials, it recognised the importance
of maintaining a competitive production base for
sulphanilic acid in the Community which would guar-
antee the security of supply for this raw material.

(158) Due to the lack of information provided on profitability
and the relatively low importance of the cost of sulpha-
nilic acid in the overall manufacturing costs of all dyes,
it
the imposition of
countervailing duties would not have serious prejudicial
consequences for this user sector.

is provisionally concluded that

(154)

In the light of the above, it is provisionally concluded
that the imposition of measures would not have serious
prejudicial effects on the activities of this user sector.

6.3. Dyes and colorant producers

(155) The Commission received replies from three producers
of dyes, one of which had also replied to the Commis-
sion in its capacity as a producer of optical brighteners.
Written comments were also received from a fourth
producer. They purchased relatively small quantities of
sulphanilic acid in the IP. Approximately half of the
purchases were of sulphanilic acid originating in the
Community with the remainder coming from the coun-
tries concerned. When the data of the three companies
were combined and account was taken of their respec-
tive product mix and size, it was found that sulphanilic
acid represented between 5 and 10 % of their manufac-
turing cost for dyes containing sulphanilic acid. The
turnover of
in turn accounted for
approximately one third of the combined turnover of
these companies.

these products

(156)

It was consequently established using the methodology
detailed in recital 139 that measures would increase the
manufacturing costs for dyes and colours containing
sulphanilic acid by just over 1 % and that the increase in
full costs (i.e. after taking SG&A into account) would be
somewhat less than this figure. However, as none of
these companies provided the Commission with specific
details on the profitability of their dye businesses, it was
not possible to determine with any precision the
possible effect of measures on their overall
financial
situation.

It was stated that

(157) One respondent did however make written comments
on the very competitive nature of the dye business and
the low margin environment in which it had to do
business.
there was strong price
competition from dye products originating in India and
China, possibly due to dumping and subsidisation, and
that any increase in the price of sulphanilic acid could
have serious consequences for continued dye production
in the Community. However, the possible existence of
dumping and subsidisation on a downstream market (no
evidence to this effect having been provided) should not
prevent the application of proper trade defence instru-
ments to remedy the injurious effects of the dumped
imports on the producers of sulphanilic acid forming the
Community industry.

6.4. Conclusion

(159) Recalling the conclusions reached above in respect of
the various users of sulphanilic acid in the present
the
investigation,
imposition of measures would slightly affect their finan-
cial situation but would not endanger their continued
activities or lead them to relocate their production
outside the Community.

is provisionally concluded that

it

7. Competition and trade distorting effects

(160) The Commission considered the possible competition
and trade distorting effects of measures in the light of
the findings of the investigation and comments made by
interested parties. These comments primarily focused on
the
the product
concerned into the Community because of the inability
of the Community industry to satisfy demand. One user
also raised the fear that a reduction in supply from India
and China would allow Sorochimie to fix prices on the
Community market with its American competitor.

continued need for

imports of

(161) Measures are not intended to prevent imports into the
Community but to ensure that they are not made at
injurious subsidised prices. It is accepted that imports
from various origins will continue to satisfy a significant
part of Community demand. It should also be noted that
the Community industry has plans
to increase its
capacity if the return on its sulphanilic acid sales reaches
an acceptable level. It is therefore most likely, provided
that the injurious effects of the subsidised imports are
removed by the imposition of measures,
the
Community industry will be able to carry out these
investment plans. It is important to note that sulphanilic
acid production is already concentrated in relatively few
countries around the world. According to the findings of
the present
the
Community is now restricted to India, China, the USA
and Hungary. It is therefore in the interests of all users
in the Community that
the Community industry is
allowed to operate under conditions of fair competition
so that domestic supplies of the product continue to be
available.

investigation, production outside

that

(162) The second claim concerning price collusion had to be
rejected as mere conjecture. No evidence was supplied to
support the allegation. Moreover, were measures not to
be imposed, the Community industry could be forced
out of production. If this were to happen, the number of
suppliers on the Community market would be further
reduced and remaining suppliers could raise their prices
to take advantage of this fact.

L 87/24

EN

Official Journal of the European Communities

4.4.2002

(163)

In view of the above, it is provisionally concluded that
the imposition of provisional countervailing duties
would help to protect the choice of user industries and
maintain competition on the Community market.

8. Conclusion on Community interest

(164) On the basis of the above, it is provisionally concluded
that there are no compelling reasons on the grounds of
Community interest why countervailing duties should
not be imposed in the present case.

India (all companies): 9,2 %.

I. FINAL PROVISION

(169)

In the interest 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 concerning the imposition of
duties made for the purposes of this Regulation are
provisional and may have to be reconsidered for the
purposes of any definitive duty,

H. PROVISIONAL ANTI-SUBSIDY MEASURES

HAS ADOPTED THIS REGULATION:

Article 1

1. Injury elimination level

A provisional countervailing duty is hereby imposed on
1.
imports
falling within CN code
acid
ex 2921 42 10 (TARIC code 2921 42 10 60) and originating
in India.

sulphanilic

of

(165)

In order to prevent further injury being caused by the
subsidised imports,
it was considered appropriate to
adopt countervailing measures in the form of provi-
sional duties.

2.
The rate of the provisional countervailing duty applicable
to the net-free-at-Community-frontier-price, before duty, shall
be 9,2 %.

(166) For the purpose of determining the level of these duties,
the Commission took account of the subsidy margin
found and the amount of duty necessary to eliminate the
injury sustained by the Community industry.

(167) To this end, the Commission determined a non-injurious
price based on production costs of
the Community
industry (without taking into account any exceptional
costs linked to the Sorochimie's difficulties in its glue
business or to the start-up costs of Quimigal), together
with a profit margin of 6 %. This profit margin was
considered reasonable and achievable for an industry of
this type in the chemical sector. The non-injurious price
was compared with the prices of the dumped and sub-
sidised imports used to establish price undercutting, as
outlined above. Differences resulting from this compar-
ison were then expressed as a percentage of the total cif
import value to establish the injury margin.

3.
Unless otherwise specified,
concerning custom duties shall apply.

the provisions

in force

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

Article 2

Without prejudice to Article 30 of Regulation (EC) No 2026/
97 interested parties may request disclosure of the essential
facts and considerations on the basis of which this Regulation
was adopted, make their views known in writing and apply to
be heard orally by the Commission within 20 days of the date
of entry into force of this Regulation.

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

2. Provisional measures

Article 3

(168) As the injury elimination level is higher than the subsidy
margin established, the provisional measures should be
based on the latter. The following rate of duty therefore
applies:

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

Article 1 shall apply for a period of four months.

4.4.2002

EN

Official Journal of the European Communities

L 87/25

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

Done at Brussels, 3 April 2002.

For the Commission

Pascal LAMY

Member of the Commission