Proposal for a Council Regulation amending Council Regulation (EC) No 1601/1999 imposing a definitive countervailing duty on imports of stainless steel wire with a diameter of less than 1 mm originating in India
Date: 2004-05-19
Institutions: European Commission
Subjects: India, monetary compensatory amount, originating product, steel, wire

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 19.05.2004 
COM(2004)389 final 

Proposal for a 

COUNCIL REGULATION 

amending Council Regulation (EC) No 1601/1999 imposing a definitive countervailing 
duty on imports of stainless steel wire with a diameter of less than 1 mm originating in 
India 

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

On  10  July  2003,  the  Commission  initiated  an  accelerated  review  concerning  the 
countervailing duty imposed on imports of stainless steel wires with a diameter of less than 1 
mm originating in India. 

The investigation revealed that a definitive countervailing duty should be imposed on imports 
of the product concerned which are produced and exported by the applicant who requested the 
above mentioned review. 

It is therefore proposed that the Council adopt the attached proposal for a Regulation which 
should be published in the Official Journal of the European Union. 

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Proposal for a 

COUNCIL REGULATION 

amending Council Regulation (EC) No 1601/1999 imposing a definitive countervailing 
duty on imports of stainless steel wire with a diameter of less than 1 mm originating in 
India 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community, 

Having  regard  to  Council  Regulation  (EC)  No  2026/97  of  6  October  1997  on  protection 
against  subsidised  imports  from  countries  not  members  of  the  European  Community1  (‘the 
basic Regulation’), and in particular Article 20 thereof, 

Having  regard  to  the  proposal  submitted  by  the  Commission  after  consulting  the  Advisory 
Committee, 

Whereas: 

A. PREVIOUS PROCEDURE 

(1) 

The Council, by Regulation (EC) No 1601/19992, imposed a definitive countervailing 
duty  on  imports  of  stainless  steel  wire  having  a  diameter  of  less  than  1  mm  (‘the 
product concerned’), falling within CN code ex 7223 00 19 and originating in India. 
The measures took the form of an ad valorem duty ranging between 0% and 42,9% for 
individual exporters, with a rate of 44,4% for non-co-operating exporters.  

B. CURRENT PROCEDURE 

1. Request for review 

(2) 

Subsequent  to  the  imposition  of  definitive  measures,  the  Commission  received  a 
request for the initiation of an accelerated review of Regulation (EC) No 1601/1999, 
pursuant to Article 20 of the basic Regulation, from one Indian producer, VSL Wires 
Limited  (‘the  applicant’).  The  applicant  claimed  that  it  was  not  related  to  any  other 
exporters  of  the  product  concerned  in  India.  Furthermore,  it  claimed  that  it  had  not 
exported the product concerned during the original period of investigation (i.e. from l 
April  1997  to  31  March  1998),  but  had  exported  the  product  concerned  to  the 
Community after that period. On the basis of the above, it requested that an individual 
duty rate be established for it. 

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OJ  L  288,  21.10.1997,  p.  1,  Regulation  as  last  amended  by  Regulation  (EC)  No  461/2004  (OJ  L  77, 
13.3.2004, p. 12). 
OJ L 189, 22.7.1999, p. 26. 

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2. Initiation of an accelerated review 

(3) 

The Commission examined the evidence submitted by the applicant and considered it 
sufficient  to  justify  the  initiation  of  a  review  in  accordance  with  the  provisions  of 
Article 20 of the basic Regulation. After consultation of the Advisory Committee and 
after the Community industry concerned had been given the opportunity to comment, 
the Commission initiated, by a notice in the Official Journal3, an accelerated review of 
Regulation  (EC)  No  1601/1999  with  regard  to  the  company  concerned  and 
commenced its investigation. 

3. Product concerned 

(4) 

The  product  covered  by  the  current  review  is  the  same  product  as  that  under 
consideration in Regulation (EC) No 1601/1999, namely stainless steel wire having a 
diameter of less than 1 mm, containing by weight 2,5% or more of nickel, excluding 
wire containing by weight 28% or more but no more than 31% of nickel and 20% or 
more but no more than 22% of chromium. 

4. Investigation Period  

(5) 

The investigation of subsidisation covered the period from 1 April 2002 to 31 March 
2003 (‘the review investigation period’). 

5. Parties concerned 

(6) 

(7) 

(8) 

(9) 

The Commission officially advised the applicant and the Government of India (‘GOI’) 
of the initiation of the procedure. Furthermore, it gave other parties directly concerned 
the  opportunity  to  make  their  views  known  in  writing  and  to  request  a  hearing. 
However, no such views or any request for a hearing was received by the Commission. 

The Commission sent a questionnaire to the applicant and received a full reply within 
the required deadline. The Commission sought and verified all information it deemed 
necessary for the purpose of the investigation and carried out a verification visit at the 
premises of the applicant. 

C. SCOPE OF THE REVIEW 

As  no  request  for  a  review  of  the  findings  on  injury  was  made  by  the  applicant,  the 
review was limited to subsidisation. 

The  Commission  examined  the  same  subsidy  schemes  which  were  analysed  in  the 
original  investigation.  It  also  examined  whether  the  applicant  had  used  any  subsidy 
schemes which were alleged to confer benefits in the original complaint but not found 
to have been used during the original investigation. 

It was finally examined whether the applicant had made use of any subsidy schemes 
which  were  established  after  the  end  of  the  original  investigation  period,  or  had 
received ad hoc subsidies after this date. 

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OJ C 161, 10.7.2003, p. 3. 

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D. RESULTS OF THE INVESTIGATION 

1. New exporter qualification 

(10)  The applicant was able to satisfactorily demonstrate that it was not related, directly or 
indirectly,  to  any  of  the  Indian  exporting  producers  subject  to  the  countervailing 
measures in force with regard to the product concerned.  

(11)  The investigation confirmed that the applicant had not exported the product concerned 
during the original investigation period, i.e. from 1 April 1997 to 31 March 1998. 

(12) 

(13) 

It  was  established  that  the  applicant  had  only  realised  one  sale  to  the  Community 
which  actually  took  place  in  August  2001,  i.e.  after  the  original  investigation  period 
but well before the review investigation period. 

In reply to the questionnaire, the applicant identified only one contract that had been 
signed  during the  review investigation  period, but the on-spot verification confirmed 
that  the  sale  had  never  been  materialized.  Consequently,  there  was  no  irrevocable 
contractual obligation undertaken by the applicant to export to the Community. 

(14)  However, it is noted that the company had significant export sales to other countries 
during the review investigation period which allowed for the calculation of the benefit 
accruing  to  export  sales  from  subsidisation,  since  such  benefits  accrue  regardless  of 
the destination of these sales.  

In this respect, the Commission decided to verify all information it deemed necessary 
for the purpose of the investigation of the accelerated review in order to calculate any 
amount  of  countervailable  subsidy  by  allocating  such  amount  over  the  level  of  the 
relevant total turnover of the applicant during the review investigation period. 

2. Subsidisation 

(15)  On the basis of the information contained in the applicant’s reply to the Commission’s 

questionnaire, the following schemes were investigated: 

– 

– 

– 

– 

Duty Entitlement Passbook Scheme, 

Income Tax Exemption Scheme, 

Export Promotion Capital Goods Scheme, 

Export Processing Zones/Export Oriented Units. 

3. Duty Entitlement Passbook Scheme (‘DEPB’) 

General 

(16) 

It  was  established  that  the  applicant  received  benefits  under  this  scheme  during  the 
review  investigation  period.  It  made  use  of  the  DEPB  on  a  post-export  basis.  The 
detailed  description  of  the  scheme  is  contained  in  paragraph  4.3  of  the  Export  and 
Import  Policy  (Notification  No  1/2002-07  of  31  March  2002  of  the  Ministry  of 
Commerce and Industry of the Government of India). 

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

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

DEPB  credits  are  freely  transferable.  The  DEPB  license  is  valid  for  a  period  of  12 
months from the date on which the licence is granted. 

(17)  The characteristics of the DEPB have not changed since the original investigation. The 
scheme is a subsidy contingent in law upon export performance, and it was therefore 
determined  during  the  original  investigation  that  it  is  deemed  to  be  specific  and 
countervailable under Article 3(4)(a) of the basic Regulation. 

Calculation of the subsidy amount 

(18) 

It  was  established  that  the  applicant  transferred  all  the  DEPB  credits  to  its  related 
company Viraj Alloys Ltd. The same practice was also followed by three other related 
Indian  companies  of  the  applicant,  i.e.  Viraj  Forgings  Ltd,  Viraj  Impoexpo  Ltd  and 
Viraj Profiles Ltd. The investigation confirmed that Viraj Alloys Ltd is the provider of 
the raw materials of all the previous mentioned companies and used their transferred 
DEPB credits to make duty-free imports.  

Moreover,  it  was  established  that  exports  of  the  product  concerned  were  made  via 
several related companies. Taking into account that the owners of the applicant control 
all  these  related  companies  through  an  extensive  shareholding  system,  and  that  the 
related companies are involved in certain aspects of the manufacture and distribution 
of the product concerned, it was considered appropriate to treat all these companies as 
a single recipient of the benefit. 

Therefore, the subsidy amount under the DEPB scheme was based on the amount of 
the total credit in the licences granted to both the applicant and its related companies. 
Given  that  the  subsidy  was  not  granted  by  reference  to  the  quantities  exported,  the 
subsidy amount has been allocated over the total export turnover of the applicant and 
its  related  companies  in  accordance  with  the  provisions  of  Article  7(2)  of  the  basic 
Regulation. 

In  conclusion,  VSL  Wires  Limited  benefited  from  this  scheme  during  the  review 
investigation period and obtained subsidies of 12,7%. 

4. Income Tax Exemption Scheme (‘ITES’) 

General 

(19) 

It  was  established  that  the  applicant  received  benefits  under  this  scheme  and  in 
particular under Section 80HHC of the Indian Income Act. 

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The Indian Income Tax Act 1961 sets out the basis for exemptions that can be claimed 
by firms on the collection of taxes. Among the exemptions which can be claimed are 
those  covered  by  Sections  10A  (applicable  for  companies  located  in  Free  Trade 
Zones),  10B  (applicable  for  companies  being  Export  Oriented  Units)  and  80HHC 
(applicable for companies which export goods) of the Act. To benefit from the ITES, a 
firm  has  to  make  the  relevant  claim  when  submitting  its  tax  return  to  the  Tax 
Authorities.  The  tax  year  runs  from  1  April  to  31  March  and  the  tax  return  must  be 
submitted by 30 November of the following year. In this case, the review investigation 
period coincided with the tax and the financial year 1 April 2002 to 31 March 2003. 

(20)  The  characteristics  of  the  ITES  have  not  changed  since  the  original  investigation.  It 
was  determined  during  the  original  investigation  that  the  ITES  is  a  countervailable 
subsidy,  as  the  GOI  confers  a  financial  contribution  to  the  company  by  forgoing 
government revenue in the form of direct taxes on profits from exports which would 
otherwise  be  due  if  the  income  tax  exemptions  were  not  claimed  by  the  company. 
However, it was found that the ITES under Section 80HHC is gradually being phased 
out starting from the financial year 2000-2001 until the financial year 2004-2005 when 
no export profit would be exempted from income tax. During the review investigation 
period only 50% of profits obtained from exports were exempted from income tax. 

(21)  The  subsidy  is  contingent  in  law  upon  export  performance  within  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.  

Calculation of the subsidy amount 

(22)  The benefit to the applicant has been calculated on the basis of the difference between 
the amount of taxes normally due with and without the benefit of the exemption during 
the  review  investigation  period.  The  rate  of  the  income  tax,  including  corporate  tax 
plus surcharge, applicable during this period was 36,75%. In order to establish the full 
benefit  to  the  applicant  and  given  that  three  companies  related  to  the  applicant  have 
also exported the product concerned during the review investigation period (see recital 
(18)  above),  the  amount  of  subsidy  has  been  established  taking  into  account  the 
income  tax  exemptions  under  Section  80HHC  of  the  applicant,  Viraj  Forgings  Ltd, 
Viraj Impoexpo Ltd and Viraj Profiles Ltd. Given that the subsidy was not granted by 
reference  to  the  quantities  exported,  the  subsidy  amount  has  been  allocated  over  the 
total export turnover of the applicant and its related companies in accordance with the 
provisions of Article 7(2) of the basic Regulation. On this basis, it was established that 
VSL Wires Limited obtained under this scheme subsidies of 1,4%. 

5. Export Promotion Capital Goods Scheme (‘EPCGS’) 

(23) 

It was established that the applicant had not availed itself of the EPCGS. 

6. Export Processing Zones (‘EPZ’)/Export Oriented Units (‘EOU’) 

(24) 

It was established that the applicant was not located in an EPZ and was not an EOU 
and, therefore, had not avail of the scheme. 

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7. Other schemes 

(25) 

It  was  established  that  the  applicant  had  neither  made  use  of  new  subsidy  schemes 
which  were  established  after  the  end  of  the  original  investigation  period,  nor  had  it 
received any ad hoc subsidies after this date. 

8. Amount of countervailable subsidies 

(26)  Taking  account  of  the  definitive  findings  relating  to  the  various  schemes  as  set  out 
above, the amount of countervailable subsidies for the applicant is as follows:  

DEPB 

VSL Wires Limited  

12,7% 

ITES 

1,4% 

Total 

14,1% 

E. AMENDMENT OF THE MEASURES BEING REVIEWED 

(27)  Based on the findings made during the investigation, it is considered that imports into 
the Community of stainless steel wire having a diameter of less than 1 mm produced 
and  exported  by  VSL  Wires  Limited  should  be  subject  to  a  level  of  countervailing 
duty  corresponding  to  individual  amounts  of  subsidies  established  for  this  company 
during the review investigation period. 

(28)  Regulation (EC) No 1601/1999 should therefore be amended accordingly.  

F. DISCLOSURE AND DURATION OF THE MEASURES 

(29)  The  Commission  informed  the  applicant  and  the  GOI  of  the  essential  facts  and 
considerations  on  the  basis  of  which  it  was  intended  to  propose  that  Council 
Regulation (EC) No 1601/1999 be amended. They were also given a reasonable period 
of time to comment. 

(30) 

In its response to the disclosure, the applicant claimed that the post-export DEPB is a 
substitution  remission/  drawback  scheme  which  was  wrongly  assessed  by  the 
Commission  in  terms  of  extent  of  subsidy  and  amount  of  countervailable  benefit.  It 
argued  that  the  Commission’s  assessment  of  the  benefits  under  this  scheme  was 
incorrect since only the excess duty drawback could be considered a subsidy and that 
the practical operations of the system have not been investigated by the Commission. 

The Commission has repeatedly concluded (see for example Council Regulation (EC) 
No 1338/20024 and in particular recitals (14) to (20)) that post-export DEPB is not a 
drawback  or  a  substitution  drawback  scheme  as  it  does  not  conform  to  any  of  the 
provisions of Annexes I to III of the basic Regulation linked to its Article 2(1)(ii). The 
scheme  lacks  a  built-in  obligation  to  import  only  goods  that  are  consumed  in  the 
production  of  the  exported  goods  (Annex  II  of  the  basic  Regulation)  which  would 
ensure  that  the  requirements  of  Annex  I  (i)  were  met.  Furthermore,  there  is  no 
verification system in place to check whether the imports are actually consumed in the 

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OJ L 196, 25.7.2002, p.1 

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production process. It is also not a substitution drawback scheme because the imported 
goods do not need to be of the same quantity and characteristics as the domestically 
sourced  inputs  that  were  used  for  export  production  (Annex  III  of  the  basic 
Regulation). Lastly, exporting producers are eligible for the DEPB benefits regardless 
of whether they import any inputs at all. 

In  the  case  of  the  applicant,  the  investigation  confirmed  that  the  raw  materials  were 
imported  duty-free  by  one  of  its  related  companies  with  the  use  of  the  transferred 
DEPB  credits  of  all  related  companies  obtained  from  exports  of  different  products. 
However, no link could be established between each company’s credits and the actual 
imported goods from the sole related company assigned with the task of raw material 
imports. Furthermore, there was no verification system in place by the GOI to control 
what imports were actually consumed into what product and by which company. Since 
the  above  exception  to  the  subsidy  definition  does  not  therefore  apply,  the 
countervailable benefit is the amount of the total credit granted under the scheme. For 
these reasons the claim cannot be accepted. 

The applicant further claimed that “the Commission’s services failed to offset import 
duties  from  the  costs,  thus,  rendering  the  subsidy  calculations  incorrect  and 
exaggerated”.  In  this  respect,  it  should  be  noted  that  the  applicant  was  requested  in 
advance  and  based  on  the  situation  described  in  recital  (18)  above  to  submit  post-
export  DEPB  credits  listings  for  all  its  exports  made  during  the  review  investigation 
period.  The  applicant  was  also  requested  to  submit  the  same  information  for  all 
exports made by its related companies for the same period, along with details of any 
application  fees  or  other  costs  incurred  in  order  to  obtain  the  credits.  However,  the 
applicant has not reported any such details and was not in a position to provide such 
information during the on-spot verification. Therefore, due to the lack of any relevant 
information, no adjustment for such costs could be made on the amount of subsidy as 
established in recital (18) above. 

(31)  This review does not affect the date on which Council Regulation (EC) No 1601/1999 

will expire pursuant to Article 18(1) of the basic Regulation, 

HAS ADOPTED THIS REGULATION: 

The  table  in  Article  1(2)  of  Council  Regulation  (EC)  No  1601/1999  is  hereby  amended  by 
adding the following:  

Article 1 

VSL Wires Limited, 
Tarapur 
G-1/3  MIDC, 
Industrial  Area, 
Boisar 
District,  Thane,  Maharashtra, 
India 

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Article 2 

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

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

Done at Brussels, 

For the Council 
The President 

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