Proposal for a Council Regulation imposing a definitive countervailing duty on imports of certain broad spectrum antibiotics originating in India
Date: 2005-04-04
Institutions: European Commission
Subjects: India, antibiotic, countervailing charge, import (EU), originating product

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 4.4.2005 
COM(2005) 110 final 

Proposal for a 

COUNCIL REGULATION 

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

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

On 8 October 2003, the Commission initiated upon substantiated request of two Community 
producers a combined expiry and interim review of the countervailing duty in force in respect 
of imports of certain broad spectrum antibiotics originating in India.  

The review investigation confirmed (i) continuing subsidisation of the product concerned on a 
higher level than established in the original investigation, which (ii) continues to cause injury 
to  the  Community  industry.  The  lapse  of  measures  would  not  be  in  the  interest  of  the 
Community.  

Therefore, it is suggested that the Council adopts the attached proposal for a Regulation so as 
to increase and prolong existing measures.  

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Proposal for a 

COUNCIL REGULATION 

imposing a definitive countervailing duty on imports of certain broad spectrum 
antibiotics 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  member  of  the  European  Community1  (‘the 
basic Regulation’), and in particular Articles 18 and 19 thereof, 

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

Whereas: 

A. 

I. 

(1) 

PROCEDURE 

Previous investigation and existing measures 

The  Council,  by  Regulation  (EC)  No  2164/982,  imposed  a  definitive  countervailing 
duty on imports of certain broad spectrum antibiotics, namely amoxicillin trihydrate, 
ampicillin  trihydrate  and  cefalexin  not  put  up  in  measured  doses  or  in  forms  or 
packings for retail sale (‘the product concerned’) falling within CN codes ex 2941 10 
10, ex 2941 10 20 and ex 2941 90 00 originating in India. The measures took the form 
of  an  ad  valorem  duty  ranging  between  0%  and  12%  imposed  on  imports  from 
individually named exporters with a residual duty rate of 14,6% imposed on imports 
from other exporters. 

II. 

Request for a combined expiry and interim review 

(2) 

Following the publication of a notice of impending expiry3 of the definitive measures 
in force, the Commission received a request for the initiation of a combined expiry and 
interim review of Council Regulation (EC) No 2164/98 pursuant to Articles 18(2) and 
19(2) of the basic Regulation, from related Community producers of the like product, 
Sandoz GmbH, Austria, and Sandoz Industrial Products S.A., Spain, (‘the applicants’). 
The  applicants  represent  a  major  proportion,  in  this  case  over  40%,  of  the  total 
Community production of certain broad spectrum antibiotics.  

1 

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3 

OJ  L  288,  21.10.97,  p.1,  Regulation  as  last  amended  by  Council  Regulation  No  461/2004  (OJ  L  77, 
13.3.2004, p.12). 
OJ L 273, 9.10.1998, p. 1. 
OJ C 8, 14.1.2003, p.2. 

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(3) 

(4) 

The request was based on the grounds that the expiry of the measures would be likely 
to  result  in  the  continuation  or  recurrence  of  subsidisation  and  injury  to  the 
Community  industry  and  that  the  level  of  the  measures  in  force  was  allegedly 
inappropriate to counteract the subsidisation which was causing the injury. 

Prior  to  the  initiation  of  the  combined  expiry  and  interim  review,  and  in  accordance 
with  Articles  22(1)  and  10(9)  of  the  basic  Regulation,  the  Commission  notified  the 
Government  of  India  (‘the  GOI’)  that  it  had  received  a  properly  documented  review 
request. The GOI was invited for consultations with the aim of clarifying the situation 
as regards the contents of the request and arriving at a mutually agreed solution. The 
GOI declined the Commission’s invitation to have consultations. 

III. 

Initiation of a combined expiry and interim review 

(5) 

The Commission examined the evidence submitted by the applicants and considered it 
sufficient  to  justify  the  initiation  of  a  review  in  accordance  with  the  provisions  of 
Articles  18(2)  and  19(2)  of  the  basic  Regulation.  After  consultation  of  the  Advisory 
Committee, the Commission initiated by a notice published in the Official Journal of 
the  European  Union4,  a  combined  expiry  and  interim  review  of  Council  Regulation 
(EC) No 2164/98. 

IV. 

Investigation period 

(6) 

The investigation covered the period from 1 April 2002 to 31 March 2003 (‘the review 
investigation  period’  or  ‘IP’).  The  examination  of  trends  in  the  context  of  injury 
covered  the  period  from  1  January  1999  up  to  the  end  of  the  review  investigation 
period (‘the period considered’). 

V. 

Parties concerned by the investigation 

(7) 

(8) 

(9) 

The  Commission  officially  informed  the  applicants,  other  known  Community 
producers,  exporting  producers,  importers,  upstream  suppliers,  users  and  the  GOI  of 
the initiation of the investigation. Interested parties had the opportunity to make their 
views  known  in  writing  and  to  request  a  hearing.  The  written  and  oral  comments 
submitted by the parties were considered and, where appropriate, taken into account. 

In  view  of  the  apparently  large  number  of  exporting  producers  of  the  product 
concerned in India which were named in the request, the use of sampling techniques 
for the investigation of subsidisation was envisaged in accordance with Article 27 of 
the basic Regulation. 

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

(10)  The Commission sent questionnaires to all parties known to be concerned who made 
themselves  known  within  the  deadlines  set  in  the  notice  of  initiation.  Replies  were 
received  from  five  Community  producers,  seven  exporting  producers,  one  importer, 
two up-stream suppliers and the GOI. 

4 

OJ C 241, 8.10.2003, p. 7. 

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(11)  The  Commission  sought  and  verified  all  information  it  deemed  necessary  for  the 
determination  of  subsidisation  and  injury  as  well  as  to  determine  whether  there  is  a 
likelihood  of  continuation  or  recurrence  of  subsidisation  and  injury  and  whether 
maintaining or amending the measures would not be against the Community interest. 
Verification visits were carried out at the premises of the following interested parties: 

1. 

Community producers 

DSM  Anti-Infectives  B.V.,  Delft  (The  Netherlands),  which  also  replied 
to  the  Commission’s  questionnaire  on  behalf  of  DSM  Anti-Infectives 
Deretil S.A., Almeria, (Spain) and DSM Anti-Infectives Chemferm S.A., 
Santa Perpetua de Mogoda, (Spain). These three companies are hereafter 
jointly referred to as ‘DSM’. 

Sandoz  GmbH  (formerly  Biochemie  GmbH),  Kundl  (Austria),  which 
also  replied  to  the  Commission’s  questionnaire  on  behalf  of  Sandoz 
Industrial  Products  S.A.  (formerly  Biochemie  S.A.),  Barcelona  (Spain). 
Both companies are hereafter jointly referred to as ‘Sandoz’. 

2.  Government of India 

Ministry of Commerce, New Delhi. 

3. 

Exporting producers in India 

KDL Biotech Ltd. (formerly Kopran Ltd.), Mumbai, 

Orchid Pharmaceuticals and Chemicals Ltd., Chennai, 

Nectar Lifesciences Ltd., Chandigarh, 

Nestor Pharmaceuticals Ltd., New Delhi, 

Ranbaxy Laboratories Ltd., New Delhi, 

Torrent Gujarat Biotech Ltd., Ahmedabad, 

Surya Pharmaceutical Ltd., Chandigarh. 

VI.  Disclosure and comments on procedure 

(12)  The  GOI  and  the  other  interested  parties  were  informed  of  the  essential  facts  and 
considerations  upon  which  it  was  intended  to  propose  the  continuation  of  measures. 
They  were  also  given  a  reasonable  time  to  comment.  Certain  parties  presented  their 
comments  in  writing.  In  addition,  the  GOI  and  three  exporting  producers  presented 
their  positions  in  post-disclosure  hearings  followed  up  by  post-hearing  submissions 
summarizing  their  positions.  All  submissions  and  comments  were  taken  duly  into 
consideration as set out below. 

(13)  The GOI and one exporting producer pointed out during a post-disclosure hearing that 
the  applicants  did  not  produce  one  type  of  the  like  product,  i.e.  cefalexin,  and  claim 

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that therefore in respect of this type the initiation of the investigation should be made 
void. 

(14) 

In  response  to  this  submission,  it  should  be  recalled  that  already  in  the  original 
investigation  it  was  established  that  all  types  of  the  product  under  investigation  (see 
below under Section B.) constitute one single category of product5. All types belong to 
the  same  category,  i.e.  bulk  semisynthetic  broad  spectrum  antibiotics,  and  have  the 
same use, that of being incorporated into finished dosage forms which are effective in 
treating a variety of infectious diseases. Thus, since all types form one product for the 
purpose of this proceeding, which is produced by the applicants, this argument has to 
be refuted.  

(15)  The  GOI  and  one  exporting  producer  contended 

the  non-confidential 
questionnaire  replies  of  the  Community  producers  were  not  sufficiently  detailed  and 
not filed in accordance with Article 29 of the basic Regulation. It was alleged, that a 
lack  of  information  in  the  non-confidential  questionnaire  replies  denied  co-operating 
exporters an effective opportunity to defend their interests in relation to the injury and 
causal link analysis.  

that 

(16) 

B. 

I. 

In this context, it should be noted that, as set out in Section E. below, the Community 
industry in the present investigation consists of only two parties, i.e. Sandoz and DSM. 
In addition, one party produced only amoxicillin trihydrate and ampicillin trihydrate, 
whereas  the  other  produced  cefalexin  as  well.  These  particular  circumstances  with 
regard  to  the  Community  industry  increased  the  confidential  nature  of  certain  data 
provided  during  the  investigation.  In  any  event,  the  file  available  for  inspection  by 
interested parties contains the non-confidential replies to the questionnaire of both co-
operating Community producers, where confidential data have been provided in index 
form in order to permit a reasonable understanding of the substance of the information 
submitted  in  confidence.  Therefore,  the  non-confidential  questionnaire  replies  of  the 
Community producers are still considered in line with the provisions of Article 29 of 
the basic Regulation. In addition, it is pertinent to note, that the indexed injury data as 
disclosed  and  set  out  in  Section  F.  of  this  Regulation  provided  all  interested  parties 
with a sufficiently precise picture on the injury and causality situation, so as to be able 
to assess the analysis and defend their interests.  

PRODUCT CONCERNED AND LIKE PRODUCT 

Product concerned 

(17)  The  product  covered  by  this  review  is  the  same  product  as  the  one  concerned  by 
Council  Regulation  (EC)  No  2164/98,  namely  amoxicillin  trihydrate,  ampicillin 
trihydrate and cefalexin not put up in measured doses or in forms or packings for retail 
sale  falling  within  CN  codes  ex  2941  10  10,  ex  2941  10  20  and  ex  2941  90  00 
originating in India (‘the product concerned’). 

5 

OJ L 166, 11. 06. 1998, p.17, recital (9). 

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II. 

Like Product 

(18)  During  the  post-disclosure  hearing  the  GOI  and  one  exporting  producer  have  drawn 
the attention to the fact that one Community producer mentioned certain differences in 
“stability,  purity,  assay,  galenical  properties  etc.”  when  comparing  the  product 
concerned and the like product. In addition, the only co-operating importer mentioned 
differences with regard to water solubility. 

(19)  However, both the product concerned and the like product have to correspond to the 
same international pharmacopoeias with certain specifications. Thus, though not alike 
in all respects, they closely resemble each other as required by Article 1(5) of the basic 
Regulation. 

(20)  Consequently,  the  investigation  confirmed  that  the  amoxicillin  trihydrate,  ampicillin 
trihydrate  and  cefalexin  produced  and  sold  in  the  Community  by  the  Community 
producers had identical or closely resembling physical characteristics and uses to the 
product concerned and were thus a like product within the meaning of Article 1(5) of 
the basic Regulation. 

C. 

I. 

SUBSIDIES 

Introduction 

(21)  On the basis of the information contained in the review request and the replies to the 
Commission’s  questionnaire,  the  following  schemes,  which  allegedly  involve  the 
granting of subsidies, were investigated:  

1.  Nationwide Schemes  

(a)  Advance Licence Scheme,  

(b)  Duty Entitlement Passbook Scheme, 

(c)  Special Economic Zones/Export Oriented Units Scheme, 

(d)  Export Promotion Capital Goods Scheme, 

(e) 

Income Tax Schemes, 

– 

– 

Export Income Tax Exemption Scheme, 

Income Tax Incentive for Research and Development, 

(f)  Export Credit Scheme. 

(22)  The schemes (a) to (d) specified above are based on the Foreign Trade (Development 
and Regulation) Act 1992 (No 22 of 1992) which entered into force on 7 August 1992 
(‘Foreign Trade Act’). The Foreign Trade Act authorises the GOI to issue notifications 
regarding the export and import policy. These are summarised in ‘Export and Import 
Policy’  documents,  which  are  issued  by  the  Ministry  of  Commerce  every  five  years 
and  updated  regularly.  One  Export  and  Import  Policy  document  is  relevant  to  the 
review investigation period of this case; i.e. the five-year plan relating to the period 1 

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April  2002  to 31  March  2007 (‘EXIM-policy 02-07’). In addition, the GOI also  sets 
out the procedures governing the EXIM-policy 02-07 in a ‘Handbook of Procedures - 
1  April  2002  to  31  March  2007,  Volume  I’  (‘HOP  I  02-07’)6.  The  Handbook  of 
Procedure is also updated on a regular basis. 

(23)  The Income Tax Schemes specified above under (e) are based on the Income Tax Act 

of 1961, which is amended yearly by the Finance Act. 

(24)  The Export Credit Scheme specified above under (f) is based on sections 21 and 35A 
of the Banking Regulation Act 1949, which allow the Reserve Bank of India (‘RBI’) 
to direct commercial banks in the field of export credits.  

2. 

Regional Schemes 

(25)  On the basis of the information contained in the review request and the replies to the 
Commission’s questionnaire, the Commission also investigated a number of schemes 
which  allegedly  are  granted  by  regional  governments  or  authorities  in  certain  Indian 
states. 

(a)  State of Punjab, 

– 

– 

Punjab Industrial Incentive Scheme. 

This  scheme  is  based  on  the  industrial  policy  and  incentives  code  of  the 
Government of Punjab. 

(b)  State of Gujarat, 

– 

– 

– 

Gujarat Industrial Incentive Scheme, 

Refund of Electricity Duty. 

The first scheme is based on Gujarat’s industrial incentive policy whereas the 
second scheme is based on the Bombay Electricity Duty Act of 1958.  

(c)  State of Maharashtra, 

– 

Package  Scheme  of  Incentives  of  the  Government  of  Maharashtra  (‘the 
GOM’).  This  scheme  is  based  on  resolutions  of  the  GOM  Industries,  Energy 
and Labour Department. 

(26)  One  income  tax  scheme  (income  tax  incentive  for  research  and  development)  and 
three regional schemes (Punjab industrial incentives, Gujarat industrial incentives and 
Gujarat  refund  of  electricity  duty)  were  not  mentioned  in  the  review  request. 
Therefore,  in accordance with Articles 22(1)  and 11(10) of  the basic Regulation,  the 
Commission  notified  the  GOI  about  a  possible  extension  of  the  scope  of  the 
investigation in order to include these schemes. The GOI was invited for consultations 
with  the  aim  of  clarifying  the  factual  situation  as  regards  the  alleged  schemes  and 
arriving  at  a  mutually  agreed  solution.  Following  these  consultations,  and  in  the 

6 

Notification No 1/2002-07 of 31. 03. 2002 of the Ministry of Commerce and Industry of the GOI. 

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absence  of  a  mutually  agreed  solution  in  relation  to  these  four  schemes,  the 
Commission included these schemes in the investigation of subsidisation. 

3.  General disclosure comments on subsidisation 

(27)  Two  exporting  producers  contended  that  the  Advance  Licence  Scheme,  the  Income 
Tax Incentive Scheme for Research and Development and the Export Credit Scheme 
should  be  excluded  from  the  scope  of  the  present  investigation,  because  a  review 
should  only  cover  schemes  originally  investigated.  In  this  case,  these  three  schemes 
and  the  regional  schemes  investigated  were  not  investigated  during  the  original 
investigation. 

(28)  However,  the  relevant  provisions  of  the  basic  Regulation  concerning  interim  and 
expiry  reviews  do  not  stipulate  such  a  narrow  approach  in  reviews.  For  example,  an 
interim review could lead to an increase of measures, in line with Article 19(2) of the 
basic Regulation, if the existing ones were insufficient to counteract a countervailable 
subsidy.  Article  19(4)  of  the  basic  Regulation  further  requires  an  examination  to 
“consider  whether  the  circumstances  with  regard  to  subsidisation  …have  changed 
significantly”.  Thus,  an  interim  review  concerning  subsidisation  can  lead per  se to a 
complete  re-evaluation  of  the  subsidisation  framework,  not  just  the  subsidy  schemes 
originally  investigated,  which  possibly  could  benefit  the  product  concerned.  In 
addition,  an  expiry  review  need  not  solely  focus  on  schemes  originally  investigated. 
Article  18(2)  of  the  basic  Regulation  refers  to  “continuation  or  recurrence  of 
subsidisation”,  viz  in  general,  and  not  to  subsidy  schemes  originally  investigated. 
Consequently,  reviews  are  not  limited  to  schemes  originally  investigated,  but 
necessitate a determination of present and future subsidisation, including programs not 
originally investigated. In fact, it is only such an approach which leads to an adequate 
analysis  of  the  factual  situation  concerning  subsidisation  during  a  given  review 
investigation period. Otherwise, governments could effectively shield themselves from 
subsidy disciplines by simply renaming a scheme or making slight structural changes 
in it. This would frustrate the object and purpose of countervailing measures, which is 
to offset injurious subsidisation. 

II. 

Nationwide Schemes 

1 

Advance Licence Scheme (‘ALS’) 

(a)  Legal basis 

(29)  The detailed description of the scheme is contained in paragraphs 4.1.1 to 4.1.14 of the 

EXIM-policy 02-07 and chapters 4.1 to 4.30 of the HOP I 02-07.  

(b)  Eligibility 

(30)  The ALS consists of six sub-schemes, as described in more detail in recital (31). Those 
sub-schemes  inter  alia  differ  in  the  scope  of  eligibility.  Manufacturer-exporters  and 
merchant-exporters  “tied  to”  supporting  manufacturers  are  eligible  for  the  ALS 
physical  exports  and  for  the  ALS  for  annual  requirement.  Manufacturer–exporters 
supplying  the  ultimate  exporter  are  eligible  for  ALS  for  intermediate  supplies.  Main 
contractors  which  supply  to  the  “deemed  export”  categories  mentioned  in  paragraph 
8.2 of the EXIM-policy 02-07, such as suppliers of an export oriented unit (‘EOU’), 

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are  eligible  for  ALS  deemed  export.  Eventually, 
to 
manufacturer-exporters  are  eligible  for  “deemed  export”  benefits  under  the  sub-
schemes Advance Release Order (‘ARO’) and back to back inland letter of credit. 

intermediate  suppliers 

(c)  Practical implementation 

(31)  Advance licences can be issued for: 

(i)  Physical exports: This is the main sub-scheme. It allows for duty free import of 
input  materials  for  the  production  of  a  specific  resultant  export  product. 
“Physical”  in  this  context  means  that  the  export  product  has  to  leave  Indian 
territory. Import allowance and export obligation including the type of export 
product are specified in the licence. 

(ii)  Annual requirement: Such a licence is not linked to a specific export product, 
but  to  a  wider  product  group  (e.g.  chemical  and  allied  products).  The  licence 
holder can – up to a certain value threshold set by its past export performance - 
import duty free any input to be used in manufacturing any of the items falling 
under  such  a  product  group.  It  can  choose  to  export  any  resultant  product 
falling under the product group using such duty-exempt material.  

(iii)  Intermediate supplies: This sub-scheme covers cases where two manufacturers 
intend  to  produce  a  single  export  product  and  divide  the  production  process. 
The  manufacturer-exporter  produces  the  intermediate  product.  It  can  import 
duty  free  input  materials  and  can  obtain  for  this  purpose  an  ALS  for 
intermediate  supplies.  The  ultimate  exporter  finalizes  the  production  and  is 
obliged to export the finished product.  

(iv)  Deemed  exports:  This  sub-scheme  allows  a  main  contractor  to  import  inputs 
free of duty which are required in manufacturing goods to be sold as “deemed 
exports”  to  the  categories  of  customers  mentioned  in  paragraph  8.2.(b)  to 
(f),(g),(i)  and  (j)  of  the  EXIM  policy  02-07.  According  to  the  GOI,  deemed 
exports refer to those transactions in which the goods supplied do not leave the 
country.  A  number  of  categories  of  supply  is  regarded  as  deemed  exports 
provided the goods are manufactured in India, e.g. supply of goods to an EOU 
or to a company situated in a special economic zone (‘SEZ’).  

(v)  ARO: The ALS holder intending to source the inputs from indigenous sources, 
in lieu of direct import, has the option to source them against AROs. In such 
cases  the  Advance  Licences  are  validated  as  AROs  and  are  endorsed  to  the 
indigenous  supplier  upon  delivery  of  the  items  specified  therein.  The 
endorsement  of  the  ARO  entitles  the  indigenous  supplier  to  the  benefits  of 
deemed exports as set out in paragraph 8.3 of the EXIM-policy 02-07 (i.e. ALS 
for intermediate supplies/deemed export, deemed export drawback and refund 
of terminal excise duty). The ARO mechanism refunds taxes and duties to the 
supplier instead of refunding the same to the ultimate exporter in the form of 
drawback/refund  of  duties.  The  refund  of  taxes/duties  is  available  both  for 
indigenous inputs as well as imported inputs.  

(vi)  Back to back inland letter of credit: This sub-scheme again covers indigenous 
supplies to an ALS holder. The holder of an ALS can approach a bank for 

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opening an inland letter of credit in favour of an indigenous supplier. The 
licence will be invalidated by the bank for direct import, only in respect of the 
value and volume of items being sourced indigenously instead of importation. 
The indigenous supplier will be entitled to deemed export benefits as set out in 
paragraph 8.3 of the EXIM-policy 02-07 (i.e. ALS for intermediate 
supplies/deemed export, deemed export drawback and refund of terminal 
excise duty).  

It was established that during the review investigation period, the co-operating 
exporters only obtained concessions under four sub-schemes linked to the 
product concerned, i.e. (i) ALS physical exports, (ii) ALS for annual 
requirement, (iii) ALS for intermediate supplies as furnisher to an ultimate 
exporter and (iv) ALS deemed export as supplier to EOUs/units in SEZs. It is 
therefore not necessary to establish the countervailability of (v) the ARO 
scheme and (vi) the back to back inland letter of credit scheme.  

(32)  For verification purposes by the Indian authorities, a licence holder is legally obliged 
to maintain “a true and proper account of licence-wise consumption and utilisation of 
imported  goods”  in a specified format (chapter 4.30 and appendix 18 HOP I 02-07), 
i.e. an actual consumption register (“appendix 18 register”).  

(33) 

(34) 

(35) 

(36) 

In regard to the sub-schemes (i), (iii) and (iv) listed above under recital (31), both the 
import  allowance  and  the  export  (including  deemed  export)  obligation  are  fixed  in 
volume and value by the GOI and are documented on the licence. In addition, at the 
time of import and of export, the corresponding transactions are to be documented by 
Government  officials  on  the  licence.  The  volume  of  imports  allowed  under  this 
scheme  is  determined  by  the  GOI  on  the  basis  of  standard  input-output  norms 
(‘SIONs’).  SIONs  exist  for  most  products  including  the  product  concerned  and  are 
published in the HOP II 02-07.  

In  case  of  the  sub-scheme  (ii)  listed  above  under  recital  (31)  (ALS  for  annual 
requirement),  only  the  import  allowance  in  value  is  documented  on  the  licence.  The 
licence  holder  is  obliged  to  “maintain  the  nexus  between  imported  inputs  and  the 
resultant product” (paragraph 4.24A(c) HOP I 02-07).  

Imported  input  materials  are  not  transferable  and  have  to  be  used  to  produce  the 
resultant  export  product.  The  export  obligation  must  be  fulfilled  within  a  prescribed 
time frame after issuance of the licence (18 months with two possible extensions of 6 
months  each).  In  case  of  an  ALS  for  annual  requirement,  no  extension  of  the  time 
frame is allowed.  

In  the  course  of  the  review  investigation  it  was  established  that  the  input  materials 
imported  according  to  the  SIONs  import  allowance  duty-free  under  the  various  sub-
schemes by the co-operating exporters exceeded the material they needed to produce 
the reference quantity of the resultant export product. Thus, the SIONs for the product 
concerned  were  not  accurate.  Furthermore,  during  the  review  investigation  period, 
none of the co-operating exporters kept a correct actual consumption register based on 
real  consumption.  In  four  cases,  such  register  was  not  kept  at  all  despite  a  legal 
obligation to do so (see recital (32) above). In two cases, no actual consumption was 
registered by the companies. Neither the investigated exporters nor the GOI were able 
to demonstrate that the import duty exemption did not lead to an excess remission. 

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(d)  Disclosure comments 

(37)  The  GOI  and  five  co-operating  exporters  submitted  comments  on  the  ALS.  They 
claimed  that  the  ALS  operates  as  a  permitted  drawback  or  substitution  drawback 
system,  which  allegedly  resembles  the  EC  inward  processing  system,  with  a 
verification  system  in  conformity  with  the  provisions  of  Annexes  I,  II  and  III  of  the 
basic Regulation in place to monitor the nexus between duty free imported inputs and 
the resultant export products. The GOI and two exporters further contended that only 
an  excess  remission  of  duties  could  be  countervailed.  With  regard  to  a  verification 
system, they insisted that an adequate verification system was in place. In this context 
they referred to a number of verification elements which were available to the GOI for 
such  verification,  including:  SIONs,  quantity  information  on  import  and  export 
documents,  a  customs  bond  register  of  imports  and  exports  under  the  ALS,  a 
consumption  register,  a  Duty  Entitlement  Export  Certification  book  (‘DEEC  book’), 
redemption  verification  after  fulfilment  of  importation  and  exportation,  additional 
checks in the context of the Indian excise and customs duty administration, periodical 
audits  and  legal  prosecutions  in  case  of  “diversion”.  However,  the  GOI  and  one 
exporter admitted the SIONs “can lower that what is actually consumed”. In addition, 
no exporter provided sufficient evidence that it fulfilled its obligation to properly keep 
the actual consumption register mandated by the EXIM-policy. Further, two exporters 
claimed  that  the  investigating  authority  should  have  calculated  an  excess  remission 
itself.  Finally,  it  has  been  claimed  that  the  EC  is  bound  by  past  precedents  not  to 
countervail  the  ALS.  One  exporter  provided,  after  the  post-disclosure  hearing,  a 
calculation of duties remitted in excess.  

(e)  Conclusion 

(38)  The  exemption  from  import  duties  is  a  subsidy  within  the  meaning  of  Article 
2(1)(a)(ii) and Article 2(2) of the basic Regulation, i.e. a financial contribution of the 
GOI which conferred a benefit upon the investigated exporters.  

(39) 

In  addition,  ALS  physical  exports,  ALS  for  annual  requirement  and  ALS  for 
intermediate  supply  are  clearly  contingent  in  law  upon  export  performance,  and 
therefore deemed to be specific and countervailable under Article 3(4)(a) of the basic 
Regulation.  Without  an  export  commitment  a  company  cannot  obtain  benefits  under 
these schemes. 

(40)  ALS  deemed  export  under  the  modalities  of  the  present  case  is  de  facto  contingent 
upon export performance. It was only used by one company to a minor extent and only 
when  supplying  EOUs  or  units  in  a  SEZ,  both  categories  mentioned  in  paragraph 
8.2(b)  of  the  EXIM-policy  02-07.  This  company  stated  that  its  customers  eventually 
exported  the  product  concerned.  The  objective  of  an  EOU/SEZ  is  exportation  as  set 
out  in  paragraph  6.1  of  the  EXIM-policy  02-07.  Thus,  a  domestic  supplier  obtains 
benefits  under  the  ALS  deemed  export,  because  the  GOI  anticipates  export  earnings 
subsequently  received  by  an  exporter  located  in  an  EOU/SEZ.  According  to  Article 
3(4)(a)  of  the  basic  Regulation,  a  subsidy  shall  be  considered  as  export  contingent 
when  the  facts  demonstrate  that  the  granting  of  a  subsidy,  though  not  legally 
contingent  upon  export  performance,  is  in  fact  tied  to  actual  or  anticipated  export 
earnings. 

EN 

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   EN 

 
(41)  None  of  the  four  sub-schemes  used  in  the  present  case  can  be  considered  as 
permissible  duty  drawback  systems  or  substitution  drawback  systems  within  the 
meaning of Article 2(1)(a)(ii) of the basic Regulation. This finding is confirmed after 
careful consideration of the disclosure submissions. They do not conform to the strict 
rules laid down in Annex I item (i), Annex II (definition and rules for drawback) and 
Annex III (definition and rules for substitution drawback) of the basic Regulation. The 
GOI did not effectively apply its verification system or procedure to confirm whether 
and in what amounts inputs were consumed in the production of the exported product 
(Annex  II(II)(4)  of  the  basic  Regulation  and,  in  the  case  of  substitution  drawback 
schemes,  Annex  III(II)(2)  of  the  basic  Regulation).  The  SIONs  for  the  product 
concerned  were  not  sufficiently  precise.  No  disclosure  comment  has  changed  this 
finding. To the contrary, the GOI even admitted the SIONs were inaccurate. Thus, it is 
confirmed  that  the  SIONs  themselves  cannot  be  considered  a  verification  system  of 
actual consumption, because the design of those overly generous standard norms does 
not  enable  the  GOI  to  verify  with  sufficient  precision  what  amount  of  inputs  were 
consumed in the export production. Furthermore, an effective control done by the GOI 
based on a correctly kept actual consumption register (“appendix 18 register”), did not 
take place. In addition, the GOI did not carry out a further examination based on actual 
inputs involved, although this would normally need to be carried out in the absence of 
an effectively applied verification system (Annex II(II)(5) and Annex III(II)(3) to the 
basic Regulation), nor did it prove, that no excess  remission  took  place.  The  alleged 
comparability of the ALS with the EC inward processing system is irrelevant since the 
EC system is not subject to the present investigation.  

(42)  The other verification elements claimed upon disclosure either no longer exist (i.e. the 
DEEC-book  was  abolished  by  the  EXIM  policy  02-07)  or  are  apparently,  in  the 
absence  of  an  effective  control  of  actual  consumption  registers,  based  on  the  overly 
generous SIONs, which is not sufficient (i.e. information on import export documents, 
customs  bond  register,  redemption  control  of  ALS).  Auditing  reports  of  the  Indian 
authorities  with  regard  to  the  exporting  producers  under  investigation  have  not  been 
provided. 

(43)  Finally, since the ALS was never previously analysed on a basis of facts comparable 
with  those  established  during  the  present  investigation,  in  particular  in  view  of  the 
imprecision  of  the  SIONs  for  the  product  concerned,  no  binding  precedent  not  to 
countervail the scheme exists. 

(44)  These four sub-schemes are therefore countervailable.  

(f)  Calculation of the subsidy amount 

(45) 

In the absence of permitted duty drawback systems or substitution drawback systems, 
the countervailable benefit is the remission of total import duties normally due upon 
importation  of  inputs.  Contrary  to  the  disclosure  submissions  made  by  the  GOI  and 
two exporters, the basic Regulation does not only provide for the countervailing of an 
“excess”  remission  of  duties.  According  to  Article  2(1)(a)(ii)  and  Annex  I(i)  of  the 
basic Regulation only an excess remission of duties can be countervailed, provided the 
conditions  of  Annexes  II  and  III  of  the  basic  Regulation  are  met.  However,  these 
conditions  were  not  fulfilled  in  the  present  case.  Thus,  if  an  absence  of  an  adequate 
monitoring  process  is  established,  the  above  exception  for  drawback  schemes  is  not 
applicable  and  the  normal  rule  of  the  countervailing  of  the  amount  of  (revenue 

EN 

13 

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foregone)  unpaid  duties,  rather  than  any  purported  excess  remission,  applies.  As  set 
out  in  Annexes  II(II)  and  III(II)  of  the  basic  Regulation  the  burden  is  not  upon  the 
investigating authority to calculate such excess remission. To the contrary, according 
to Article 2(1)(a)(ii) of the basic Regulation it only has to establish sufficient evidence 
to  refute  the  appropriateness  of  an  alleged  verification  system.  It  should  further  be 
noted,  that  an  additional  examination  by  the  Indian  authorities  in  the  absence  of  an 
effectively  applied  verification  system  needs  to  be  done  in  a  timely  manner,  i.e. 
normally before the on the spot verification in a countervailing duty investigation. The 
calculation of a duty remission in excess provided by one exporter after disclosure is 
neither timely nor done by the GOI. Therefore, it has to be disregarded.  

(46)  The  subsidy  amounts  for  the  exporters  which  used  the  ALS  were  calculated  on  the 
basis  of  import  duties  forgone  (basic  customs  duty  and  special  additional  customs 
duty)  on  the  material  imported  under  the  four  sub-schemes  used  for  the  product 
concerned  during  the  review  investigation  period  as  set  out  under  recital  (31) 
(nominator).  In  accordance  with  Article  7(1)(a)  of  the  basic  Regulation,  fees 
necessarily  incurred  to  obtain  the  subsidy  were  deducted  from  the  subsidy  amounts 
where  justified  claims  were  made.  In  accordance  with  Article  7(2)  of  the  basic 
Regulation,  these  subsidy  amounts  have  been  allocated  over  the  export  turnover 
generated  by  the  product  concerned  during  the  review  investigation  period  as 
appropriate denominator, because the subsidy is contingent upon export performance 
and was not granted by reference to the quantities manufactured, produced, exported 
or transported.  

(47)  Six companies benefited from this scheme during the review investigation period and 

obtained subsidies of between 22,0% and 25,8% (see table in recital (154) below). 

2. 

Duty Entitlement Passbook Scheme (‘DEPBS’) 

(a)  Legal Basis 

(48)  The  detailed  description  of  the  DEPBS  is  contained  in  paragraph  4.3  of  the  EXIM-

policy 02-07 and in chapter 4 of the HOP I 02-07.  

(b)  Eligibility 

(49)  Any manufacturer-exporter or merchant-exporter is eligible for this scheme.  

(c)  Practical implementation of the DEPBS 

(50)  An eligible exporter can apply for DEPBS credits which are calculated as a percentage 
of  the  value  of  products  exported  under  this  scheme.  Such  DEPBS  rates  have  been 
established  by  the  Indian  authorities  for  most  products,  including  the  product 
concerned.  They  are  determined  on  the  basis  of  SIONs,  taking  into  account  a 
presumed  import  content  of  inputs  in  the  export  product  and  the  customs  duty 
incidence on such presumed imports, regardless of whether import duties have actually 
been paid or not.  

(51)  To be eligible for benefits under this scheme, a company must export. At the point in 
time  of  the  export  transaction,  a  declaration  must  be  made  by  the  exporter  to  the 
authorities  in  India  indicating  that  the  export  is  taking  place  under  the  DEPBS.  In 

EN 

14 

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order  for  the  goods  to  be  exported,  the  Indian  customs  authorities  issue,  during  the 
dispatch  procedure,  an  export  shipping  bill.  This  document  shows,  inter  alia,  the 
amount  of  DEPBS  credit  which  is  to  be  granted  for  that  export  transaction.  At  this 
point  in  time,  the  exporter  knows  the  benefit  it  will  receive.  Once  the  customs 
authorities issue an export shipping bill, the GOI has no discretion over the granting of 
a  DEPBS  credit.  The  relevant  DEPBS  rate  to  calculate  the  benefit  is  that  which 
applied at the time the export declaration is made. Therefore, there is no possibility for 
a retroactive amendment to the level of the benefit. 

(52) 

It was also found that in accordance with Indian accounting standards, DEPBS credits 
can  be  booked  on  an  accrual  basis  as  income  in  the  commercial  accounts,  upon 
fulfilment of the export obligation. 

(53)  Such credits can be used for payment of customs duties on subsequent imports of any 
goods  unrestrictedly  importable,  except  capital  goods.  Goods  imported  against  such 
credits can be sold on the domestic market (subject to sales tax) or used otherwise. 

(54)  DEPBS  credits  are  freely  transferable  and  valid  for  a  period  of  12  months  from  the 

date of issue. 

(55)  An  application  for  DEPBS  credits  can  cover  up  to  25  export  transactions  and,  if 
electronically  filed,  an  unlimited  amount  of  export  transactions.  De  facto,  no  strict 
deadlines  to  apply  for  DEPBS  credits  exist,  because  the  time  periods  mentioned  in 
chapter 4.47 HOP I 02-07 are always counted from the most recent export transaction 
included in a given DEPBS application.  

(d)  Disclosure Comments 

(56)  Upon  disclosure  three  exporters,  which  received  benefits  under  this  scheme, 
commented on the DEPBS analysis as set out above. They submitted that (i) contrary 
to the findings in recitals (53) and (59) materials imported under the DEPBS allegedly 
have  to  be  used  for  export  production  and  DEPBS  credit  can  allegedly  only  be 
obtained if goods are exported which bear import duties on its input materials, (ii) the 
new  calculation  methodology  for  countervailable  amounts  (focus  on  the  export 
transaction, see below under recital (61) to (62)) should not be used, because a benefit 
is  allegedly  only  conferred  upon  usage  of  the  credit  and  for  the  reason  that  the  new 
approach  discriminatorily  departs  from  earlier  EC-precedence,  (iii)  DEBPS  should 
only  be  countervailed  to  the  extent  that  such  credits  were  obtained  for  the  product 
concerned and (iv) a DEPBS-rate reduction which took place in February 2004 should 
be taken into consideration. 

(e)  Conclusions on the DEPBS 

(57)  The  DEPBS  provides  subsidies  within  the  meaning  of  Article  2(1)(a)(ii)  and  Article 
2(2) of the basic Regulation. A DEPBS credit is a financial contribution by the GOI, 
since  the  credit  will  eventually  be  used  to  offset  import  duties,  thus  decreasing  the 
GOI’s  duty  revenue  which  would  be  otherwise  due.  In  addition,  the  DEPBS  credit 
confers a benefit upon the exporter, because it improves its liquidity. 

EN 

15 

   EN 

 
(58)  Furthermore, the DEPBS is contingent in law upon export performance, and therefore 
deemed  to  be  specific  and  countervailable  under  Article  3(4)(a)  of  the  basic 
Regulation.  

(59)  This scheme cannot be considered a permissible duty drawback system or substitution 
drawback system within the meaning of Article 2(1)(a)(ii) of the basic Regulation. It 
does not conform to the strict rules laid down in Annex I item (i), Annex II (definition 
and rules for drawback) and Annex III (definition and rules for substitution drawback) 
of  the  basic  Regulation.  An  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. Moreover, there is no system or procedure 
in  place  to  confirm  which  inputs  are  consumed  in  the  production  process  of  the 
exported product or whether an excess payment of import duties occurred within the 
meaning of item (i) of Annex I and Annexes II and III of the basic Regulation. Lastly, 
an  exporter  is  eligible  for  the  DEPBS  benefits  regardless  of  whether  it  imports  any 
inputs  at  all.  In  order  to  obtain  the  benefit,  it  is  sufficient  for  an  exporter  to  simply 
export goods without demonstrating that any input material was imported. Thus, even 
exporters which procure all of their inputs locally and do not import any goods which 
can be used as inputs are still entitled to benefit from the DEPBS.  

(60)  Neither  the  claim  made  by  one  exporter  that  materials  imported  under  this  scheme 
have to be used for export production nor the allegation that DEPBS-credits can only 
be obtained under the condition that input material used bears an import duty burden, 
have been substantiated. In this context it should also be noted, that the GOI did at no 
point in time contest the factual description of the DEPBS as set out above. Therefore, 
those claims have to be rejected.  

(61) 

(f)  Calculation of the subsidy amount 

In  accordance  with  Articles  2(2)  and  5  of  the  basic  Regulation,  the  amount  of 
countervailable  subsidies  was  calculated  in  terms  of  the  benefit  conferred  on  the 
recipient, which is found to exist during the review investigation period. In this regard, 
it  was  considered  that  the  benefit  is  conferred  on  the  recipient  at  the  point  in  time 
when  an  export  transaction  is  made  under  this  scheme.  At  this  moment  the  GOI  is 
liable  to  forego  the  customs  duties,  which  constitutes  a  financial  contribution  within 
the  meaning  of  Article  2(1)(a)(ii)  of  the  basic  Regulation.  As  stated  in  recital  (51) 
above,  once  the  customs  authorities  issue  an  export  shipping  bill  which  shows,  inter 
alia, the amount of DEPBS credit which is to be granted for that  export transaction, 
the  GOI  has  no  discretion  as  to  whether  or  not  to  grant  the  subsidy  and  it  has  no 
discretion as to the amount of  the subsidy. Also, as stated above in  the same  recital, 
any  change  of  the  DEPBS  rates  between  the  actual  export  and  the  issuance  of  a 
DEPBS  licence  has  no  retroactive  effect  on  the  level  of  the  benefit  granted. 
Furthermore,  as  stated  in  recital  (52)  above,  companies  can,  in  line  with  Indian 
accounting  standards,  book  the  DEPBS  credits  on  an  accrual  basis  as  income  at  the 
stage of export transaction. Finally, by virtue of the fact that a company is aware that it 
will receive a subsidy under the DEPBS, and indeed benefits under other schemes, the 
company is already in a more advantageous competitive position, because it can reflect 
the subsidies through offering lower prices. 

(62)  The rationale for imposing a countervailing duty, though, is to redress unfair trading 
practices based on illicit competitive advantage. In light of the above, it is considered 

EN 

16 

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appropriate  to  assess  the  benefit  under  the  DEPBS  as  being  the  sum  of  the  credits 
earned  on  all  export  transactions  made  under  this  scheme  during  the  investigation 
period.  

(63)  The  comments  on  the  disclosure  have  not  led  to  a  revision  of  this  calculation 
approach.  The  new  methodology  has  already  been  used  in  the  recent  past  by  the 
European  Communities  for  example  in  the  context  of  the  graphite  electrode  system 
case7. In addition, the principles of legal certainty and legitimate expectations do not 
prevent  such  change  of  methodology.  Firstly,  the  new  approach  does  not  result  in  a 
complete re-evaluation of the scheme, which, indeed, has always been countervailable. 
It only concerns the calculation of the subsidy amount in order to link it more closely 
to the factual situation during a given investigation period. Secondly, this approach is 
inter  alia  the  consequence  of  facts  established  by  the  Commission  in  the  course  of 
recent investigations, e.g. the booking of DEPBS credits on an accrual basis according 
to Indian accounting standards and the de facto non-existence of application deadlines 
for such  credits  under the EXIM policy. Furthermore, the disclosure comments have 
confirmed  that  at  the  moment  of  the  export  transaction  made  under  this  scheme  an 
exporter  has  obtained  an  irrevocable  entitlement  for  DEPBS  credits.  However,  such 
moment is decisive in order to establish conferral of a benefit as set out above under 
recital  (61),  not  the  subsequent  usage,  because  an  exporter  already  with  such  vested 
right is “better off” in financial terms. 

(64)  Contrary  to  the  submission  of  some  exporting  producers,  even  DEPBS  credit 
generated by exporting non-product concerned had to be considered when establishing 
the amount of countervailable DEPBS credit. Under the DEPBS no  obligation exists 
which  limits  the  use  of  the  credits  to  import  duty-free  input  material  linked  to  a 
specific product. On the contrary, DEPBS credits are freely transferable, can even be 
sold  and  be  used  for  imports  of  any  unrestrictedly  importable  goods  (the  input 
materials  of  the  product  concerned  belong  to  this  category),  except  capital  goods. 
Consequently, the product concerned can benefit from all DEPBS credits generated.  

(65)  Furthermore,  DEPBS  rate  reductions  subsequent  to  the  review  investigation  period 
cannot  be  considered,  since  Article  11(1)  of  the  basic  Regulation  provides  that 
information relating to a period subsequent to the IP shall not, normally, be taken into 
account. Besides,  no guarantee exists that the GOI will not increase DEPBS rates in 
the future.  

(66)  Where justified claims were made, fees necessarily incurred to obtain the subsidy were 
deducted from the credits so established to arrive at the subsidy amounts as nominator, 
Article  7(1)(a)  of  the  basic  Regulation.  In  accordance  with  Article  7(2)  of  the  basic 
Regulation these subsidy amounts have been allocated  over  the total export turnover 
during  the  review  investigation  period  as  appropriate  denominator,  because  the 
subsidy is contingent upon export performance and it was not granted by reference to 
the  quantities  manufactured,  produced,  exported  or  transported.  Five  companies 
benefited  from  this  scheme  during  the  review  investigation  period  and  obtained 
subsidies of between 3,2% and 8,0% (see table in recital (154) below).  

7 

Council Regulation (EC) No 1628/2004 of 13. 09. 2004, OJ L 295, p. 4 (recital (13)).  

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3. 

Export Oriented Units Scheme (‘EOUS’)/Special Economic Zones Scheme (‘SEZS’) 

(a)  Legal basis 

(67)  The  details  of  these  schemes  are  contained  in  chapters  6  (EOUS)  and  7  (SEZS) 

respectively of the EXIM-policy 02-07 and of the HOP I 02-07.  

(b)  Eligibility 

(68)  With  the  exception  of  pure  trading  companies,  all  enterprises  which,  in  principle, 
undertake to export their entire production of goods or services may be set up under 
the SEZS or the EOUS. However, unlike services and agriculture, undertakings in the 
industrial  sectors  have  to  fulfil  a  minimum  investment  threshold  in  fixed  assets  (10 
million Indian rupees) to be eligible for the EOUS. 

(c)  Practical implementation 

(69)  The  SEZS  is  the  successor  scheme  of  the  former  Export  Processing  Zones  Scheme 
(‘EPZS’).  SEZs  are  specifically  delineated  duty  free  enclaves  and  considered  by  the 
EXIM-policy 02-07 as foreign territory for the purpose of trade operations, duties and 
taxes. 14 SEZs already operate and another 13 SEZs have been approved by the Indian 
authorities for establishment. 

(70)  EOUs  on  the  other  side,  are  geographically  more  flexible  and  can  be  established 

anywhere in India. This scheme is complementary to the SEZS.  

(71)  An application for EOU or SEZ status must include details for a period of the next five 
years on, inter alia, planned production quantities, projected value of exports, import 
requirements  and  indigenous  requirements.  If  the  authorities  accept  the  company’s 
application, the terms and conditions attached to the acceptance will be communicated 
to  the  company.  The  agreement  to  be  recognised  as  a  company  under  SEZ/EOU  is 
valid for a five-year period. The agreement may be renewed for further periods. 

(72)  A crucial obligation of an EOU or an SEZ as set out in the EXIM-policy 02-07 is to 
achieve net foreign exchange (‘NFE’) earnings, i.e. in a reference period (5 years) the 
total value of exports has to be higher than the total value of imported goods. 

(73)  EOU/SEZ units are entitled to the following concessions: 

(i) 

exemption  from  import  duties  on  all  types  of  goods  (including  capital  goods, 
raw  materials  and  consumables)  required  for  the  manufacture,  production, 
processing, or in connection therewith; 

(ii) 

exemption from excise duty on goods procured from indigenous sources; 

(iii)  reimbursement of central sales tax paid on goods procured locally; 

(iv) 

facility  to  sell  a  part  of  production  on  the  domestic  market  on  payment  of 
applicable  duties  on  the  finished  product  as  an  exception  to  the  general 
requirement to export the entire production; 

EN 

18 

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(v) 

exemption from income tax normally due on profits realised on export sales in 
accordance with Section 10A or Section 10B of the Income Tax Act, for a 10 
years period after starting its operations, but no longer than up to 2010; 

(vi)  possibility of 100 % foreign equity ownership. 

(74)  Although  the  concessions  under  both  schemes  are  largely  comparable,  some 
differences  exist.  For  instance,  only  an  EOU  can  obtain  a  50%  reduction  of  duties 
payable upon domestic sales (DTA sales), whereas in an SEZ 100% of the duties are 
payable on such sales. An EOU unit can sell up to 50% of its turnover domestically at 
such reduced rate. 

(75)  Units  operating  under  these  schemes  are  bonded  under  the  surveillance  of  customs 

officials in accordance with Section 65 of the Customs Act. 

(76)  They  are  legally  obliged  to  maintain,  in  a  specified  format,  a  proper  account  of  all 
imports, of the consumption and utilisation of all imported materials and of the exports 
made. These documents should be submitted periodically, as may be required, to the 
competent authorities (“quarterly and annual progress reports”). 

(77)  However, “at no point in time [an EOU or a SEZ unit] shall be required to co-relate 
every  import  consignment  with  its  exports,  transfers  to  other  units,  sales  in  DTA  or 
stocks”, paragraph 10.2 of appendix 14-I and paragraph 13.2 of appendix 14-II of the 
HOP I 02-07.  

(78)  Domestic sales are dispatched and recorded on a self-certification basis. The dispatch 
process of export consignments of an EOU is supervised by a customs/excise official, 
who is permanently posted in the EOU. The company is obliged to reimburse the GOI 
for the salary of such permanent bond officer. 

(79) 

(80) 

“All  activities  of  SEZ  units  within  the  zone,  unless  otherwise  specified,  including 
export  and  re-import  of  goods  shall  be  through  self  certification  procedure”,  as 
paragraph  29  of  appendix  14-II  of  the  HOP  I  02-07  states.  Thus,  no  routine 
examinations of the export consignments of an SEZ unit by customs authorities take 
place.  

In the present case, the EOUS was used by one of the co-operating exporters. As the 
SEZS  was  not  used,  it  is  therefore  not  necessary  to  analyse  the  countervailability  of 
this  scheme.  The  co-operating  exporter  that  used  the  EOUS  utilized  the  scheme  to 
import  raw  materials  and  capital  goods  free  of  import  duties,  to  procure  goods 
domestically free of excise duty plus obtain sales tax reimbursement and to sell part of 
its production on the domestic market. Thus, it availed of all benefits as described in 
recital  (73)  above  under  (i)  to  (iv).  The  exporter  concerned  also  availed  of  benefits 
under the income tax exemption provisions of the EOUS. However, as the said income 
tax exemption falls under the more generally available income tax exemption scheme, 
the analysis thereof is set out in recitals (117) and (118) below. 

(d)  Disclosure comments 

(81)  Upon  disclosure,  one  exporting  producer  submitted  that  the  EOUS  should,  if  at  all, 
only be countervailed insofar as duties paid for domestic sales do not fully cover the 

EN 

19 

   EN 

 
amount  of  import  duties  exempted  on  input  materials  used  for  domestically  sold 
production (“excess remission”). The exporter is of the opinion that with regard to the 
EOUS,  which  allegedly  resembles  the  EC  inward  processing  system,  a  verification 
system  in  conformity  with  the  provisions  of  Annexes  I,  II  and  III  of  the  basic 
Regulation  is  in  place.  To  this  end,  it  argued  that  a  consignment-wise  correlation  of 
input  materials  and  resultant  export  production  is  indeed  not  required  by  the  Indian 
authorities (see recital (77)), as it is not mandatory according to the basic Regulation 
or  the  WTO  Agreement  on  Subsidies  and  Countervailing  Measures  (‘ASCM’)  for  a 
proper  verification  system.  In  addition,  the  exporter  referred  to  its  company  internal 
batch  sheet  system  as  providing  nexus  information  between  inputs  and  outputs.  The 
exporter further pointed out that its domestic sales constituted less the 5% of its sales 
during the IP. It also claimed that the periodical assessment of the monthly sales tax 
returns  by  the  GOI  is  sufficient  to  meet  the  verification  standards  set  by  the  basic 
Regulation.  

(82)  Furthermore  it  contended,  that  (i)  for  calculation  purposes  not  the  amount  of  raw 
materials imported during the review investigation period as set out in recital 19 of the 
annual progress report of this EOU should be taken, but the amount of raw materials 
consumed during this period as set out in recital 20 of this report and (ii) the allocation 
period concerning duties saved upon importation of capital goods should be based on 
the  company  specific  depreciation  period  and  not  on  the  basis  of  an  average 
depreciation  period  for  all  co-operating  exporting  producers.  In  addition,  it  claimed 
that  the  interest  added  (commercial  rate  prevailing  in  India  during  the  IP)  should  be 
reduced  to  the  weighted  average  rate  of  founding  of  this  EOU  during  the  review 
investigation period. 

(e)  Conclusions on the EOUS 

(83)  The exemptions of an EOU from two types of import duties (“basic customs duty” and 
“special  additional  customs  duty”)  and  the  reimbursement  of  sales  tax  are  financial 
contributions  of  the  GOI  within  the  meaning  of  Article  2(1)(a)(ii)  of  the  basic 
Regulation. Government revenue which would be due in the absence of this scheme is 
forgone, thus, in addition, conferring a benefit upon the EOU in the meaning of Article 
2(2)  of  the  basic  Regulation,  because  it  saved  liquidity  by  not  having  to  pay  duties 
normally due and by obtaining a sales tax reimbursement.  

(84)  The exemption from excise duty and its import duty equivalent (“additional customs 
duty”), however, do not lead to revenue forgone which is otherwise due. Excise  and 
additional  customs  duty,  if  paid,  could  be  used  as  a  credit  for  own  future  duty 
liabilities  (the  so-called  “CENVAT  mechanism”).  Therefore,  these  duties  are  not 
definitive. By the means of “CENVAT”-credit only an added value bears a definitive 
duty, not the input materials.  

(85)  Thus,  only  the  exemption  from  basic  customs  duty,  special  additional  customs  duty 
and the sales tax reimbursement constitute subsidies in the meaning of Article 2 of the 
basic Regulation. They are contingent in law upon export performance, and therefore 
deemed  to  be  specific  and  countervailable  under  Article  3(4)(a)  of  the  basic 
Regulation. The export objective of an EOU as set out in paragraph 6.1 of the EXIM-
policy 02-07 is a conditio sine qua non to obtain the incentives.  

EN 

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(86)  Furthermore, these subsidies cannot, contrary to the submission made by one exporter, 
be considered as permissible duty drawback systems or substitution drawback systems 
within the meaning of Article 2(1)(a)(ii) of the basic Regulation. They do not conform 
to  the  strict  rules  laid  down  in  Annex  I  (items  (h)  and  (i)),  Annex  II  (definition  and 
rules for drawback) and Annex III (definition and rules for substitution drawback) of 
the  basic  Regulation.  The  alleged  comparability  of  the  EOUS  with  the  EC  inward 
processing system is in this context irrelevant since the EC system is not subject to the 
present investigation.  

(87) 

(88) 

Insofar as the sales tax reimbursement and import duty exemption provisions are used 
for  purchasing  capital  goods,  they  are  already  not  in  conformity  with  the  rules  for 
permitted drawback systems, because those goods are not consumed in the production 
process,  as  required  by  Annex  I  item  (h)  (sales  tax  reimbursement)  and  (i)  (import 
duties remission). The exporter objected to this analysis and argued that since capital 
goods are necessary for production, they cannot be per se excluded from any permitted 
duty drawback. However, this reasoning is not reflected in the clear wording of Annex 
I  item  (h)  and  (i),  capital  goods  are  used  for  production  not  consumed  in  it.  The 
argument is therefore rejected. 

In  addition,  and  also  concerning  the  other  benefits  which  are  available  under  this 
scheme, despite careful consideration of the submissions made by the exporter, it was 
confirmed that the GOI has no effective verification system or procedure  in place to 
confirm whether and in what amounts duty and or sales tax free procured inputs were 
consumed  in  the  production  of  the  exported  product  (Annex  II(II)(4)  of  the  basic 
Regulation and, in the case of substitution drawback schemes, Annex III(II)(2) of the 
basic Regulation). 

(89)  An  EOU  is  allowed  to  sell  a  significant  amount  of  its  production,  up  to  50%  of  its 
annual  turnover,  on  the  domestic  market.  Therefore,  no  obligation  in  law  exists  to 
export the total amount of manufactured resultant products. Moreover, due to the self-
certification procedure these domestic transactions take place without the supervision 
and control of a government official. Consequently, the bonded premises of an EOU 
are  at  least  in  part  not  subject  to  a  physical  control  by  the  Indian  authorities.  This, 
however, increases the importance of further verification elements, notably control of 
the nexus between duty free inputs and resultant export products in order to qualify as 
a  duty  drawback  verification  system.  It  was  considered  that  the  EOU  subject  to  the 
present investigation did not sell 50% domestically but only around 5% of its annual 
turnover during the IP. However, this has no impact on the more general assessment of 
the adequacy of the verification system in place. 

(90)  Concerning  further  verification  steps  installed  it  should  be  recalled,  as  mentioned 
above  under  recital  (77)  and  confirmed  by  the  submissions  of  the  exporter,  that  an 
EOU  is  already  de  jure  at  no  point  in  time  required  to  co-relate  every  import 
consignment  with  the  destination  of  the  corresponding  resultant  product.  Only  such 
consignment  controls,  however,  would  provide  the  Indian  authorities  with  sufficient 
information  about  the  final  destination  of  inputs  to  check  that  the  duty/sales  tax 
exemptions  do  not  exceed  inputs  for  export  production.  Monthly  tax  returns  for 
domestic  sales  on  a  self  assessment  basis,  which  are  periodically  assessed  by  the 
Indian authorities, do not suffice. Company internal systems, which are kept without a 
legal obligation under the EXIM policy, e.g. a batch sheets system, do not suffice to 
replace  such  key  requirement  for  a  duty  drawback  verification  system  either.  In 

EN 

21 

   EN 

 
addition, a duty drawback verification system needs to be designed and enforced by a 
government  and  should  not  be  left  to  the  discretion  of  the  management  of  each 
individual  company  concerned  to  set  up  an  information  system.  Audit  reports  of  the 
Indian authorities were requested both from the company and the GOI, but never made 
available,  thus  not  substantiated.  Consequently  it  is  confirmed  that,  since  an  EOU  is 
explicitly not required by the Indian EXIM policy to record the nexus between input 
materials and the resultant product, no effective control mechanism was set up by the 
GOI  to  determine  which  inputs  were  consumed  in  export  production  and  in  what 
amounts.  

(91)  Also,  the  GOI  neither  carried  out  a  further  examination  based  on  actual  inputs 
involved,  although  this  would  normally  need  to  be  carried  out  in  the  absence  of  an 
effective  verification  system  (Annex  II(II)(5)  and  Annex  III(II)(3)  to  the  basic 
Regulation), nor did it prove that no excess remission took place. It should be recalled 
that  such  further  examination  in  principle  needs  to  be  completed  before  the 
verification  visit  in  such  investigation  is  carried  out,  so  that  a  verification,  if 
considered  appropriate,  can  take  place  to  base  findings  on  such  further  examination, 
Articles 11(8) and 26(1) of the basic Regulation. 

(f)  Calculation of the subsidy amount 

(92)  Accordingly,  in  the  absence  of  a  permitted  duty  drawback  system  or  substitution 
drawback  system,  the  countervailable  benefit  is  the  remission  of  total  import  duties 
(basic  customs  duty  and  special  additional  customs  duty)  normally  due  upon 
importation,  as  well  as  the  sales  tax  reimbursement,  both  during  the  review 
investigation period. 

(93)  The  claim  of  the  exporter  to  take  only  into  consideration  the  amount  of  duties  and 
sales  taxes  saved,  which  were  linked  to  inputs  consumed  during  the  review 
investigation  period,  was  rejected. Conferral of the benefit in the meaning of Article 
2(2)  of  the  basic  Regulation  takes  already  place  upon  duty  or  sales  tax  free 
procurement  of  the  input  materials,  since  at  that  stage  the  duties  would  normally  be 
due. 

(i)  Exemption  from  import  duties  (basic  customs  duty  and  special  additional 

customs duty) and sales tax reimbursement on raw materials 

(94)  The subsidy amount for the exporter which used the EOUS was calculated on the basis 
of import duties forgone (basic customs duty and special additional customs duty) on 
the materials imported for the production sector, i.e. bulk drugs and intermediates, and 
the  sales  tax  reimbursed  for  this  sector,  both  during  the  review  investigation  period. 
Fees  necessarily  incurred  to  obtain  the  subsidy  were  deducted  in  accordance  with 
Article 7(1)(a) of the basic Regulation from this sum to arrive at the subsidy amount as 
nominator.  In  accordance  with  Article  7(2)  of  the  basic  Regulation  this  subsidy 
amount  has  been  allocated  over  the  export  turnover  generated  by  the  bulk 
pharmaceutical sector (‘sector’) during the review investigation period as appropriate 
denominator,  because  the  subsidy  is  contingent  upon  export  performance  and  it  was 
not  granted  by  reference  to  the  quantities  manufactured,  produced,  exported  or 
transported. The subsidy margin thus obtained was 29,6%. 

EN 

22 

   EN 

 
(ii)  Exemption  from  import  duties  (basic  customs  duty  and  special  additional 

customs duty) on capital goods 

(95)  Unlike  raw  materials,  capital  goods  are  not  physically  incorporated  into  the  finished 
goods.  In  accordance  with  Article  7(3)  of  the  basic  Regulation,  the  benefit  to  the 
investigated  company  has  been  calculated  on  the  basis  of  the  amount  of  unpaid 
customs  duty  on  imported  capital  goods  spread  across  a  period  which  reflects  the 
normal  depreciation  period  of  such  capital  goods  in  the  industry  of  the  product 
concerned. In order to determine such normal depreciation period a weighted average 
of the depreciation periods used by all co-operating exporters has been calculated. The 
claim of the EOU under investigation to use the company-specific depreciation period 
had  to  be  rejected,  because  “normal”  is  not  synonymous  for  “individual”  but  for  a 
“representative  average”.  The  amount  so  calculated  which  is  then  attributable  to  the 
review investigation period has been adjusted by adding interest during this period in 
order  to  reflect  the  value  of  the  benefit  over  time  and  thereby  establishing  the  full 
benefit of this scheme to the recipient. The amount of interest added was based on the 
commercial interest rate during the review investigation period in India. The claim of 
the exporter to use its lower average rate did not lead to a difference in outcome, i.e. 
the subsidy margin remained the same. Fees necessarily incurred to obtain the subsidy 
were  deducted  in  accordance  with  Article  7(1)(a)  of  the  basic  Regulation  from  this 
sum to arrive at the subsidy amount as nominator. In accordance with Article 7(2) and 
7(3)  of  the  basic  Regulation  this  subsidy  amount  has  been  allocated  over  the  export 
turnover generated by the sector during the review investigation period as appropriate 
denominator,  because  the  subsidy  is  contingent  upon  export  performance  and  it  was 
not  granted  by  reference  to  the  quantities  manufactured,  produced,  exported  or 
transported. The subsidy margin thus obtained was 1,3%. 

(96)  Thus, the total subsidy margin under the EOUS for the company concerned amounts to 

30,9%. 

4 

Export Promotion Capital Goods Scheme (‘EPCGS’) 

(a)  Legal basis 

(97)  The detailed description of the EPCGS is contained in chapter 5 of the EXIM-policy 

02-07 and in chapter 5 of the HOP I 02-07.  

(b)  Eligibility 

(98)  Manufacturer-exporters,  merchant-exporters  “tied  to”  supporting  manufacturers  and 

service providers are eligible for this scheme.  

(c)  Practical implementation 

(99)  Under  the  condition  of  an  export  obligation,  a  company  is  allowed  to  import  capital 
goods (new and -since April 2003- second-hand capital goods up to 10 years old) at a 
reduced rate of duty. To this end the GOI issues upon application and payment of a fee 
an EPCGS licence. Since April 2000 the scheme provides for a reduced import duty 
rate of 5% applicable to all capital goods imported under the scheme. Until 31 March 
2000, an effective duty rate of 11% (including a 10% surcharge) and, in case of high 
value imports, a zero duty rate were applicable. In order to meet the export obligation, 

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23 

   EN 

 
the imported capital goods must be used to produce a certain amount of export goods 
during a certain period.  

(100)  The  EPCGS  licence  holder  can  also  source  the  capital  goods  indigenously.  In  such 
case,  the  indigenous  manufacturer  of  capital  goods  may  avail  of  the  benefit  for  duty 
free import of components required to manufacture such capital goods. Alternatively, 
the  indigenous  manufacturer  can  claim  the  benefit  of  deemed  export  in  respect  of 
supply of capital goods to an EPCGS licence holder. 

(d)  Disclosure comments 

(101)  Upon  disclosure  the  GOI  and  one  exporting  producer  submitted  that  (i)  the 
depreciation period used for capital goods has allegedly not been adequately disclosed 
to  interested  parties  (ii)  that  it  was  not  sufficiently  set  out  why  and  to  which  extent 
interest has been added to arrive at the countervailable subsidy amount. 

(e)  Conclusion on EPCG Scheme 

(102)  The  EPCGS  provides  subsidies  within  the  meaning  of  Article  2(1)(a)(ii)  and  Article 
2(2) of the basic Regulation. The duty reduction constitutes a financial contribution by 
the  GOI,  since  this  concession  decreases  the  GOI’s  duty  revenue  which  would  be 
otherwise  due.  In  addition,  the  duty  reduction  confers  a  benefit  upon  the  exporter, 
because the duties saved upon importation improve its liquidity. 

(103)  Furthermore,  the  EPCGS  is  contingent  in  law  upon  export  performance,  since  such 
licences can not be obtained without a commitment to export. Therefore it is deemed 
to be specific and countervailable under Article 3(4)(a) of the basic Regulation.  

(104)  Eventually, this scheme can not be considered a permissible duty drawback system or 
substitution  drawback  system  within  the  meaning  of  Article  2(1)(a)(ii)  of  the  basic 
Regulation. Capital goods are not covered by the scope of such permissible systems, 
as set out in Annex I, item (i), of the basic Regulation, because they are not consumed 
in the production of the exported products. 

(f)  Calculation of the subsidy amount 

(105)  The  subsidy  amount  was  calculated,  in  accordance  with  Article  7(3)  of  the  basic 
Regulation, on the basis of the unpaid customs duty on imported capital goods spread 
across a period which reflects the normal depreciation period of such capital goods in 
the  antibiotics  industry.  In  accordance  with  the  established  practice,  the  amount  so 
calculated which is attributable to the review investigation period has been adjusted by 
adding interest during this period in order to reflect the full value of the benefit over 
time. The commercial interest rate during the review investigation period in India was 
considered appropriate for this purpose. Fees necessarily incurred to obtain the subsidy 
were  deducted  in  accordance  with  Article  7(1)(a)  of  the  basic  Regulation  from  this 
sum to arrive at the subsidy amount as nominator. In accordance with Article 7(2) and 
7(3)  of  the  basic  Regulation  this  subsidy  amount  has  been  allocated  over  the  export 
turnover  during  the  review  investigation  period  as  appropriate  denominator,  because 
the subsidy is contingent upon export performance and it was not granted by reference 
to  the  quantities  manufactured,  produced,  exported  or  transported.  Four  companies 

EN 

24 

   EN 

 
benefited  from  this  scheme  during  the  review  investigation  period.  The  subsidies 
obtained were negligible.  

(106)  Since the EPCGS will not be countervailed in the case at hand, it is not necessary to 

respond to the corresponding disclosure comments. 

5. 

Export Credit Scheme (‘ECS’) 

(a)  Legal basis 

(107)  The details of the scheme are set by in Master Circular IECD No. 5/04.02.02/2002-03 
(Export Credit in Foreign Currency) and Master Circular IECD No. 4/04.02.02/2002-
03 (Rupee Export Credit) of the Reserve Bank of India (‘RBI’), which is addressed to 
all commercial banks in India.  

(b)  Eligibility 

(108)  Manufacturing exporters and merchant exporters are eligible for this scheme. 

(c)  Practical implementation 

(109)  Under  this  scheme,  the  RBI  mandatorily  sets  maximum  ceiling  interest  rates 
applicable  to  export  credits,  both  in  Indian  rupees  or  in  foreign  currency,  which 
commercial banks can charge an exporter “with a view to making credit available to 
exporters at internationally competitive rates”. The ECS consists of two sub-schemes, 
the  Pre-Shipment  Export  Credit  Scheme  (“packing  credit”),  which  covers  credits 
provided to an exporter for financing the purchase, processing, manufacturing, packing 
and/or  shipping  of  goods  prior  to  export,  and  the  Post-Shipment  Export  Credit 
Scheme,  which  provides  for  working  capital  loans  with  the  purpose  of  financing 
export receivables. The RBI also directs the banks to provide a certain amount of their 
net bank credit towards export finance. 

(110)  As  a  result  of  these  RBI  Master  Circulars  exporters  can  obtain  export  credits  at 
preferential  interest  rates  compared  with  the  interest  rates  for  ordinary  commercial 
credits (“cash credits”), which are purely set under market conditions. In this respect 
the  Master  Circular  on  Rupee  Export  Credit  notes  that  “ceiling  rates  of  interest  on 
credit extended to exporters as prescribed in this Circular are lower than the maximum 
lending  rates  normally  charged  to  other  borrowers  and  are,  therefore,  indicated  as 
concessive in this sense.” The difference in rates might decrease for companies with 
good  credit  ratings.  In  fact,  high  rating  companies  might  be  in  a  position  to  obtain 
export credits and cash credits at the same conditions.  

(d)  Disclosure comments 

(111)  Upon disclosure two exporters, which received benefits under this scheme, argued that 
the  ECS  is  not  a  countervailable  subsidy.  To  this  end,  they  submitted  that  (i)  a 
countervailable  subsidy  requires  the  transfer  of  public  funds,  (ii)  the  rates  for  ECS 
credits  are  set  under  market  conditions,  because  different  commercial  banks  offer 
significantly different interest rates and (iii) interest rates for cash credits are higher as 
compared  with  those  for  export  credits,  because  export  financing  is  less  risky  (“self 
executing”)  and,  in  case  of  foreign  currency  export  credits,  due  to  allegedly  lower 

EN 

25 

   EN 

 
inflation  of  freely  convertible  foreign  currencies  as  compared  with  the  Indian  rupee 
currency, which it was claimed to have an impact of the interest rates. 

(112)  Furthermore, one exporter claimed, and without providing any new calculation of the 
subsidy margin, that for calculation purposes rates of other banks, and not those banks 
identified  during  the  verification  visit  as  lending  banks,  should  be  used  and  in  any 
event only the lowest rates both for export and cash credits taken for the comparison. 
Another exporter argued without providing any evidence that the loan amount should 
be reduced by 25%, which allegedly represents own capital, although in the accounts 
identified as foreign capital.  

(e)  Conclusion on the ECS 

(113)  Firstly, the preferential interest rates of an ECS credit set by the RBI Master Circulars 
mentioned in recital (107) can decrease interest costs of an exporter as compared with 
credit  costs  purely  set  by  market  conditions  and  confer  in  this  case  a  benefit  in  the 
meaning of Article 2(2) of the basic Regulation on such exporter. Only in the case of 
those  co-operating exporters, where  such rate differences were found to exist, was it 
concluded  that  a  benefit  was  conferred.  Contrary  to  the  submissions  set  out  above, 
those  rate  differences  cannot  be  explained  by  pure  market  behaviour  of  the 
commercial  banks.  Export  financing  is  not  per  se  more  secure  than  domestic 
financing. In fact, it is usually perceived as being more risky and the extent of security 
required for a certain credit, regardless of the  finance object, is a purely  commercial 
decision of a given commercial bank. Rate differences with regard to different banks 
are  the  result  of  the  methodology  of  the  RBI  to  set  maximum  lending  rates  for  each 
commercial  bank  individually.  In  addition,  but  for  the  RBI  Master  Circulars, 
commercial  banks  would  not  be  obliged  to  pass  through  to  borrowers  of  export 
financing  any  perhaps  more  advantageous  interest  rates  for  export  credits  in  foreign 
currency.  Summarizing  the  response  to  those  submissions,  it  should  be  recalled  that 
the  objective  of  the  RBI  Master  Circulars  is  to  provide  export  financing  at 
“internationally  competitive rates” and the RBI  itself  considers export  credit rates as 
“concessive”. Secondly, and despite the fact that the preferential credits under the ECS 
are  granted  by  commercial  banks,  this  benefit  is  a  financial  contribution  by  a 
government in the meaning of Article 2(1)(iv) of the basic Regulation. In this context, 
it should be noted that neither Article 2(1)(iv) of the basic Regulation nor the ASCM 
require a charge on the public accounts, e.g. reimbursement of the commercial banks 
by  the  GOI,  to  establish  a  subsidy,  but  only  government  direction  to  carry  out 
functions  illustrated  in  points  (i),  (ii)  or  (iii)  of  Article  2(1)  of  the  basic  Regulation. 
The RBI is a public body and falls therefore under the definition of a “government” as 
set out in Article 1(3) of the basic Regulation. It is 100% government-owned, pursues 
public policy objectives, e.g. monetary policy, and its management is appointed by the 
GOI.  The  RBI  directs  private  bodies,  since  the  commercial  banks  are  bound  by  the 
conditions,  inter  alia  the  maximum  ceilings  for  interest  rates  on  export  credits 
mandated in the RBI Master Circulars and the RBI provisions that commercial banks 
have to provide a certain amount of their net bank credit towards export finance. This 
direction  obliges  commercial  banks  to  carry  out  functions  mentioned  in  Article 
2(1)(a)(i) of the basic Regulation, in this case loans in the form of preferential export 
financing. Such direct transfer of funds in the form of loans under certain conditions 
would normally be vested in the government, and the practice, in no real sense, differs 
from  practices  normally  followed  by  governments,  Article  2(1)(a)(iv)  of  the  basic 
Regulation.  This  subsidy  is  deemed  to  be  specific  and  countervailable  since  the 

EN 

26 

   EN 

 
preferential  interest  rates  are  only  available  in  relation  to  the  financing  of  export 
transactions and are therefore contingent upon export performance, Article 3(4)(a) of 
the basic Regulation.  

(f)  Calculation of the subsidy amount 

(114)  The  subsidy  amount  has  been  calculated  on  the  basis  of  the  difference  between  the 
interest  paid  for  export  credits  used  during  the  review  investigation  period  and  the 
amount that would have been payable if the same interest rates were applicable as for 
ordinary  commercial  credits  used  by  the  particular  company.  This  subsidy  amount 
(nominator)  has  been  allocated  over  the  total  export  turnover  during  the  review 
investigation period as appropriate denominator in accordance with Article 7(2) basic 
Regulation, because the subsidy is contingent upon export performance and it was not 
granted  by  reference  to  the  quantities  manufactured,  produced,  exported  or 
transported.  The  late  claim  made  by  one  exporter  that  the  credit  amount  as  verified 
during the on the spot visit should be reduced by 25% because it allegedly consisted to 
this  extent  of  own  founds,  something  not  mentioned  before  or  even  during  the 
verification visit, has not been substantiated and, therefore, cannot be accepted. As far 
as  the  claim  is  concerned  to  use  with  regard  to  the  lending  banks  new  information 
instead  of  the  information  provided  during  the  verification  visit  this  has  also  to  be 
refuted, because such information was not made available in good time and not subject 
to verification. In any  event,  this exporter has not substantiated its claim that  it only 
obtained  export  financing  by  the  commercial  banks  with  the  most  favourable 
conditions. Six companies availed of benefits under the ECS. They obtained subsidies 
of up to 2,3%. 

6. 

Income Tax Schemes 

(a)  Export Income Tax Exemption Scheme (‘EITES’) 

(i) 

Section 80HHC of the Income Tax Act 1961 (‘ITA’) 

(115)  It  was  established  that  four  of  the  investigated  exporters  received  the  benefit  of  a 
partial  income  tax  exemption  on  profits  derived  from  export  sales  during  the  review 
investigation period. The legal basis for this exemption is set by Section 80HHC of the 
ITA.  

(116)  This provision  of  the ITA  was  abolished for  the assessment  year  2005-2006  (i.e.  for 
the  financial  year  from  1  April  2004  to  31  March  2005)  onwards.  Consequently, 
80HHC of the ITA will not confer any benefits on the applicant after 31 March 2004. 
While  four  of  the  investigated  exporters  benefited  from  this  scheme  in  the  review 
investigation period, insofar as the scheme has since been withdrawn, it shall therefore 
not be countervailed, in accordance with Article 15(1) of the basic Regulation. 

(ii)  Sections 10A and 10B of the ITA 

(117)  The  full  income  tax  exemption  on  profits  derived  from  export  sales  of  a  newly 
established  undertaking  in  a  SEZ,  a  Free  Trade  Zone,  an  Electronic  Hardware 
Technology  Park  or  a  Software  Technology  Park  (section  10A  ITA)  or  a  newly 
established EOU (section 10B ITA) during the first ten years of production continues 
to be in force till 31 March 2010. 

EN 

27 

   EN 

 
(118)  One  company  availed  during  the  past  ten  years  of  benefits  under  section  10B  ITA, 
starting in the financial year 1993-1994. For this reason, this company will no longer 
be  eligible  for  benefits  under  section  10B  ITA  from  the  financial  year  2003-2004 
onwards.  Therefore,  in  accordance  with  Article  15(1)  of  the  basic  Regulation,  this 
scheme shall not be countervailed in the present case.  

(b) 

Income Tax Incentive for Research and Development (‘ITIRAD’) 

(i) 

Legal basis 

(119)  The detailed description of the ITIRAD is set out in section 35(2AB) of the ITA.  

(ii)  Eligibility 

(120)  Companies  engaged  in  the  business  of  bio-technology  or  manufacturing  of  drugs, 
pharmaceuticals, chemicals, electronic equipment, computers and computer software, 
telecommunication  equipments,  helicopters,  aircrafts  or  any  other  article  or  thing  as 
may be notified are eligible for benefits under this scheme. 

(iii)  Practical implementation 

(121)  For  any  expenditure  (other  than  cost  of  land  or  building)  on  in-house  research  and 
development  facilities  as  approved  by  the  Department  of  Scientific  and  Industrial 
Research  of  the  GOI,  a  deduction  of  a  sum  equal  to  150%  of  the  costs  de  facto 
incurred is permitted for income tax purposes. Thus, by means of a 50% deduction of 
fictional  expenses  (i.e.  expenses  not  actually  incurred),  the  income  tax  base  and 
subsequently the income tax burden decreases artificially.  

(iv)  Disclosure comments 

(122)  Upon  disclosure  one  exporter,  which  received  benefits  under  this  scheme,  made  the 
following  submissions.  This  scheme  should  not  be  countervailed,  because  (i)  albeit 
ITIRAD being indeed limited to certain sectors it is claimed to be not specific in the 
meaning of Article 3(2) of the basic Regulation, since all enterprises in those sectors 
are eligible and (ii) expenditure which is incurred after 31 March 2005 will according 
to section 35(2AB) sub-section (5) ITA not benefit from this scheme. 

(v)  Conclusion on ITIRAD 

(123)  The ITIRAD provides subsidies within the meaning of Article 2(1)(a)(ii) and Article 
2(2)  of  the  basic  Regulation.  The  artificial  income  tax  base  reduction  under  section 
35(2AB)  of  the  ITA  constitutes  a  financial  contribution  by  the  GOI,  since  this 
decreases the GOI’s income tax revenue which would be otherwise due. In addition, 
the income tax reduction confers a benefit upon the company, because it improves its 
liquidity. 

(124)  The  GOI  argued  and  reiterated  upon  disclosure  without  substantiating  it,  that 
eligibility  for  ITIRAD  is  based  on  objective  criteria  and  thus  the  scheme  is  not 
specific. However, the clear wording of section 35(2AB) ITA proves that ITIRAD is 
de jure specific in the meaning of Article 3(2)(a) of the basic Regulation and therefore 
countervailable. Eligibility for this scheme is not governed by objective criteria, which 
are  neutral  in  the  meaning  of  Article  3(2)(b)  of  the  basic  Regulation.  Benefits  under 

EN 

28 

   EN 

 
this  scheme  are  only  available  to  certain  industrial  sectors  listed  under  recital  (120) 
above;  the  GOI  has  not  made  this  scheme  available  to  all  sectors.  Contrary  to  the 
submission  made  by  one  exporter,  such  limitation  constitutes  specificity,  since  the 
category  “group  of  industries”  in  Article  3(2)  of  the  basic  Regulation  synonymously 
describes sector restrictions. This restriction is not economic in nature and horizontal 
in application such as number of employees or size of enterprise. 

(125)  In addition, the claim that expenditure incurred after 31 March 2005 is exempt from 
the scheme does not lead to its non-countervailability in the meaning of Article 15(1) 
of  the  basic  Regulation.  It  has  not  been  demonstrated  that  this  scheme  was  already 
withdrawn  at  the  moment  of  finalizing  the  findings  of  the  review  investigation,  nor 
that  the  exporter  will  no  longer  obtain  benefits  from  ITIRAD.  To  the  contrary, 
ITIRAD  is  in  force  for  the  whole  assessment  year  2005/2006  (i.e.  the  financial  year 
2004/2005), can thus continue conferring further benefits. In addition, the exporter has 
not substantiated its claim, that no prolongation of this scheme is foreseen by the GOI. 
In fact, the scheme has already been prolonged in the past8. There is no indication that 
such prolongation will not take place with a future Finance Act, in particular since the 
GOI neither in the consultation nor in its disclosure comments gave any indication that 
as  of  31  March  2005  the  scheme  will  (i)  expire  and  (ii)  not  be  substituted  by  a 
comparable income tax relief provision.  

(vi)  Calculation of the subsidy amount 

(126)  The  subsidy  amount  has  been  calculated  on  the  basis  of  the  difference  between  the 
income tax due for the review investigation period with and without the application of 
the  provision  of  section  35(2AB)  of  the  ITA.  This  subsidy  amount  (nominator)  has 
been  allocated  over  the  total  turnover  during  the  review  investigation  period  as 
appropriate  denominator  in  accordance  with  Article  7(2)  basic  Regulation,  because 
this  subsidy  relates  to  all  sales,  domestic  and  export,  and  it  was  not  granted  by 
reference to the quantities manufactured, produced, exported or transported. A subsidy 
margin of 1,5% was so established for one company which received benefits under the 
ITIRAD.  

III.  Regional Schemes  

1. 

Industrial Incentive Schemes (‘IIS’) of the Governments of Gujarat and Punjab  

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

(a)  Legal basis 

(128)  The  detailed  description  of  these  schemes  as  applied  by  the  Government  of  Gujarat 
(‘GOG’)  and  the  Government  of  Punjab  (‘GOP’)  is  set  out  in  GOG  Resolution  No. 
INC-1090-1023-(2)-I(GR  No.2)  of  16  October  1990  and  in  GOP  Resolution  No. 
15/43/96-5IB/2238 of 20 March 1996 respectively. 

8 

The Indian Finance Act 1999 prolonged the application from 2000 to 2005. 

EN 

29 

   EN 

 
                                                 
(b)  Eligibility 

(129)  Companies  setting  up  a  new  industrial  establishment  or  making  a  large-scale 
expansion  of  an  existing  industrial  establishment  in  backward  areas  are  eligible  to 
avail  of  benefits  under  these  schemes.  Nevertheless,  exhaustive  lists  of  ineligible 
industries exist that prevent companies in certain fields of operations from benefiting 
from the incentives. 

(c)  Practical implementation 

(130)  Under  these  schemes  companies  must  invest  in  backward  areas.  These  areas,  which 
represent  certain  territorial  units  in  the  two  States  are  classified  according  to  their 
economic development into different categories while at the same time there are areas 
excluded or ‘banned’ from the application of the incentive schemes. The main criteria 
to establish the amount of the incentives are the size of the investment and the area in 
which the enterprise is or will be located. 

(131)  Incentives can be granted at any point in time since there are no time limits either in 
the  filing  of  an  application  for  the  incentives  or  in  the  fulfilment  of  the  quantitative 
criteria. 

(d)  Disclosure comments 

(132)  Upon  disclosure  two  exporters,  which  received  benefits  under  the  IIS,  made  the 
submission  (i)  that  the  IIS  is  not  an  export  subsidy,  (ii)  constitutes  only  a 
compensation for extra expenses incurred on account of non-availability of appropriate 
infrastructure  in  the  designated  backward  areas  and  (iii)  in  the  case  of  one  exporter 
that it did no longer benefit from the scheme since 5 July 2003.  

(e)  Conclusion on IIS 

(133)  These schemes provide subsidies within the meaning of Articles 2(1)(a)(ii) and 2(2) of 
the  basic  Regulation.  They  constitute  a  financial  contribution  by  the  GOG  and  the 
GOP respectively, since the incentives granted, in the present case sales and purchase 
tax exemptions, decrease tax revenue which would be otherwise due. In addition, these 
incentives  confer  a  benefit  upon  a  company,  because  they  improve  its  financial 
situation since taxes otherwise due are not paid. 

(134)  Furthermore,  the  schemes  are  regionally  specific  in  the  meaning  of  Articles  3(2)(a) 
and  3(3)  of  the  basic  Regulation  since  they  are  only  available  to  certain  companies 
having invested within certain designated geographical areas within the jurisdiction of 
the States concerned. They are not available to companies located outside these areas 
and, in addition, the level of benefit is differentiated according to the area concerned. 

(135)  The  GOI  does  not  share  this  assessment.  Firstly,  it  argued  that  international  trade  is 
per se not subject to sales tax, as already stipulated by the Indian Constitution. As a 
result,  the  GOI  continued,  such  schemes  cause  no  revenue  forgone  otherwise  due  in 
respect of export transactions and should consequently not be countervailed. However, 
and contrary to the disclosure submissions by two exporters in this respect as well, the 
scheme was not assessed as an export subsidy, within the meaning of Article 3(4)(a) of 
the basic Regulation, with a direct focus on exports of the product concerned, but as 

EN 

30 

   EN 

 
otherwise  specific  (see  recital  (134)).  A  direct  link  between  the  subsidy  and  the 
exported  product  is  not  required  to  render  a  subsidy  scheme  countervailable.  In 
accordance  with  Article  1(1)  of  the  basic  Regulation,  it  is  sufficient  to  establish  a 
direct  link  between  the  subsidy  and  the  manufacturing  company.  On  the  basis  that 
“money  is  fungible”  every  kind  of  such  domestic  subsidy  will  be,  via  lower  prices, 
reflected  in  export  transactions  as  well,  because  such  subsidy  improved  the  overall 
liquidity of a company. In addition, the GOI has provided no evidence that the general 
sales tax exemption for export sales covers purchase tax liabilities on input materials 
as  well.  In  fact,  in  the  present  case,  the  companies  have  also  used  the  IIS  to  offset 
purchase tax liabilities.  

(136)  The  GOI  further  contended  that  the  IIS,  although  admittedly  limited  to  certain 
backward  regions  within  the  territories  of  Punjab  and  Gujarat,  should  not  be 
considered as specific, because they allegedly do not favour certain enterprises within 
these  specially  designated  regions.  However,  the  GOI  admitted  that  not  all  kinds  of 
production within those designated territories are eligible for the IIS. In fact, a regional 
restriction  of  a  state  subsidy  scheme  to  all  enterprises  in  specially  designated  areas 
within its territory by itself constitutes specificity. Such kind of schemes clearly favour 
certain enterprises over others, because a company in an eligible region can obtain aid 
while its competitor located in a non-eligible region can not. Such a differentiation is 
not  objective  within  the  meaning  of  Article  3(2)(b)  of  the  basic  Regulation  and 
therefore  specific,  since  the  schemes  are  not  horizontally  applied  all  over  the  state 
territory.  

(137)  An  alleged  compensation  via  the  IIS  for  extra  costs  incurred  due  to  insufficient 
infrastructure does not, contrary to the submission made by one exporter, change the 
evaluation  as  a  countervailable  subsidy.  Such  alleged  costs  have  not  been 
substantiated. 

(138)  The exporter, which claimed no longer to be eligible for benefits under the IIS, has not 
substantiated  this  allegation,  e.g.  by  providing  a  confirmation  of  the  GOG.  To  the 
contrary,  it  stated  in  its  management  reports  for  2002-2003  (i.e.  the  review 
investigation  period)  that  it  was  seeking  extension  of  the  IIS  benefits  until  2012.  It 
should be noted, that such extension is possible under the IIS of Gujarat. The company 
has not provided any evidence that the GOG refused this extension. 

(139)  The  argumentation  of  the  GOI  and  the  disclosure  submissions  have  therefore  not 
changed  the  assessment  of  the  schemes  –sales  and  purchase  tax  exemption-  being 
countervailable.  

(f)  Calculation of the subsidy amount 

(140)  The  subsidy  amount  was  calculated  on  the  basis  of  the  amount  of  the  sales  and 
purchase tax normally due during the review investigation period but which remained 
unpaid under these schemes. In accordance with Article 7(2) of the basic Regulation, 
these amounts of subsidy (nominator) have then been allocated over total sales during 
the review investigation period as appropriate denominator, because the subsidy is not 
export contingent and it was not granted by reference to the quantities manufactured, 
produced, exported or transported. During this period three companies benefited from 
these schemes. They obtained subsidies of 2,4% (2 companies) and 3,1%. 

EN 

31 

   EN 

 
2 

Electricity Duty Exemption scheme (‘EDE’) of the Government of Gujarat 

(141)  The State of Gujarat grants to eligible industrial enterprises, incentives in the form of 
exemption  from  the  payment  of  electricity  duty  in  order  to  encourage  the  industrial 
development of economically backward areas within this State. 

(a)  Legal basis 

(142)  The  detailed  description  of  the  electricity  duty  exemption  scheme  applied  by  the 
Government of Gujarat (‘GOG’) is set out in the Bombay Electricity Duty Act of 1958 
and in particular in Sections 3(2)(vi) and 3(2)(vii)(a) and (b) of this Act, as adapted by 
the Gujarat Adaptation of Laws Order of 1960. 

(b) Eligibility 

(143)  Companies  investing  in  backward  areas,  either  by  setting  up  a  new  industrial 
establishment  or  by  making  a  large-scale  capital  investment  in  expansion  of  an 
existing industrial establishment, are eligible. 

(c)  Practical implementation 

(144)  The scheme is only available to companies having invested within certain designated 
geographical areas within the jurisdiction of the State of Gujarat. It also empowers the 
GOG to exclude any areas and any new industrial undertaking from the obligation to 
pay electricity duty. Furthermore, new industrial undertakings established in specially 
designated  areas  are,  for  a  period  of  five  years  from  the  date  of  commencement  of 
manufacturing,  either  exempted  from  the  energy  duty  or  levied  with  the  duty  at  half 
the normal rate. 

(d)  Disclosure comments 

(145)  Upon  disclosure  one  exporter,  which  received  benefits  under  this  scheme,  made  the 
submission that as per 4 June 2004 it allegedly no longer benefited from this scheme. 
In addition, another exporter claimed not to have used the scheme. However, it should 
be noted that in respect to this latter exporter this scheme has  in  any event not been 
included whilst establishing its subsidy amount.  

(e)  Conclusion on EDE 

(146)  This  scheme  is  a  subsidy  within  the  meaning  of  Articles  2(1)(a)(ii)  and  2(2)  of  the 
basic  Regulation.  It  constitutes  a  financial  contribution  by  the  GOG,  since  this 
incentive  decreases  the  state  revenues  which  would  be  otherwise  due.  In  addition,  it 
confers a benefit upon the recipient company. The scheme is also regionally specific in 
the  meaning  of  Articles  3(2)(a)  and  3(3)  of  the  basic  Regulation  since  it  is  only 
available  to  companies  having  invested  within  certain  designated  geographical  areas 
within the jurisdiction of the State of Gujarat. Furthermore, criteria and conditions of 
eligibility governing this incentive are not clearly set out by law, regulation, or other 
official  document.  It  was  confirmed  during  the  verification  visits,  that  one  company 
made use of the scheme for a period of nine years. Although requested to do so, the 
company did not provide any information other than the Bombay Electricity Duty Act 
itself, which could have changed this analysis. 

EN 

32 

   EN 

 
(147)  The GOI argued that since the scheme has not been countervailed in another case in 
1999,  because  it  was  considered  horizontal  in  application  within  a  whole  state,  it 
should not be countervailed now. To this end, it has only provided a notification of the 
GOM  Industries,  Energy  and  Labour  Department  of  the  state  of  Maharashtra 
concerning the Bombay Electricity Duty Act of 1958. However, this information does 
not concern the State of Gujarat. In addition, it should be noted that according to this 
notification,  the  EDE-incentive  is  apparently  not  available  in  all  districts/areas  of 
Maharashtra, thus still to be considered regionally specific. It was established that one 
exporter under investigation, which is situated in Gujarat, used this scheme during the 
review  investigation  period.  Consequently,  it  is  concluded  that  this  scheme  is 
countervailable for this exporter for the reasons set out in the previous recital. 

(148)  The exporter which claimed no longer to be eligible for benefits under the EDE, has 
not substantiated this allegation, e.g. by providing a confirmation of the GOG. To the 
contrary,  it  stated  in  its  management  reports  for  2002-2003  (i.e.  the  review 
investigation  period)  that  it  was  seeking  extension  of  the  EDE  benefits  until  2012, 
which it already successfully had done in the past for a total of nine years, despite the 
fact that according to the relevant legislation the exemption period for the EDE should 
only be five years. The company has not provided any evidence that the GOG refused 
this extension. 

(f)  Calculation of the subsidy amount 

(149)  The benefit to the exporting producer has been calculated on the basis of the amount of 
electricity  duty  normally  due  during  the  review  investigation  period  but  which 
remained  unpaid  under  this  scheme.  In  accordance  with  Article  7(2)  of  the  basic 
Regulation, the amount of subsidy (nominator) has then been allocated over total sales 
during  the  review  investigation  period  (denominator),  because  it  relates  to  all  sales, 
domestic  and  export,  and  it  was  not  granted  by  reference  to  the  quantities 
manufactured,  produced,  exported  or  transported.  A  subsidy  margin  of  0,2%  was  so 
established for one company which received benefits under the EDE. 

3. 

Package Scheme of Incentives (‘PSI’) of the Government of Maharashtra (‘GOM’) 

(150)  It was found that the exporting producers did not obtain any countervailable benefits 

under the PSI. 

IV.  Amount of countervailable subsidies 

(151)  It has been the consistent practice to consider related companies as one  single entity 
for the determination of a subsidy rate. This is because calculating individual subsidy 
rates might encourage circumvention of countervailing measures, thus rendering them 
ineffective, by enabling related producers to channel their exports to the Community 
through the company with the lowest individual rate. In order to avoid such a situation, 
an individual subsidy amount per scheme for each related company is first calculated 
and then a weighted average of these subsidy amounts is established and attributed to 
each of the related companies. 

(152)  Two exporting producers were regarded as related companies and attributed one single 
subsidy rate, because each of them is operationally in a position to exercise restraint 
on  the  other  company.  According  to  their  Annual  Reports,  the  key  management 

EN 

33 

   EN 

 
persons  of  the  two  companies  are  relatives  and  are  able  to  exercise  “significant 
influence”  in  each  other’s  company.  Significant  influence  according  to  Indian 
accounting  standards  means  the  participation  in  the  financial  and/or  operating 
decisions  of  an  enterprise.  Such  influence  leads  to  the  qualification  as  related 
according  to  the  Indian  accounting  standards.  Furthermore,  according  to  European 
Customs  law  parties  are  deemed  to  be  related  when  they  control  each  other  or  are 
members of the same family9. 

(153)  Upon disclosure one of these exporting producers disagreed with the related parties’ 
analysis as set out above. It alleged without providing further evidence that no 
business relation between the two companies concerned exists. However, the 
exporting producer did neither contest the factual description outlined in recital (152) 
nor substantiated, why, despite these facts, both companies should not be considered 
as related parties. Consequently, the claim has to be disregarded.  

The amount of countervailable subsidies in accordance with the provisions of the basic 
Regulation, expressed ad valorem, for the investigated exporting producers ranges 
between 25,3 % and 35,1%. 

(154)  Given  the  high  level  of  co-operation,  the  subsidy  rate  for  all  non-co-operating 
companies  is  set  at  the  level  for  the  company  with  the  highest  individual  rate,  i.e. 
35,1%. 

SCHEME→  ALS 

DEPBS  EOUS 

EPCGS 

ECS 

ITIRAD  PSI  GIIS  PIIS  EDE  Total 

COMPANY
↓ 

 % 

%  

%  

%  

%  

%  

%   %   %   %   %  

KDL 
Biotech Ltd.  22,8 

4,6 

nil 

negl. 

1,0 

nil 

nil 

nil 

nil 

nil 

28,4 

Nectar 
Lifesciences 
Ltd.  

Nestor 
Pharma-
ceuticals 
Ltd.  

Orchid 
Chemicals 
&  Pharma-
ceuticals 
Ltd.  

Ranbaxy 
Laboratorie
s Ltd.  

25,8 

3,2 

nil 

negl. 

2,3 

nil 

nil 

nil 

2,4 

nil 

33,7 

22,0 

3,3 

nil 

nil 

negl. 

nil 

nil 

nil 

nil 

nil 

25,3 

nil 

Nil 

30,9 

nil 

1,1 

nil 

nil 

nil 

nil 

nil 

32,0 

25,6 

8,0 

nil 

negl. 

negl. 

1,5 

nil 

nil 

nil 

nil 

35,1 

9 

Article 143(1)(e)(h) of Commission Regulation (EEC) No 2454/93 of 2. 07. 1993 laying down provisions for the implementation of Council Regulation (EEC) 

No 2913/92 establishing the Community Customs Code [OJ L 253, 11.10.1993, p. 1. Regulation as last amended by Regulation (EC) No 444/2002 (OJ L 68, 

12.3.2002, p.11)]. 

EN 

34 

   EN 

 
 
                                                 
Surya 
Pharma-
ceutical Ltd.   25,8 

Torrent 
Gujarat 
Biotech Ltd.   24,8 

3,2 

nil 

negl. 

2,3 

nil 

nil 

nil 

2,4 

nil 

33,7 

nil 

nil 

nil 

 nil 

nil 

nil 

3,1 

nil 

0,2 

28,1 

LIKELIHOOD  OF 

D. 
SUBSIDISATION 

CONTINUATION  OR 

RECURRENCE  OF 

(155)  In accordance with Article 18(2) of the basic Regulation, it was examined whether the 
expiry of the measures in force would be likely to lead to a continuation or recurrence 
of subsidisation. 

(156)  As set out under recitals (21) to (153) above, it was established that during the review 
investigation  period  Indian  exporters  of  the  product  concerned  continued  to  benefit 
from  countervailable  subsidisation  by  the  Indian  authorities.  In  fact,  the  subsidy 
margins found during the review are higher than those established during the original 
investigation,  which  ranged  from  0%  to  15,3%  (recital  (43)  of  Council  Regulation 
(EC) No 2164/98). Only the subsidy scheme mentioned under recitals (115) and (116) 
above  (80  HHC  ITA)  has  been  discontinued,  while  in  some  other  cases,  individual 
companies have ceased to become eligible for certain schemes. This has already been 
reflected  in  the  calculation  of  the  subsidy  rates.  The  remaining  subsidy  schemes 
concerned  give  recurring  benefits  and  there  is  no  indication  that  these  programmes 
will be phased out or modified in the foreseeable future. In the absence of such action, 
the  exporters  of  the  product  in  question  will  continue  to  receive  countervailable 
subsidies.  Each  exporter  is  eligible  for  several  of  the  subsidy  programmes.  In  these 
circumstances,  it  was  considered  reasonable  to  conclude  that  subsidisation  would  be 
likely to continue in the future. 

(157)  Since it has been demonstrated that subsidisation continued at the time of the review 
and  will  likely  continue  in  the  future,  the  issue  of  likelihood  of  recurrence  of 
subsidisation is irrelevant. 

E. 

I. 

COMMUNITY INDUSTRY 

Community production 

(158)  During  the  review  investigation  period,  the  like  product  was  manufactured  in  the 
Community by the following Community producers: Sandoz, DSM, ACS Dobfar SpA 
and Antibioticos S.A.. Sandoz requested a combined expiry and interim review of the 
anti-subsidy  measures  in  force.  DSM  supported  the  request.  Sandoz  and  DSM  fully 
co-operated with the review investigation. The other Community producers neither co-
operated nor opposed the initiation of this combined expiry and interim review. 

(159)  One co-operating Community producer imported two types of the product concerned 
from  India  during  the  period  considered,  as  well  as  from  other  third  countries.  This 
activity does not change its qualification as a producer in the meaning of Article 9(1) 
of  the  basic  Regulation.  Compared  to  its  Community  production  of  the  like  product, 
the quantities imported from India during the review investigation period represented 
only  a  relatively  minor  proportion  of  less  than  10%.  Furthermore,  its  imports  of  the 

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product concerned from India are only of a temporary nature since it is restructuring 
its production in the Community and it has started producing types of the like product 
which it has been importing from, inter alia, India.  

II. 

Definition of the Community industry 

(160)  The  like  product  produced  by  the  co-operating  Community  producers  during  the 
review investigation period represented 70,5% of the total Community production of 
the  like  product.  These  companies,  therefore,  constitute  the  Community  industry 
within the meaning of Article 9(1) of the basic Regulation. They are referred to as the 
‘Community industry’ hereafter. 

F. 

I. 

ANALYSIS OF THE SITUATION ON THE COMMUNITY MARKET 

Introduction 

(161)  The relevant Eurostat statistics for TARIC codes 2941 10 10 10, 2941 10 20 10 and 
2941 90 00 30 together with data obtained from the verified questionnaire responses of 
the Community industry were used in the evaluation of volume and price trends. 

(162)  Community industry data were obtained from the verified questionnaire responses of 

the co-operating Community producers. 

(163)  Where necessary for reasons of confidentiality, indices are used to show the evolution 

of trends. 

(164)  Following disclosure, one exporter claimed that the injury analysis should have taken 
place on the basis of information for the Community market after the enlargement as 
per 1 May 2004, i.e. including the 10 new Member States.  

(165)  Given that Article 11(1) of the basic Regulation stipulates that information relating to 
a  period  subsequent  to  the  IP  shall  not,  normally,  be  taken  into  account,  and  as 
enlargement took place after the IP, this submission has to be rejected. In any event, 
the information available indicates that there is no production of the like product in the 
10 new Member States, which could alter the situation of the Community industry. 

(166)  In  addition,  as  a  general  comment,  it  was  submitted  by  one  exporter  without  further 
substantiation  that  the  injury  analysis  as  disclosed  did  not  consider  all  factors 
stipulated in Article 8 of the basic Regulation and was not based on positive evidence. 

(167)  Concrete  claims  to  specific  aspects  of  the  injury  analysis  will  be  addressed  in  the 
context of the respective part of the analysis below. However, in reply to the general 
comment it should be mentioned that (i) the basis for the injury analysis were verified 
facts  supported  by  evidence  and  (ii)  as  set  out  below  all  import  related  factors  of 
Article  8(2)  of  the  basic  Regulation,  all  17  indicators  of  Article  8(5)  of  the  basic 
Regulation  related  to  the  situation  of  the  Community  industry  and  all  known  factors 
other  than  subsidised  imports  of  Article  8(7)  of  the  basic  Regulation  have  been 
assessed. 

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II. 

Determination of the relevant Community market 

(168)  In  order  to  establish  whether  or  not  the  Community  industry  suffered  injury  and  to 
determine consumption and the various economic indicators related to the situation of 
the Community industry, it was examined whether and to what extent the subsequent 
use of the Community industry’s production of the like product had to be taken into 
account in the analysis.  

(169)  Indeed,  the  like  product  is  sold  by  the  Community  industry  to  both  (i)  unrelated 
customers  and  (ii)  for  further  downstream  processing  to  formulations  in  the  same 
group of companies (‘related entities’). Sales to unrelated entities were considered to 
form  the  ‘free  market’.  Sales  to  related  entities  for  further  downstream  processing 
were considered as captive use, because of a lack to choose the supplier freely.  

(170)  For  the  following  economic  indicators  relating  to  the  Community  industry,  it  was 
found  that  a  meaningful  analysis  and  evaluation  had  to  focus  on  the  situation 
prevailing  on  the  free  market:  sales  volume  and  sales  prices  on  the  Community 
market, market share, growth, profitability, export volume and prices. Where possible 
and justified, these findings were subsequently compared with the data for the captive 
market, in order to provide a full picture of the situation of the Community industry.  

(171)  As  regards  other  economic  indicators,  however,  it  was  found  on  the  basis  of  the 
investigation, that they could reasonably be examined only by referring to the whole 
activity.  Indeed,  production  (for  both  the  captive  and  the  free  market),  capacity, 
capacity  utilisation,  investments,  stocks,  employment,  productivity,  wages,  ability  to 
raise capital depend upon the whole activity, whether the production is captive or sold 
on the free market. 

(172)  Two exporters contested the analysis in regard to the free and captive markets. They 
argued  that  it  was  not  objective  within  the  meaning  of  Article  8(2)  of  the  basic 
Regulation.  

(173)  However, it is considered that the present investigation established a clear separation 
between the free and the captive markets. In fact, the captive buyer had no choice but 
to  buy  from  its  captive  supplier.  Under  such  circumstances  the  analysis  has  to  focus 
primarily  on  the  free  market,  since  sales  on  the  captive  market  were  not  subject  to 
competition with products sold on the free market and were therefore not affected by 
the subsidised imports. It is further noted that the injury analysis has despite this clear 
separation  not  ignored  the  captive  market.  To  the  contrary,  the  situation  of  both 
markets  has  been  juxtaposed,  as  set  out  below,  in  order  to  reach  an  objective  final 
determination  on the state of the  Community industry as a whole. Consequently, the 
claim has to be rejected.  

III. 

Community consumption 

(174)  In calculating the apparent Community consumption of the product concerned and the 

like product, the Commission added: 

– 

the volume of total imports of the product concerned and the like product into 
the Community as reported by Eurostat, 

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– 

– 

– 

the  volume  of  sales  of  the  like  product  in  the  Community  produced  by  the 
Community industry, 

the volume of captive use of the like product by the Community industry, 

and,  on  the  basis  of  the  information  contained  in  the  review  request,  the 
estimated  volume  of  sales  of  the  like  product  in  the  Community  by  the  other 
known Community producers. 

As shown in the table below, Community consumption of the product concerned and the like 
product increased by 51% over the period considered. 

Consumption 
(in kg) 
Product 
concerned and 
like product 
index 

1999 

2000 

2001 

2002 

IP 

2.482.053
100

3.240.481
131

3.254.464
131

3.801.666 
153 

3.745.549
151

(175)  The  GOI  and  one  exporter  submitted  that  the  consumption  details  as  set  out  above 
should  have  been  disclosed  in  more  detail,  notably  per  Community  producer  and 
separating free and captive consumption. Further, it was argued that the credibility of 
the data with regard to Community producers other than the Community industry has 
not been checked. 

(176)  It is noted that the Community industry consists only of two parties of which only one 
operates  on  the  captive  market.  Therefore,  in  view  of  Article  29  of  the  basic 
Regulation (“confidentiality”) it is not possible to disclose further details. Concerning 
data  for  Community  producers  other  than  the  Community  industry  it  should  be 
recalled that these producers did not co-operate with the investigation. In the absence 
of  any  other  information  available  concerning  their  contribution  to  the  Community 
consumption, the data provided in the review request were used. Furthermore, no party 
provided  conflicting  information  nor  did  the  verification  raise  doubts  as  to  their 
credibility.  

IV. 

Imports of the product concerned into the Community 

1. Volume, price and market share of imports from India 

Imports (in kg) 
Product 
concerned 
index 

1999 

2000 

2001 

2002 

IP 

36.800
100

47.400
129

72.100
196

101.800 
277 

95.200
259

(177)  The volume of imports of the product concerned increased significantly throughout the 
period considered. Imports in the review investigation period were 159% greater than 
in  1999.  These  imports  rose  much  faster  than  the  general  growth  in  consumption  of 
51%, the increase in imports from third countries other than India of 13% and the sales 
increase of the Community industry of 80% during the same period. With regard to the 
developing  country  status  of  India  and  the  provisions  of  Article  14(4)  of  the  basic 
Regulation,  it  was  found  that  the  volume  of  imports  from  India  in  the  review 
investigation period represented significantly more than 4% of the total imports of the 
like product in the Community.  

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Average 
import price 
per kg in EUR 
Product 
concerned 
index 

1999 

2000 

2001 

2002 

IP 

34,66
100

33,94
98

35,51
102

36,57 
106 

35,34
102

(178)  The  average  import  price  of  the  product  concerned  increased  slightly  with  a  peak  in 

2002 and subsequently fell back to the level before 2001.  

EC market 
share 
Product 
concerned 
index 

1999 

2000 

2001 

2002 

IP 

1,5%
100

1,5%
99

2,2%
149

2,7% 
181 

2,5%
171

(179)  Indian imports’ market share on the Community market grew by 71% over the period 
considered.  It  was  submitted  that  the  indexed  increase  should  only  amount  to  66% 
instead  of  71%.  On  the  basis  of  the  rounded  down  market  share  in  percentage  this 
submission  is  arithmetically  valid.  Nevertheless,  the  above  index  is  correctly 
calculated.  For  the  purpose  of  precisely  indexing  the  market  share  percentage  points 
have  not  been  rounded.  This  can  be  seen  when  comparing  indexed  figures  and 
percentage points for 1999 and 2000. Furthermore, this methodology has consistently 
been applied in all tables of this Regulation.  

2. Price undercutting 

(180)  For  the  determination  of  price  undercutting,  price  data  referring  to  the  review 
investigation  period  were  analysed.  To  this  end,  sales  prices  of  the  Community 
industry to their first unrelated customers on an  ex-works basis have been compared 
with sales prices of the Indian exporting producers to their first independent customers 
in the Community on a CIF import basis, in both cases after deduction of discounts, 
rebates and commissions. 

(181)  Based  on  the  questionnaire  replies,  different  product  sub-types  of  the  product 
concerned and the like product could be defined for comparison purposes based on the 
product  type  (i.e.  amoxicillin  trihydrate,  ampicillin  trihydrate  and  cefalexin)  and  its 
variants (i.e. powder or compacted form). 

(182)  The  Community  industry's  sales  prices  and  the  CIF  import  prices  of  the  exporting 
producers were compared at the same level of trade, namely traders/distributors within 
the Community market, on the basis of weighted average prices per product sub-type. 
During the review investigation period, virtually all sales of the exporting producers in 
the Community were made via traders/distributors. 

(183)  The  results  of  the  comparison,  when  expressed  as  a  percentage  of  the  Community 
industry's sales prices during the review investigation period, showed significant price 
undercutting  margins.  On  an  exporting  producer  basis  these  margins  were  found  to 
range  between  11,5%  and  17,1%.  Consequently,  these  price  undercutting  margins 
indicate  continuous  price  pressure  exerted  by  the  Indian  imports  on  the  Community 
market despite the existence of measures. 

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V. 

Economic situation of the Community industry 

1. Production, capacity and capacity utilisation 

Index Production 
Index Capacity 
Index Capacity 
utilisation 

1999 

2000 

2001 

2002 

IP 

100
100

100

121
117

103

127
123

103

154 
148 

104 

160
157

102

(184)  As a consequence of the steady increase in Community consumption, the Community 
industry's  production  of  the  like  product  increased  continuously  over  the  period 
considered.  This  positive  trend  became  more  pronounced  during  the  review 
investigation  period  when  one  of  the  co-operating  Community  producers  started  the 
production  in  the  Community  of  one  type  of  the  like  product  which  it  only  had 
imported previously.  

(185)  The production capacity of the Community industry showed the same positive trend as 
its production. This is partly due to important investments in a new production plant 
which  were  made  during  the  review  investigation  period  by  one  of  the  co-operating 
Community producers. 

(186)  The capacity utilisation rate has been stable at a relatively high level over the period 
considered. Such a high rate of utilisation is common in this type of industry, because 
of the continuous batch process utilised for the manufacture of the like product and in 
the case of the Community industry in addition due to its captive use. 

(187)  Three exporters submitted upon disclosure that the development of these factors does 
not show any sign of injury. However, it is noted that the conclusion on injury has not 
been based on these factors.  

2. 

ales volume, sales price, market share and growth 

(a) 

free market sales 

Free  market 
sales 
the 
in 
Community 
Index Volume 
Index Average 
sales price 
Index Market 
share 

1999 

2000 

2001 

2002 

IP 

100

100

100

170

94

130

162

94

123

192 

94 

125 

180

95

120

(188)  Based  on  the  favourable  evolution  of  Community  consumption,  the  volume  of  free 
market sales of the Community industry in the Community increased over the period 
considered.  The  Community  industry's  free  market  sales  volume  showed  a  higher 
growth  than  the  growth  of  Community  consumption  during  the  period  considered. 
However,  between  2000  and  the  review  investigation  period,  the  increase  of  the 
Community  industry’s  free  market  sales  volume  was  less  than  the  increase  of  the 
Community consumption. The large increase of the Community industry’s free market 
sales  volume  between  1999  and  2000  is  mainly  attributable  to  the  taking  over  of 

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another  Community  producer  by  the  Community  industry.  Nevertheless,  the  80% 
increase of the free market sales volume of the Community industry in the Community 
during the period considered was less pronounced than the 159% increase of imports 
of the product concerned during the same period.  

(189)  The GOI and four exporters pointed to the overall increase in sales of the Community 
industry as a positive sign and contended that it does not support an injury finding. It 
was  further  submitted  that  a  comparison  of  the  Community  industry’s  performance 
with  the  one  of  Indian  exporters  in  relative  terms  would  be  misleading  due  to 
significant difference in the size of the competitors. 

(190)  In reply to these submissions it should be noted that sales volume development has not 
been  considered  in  the  present  case  as  a  key  factor  indicating  the  extent  of  injury 
suffered. However, since the growth in sales for the Community industry can largely 
be  attributed  to  a  take  over  in  2000,  i.e.  the  integration  of  the  sales  of  a  former 
competitor  as  opposed  to  new  sales,  it  cannot  be  considered  as  an  indicator  for  the 
absence of injury either. Furthermore, in 2001 and during the IP the sales volume of 
the Community industry on the free market decreased.  

(191)  Despite growing demand indicated by the increased Community consumption, average 
free market sales prices of the Community industry declined from 1999 to 2000. This 
indicates price pressure exercised by competitors. Prices remained practically stable at 
the  lower  level  up  to  the  end  of  the  review  investigation  period  although  demand 
further grew. 

(192)  The GOI and three exporters claimed that the price development should be considered 

as positive for the Community industry.  

(193)  This claim  cannot be accepted. In fact, during the period considered the Community 

industry was at no time in the position to achieve non-injurious price levels.  

(194)  The Community industry increased its market share by 30% from 1999 to 2000 to the 
detriment of the market shares held by the other Community producers and exporters 
from  third  countries  other  than  India.  However,  the  Community  industry’s  market 
share fell from 2000 to the review investigation period when it reached its lowest level 
since 1999. This period coincided with a strong acceleration in growth of the share of 
imports from India.  

(195)  One exporter argued that the decrease in market share of the Community industry in 
2001 and the IP would be insignificant in light of the increase in 2000 and it further 
pointed to its overall increase in market share over the period considered.  

(196)  However, this submission cannot be accepted, because it is based on an isolated focus 
1999 versus the IP, which moreover neglects the exceptional nature of the increase in 
the year 2000. No explanation has been provided by this exporter why this obviously 
digressive  development  of  the  Community  industry’s  free  market  share  after  2000 
should not be considered as negative.  

(197)  In this context, two other exporters argued that, given the more positive development 
on  the  captive  market,  this  would  be  the  result  of  a  deliberate  choice  of  the 
Community industry to opt for the more profitable formulations market.  

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(198)  This argument cannot be accepted as it ignores the increased stock which could have 

been sold to the free market.  

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(b) 

captive sales 

Captive  sales  in 
the Community 

Index Volume 
Index Average 
sales price 
Index Market 
share 

1999 

2000 

2001 

2002 

IP 

100

100

100

88

102

67

124

104

95

180 

102 

117 

189

99

125

(199)  While  the  Community  industry’s  sales  volume  on  the  free  market  increased  by  80% 
over the period considered, sales on the captive market increased by 89%. In particular 
since  2001  an  expansion  on  the  Community  industry’s  captive  market  can  be 
observed,  whereas  its  situation  on  the  free  market  remained  practically  unchanged. 
This coincides with a strong increase of imports from India on the free market, which 
implies  that  the  Community  industry  used  its  option  to  switch  markets  at  least  to  a 
certain  extent  in  order  to  avoid  direct  competition  with  subsidised  imports  of  the 
product concerned at low prices.  

(200)  A similar pattern can be observed by examining comparatively the trends in growth of 
the  Community  industry’s  market  share  both  on  the  free  and  on  the  captive  market. 
This  again  indicates  an  increasing  strategic  relevance  of  the  captive  market  for  the 
Community industry since 2001.  

(201)  Whereas  prices  on  the  free  market  started  to  decrease  already  in  2000,  the  transfer 
prices  on  the  captive  market  continued  to  increase  moderately  until  2001.  However, 
with  a  time  lag,  starting  in  2002  prices  on  the  captive  market  showed  a  downward 
trend as well. This could be explained by the fact that transfer prices are generally not 
adjusted  that  quickly,  because  they  are  not  shaped  by  direct  competition.  It  is  noted 
that the overall movement in prices of free market and captive sales during the period 
considered are similar. 

3. 

Stocks 

Stocks 
Index 

1999 

2000 

2001 

2002 

IP 

100

74

100

141 

161

(202)  The Community industry's year-end stock levels in relation to production dropped by 
26%  from  1999  to  2000  but  then  sharply  increased  by  more  than  115%  towards  the 
end of the review investigation period. This increase coincided in time with a doubling 
of the Indian imports over the same period. 

(203)  The GOI and four exporters contended that the increase in stocks was not abnormally 
high, thus not showing injury. Furthermore, the methodology of using year-end stock 
levels  was  contested.  Instead,  other  approaches,  like  moving  average  stock  levels  or 
stocks  in  terms  of  number  of  days  sales,  were  suggested  as  more  appropriate 
indicators. 

(204)  In  reply  to  this  submission  it  should  be  noted  that  the  standard  methodology  of  the 
Community to quantify stock levels was applied. The approach is objective and in line 
with  WTO  obligations.  The  claim  for  the  use  of  another  methodology  was  not 
substantiated.  Thus,  the  suggestion  to  choose  an  alternative  methodology  is  refuted. 

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Secondly, on the basis of verified facts it cannot be denied that stock levels increased 
sharply. 

4 

Profitability 

(a) 

free market sales 

Profitability 
(Free market 
sales in the 
Community) 
Index 

1999 

2000 

2001 

2002 

IP 

-100

113

239

146 

87

(205)  The profitability of the Community industry expressed in terms of return on net sales 
on  the  free  market  improved  significantly  from  a  loss-making  situation  in  1999. 
Following the imposition of the existing measures in 1998, profitability increased up 
to  2001,  but  then  deteriorated  sharply  towards  the  review  investigation  period.  In 
addition, it is pertinent that the Community industry was at no time during the period 
considered  in a position to reach even half of the profit margin, which, according to 
the  findings  in  the  original  investigation,  it  could  reasonably  have  obtained  in  the 
absence  of  subsidised  imports,  i.e.  15%.  The  development  of  the  profitability  and  in 
particular its decline since 2002 is considered very important as it affects the level of 
financial  resources  available  to  the  Community  industry  for  investments  in  research 
and  development  that  are  necessary  for  further  improvements  to  the  production 
processes of existing products and the development of new products.  

(206)  The GOI and four exporters submitted comments on the profitability analysis. It was 
submitted that (i) the Community industry achieved reasonable profitability levels, (ii) 
that a non injurious profitability margin of 10% (see recital (260)), would be too high 
and  instead  5%  is  sufficient,  (iii)  the  profitability  decline  could  be  essentially 
attributed  to  the  investment  policy  of  the  Community  industry,  (iv)  the  start  up 
activities  of  one  party  qualify  for  self  inflicted  injury  and  (v)  that  the  profitability 
development should have been disclosed for each Community producer.  

(207)  It  is  reiterated  that  the  Community  industry  was  at  no  time  during  the  period 
considered in a position to achieve reasonable profit margins as set out above. Thus, 
the  deterioration  since  2002  only  worsened  an  already  unsatisfactory  situation. 
Further,  in  view  of  the  special  circumstances  of  the  pharmaceutical  sector  a  profit 
margin of 5% is considered not to be sufficient. The Community industry has provided 
evidence  that  it  can  achieve  for  comparable  bulk  drugs  profit  figures  of  above  10%. 
Such profit levels are necessary to provide the pharmaceutical sector sustainably with 
the necessary financial resources to carry on pharmaceutical innovation with its high 
inherent economic risks. In addition, the lack of reasonable profit margins achieved by 
the Community industry cannot just be explained by its investment policy. Only one 
Community producer was in a start up phase during the period considered, but neither 
party  achieved  reasonable  profit  margins.  Finally,  in  view  of  Article  29  of  the  basic 
Regulation (“confidentiality”) it is not possible to disclose further details. 

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(b) 

captive sales 

Profitability 
(Captive sales in 
the Community) 
Index 

1999 

2000 

2001 

2002 

IP 

100

482

564

431 

325

(208)  The  profitability  trends  of  captive  sales  follow  the  same  line,  although  on  a  higher 
level,  i.e.  increasing  until  2001  and  consecutively  diminishing.  The  differences  in 
profitability  levels  can  mainly  be  attributed  to  the  facts  that  (i)  selling  general  and 
administrative  costs  (‘SG&A’)  for  captive  sales  are  lower,  because  they  do  not 
necessitate marketing costs, and (ii) to higher transfer prices as compared with prices 
on the free market. In the absence of the higher profit levels achieved on captive sales, 
the industry would be in a worse overall financial situation. 

5. 

Investments, return on investment, cash flow and the ability to raise capital 

1999 

2000 

2001 

2002 

IP 

Index 
Investments 
Index Return on 
investment 
Index Cash flow 

0

-100
100

100

160
186

300

286
71

1.123 

161 
160 

351

91
33

(209)  After 1999 the Community industry continually made investments for the manufacture 
of  the  like  product.  In  particular  in  2002,  it  strongly  invested  in  new  production 
techniques  in  order  to  remain  competitive,  improve  environmental  and  security 
standards and increase production capacities.  

(210)  From  1999  to  2001,  i.e.  after  the  imposition  of  measures,  return  on  investment 
improved.  Since  then,  however,  it  strongly  declined.  Although  this  can  be  partially 
attributed  to  the  start-up  phase  of  one  new  production  plant,  the  unsatisfactory 
profitability  situation,  caused  by  competitors’  price  pressure,  contributed  to  this 
situation.  

(211)  During the period considered, the fluctuations of the cash flow generated by the sales 
of  the  like  product  are  to  a  certain  extent  the  consequence  of  the  Community 
industry’s investment policy during this period. However, the  drastic decline  in cash 
flow  between  2002  and  the  review  investigation  period  cannot  only  be  explained  by 
this  factor.  Price  pressure  exercised  by  competitors  contributed  to  the  unsatisfactory 
cash flow development as well.  

(212)  The Community industry did not experience any significant difficulty to raise capital.  

(213)  Upon  disclosure  it  was  submitted  by  the  GOI  and  exporters  that  (i)  the  data  above 
should  have  been  disclosed  separately  for  each  Community  producer  separately,  (ii) 
the  ability  to  raise  capital  did  not  support  an  injury  finding,  (iii)  that  the  cash  flow 
allegedly cannot follow this trends in view of the trends for return on investments and 
therefore  be  re-evaluated  and  (iv)  without  further 
profitability  and  should 
substantiation the analysis would be insufficient. 

EN 

45 

   EN 

 
  
(214)  In reply to these submissions it should be recalled that in accordance with Article 29 
of the basic Regulation (“confidentiality”) the data cannot be disclosed separately for 
each  Community  producer.  In  regard  to  the  ability  to  raise  capital,  no  negative 
conclusion on injury has been drawn. As far as the submission regarding cash flow is 
concerned,  after  careful  re-examination  the  respective  index  as  set  out  above  is 
confirmed.  In  regard  to  the  general  submission  of  insufficient  analysis  in  respect  of 
above factors it should be considered that (i) the injury finding is not essentially based 
on  these  indicators  and  (ii)  that  the  submission  has  not  substantiated  why  a  further 
elaboration could still change the overall finding.  

6. 

Employment, productivity and wages 

Index 
Employment 
Index 
Productivity 
Index Wages 

1999 

2000 

2001 

2002 

IP 

100

100
100

101

120
103

101

127
106

187 

83 
185 

185

86
178

(215)  Employment  for  the  like  product  remained  stable  until  2001  but  increased 
considerably in 2002 due to the setting up of a new production plant in the Community 
by one of the co-operating Community producers. The total cost for wages followed 
the  same  trend.  However,  productivity  per  worker,  although  increasing  until  2001, 
declined  in  2002.  This  can  be  clearly  attributed  to  the  start-up  phase  of  one  new 
production  plant.  No  evidence  of  a  decrease  of  efficiency  was  found  during  the 
investigation.  

(216)  The  GOI  and  four  exporters  submitted  that  the  trends  for  employment,  productivity 
and wages are not supportive for a finding of material injury in the present case.  

(217)  However, it should be noted, that no such conclusion has been made for employment 
and productivity. With regard to wages, only the total amount of wages increased. On 
average  per  employee,  wages  even  decreased  slightly  (see  table  below).  This  shows 
that (i) no positive development per employee took place and (ii) the determination of 
the Community industry to be cost efficient.  

Index Wages 
per employee 

1999 

2000 

2001 

2002 

IP 

100

103

105

99 

96

7.  Magnitude of subsidy and recovery from past subsidisation 

(218)  Given the volume and in particular the prices of the subsidised imports from India, the 
impact  of  the  actual  amount  of  subsidisation,  which  is  significant,  cannot  be 
considered to be negligible. 

(219)  In  this  context  the  GOI  and  three  exporters  submitted  that  the  subsidy  margins  have 

been overstated.  

(220)  However, as set out in recitals (153) and (154) above, the investigation has shown that 
the  amount  of  countervailable  subsidies  expressed  ad  valorem  for  the  investigated 

EN 

46 

   EN 

 
  
  
exporting  producers  ranges  between  25,3  %  and  35,1%.  This  is  a  clear  finding  of 
significant subsidization. 

(221)  The situation of the Community industry improved in the period considered. However, 

it did not fully recover from past subsidisation and continues to be weak. 

VI. 

Conclusion on the economic situation of the Community industry 

(222)  Between  1999  and  the  review  investigation  period  the  volume  of  the  subsidised 
imports  of  the  product  concerned  increased  significantly  by  159%  and  their  share  of 
the Community market grew by 70%. This development contrasts with the much less 
favourable  development  for  exporters  from  other  countries  and  the  Community 
industry.  Imports  from  other  countries  to  the  Community  market  grew  only  by  7% 
during the period considered and their market share even decreased by 29%. The sales 
volume of the Community industry grew by 80% and its market share by 20% during 
the  period  considered.  However,  this  positive  development  can  essentially  be 
attributed to the take over of another Community producer by the Community industry 
in  2000.  Since  2001  the  trend  in  market  share  development  for  the  Community 
industry  is  even  digressive.  In  particular,  it  can  be  observed  that  as  of  2000  the 
Community  industry  did  not,  in  relative  terms,  keep  pace  with  the  increase  of 
Community  consumption  and  the  strong  evolution  of  its  Indian  competitors  on  the 
Community market. 

(223)  In  this  context,  it  is  noted  that  the  average  prices  of  subsidised  imports  from  India 
were  consistently  lower  than  those  of  the  Community  industry  during  the  period 
considered. Moreover, during the review investigation period, the prices of the imports 
from the country concerned undercut those of the Community industry. On a weighted 
average  basis,  price  undercutting  was  in  the  review  investigation  period  between 
11,5% and 17,1%.  

(224)  As  a  consequence  of  this  price  pressure  exercised  by  subsidised  Indian  imports,  the 
Community industry was at no time during the period considered in a position to reach 
non-injurious price levels. Although profitability of the Community industry initially 
improved after the imposition of measures, it has deteriorated since 2001 and its actual 
level  is  well  below  what  it  could  reasonably  have  achieved  in  the  absence  of 
subsidised  imports,  i.e.  10%  on  turnover  (see  recital  (260)).  However,  only  an 
acceptable level of profitability will allow the Community industry to remain viable in 
a sustainable way.  

(225)  This negative tendency for the Community industry is further reflected in the picture 

displayed by the trends in return on investment and cash flow.  

(226)  Regarding  captive  sales,  the  option  for  the  Community  industry  to  sell  part  of  its 
production  on  the  captive  market  provided  it  with  the  opportunity  to  maintain  high 
levels of capacity utilisation. High capacity utilisation contributes to decrease cost of 
production because of economies of scale. Furthermore, as outlined above, the trends 
in sales volumes, prices and market share between the free and captive markets did not 
diverge significantly. In the absence of the higher profits achieved by the industry on 
captive  sales,  the  industry  would  be  in  a  worse  financial  situation.  Thus,  the  captive 
use  did  not  contribute  to  the  injurious  situation.  To  the  contrary,  without  a  captive 
market the injurious situation of the Community industry might even have been worse. 

EN 

47 

   EN 

 
(227)  Two exporters contended that it cannot be concluded that the captive market sales did 
not  contribute  to  the  injurious  situation  of  the  Community  industry,  because  captive 
sales  prices  are  allegedly  unreliable,  i.e.  the  profitability  of  captive  sales  would  be 
artificially too high.  

(228)  However, higher profitability on the captive market was not mainly the result of higher 
transfer  prices,  but  in  particular  attributable  to  lower  SG&A  (see  recital  (208)). 
Furthermore, this submission neglects the effect of economies of scale. Thus, it cannot 
change the conclusion that the captive sales did not contribute to the injury.  

(229)  As  a  result,  it  was  confirmed  that,  overall,  the  Community  industry  has  suffered 
material injury within the meaning of Article 8(1) of the basic Regulation. It should be 
recalled  that  Article  8(5)  of  the  basic  Regulation  does  not  mandate  all  economic 
indicators  for  the  Community  industry  to  be  negative  in  order  to  establish  material 
injury.  Moreover,  not  all  economic  indicators  have  the  same  weight.  Profitability, 
though, is one of the key economic indicators, since it constitutes the ultimate goal of 
every economic undertaking. In the present case, insufficient profitability levels were 
established. Another important injury indicator having a major impact on profitability 
is  the  price  levels.  The  Community  industry  was  never  in  a  position  to  achieve  non 
injurious price levels during the period considered on the free market due to external 
price pressure, mainly from heavily subsidised Indian imports.  

VII. 

Effect of the subsidised imports 

(230)  In 2000, and most likely due to the imposition of measures, India lost its position as 
the  second  largest  exporter  to  the  Community  market  for  an  interim  period,  whereas 
notably Omani exporters gained market share. However, since then, Indian exporters 
not only have recovered their position, but in the review investigation period they even 
took over the lead as the largest exporter to the Community.  

(231)  This growth in volume of the subsidised imports from India, in particular since 2002, 
coincided  with  the  fact  that  in  2002,  the  profitability  for  the  Community  industry 
decreased as compared with 2001, i.e. by around 36%. It was found that, during this 
time, one Community producer set up a new plant and found itself in a start-up phase 
which may have had an effect on its profitability in that period. However, it was also 
found  that  the  other  Community  producer,  which  was  not  in  a  start-up  phase,  found 
itself confronted with a significant decrease in profitability, i.e. by 17% as compared 
with  2001  which  further  deteriorated  during  the  review  investigation  period. 
Moreover,  as  stated  under  recital  (207),  at  no  point  in  time  was  the  Community 
industry  in  a  position  to  reach  non-injurious  price  levels.  To  the  contrary,  again 
starting in 2002, the Community industry had to adjust prices downwards in order to 
defend its market share. 

(232)  Upon  disclosure,  three  exporters  submitted  that  the  Indian  imports  share  on  the 
Community market, 2,5% during the IP, and their volume in relation to total imports, 
8,4% during the IP, both of which slightly decreased as compared with 2002, would be 
too small and marginal to have any injurious impact in particular in view of a bigger 
market  share  hold  by  the  Community  industry.  Furthermore,  it  was  argued  that  an 
analysis expressed in relative terms would be misleading, because India started from a 
very low level, 1,5% market share and 3,7% import volume in 1999. 

EN 

48 

   EN 

 
(233)  In reply to this submission it should be considered that both, India’s market share and 
its  import  volume  during  the  IP,  are  well  above  the  de  minimis  thresholds  set  in 
Articles  10(11)  and  14(4)  of  the  basic  Regulation,  thus  can  have  a  causal  effect. 
According  to  Article  8(6)  of  the  basic  Regulation,  a  causal  effect  can  be  manifested 
alternatively either by the import volume or by the price levels of subsidised imports. 
Such  price  level  impact  can  clearly  be  observed  in  the  present  case.  As  already 
established in the course of the original investigation, the product under investigation, 
a  bulk  commodity,  is  highly  price  sensitive  and  reacts  swiftly  to  any  downward 
pressure.  In  such  cases  small  quantities  can  influence  prices  on  the  market.  In  fact, 
over  the  period  considered  the  Indian  prices  set  on  average  the  price  pressure 
benchmark in this case. 

(234)  It was therefore confirmed that the subsidised imports from India had a considerable 
negative  impact  on  the  situation  of  the  Community  industry  during  the  period 
considered, in particular in terms of profitability. 

VIII. 

Impact of other factors 

1. 

Imports from other third countries 

Third country 
imports 
Volume (kg) 
India 
Index 
Oman 
Index 
USA 
Index 
China 
Index 
South Korea 
Index 
Singapore 
Index 
average import price 
per kg (€) 
India 
Index 
Oman 
Index 
USA 
Index 
China 
Index 
South Korea 
Index 

1999 

2000 

2001 

2002 

IP 

36.800
100
77.400
100
11.100
100
0
0
19.800
100
0
0

34,66
100
36,10
100
74,87
100
0,00
0
34,84
100

47.400
129
119.700
155
2.800
25
3.900
100
75.300
380
4.600
100

33,94
98
36,21
100
115,35
154
188,97
100
37,52
108

72.100
196
85.100
110
16.600
149
21.800
559
40.200
203
128.300
2789

35,51
102
39,30
109
108,90
145
116,06
61
37,66
108

101.800 
277 
88.400 
114 
106.300 
932 
75.600 
1938 
54.500 
275 
62.700 
1363 

36,57 
106 
39,15 
108 
101,40 
135 
68,22 
36 
45,59 
131 

95.200
259
93.500
121
70.000
631
63.000
1615
45.000
227
37.700
820

35,34
102
38,34
106
48,74
65
58,59
31
48,06
138

EN 

49 

   EN 

 
  
  
  
  
  
  
  
  
  
  
Singapore 
Index 

0,00
0

76,88
100

57,47
75

57,47 
75 

51,28
67

(235)  Imports of the product under consideration from countries other than India increased 
by only 7% between 1999 and the review investigation period, i.e. well below the rate 
of  increase  of  the  Community  consumption.  Amongst  these  countries,  Oman,  the 
USA,  China,  South  Korea  and  Singapore  are  the  main  suppliers  to  the  Community 
market. However, their average import prices were considerably higher than the Indian 
import  prices  and,  except  for  the  import  prices  from  Oman,  also  the  Community 
industry  prices.  Import  prices  of  Oman  are  at  comparable  levels  to  the  Community 
industry’s prices, but Oman’s increase in market share over the period considered was 
much less pronounced than that for the other third countries. 

(236)  Following  disclosure,  it  was  submitted  by  the  GOI  and  two  exporters  that  the 
countervailing  duty  in  place  for  Indian  imports  should  have  been  taken  into 
consideration  when  comparing  average  sales  prices.  This  would  allegedly  lead  to 
practically similar Indian and Omani price levels. In addition, it was noted that average 
prices from some third countries, notably the USA and China, decreased significantly 
over the period considered whereas inter alia Indian prices increased. Furthermore, it 
was submitted by another exporter that the volume decrease in Indian imports between 
2002 and the review investigation period has not been properly taken into account in 
the analysis, that other third countries were the main suppliers and that average prices 
from South Korea and India were similar from 1999 to 2001.  

(237)  With regard to the original countervailing duty in place, it should be noted that the vast 
majority of imports from India were either subject to a zero duty rate or to a duty rate 
which still leads to lower average landing prices than the average Omani price levels. 
Thus, on average Omani imports did not exercise the same degree of price pressure. In 
addition, import  prices  from  all  other third countries as well  were on  average  higher 
over the period considered than Indian price levels, again clearly identifying India as 
main source of price pressure. Volume wise, the observation is correct that India was 
not the only source of significant imports during all the time of the period considered. 
However,  it  is  recalled  that  India  is  the  only  country  subject  to  measures.  This,  of 
course, had an impact on the trade flow of the product concerned. Moreover, despite 
measures, Indian imports grew strongly since 2001 and India recovered its position as 
second largest exporter in 2002 to become during the IP even the biggest. Therefore, 
the  small  decrease  in  Indian  imports  between  2002  and  the  IP  had  no  effect  on  the 
market,  which  eventually  rewarded  the  Indian  pricing  policy.  Consequently,  these 
arguments  cannot  be  accepted.  It  was  therefore  confirmed  that  imports  from  third 
countries  could  not  have  caused  any  injury  to  the  Community  industry  which  would 
break  the  causal  link  between  the  subsidised  imports  from  India  and  the  injury 
suffered by the Community industry.  

2. 

Development of consumption of the Community market 

(238)  Consumption of the product under investigation on the Community market increased 
by  51%  during  the  period  considered.  Thus,  the  injury  suffered  by  the  Community 
industry cannot be attributed to a contraction of demand on the Community market. 

EN 

50 

   EN 

 
3. Export activity of the Community industry 

(239)  The  export  performance  of  the  Community  industry  grew  by  16%  during  the  period 
considered.  The  Community  industry’s  export  prices  were  on  average  10%  to  15% 
higher than the sales prices in the Community. Thus, the Community industry’s export 
activity could not contribute to its injurious situation. 

(240)  In  this  context  it  was  submitted  by  the  GOI  and  one  exporter  that  the  Community 
industry  in  their  questionnaire  replies  mentioned  stiff  competition  due  to  Indian 
competitors  on  third  country  markets  resulting  for  the  Community  industry  in  low 
prices and loss of market share in third countries, which prima facie would contradict 
above finding. Thus, on the basis of this assessment of the Community industry there 
would be no injury on the Community market or no causal link with Indian imports.  

(241)  In  this  respect,  it  is  noted  that  given  the  worldwide  growth  of  the  market  for  such 
products, there is no contradiction between any decrease of export prices and loss of 
market share of the Community industry in third countries and the fact that the volume 
of  such  exports  had  actually  increased  and  that  their  prices  were  higher  than  the 
Community  industry’s  prices  for  sales  in  the  Community.  Therefore,  although  the 
export performance of the Community industry could have been better without a low 
priced  subsidised  Indian  exports  competition  in  third  countries  markets,  there  is  no 
indication  that,  because  of  its  export  performance,  the  Community  industry  was  not 
subject to injurious price competition on the Community market essentially caused by 
the low priced subsidised imports from India. Thus the argument should be rejected. 

4. 

Competitiveness of the Community industry 

(242)  The  Community  industry  is  an  important  competitor  for  the  product  under 
consideration  as  demonstrated  by  its  market  share  and  has  constantly  invested  to 
maintain the state-of-the-art in its production. The drop in productivity per worker on a 
per  kg  basis  after  2001  can  be  exclusively  attributed  to  the  start-up  phase  of  a  new 
production  plant  of  one  Community  producer.  It  is  therefore  only  of  a  temporary 
nature. Consequently, no evidence was found that lack of competitiveness could have 
broken  the  causal  link  between  imports  from  India  and  the  injury  suffered  by  the 
Community industry. 

5. 

Captive Use 

(243)  As stated in recital (226) above, it is considered that the captive use did not contribute 
to  the  injurious  situation.  To  the  contrary,  without  a  captive  market  the  injurious 
situation of the Community industry might even have been worse.  

G. LIKELIHOOD OF CONTINUATION OR RECURRENCE OF INJURY 

(244)  In accordance with Article 18(2) of the basic Regulation, it was examined whether the 
expiry of the measures in force would be likely to lead to a continuation or recurrence 
of injury. 

(245)  As set out under recitals (161) to (243) above, it was established that during the review 
investigation  period  and  despite  the  measures  in  force,  the  Community  industry 
continued to sustain injury caused by the subsidised imports of the product concerned. 

EN 

51 

   EN 

 
The  injury  elimination  level  found  during  the  present  investigation  ranged  between 
17,3% and 48,1% and is higher than that established during the original investigation 
(between 12,6% and 28,9%), despite the fact that in this review the reasonable profit 
margin  for  the  Community  industry  was  reduced  by  one  third  as  compared  with  the 
original  investigation  (see  recital  (260)  below).  Furthermore,  the  investigation 
established  that,  despite  domestic  sales  and  exports  to  other  countries,  there  is  still 
significant  spare  capacity  for  the  products  under  investigation  in  India,  in  particular 
with  exporters  which  are  subject  to  relatively  high  duty  rates  in  the  Community.  It 
was, therefore, considered reasonable to conclude that subsidised low priced imports 
from  India  would  further  increase  and,  consequently,  injury  would  be  likely  to 
continue in the future, should the measures lapse. 

(246)  Since the Community industry continues to suffer material injury due to the subsidised 
imports despite the existence of measures, it was not necessary to analyse further the 
likelihood of recurrence of injury. 

H. 

COMMUNITY INTEREST 

I. 

Introduction 

(247)  It  was  examined  whether  compelling  reasons  existed  which  would  lead  to  the 
conclusion  that it is not in  the Community interest to continue applying  measures  in 
this  particular  case.  For  this  purpose,  and  pursuant  to  Article  31(1)  of  the  basic 
Regulation, the likely impact of measures for all parties concerned in the investigation 
was considered. In order to assess whether it is in the interest of the Community that 
measures be continued, questionnaires were sent to users and importers of the product 
concerned  and  to  upstream  suppliers  of  raw  materials  used  in  producing  the  like 
product. 

II. 

Interest of the Community Industry 

(248)  As  has  been  shown  above,  the  Community  industry  producing  the  like  product  has 
been continuously increasing its production. This was possible thanks to the constant 
growth of investments made by the Community industry in order to keep its ability to 
compete, as it belongs to the main competitors for the product under investigation. It is 
recalled that during the review investigation period, the Community industry expanded 
its  production  facilities,  set  up  one  new  factory  within  the  Community  and  prepared 
plans  for  setting  up  of  a  further  new  facility  in  the  Community.  This  process  of 
continuing investments by the Community industry is being undermined in particular 
by the unsatisfactory development of its profitability, caused by the continuous price 
pressure  exerted  by  the  Indian  imports  of  the  product  concerned  on  the  Community 
market. 

It is considered that without measures in place to correct the effects of the subsidised 
imports,  the  Community  industry  will  continue  to  face  price  undercutting  and  thus 
price  depression  with  its  negative  impact  on  profitability,  return  on  investments  and 
cash flow. Eventually, this could even put the viability of the Community industry at 
risk. Consequently, it was considered, that a lapse of the measures would not be in the 
interest of the Community industry. 

EN 

52 

   EN 

 
 
III. 

Interest of the importers/traders 

(249)  Questionnaires were sent to all known importers/traders of the product concerned but 
only one out of nineteen replied. However, the co-operating importer did not comment 
on the likely impact of the continuation of measures on its business. On the basis of 
the information received, it appears that importers/traders in the Community purchase 
the  product  under  investigation  from  a  variety  of  sources.  Since  there  are  no 
fundamental quality differences between the product imported from India and the one 
obtained  from  any  other  sources,  it  is  considered  that  the  importers/traders  in  the 
Community  would,  if  measures  are  to  continue,  have  no  difficulty  obtaining  the 
product  from  a  variety  of  other  sources.  Furthermore,  the  co-operating  importer  is 
actively involved in trading a big variety of other products and is therefore not vitally 
depending on the product concerned. Although its sales of the product concerned over 
the  period  considered  increased  strongly  (seven  times  in  volume),  these  sales  only 
represent  a  small  part  of  its  total  turnover  (ca.  1,4%  in  the  review  investigation 
period). Finally, the importer did not indicate that the continuation of measures would 
have any impact on employment, since import activities are not labour intensive.  

(250)  Although importers/traders may not be in favour of measures, it can be concluded on 
the basis of the information available, that such possible interest in allowing measures 
to expire does not outweigh the actual interest of the Community industry to continue 
redressing unfair and injurious Indian trading practices as summarised in recital (248).  

IV. 

Interest of up-stream suppliers 

(251)  In  order  to  assess  the  likely  effect  that  the  continuation  of  countervailing  measures 
could have on the up-stream suppliers of the Community industry, questionnaires were 
sent  to  all  such  known  suppliers.  In  total  six  questionnaires  were  sent  out  and  two 
replies were received. These up-stream suppliers, which provide in particular glucose 
and  dextrose  to  the  Community  industry,  are  in  favour  of  the  continuation  of 
measures.  Although  the  Community  industry  does  not  belong  to  the  most  important 
customers  of  these  up-stream  suppliers,  this  business  still  contributes  to  the 
employment  and  profitability  of  the  up-stream  suppliers.  If  the  Community  industry 
would  curb  or  even  stop  production  of  the  like  product,  such  beneficial  business-
relation would be at risk. 

(252)  Therefore, and in the absence of any information to the contrary, it is concluded that 
the continuation of measures would comply with interests of up-stream suppliers. 

V. 

Interest of users 

(253)  Questionnaires  were  also  sent  to  five  known  Community  users  of  the  product 
concerned, i.e. pharmaceutical companies. The Commission requested, amongst other 
information,  their  comments  on  whether  the  maintenance  of  the  measures  in  force 
would be in the interest of the Community and how these measures would continue to 
affect them. However, no questionnaire replies were received and thus no comments 
were made known. Taking into consideration that users could obtain the product under 
investigation not only from India but from other sources as well, and given the lack of 
any  information  on  the  economic  impact  of  measures  on  the  user’s  businesses  (e.g. 
employment,  profitability,  investment  policy),  it  was  not  possible  to  establish  any 
user’s interest of tantamount importance. 

EN 

53 

   EN 

 
(254)  Although –despite their silence- users might not be in favour of measures, on the basis 
of  the  information  available  by  co-operating  interested  parties,  no  substantiated  user 
interest  in  discontinuing  measures  could  overweight  the  actual  interest  of  the 
Community  industry  to  continue  redressing  unfair  and  injurious  Indian  trading 
practices as summarized in recital (248). 

(255)  One  exporter  claimed  that  Community  consumers’  interests  have  not  been  properly 
taken into account and that therefore the Community interests analysis would not be 
fully  in  accordance  with  Article  31  of  the  basic  Regulation.  It  is  argued  that 
consumers’ interests could be negatively affected, if producers of formulations passed 
through  any  alleged  price  increase  due  to  increased  costs  in  producing  final  dosage 
forms.  

(256)  In response to this submission it should be recalled that no consumer organisation has 
made  any  comments  in  the  course  of  this  investigation.  In  addition,  Community 
consumers  are  in  general  medically  insured.  No  substantiated  evidence  is  at  hand,  if 
medical  insurance  fees  could  be  adversely  affected  to  any  significant  extent  by  an 
alleged  increase  in  the  costs  of  certain  antibiotics  formulations.  Furthermore,  it  is 
unclear to which extend manufactures of certain antibiotics formulations, i.e. users, are 
in the position to pass through an increase of costs. Under such circumstances, it is not 
possible  to  establish  any  adverse  Community  consumers’  interests  of  tantamount 
importance. 

VI.  Conclusion 

(257)  Having examined the various interests involved, it is considered that from an overall 
Community  interest  perspective,  no  interest  overweighs  the  Community  industry’s 
interest  to  uphold  measures.  The  effects  of  the  continuation  of  the  measures  can  be 
expected to afford the Community industry the opportunity to improve its profitability 
to a reasonable level and carry on its investment program within the Community with 
the resulting positive effects on employment and market competitiveness. On the other 
hand,  on  the  basis  of  the  information  available,  no  opposing  interests  of  other 
Community  parties  concerned  (i.e.  importers/traders,  upstream  suppliers,  users  and 
consumers) of tantamount importance were found. 

I. COUNTERVAILING MEASURES 

(258)  In view of the conclusions reached with regard to continued subsidisation, injury and 
Community interest, it is considered appropriate to maintain countervailing measures 
on  imports  of  the  product  concerned  from  India.  For  the  purpose  of  determining  the 
level  of  these  measures,  account  was  taken  of  the  subsidy  rates  found  during  the 
review investigation period and of the amount of duty necessary to eliminate the injury 
sustained by the Community industry. 

I. 

Injury elimination level 

(259)  The  necessary  price  increase  to  eliminate  injury  was  determined  on  a  per-company 
basis by comparing the weighted average import price of the product concerned with 
the  non-injurious  price  of  the  like  product  sold  by  the  Community  industry  on  the 
Community  market.  The  price  difference  was  expressed  as  a  percentage  of  the  CIF 
import value. 

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(260)  The  non-injurious  price  has  been  obtained  by  taking  the  weighted  average  cost  of 
production  of  the  Community  industry  together  with  a  profit  margin  of  10%.  This 
profit margin, which is one-third less than that taken in the original investigation (see 
recital (205) above), reflects the achievable profit margin for similar product groups of 
the  Community  industry  not  subject  to  unfair  competition.  In  view  of  increased 
competition, it was considered an appropriate and reasonable minimum instead of the 
15% profit margin established in the original investigation. This profit would allow the 
Community industry to further invest in research and development in order to remain 
competitive.  

II. 

Form and level of measures 

(261)  In  the  absence  of  particular  circumstances,  the  imposition  of  the  standard  duty  type, 

i.e. ad valorem, was considered appropriate. 

(262)  With regard to the level of duty, in the case of four of the co-operating exporters the 
subsidy  rate  was  higher  than  the  injury  elimination  level.  Thus  in  accordance  with 
Article 15(1) of the basic Regulation, the lesser duty reflecting the injury elimination 
level  was  considered  adequate  to  remove  such  injury  to  the  Community  industry 
insofar  as  imports  from  these  four  exporters  are  concerned.  The  rates  of  duty 
applicable to imports from these exporters should range from 17,3% to 30,3%. As far 
as  the  other  three  exporters  are  concerned,  the  injury  elimination  levels  were  higher 
than  the  subsidy  rates  established,  so  that  measures  in  respect  of  those  companies 
should  be  based  on  the  latter.  The  rates  of  duty  applicable  to  imports  from  these 
exporters  should  range  from  25,3%  to  32%.  Given  the  fact  that  the  level  of  co-
operation  of  Indian  exporters  was  high  (over  80%),  the  level  of  duty  for  all  other 
companies should be set at the level of the company with the highest individual duty 
rate, i.e. 32%.  

(263)  The individual company countervailing duty rates specified in this Regulation reflect 
the situation found during the review with respect to the co-operating exporters. Thus, 
they  are  solely  applicable  to  imports  of  the  product  concerned  produced  by  these 
companies. Imports of the product concerned manufactured by any other company not 
specifically  mentioned  in  the  operative  part  of  this  Regulation,  including  entities 
related  to  those  specifically  mentioned,  cannot  benefit  from  these  rates  and  shall  be 
subject to the duty rate applicable to “all other companies”.  

(264)  Any claim requesting the application of these individual countervailing duty rates (e.g. 
following  a  change  in  the  name  of  the  entity  or  following  the  setting  up  of  new 
production or sales entities) should be addressed to the Commission10 forthwith with 
all  relevant  information,  in  particular  any  modification  in  the  company’s  activities 
linked  to  production,  domestic  and  export  sales  associated  with,  for  instance,  that 
name  change  or  that  change  in  the  production  and  sales  entities.  If  appropriate,  and 
after  consultation  of  the  Advisory  Committee,  the  Regulation  will  be  amended 
accordingly by updating the list of companies benefiting from individual duty rates, 

10 

European  Commission  –Directorate  General  for  Trade-  Directorate  B  –J-79  5/17  –Rue  de  la 
Loi/Wetstraat 200- B-1049 Brussels. 

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HAS ADOPTED THIS REGULATION: 

Article 1 

1. 

2. 

– 

– 

– 

– 

– 

– 

– 

3. 

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

The rate of duty applicable to the net free-at-Community-frontier price, before duty 
for imports produced in India by the companies listed below, shall be as follows: 

17,3% for KDL Biotech Ltd., Mumbai (TARIC additional code: A580), 

28,1% for Nectar Lifesciences Ltd., Chandigarh (TARIC additional code: A581), 

25,3%%  for  Nestor  Pharmaceuticals  Ltd.,  New  Delhi  (TARIC  additional  code: 
A582), 

30,3% for Ranbaxy Laboratories Ltd., New Delhi (TARIC additional code: 8221), 

28,1%  for  Torrent  Gujarat  Biotech  Ltd.,  Ahmedabad  (TARIC  additional  code: 
A583), 

28,1% for Surya Pharmaceuticals Ltd., Chandigarh (TARIC additional code: A584), 

32% for all other companies (TARIC additional code: 8900). 

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

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

Article 2 

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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