Council Regulation (EC) No 713/2005 of 10 May 2005 imposing a definitive countervailing duty on imports of certain broad spectrum antibiotics originating in India
Date: 2005-05-10
Institutions: Council of the European Union
Subjects: India, anti-dumping legislation, antibiotic, pharmaceutical industry

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I

(Acts whose publication is obligatory)

COUNCIL REGULATION (EC) No 713/2005

of 10 May 2005

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 members of
(the basic Regulation), and in
particular Articles 18 and 19 thereof,

the European Community (1)

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

Whereas:

I. Previous investigation and existing measures

A. PROCEDURE

(1)

(2)

(3)

The Council, by Regulation (EC) No 2164/98 (2), 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

Following the publication of a notice of impending expiry (3) of the definitive measures in force, the
Commission received a request for the initiation of a combined expiry and interim review of
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 SA, Spain, (the applicants). The applicants represent a major proportion, in this case over
40 %, of the total Community production of certain broad spectrum antibiotics.

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.

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

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(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

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

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
Journal of the European Union (1), a combined expiry and interim
notice published in the Official
review of Council Regulation (EC) No 2164/98.

IV. Investigation period

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

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 subsidi-
sation 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.

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

in the notice of

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 BV, Delft (The Netherlands), which also replied to the Commission’s ques-
tionnaire on behalf of DSM Anti-Infectives Deretil SA, Almeria, (Spain) and DSM Anti-Infectives
Chemferm SA, 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 Commis-
sion's questionnaire on behalf of Sandoz Industrial Products SA (formerly Biochemie SA),
Barcelona (Spain). Both companies are hereafter jointly referred to as ‘Sandoz’.

(1) OJ C 241, 8.10.2003, p. 7.

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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)

(13)

(14)

(15)

(16)

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.

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

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 product (1). 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.

The GOI and one exporting producer contended that 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 cooperating exporters an effective opportunity to defend their interests in relation to
the injury and causal link analysis.

In this context, it should be noted that, as set out in section E, the Community industry in the
i.e. Sandoz and DSM. In addition, one party
present investigation consists of only two parties,
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 cooperating 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.

(1) OJ L 166, 11.6.1998, p. 17, recital 9.

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B. PRODUCT CONCERNED AND LIKE PRODUCT

I. 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).

II. Like product

(18) During the post-disclosure hearing the GOI and one exporting producer have drawn 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
cooperating importer mentioned differences with regard to water solubility.

(19) However, both the product concerned and the like product have to correspond to the same inter-
national 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.

I. Introduction

C. SUBSIDIES

(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 inves-
tigated:

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.

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(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
the five-year plan relating to the
period 1 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) (1). The Handbook of Procedures is also updated on a regular
basis.

to the review investigation period of

this case;

i.e.

(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 absence of a mutually agreed
solution in relation to these four schemes, the Commission included these schemes in the investi-
gation of subsidisation.

(1) Notification No 1/2002-07 of 31.3.2002 of the Ministry of Commerce and Industry of the GOI.

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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 inves-
tigated. 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’, that is to say,
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
it is only such an approach which leads to an adequate analysis of the factual situation
fact,
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) L e g a l b a s i s

(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) E l i g i b i l i t y

(30)

The ALS consists of six subschemes, as described in more detail in recital 31. Those subschemes, 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 inter-
mediate 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), are
intermediate suppliers to manufacturer-exporters are
eligible for ALS deemed export. Eventually,
eligible for ‘deemed export’ benefits under the subschemes advance release order (ARO) and back
to back inland letter of credit.

(c) P r a c t i c a l

i m p l e m e n t a t i o n

(31) Advance licences can be issued for:

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

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(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 manu-
facturing 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 subscheme 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 subscheme 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 inter-
mediate 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 subscheme again covers indigenous supplies to an ALS
holder. The holder of an ALS can approach a bank for 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 impor-
tation. 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 cooperating exporters only
obtained concessions under four subschemes linked to the product concerned,
(i) ALS
intermediate supplies as
requirement,
physical exports,
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.

(ii) ALS for annual

(iii) ALS for

i.e.

(32)

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

licence-wise consumption and utilisation of

imported goods’

(33) With regard to the subschemes (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.

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(34)

In the case of the subscheme (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).

(35)

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 six months each). In case of an ALS for annual
requirement, no extension of the time frame is allowed.

(36)

(37)

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 subschemes by the cooperating
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 cooperating 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.

(d) D i s c l o s u r e c o m m e n t s

The GOI and five cooperating 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 infor-
mation 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) C o n c l u s i o n

(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 counter-
vailable under Article 3(4)(a) of the basic Regulation. Without an export commitment a company
cannot obtain benefits under these schemes.

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(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.

(41) None of the four subschemes 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
it is confirmed that the SIONs themselves cannot be considered a
SIONs were inaccurate. Thus,
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 subschemes are therefore countervailable.

(f) C a l c u l a t i o n o f

t h e s u b s i d y a m o u n t

(45)

In the absence of permitted duty drawback systems or substitution drawback systems, the counter-
vailable 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 counter-
vailed, 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

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process is established, the above exception for drawback schemes is not applicable and the normal
rule of the countervailing of the amount of (revenue 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 subschemes used for the product concerned during the review investigation period as
set out under recital 31 (numerator). 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 denumerator, 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).

2. Duty Entitlement Passbook Scheme (DEPBS)

(a) L e g a l B a s i s

(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) E l i g i b i l i t y

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

(c) P r a c t i c a l

i m p l e m e n t a t i o n o f

t h e D E P B S

(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 autho-
rities 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 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.

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(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) D i s c l o s u r e c o m m e n t s

(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 recitals 61 and 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) C o n c l u s i o n s o n t h e D E P B S

(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.

(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.

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(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.

(f) C a l c u l a t i o n o f

t h e s u b s i d y a m o u n t

(61)

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, 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
it is considered appropriate to assess the
on illicit competitive advantage. In light of the above,
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 case (1). 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 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.

(1) Council Regulation (EC) No 1628/2004 (OJ L 295, 18.9.2004, p. 4 (recital 13)).

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(65)

to the review investigation period cannot be
Furthermore, DEPBS rate reductions subsequent
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 numerator, 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 denu-
merator, 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).

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

(a) L e g a l b a s i s

(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) E l i g i b i l i t y

(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 (Indian rupees 10 million) to be eligible for the EOUS.

(c) P r a c t i c a l

i m p l e m e n t a t i o n

(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
trade operations, duties and taxes. 14 SEZs already operate and
territory for the purpose of
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 (five 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;

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(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;

(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-year 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 cooperating exporters. As the SEZS was not
used, it is therefore not necessary to analyse the countervailability of this scheme. The cooperating
exporter that used the EOUS utilised 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 (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.

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(d) D i s c l o s u r e c o m m e n t s

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

for a proper verification system.

In addition,

(ASCM)

(82)

(83)

(84)

(85)

(86)

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 cooperating 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) C o n c l u s i o n s o n t h e E O U S

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.

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.

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.

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.

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(87)

they are already not

In so far as the sales tax reimbursement and import duty exemption provisions are used for
purchasing capital goods,
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.

(88)

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 under recital 77
and confirmed by the submissions of the exporter, that an EOU is already de jure and 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 verifi-
cation system either. In 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 autho-
rities 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 appro-
priate, can take place to base findings on such further examination, Articles 11(8) and 26(1) of the
basic Regulation.

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(f) C a l c u l a t i o n o f

t h e s u b s i d y a m o u n t

(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 numerator. 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 denumerator, 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 %.

(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.

is not synonymous for ‘individual’ but

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 cooperating exporters has been calculated. The claim of the EOU
under investigation to use the company-specific depreciation period had to be rejected, because
‘normal’
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 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 numerator. In accordance with Article 7(2) and (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 denumerator, 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 %.

the value of

(96)

Thus, the total subsidy margin under the EOUS for the company concerned amounts to 30,9 %.

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4. Export promotion capital goods scheme (EPCGS)

(a) L e g a l b a s i s

(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) E l i g i b i l i t y

(98) Manufacturer-exporters, merchant-exporters ‘tied to’ supporting manufacturers and service providers

are eligible for this scheme.

(c) P r a c t i c a l

i m p l e m e n t a t i o n

(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,
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 indi-
genous 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) D i s c l o s u r e c o m m e n t s

(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 and (ii) that it was
not sufficiently set out why and to which extent interest has been added to arrive at the counter-
vailable subsidy amount.

(e) C o n c l u s i o n o n E P C G S c h e m e

(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 counter-
vailable 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.

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(f) C a l c u l a t i o n o f

t h e s u b s i d y a m o u n t

(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 numerator. 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 denumerator, 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 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) L e g a l b a s i s

(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) E l i g i b i l i t y

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

(c) P r a c t i c a l

i m p l e m e n t a t i o n

(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 subschemes, 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.

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(d) D i s c l o s u r e c o m m e n t s

(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
(ii) the rates for ECS credits are set under market conditions, because
transfer of public funds,
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 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) C o n c l u s i o n o n t h e E C S

In addition, but

(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 cooperating 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
for the RBI
maximum lending rates for each commercial bank individually.
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 prefer-
ential 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 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.

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(f) C a l c u l a t i o n o f

t h e s u b s i d y a m o u n t

(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 (numerator) has been allocated over the total export
turnover during the review investigation period as appropriate denumerator in accordance with
Article 7(2) of the basic Regulation, because the subsidy is contingent upon export performance
and it was not granted by reference to the quantities manufactured, produced, exported or trans-
ported. 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) E x p o r t

I n c o m e T a x E x e m p t i o n S c h e m e ( E I T E S )

(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 to 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,
in accordance with Article 15(1) of the basic
Regulation.

it shall therefore not be countervailed,

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

(117) The full income tax exemption on profits derived from export sales of a newly established under-
taking 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 10 years of
production continues to be in force till 31 March 2010.

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

(b) I n c o m e T a x I n c e n t i v e f o r R e s e a r c h a n d D e v e l o p m e n t

( I T I R A D )

(i) Legal basis

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

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(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) subsection (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
this scheme are only available to certain industrial sectors listed under recital 120; 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 past (1). 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.

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

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(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 (numerator) has been allocated over the total turnover
during the review investigation period as appropriate denumerator in accordance with Article 7(2) of
the 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 deve-
lopment of economically backward areas within these States. Since these schemes are virtually
identical, they are assessed jointly.

(a) L e g a l b a s i s

(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.

(b) E l i g i b i l i t y

(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) P r a c t i c a l

i m p l e m e n t a t i o n

(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) D i s c l o s u r e c o m m e n t s

(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) C o n c l u s i o n o n I I S

(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.

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(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 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. This kind of scheme 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 to 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) C a l c u l a t i o n o f

t h e s u b s i d y a m o u n t

In accordance with Article 7(2) of

(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
these amounts of subsidy
schemes.
(numerator) 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 % (two companies) and
3,1 %.

the basic Regulation,

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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) L e g a l b a s i s

(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) E l i g i b i l i t y

(143) Companies investing in backward areas, either by setting up a new industrial establishment or by
investment in expansion of an existing industrial establishment, are

making a large-scale capital
eligible.

(c) P r a c t i c a l

i m p l e m e n t a t i o n

(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) D i s c l o s u r e c o m m e n t s

(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) C o n c l u s i o n o n E D E

(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.

it has only provided a notification of

(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,
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.

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(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. On the contrary,
it stated in its
management reports for 2002 to 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) C a l c u l a t i o n o f

t h e s u b s i d y a m o u n t

(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 (numerator)
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
subsidy rates might
determination of a subsidy rate. This
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 estab-
lished and attributed to each of the related companies.

is because calculating individual

(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 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 family (1).

(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 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 exporting producer did neither contest

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 %.

(1) Article 143(1)(e)(h) of Commission Regulation (EEC) No 2454/93 of 2 July 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 2286/2003 (OJ L 343, 31.12.2003, p. 1).

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(154) Given the high level of cooperation, the subsidy rate for all non-cooperating 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

COMPANY ↓

%

%

%

%

%

%

KDL Biotech Ltd

22,8

4,6

Nectar Lifesciences Ltd

25,8

3,2

Nestor Pharmaceuticals Ltd 22,0

3,3

nil

nil

nil

negl.

1,0

negl.

2,3

nil

negl.

nil

nil

nil

Orchid Chemicals &
Pharmaceuticals Ltd

nil

nil

30,9

nil

1,1

nil

Ranbaxy Laboratories Ltd

25,6

8,0

Surya Pharmaceutical Ltd

25,8

3,2

nil

nil

negl.

negl.

1,5

negl.

2,3

nil

PSI

%

nil

nil

nil

nil

nil

nil

GIIS

PIIS

EDE

Total

%

nil

nil

nil

nil

nil

nil

%

nil

2,4

nil

nil

nil

2,4

%

%

nil

nil

nil

nil

nil

nil

28,4

33,7

25,3

32,0

35,1

33,7

Torrent Gujarat Biotech
Ltd

24,8

nil

nil

nil

nil

nil

nil

3,1

nil

0,2

28,1

D. LIKELIHOOD OF CONTINUATION OR RECURRENCE OF SUBSIDISATION

(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, 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 (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,
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.

the exporters of the product

(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. COMMUNITY INDUSTRY

I. 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 cooperated with the review investigation. The other
Community producers neither cooperated nor opposed the initiation of this combined expiry and
interim review.

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(159) One cooperating 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 product concerned from India are only of a temporary nature since it is restruc-
turing 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 cooperating 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. ANALYSIS OF THE SITUATION ON THE COMMUNITY MARKET

I. 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 cooperating

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
i.e.

basis of information for the Community market after the enlargement as per 1 May 2004,
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
in reply to the general comment it should be
respective part of the analysis below. However,
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
it was examined whether and to what extent the subsequent use of the Community
industry,
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,

— 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.

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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)

1999

2000

2001

2002

IP

Product concerned and like product

2 482 053 3 240 481 3 254 464 3 801 666 3 745 549

Index

100

131

131

153

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
it was argued that the credibility of the data with regard to Community
consumption. Further,
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 cooperate with the investi-
gation.
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

47 400

72 100

101 800

95 200

100

129

196

277

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
the increase in
imports rose much faster than the general growth in consumption of 51 %,
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.

Average import price per kg in EUR

1999

2000

2001

2002

IP

Product concerned

Index

34,66

33,94

35,51

36,57

35,34

100

98

102

106

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

1999

2000

2001

2002

IP

Product concerned

Index

1,5 %

1,5 %

2,2 %

2,7 %

2,5 %

100

99

149

181

171

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(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 subtype. 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 %. Conse-
quently, these price undercutting margins indicate continuous price pressure exerted by the Indian
imports on the Community market despite the existence of measures.

V. Economic situation of the Community industry

1. Production, capacity and capacity utilisation

Index production

Index capacity

Index capacity utilisation

1999

2000

2001

2002

100

100

100

121

117

103

127

123

103

154

148

104

IP

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 cooperating
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 cooperating Community producers.

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(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. Sales volume, sales price, market share and growth

(a) F r e e m a r k e t s a l e s

Free market sales in the Community

1999

2000

2001

2002

Index volume

Index average sales price

Index market share

100

100

100

170

94

130

162

94

123

192

94

125

IP

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 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 investi-
gation 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.

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(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.

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

the free market.

(b) C a p t i v e s a l e s

Captive sales in the Community

1999

2000

2001

2002

Index volume

Index average sales price

Index market share

100

100

100

88

102

67

124

104

95

180

102

117

IP

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
the product
concerned at low prices.

in order to avoid direct competition with subsidised imports of

(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.

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3. Stocks

Index

Stocks

1999

100

2000

74

2001

100

2002

141

IP

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

4. Profitability

(a) F r e e m a r k e t s a l e s

Profitability
(Free market sales in the Community)

Index

1999

2000

2001

2002

– 100

113

239

146

IP

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
it could reasonably have obtained in the
investigation,
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) 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) the profitability development
should have been disclosed for each Community producer.

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(207)

in a
It is reiterated that the Community industry was at no time, during the period considered,
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.

(b) C a p t i v e s a l e s

Profitability
(Captive sales in the Community)

1999

2000

2001

2002

IP

Index

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

Index investments

Index return on investment

Index cash flow

1999

2000

2001

2002

0

– 100

100

100

160

186

300

286

71

1 123

161

160

IP

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 inves-
tigation 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.

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(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) the cash flow allegedly cannot follow this trends in view of the trends
for return on investments and profitability and should therefore be re-evaluated and, (iv) without
further substantiation the analysis would be insufficient.

(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

100

100

100

101

120

103

101

127

106

187

83

185

IP

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
the cooperating
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.

in the Community by one of

(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 produc-
tivity. 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

100

2000

103

2001

105

2002

99

IP

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.

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

(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 inves-
tigation 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.

(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.

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(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 estab-
lished. 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.

(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
is highly price sensitive and reacts swiftly to any downward pressure. In such cases
commodity,
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.

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VIII. Impact of other factors

1. Imports from other third countries

Third country imports

1999

2000

2001

2002

IP

Volume (kg)

India

Index

Oman

Index

USA

Index

China

Index

36 800

47 400

72 100

101 800

95 200

100

129

196

277

259

77 400

119 700

85 100

88 400

93 500

100

155

110

114

121

11 100

2 800

16 600

106 300

70 000

100

25

149

932

631

0

0

3 900

21 800

75 600

63 000

100

559

1 938

1 615

South Korea

19 800

75 300

40 200

54 500

45 000

Index

Singapore

Index

100

380

203

275

227

0

0

4 600

128 300

62 700

37 700

100

2 789

1 363

820

Average import price per kg (EUR)

India

Index

Oman

Index

USA

Index

China

Index

34,66

33,94

35,51

36,57

35,34

100

98

102

106

102

36,10

36,21

39,30

39,15

38,34

100

100

109

108

106

74,87

115,35

108,90

101,40

48,74

100

154

145

135

65

0,00

188,97

116,06

68,22

58,59

0

100

61

36

31

South Korea

34,84

37,52

37,66

45,59

48,06

Index

Singapore

Index

100

108

108

131

138

0,00

76,88

57,47

57,47

51,28

0

100

75

75

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 United States of America (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.

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(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.

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.

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4. Competitiveness of the Community industry

(242) The Community industry is an important competitor for the product under consideration as demon-
strated 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 competi-
tiveness 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. 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.

I. Introduction

H. COMMUNITY INTEREST

(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.

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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
its profitability, caused by the
undermined in particular by the unsatisfactory development of
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.

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 cooperating 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 cooperating 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
the continuation of measures
investigation period). Finally,
would have any impact on employment, since import activities are not labour intensive.

the importer did not

indicate that

(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
the Community industry to continue redressing unfair and
injurious Indian trading practices as summarised in recital 248.

interest of

IV. Interest of up-stream suppliers

(251)

the Community industry, questionnaires were sent

In order to assess the likely effect that the continuation of countervailing measures could have on the
up-stream suppliers of
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 conti-

nuation of measures would comply with interests of up-stream suppliers.

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V. Interest of users

(253) Questionnaires were also sent to five known Community users of the product concerned,

companies. The Commission requested,

i.e.
pharmaceutical
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.

amongst other

information,

(254) Although, despite their silence, users might not be in favour of measures, on the basis of the
information available by cooperating 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 formu-
lations. 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 competi-
tiveness. 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 cooperating exporters the subsidy rate was
higher than the injury elimination level. Thus in accordance with Article 15(1) of the basic Regu-
lation, 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 cooperation 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 cooperating 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 Regu-
lation, 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 Commission (1) 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 appro-
priate, and after consultation of the Advisory Committee, the Regulation will be amended accordingly
by updating the list of companies benefiting from individual duty rates,

HAS ADOPTED THIS REGULATION:

Article 1

1.
A definitive countervailing duty is hereby imposed on imports of amoxicillin trihydrate, ampicillin
trihydrate and cefalexin not put up in measured doses or in forms or 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.

(1) 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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The rate of duty applicable to the net free-at-Community-frontier price, before duty for imports

2.
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).

3.

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

Article 2

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

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

Done at Brussels, 10 May 2005.

For the Council
The President

J. KRECKÉ