CELEX: 52007PC0026
Language: en
Date: 2007-01-25
Title: Proposal for a Council Regulation imposing a definitive countervailing duty on imports of polyethylene terephthalate (PET) originating in India following an expiry review pursuant to Article 18 of Regulation (EC) No 2026/97

COMMISSION OF THE EUROPEAN COMMUNITIES
                                                   Brussels, 25.1.2007
                                                   COM(2007) 26 final
                                      Proposal for a
                              COUNCIL REGULATION
   imposing a definitive countervailing duty on imports of polyethylene terephthalate
     (PET) originating in India following an expiry review pursuant to Article 18 of
                              Regulation (EC) No 2026/97
                             (presented by the Commission)
EN                                                                                    EN
 ---pagebreak---                            EXPLANATORY MEMORANDUM
   1) CONTEXT OF THE PROPOSAL
      •   Grounds for and objectives of the proposal
      This proposal concerns the application of Council Regulation (EC) No 2026/97 of 6
      October 1997 on protection against subsidized imports from countries not members of
      the European Community, as last amended by Council Regulation (EC) No 461/2004
      of 8 March 2004 ("the basic Regulation") in the proceeding concerning imports of
      certain polyethylene terephthalate originating in India.
      •   General context
      This proposal is made in the context of the implementation of the basic Regulation and
      is the result of an investigation which was carried out in line with the substantive and
      procedural requirements laid out in the basic Regulation.
      •   Existing provisions in the area of the proposal
      There are no existing provisions in the area of the proposal.
      •   Consistency with other policies and objectives of the Union
      Not applicable.
   2) CONSULTATION OF INTERESTED PARTIES AND IMPACT ASSESSMENT
      •   Consultation of interested parties
      Interested parties concerned by the proceeding have already had the possibility to
      defend their interests during the investigation, in line with the provisions of the basic
      Regulation.
      •   Collection and use of expertise
      There was no need for external expertise.
      •   Impact assessment
      This proposal is the result of the implementation of the basic Regulation.
      The basic Regulation does not foresee a general impact assessment but contains an
      exhaustive list of conditions that have to be assessed.
   3) LEGAL ELEMENTS OF THE PROPOSAL
      •   Summary of the proposed action
EN                                             2                                                EN
 ---pagebreak---      On 1 December 2005, the Commission announced by a notice (‘notice of initiation’),
     published in the Official Journal of the European Union,1 the initiation of an expiry
     review of the countervailing measures applicable to imports into the Community of
     certain polyethylene terephthalate originating in India.
     This expiry review was initiated following a request for review lodged on 30 August
     2005 by the Polyethylene Terephthalate (PET) Committee of Plastics Europe (‘the
     applicant’) on behalf of producers representing a major proportion, in this case more
     than 90 %, of the total Community production of certain polyethylene terephthalate.
     The enclosed Commission proposal for a Council Regulation contains the definitive
     conclusions regarding subsidization, injury, causality and Community interest.
     Member States were consulted during the Anti-Subsidy Committees of 16/01 . 26
     Member States were in favour of the proposed course of action and 1 opposed.
     It is proposed that the Council adopt the attached proposal for a Regulation which
     should be published in the Official Journal of the European Union on 28 February 2007
     at the latest.
     •    Legal basis
     Council Regulation (EC) No 2026/97 of 6 October 1997 on protection against
     subsidized imports from countries not members of the European Community, as last
     amended by Council Regulation (EC) No 461/2004 of 8 March 2004.
     •    Subsidiarity principle
     The proposal falls under the exclusive competence of the Community. The subsidiarity
     principle therefore does not apply.
     •    Proportionality principle
     The proposal complies with the proportionality principle for the following reason(s):
     The form of action is described in the above-mentioned basic Regulation and leaves no
     scope for national decision.
     Indication of how financial and administrative burden falling upon the Community,
     national governments, regional and local authorities, economic operators and citizens is
     minimized and proportionate to the objective of the proposal is not applicable.
     •    Choice of instruments
     Proposed instruments: Regulation.
     Other means would not be adequate for the following reason(s).
   1
     OJ C 304, 1.12.2005, Notice of initiation (2005/C 304/03 ), p. 4
EN                                                  3                                         EN
 ---pagebreak---       The above-mentioned basic Regulation does not foresee alternative options.
   4) BUDGETARY IMPLICATION
      The proposal has no implication for the Community budget.
EN                                           4                                   EN
 ---pagebreak---                                                Proposal for a
                                      COUNCIL REGULATION
       imposing a definitive countervailing duty on imports of polyethylene terephthalate
         (PET) originating in India following an expiry review pursuant to Article 18 of
                                      Regulation (EC) No 2026/97
   THE COUNCIL OF THE EUROPEAN UNION,
   Having regard to the Treaty establishing the European Community,
   Having regard to Council Regulation (EC) No 2026/97 of 6 October 1997 on protection
   against subsidised imports from countries not member of the European Community2 (‘the
   basic Regulation’), and in particular Article 18 thereof,
   Having regard to Council Regulation (EC) No 384/96 of 22 December 1995 on protection
   against dumped imports from countries not members of the European Community3, and in
   particular, Article 14(1) thereof,
   Having regard to the proposal submitted by the Commission after consulting the Advisory
   Committee,
   Whereas:
                                            A. PROCEDURE
   1. Measures in force
   (1)     On 30 November 2000, by Regulation (EC) No 2603/20004, the Council imposed
           definitive countervailing duties on imports of certain polyethylene terephthalate
           ('PET') originating in India, Malaysia, and Thailand ('the countries concerned') ('the
           original investigation'). The measures imposed had been based on a countervailing
           measures investigation initiated pursuant to Article 10 of the basic Regulation. At the
           same time, by Regulation (EC) No 2604/20005, the Council imposed definitive anti-
           dumping duties on imports of the same product originating in the same countries. The
           measures imposed had been based on an anti-dumping investigation initiated pursuant
           to Article 5 of Council Regulation (EC) No 384/96, referred to in the preamble.
   2
           OJ L 288, 21.10.1997, p.1, as last amended by Council Regulation (EC) No 461/2004 (OJ L 77,
           13.3.2004, p.12)
   3
           OJ L 56, 6.3.1996, p.1, as last amended by Council Regulation (EC) No 2117/2005 (OJ L 340,
           23.12.2005, p.17)
   4
           OJ L 301, 30.11.2000. p1.
   5
           OJ L301, 30.11.2000. p 21
EN                                                   5                                                 EN
 ---pagebreak---    (2)     Council Regulation 2604/2000, as referred to in recital (1) has been amended by
           Council Regulations (EC) No 496/2002, 823/2004, 83/2005 and 1646/20056. The
           amendments were the results of either review investigations initiated pursuant to
           Article 11(3) and (4) or of price undertakings being accepted under Article 8(1) of
           Council Regulation (EC) No 384/96 as referred to in the preamble and recital 1.
   (3)     Moreover, on 19 August 20047 the Council imposed definitive anti-dumping duties on
           imports of certain PET originating in Australia and the People's Republic of China
           ('PRC') and terminated the proceeding on imports of PET originating in Pakistan.
   (4)     On 11 October 2005, the Council amended the level of countervailing measures in
           force against imports of PET from India8. The amendments were a result of an
           accelerated review initiated pursuant to Article 20 of the basic Regulation.
   2. Request for a review
   (5)     Following the publication of a notice of impending expiry, the Commission, on 30
           August 2005, received a request to review the measures in force pursuant to Article 18
           of the basic Regulation ('expiry review').
   (6)     The request for was lodged on 30 August 2005 by the Polyethylene Terephthalate
           Committee of Plastics Europe ('the applicant') on behalf of producers representing a
           major proportion, in this case more than 90 %, of total Community production of PET.
   (7)     The request for the expiry review was based on the grounds that the expiry of the
           measures would be likely to result in a continuation or recurrence of subsidisation and
           injury to the Community industry.
   (8)     Having determined, after consulting the Advisory Committee, that sufficient evidence
           existed for the initiation of the review, pursuant to Article 18 of the basic Regulation
           respectively, the Commission initiated these reviews on 1 December 20059.
   (9)     It should be noted that prior to the initiation of the expiry review, and in accordance
           with Articles 22(1) and 10(9) of the basic Regulation, the Commission notified the
           Government of India (‘GOI’) that it had received a properly documented review
           request and invited the GOI for consultations with the aim of clarifying the situation as
           regards the contents of the complaint and arriving at a mutually agreed solution.
           However, the Commission did not receive any answer from the GOI regarding its offer
           for consultation.
   3. Parallel investigations
   (10)    On 1 December 2005, the Commission also opened a review pursuant to Article 11(2)
           of Council Regulation (EC) No 384/9610 on the anti-dumping measures in force on
           imports of PET originating in India, Indonesia, Malaysia, the Republic of Korea,
   6
           OJ L 78, 21.3.2002 p.4, OJ L 127, 29.4.2004, p.7, OJ L 19, 21.1.2005, p.1, OJ L 266, 11.10.2005, p. 10.
   7
           Council Regulation (EC) No 1467/2004, (OJ L 271,19.8.2004, p.1)
   8
           OJ L 266, 11.10.2005, p. 1.
   9
           OJ C 304, 1.12.2005, p.4
   10
           OJ L 56, 6.3.1996, p.1. Council Regulation as last amended by Council Regulation (EC) No 2117/2005
           (OJ L 340, 23.12.2005, p.17)
EN                                                       6                                                         EN
 ---pagebreak---            Thailand and Taiwan11. A partial interim review pursuant to Article 11(3) of Council
           Regulation 384/96 limited to dumping was initiated at the same time concerning
           imports of the same product originating in the Republic of Korea and Taiwan12.
   4. Review Investigation Period
   (11)    The review investigation period covered the period from 1 October 2004 to 30
           September 2005 (hereinafter referred to as the review investigation period or RIP).
           The examination of trends in the context of injury covered the period from 1 January
           2002 up to the end of the review investigation period (hereinafter referred to as the
           period considered).
   5. Parties concerned by the investigation
   (12)    The Commission officially advised the exporting producers, the representatives of the
           exporting country, importers, Community producers, users and the applicant of the
           initiation of the expiry review. Interested parties were given the opportunity to make
           their views known in writing and to request a hearing within the time limit set out in
           the notice of initiation. All interested parties who so requested and showed that there
           were particular reasons why they should be heard were granted a hearing.
   (13)    In view of the apparent large number of Indian exporting producers as well as
           Community producers and importers listed in the request for the expiry reviews, it was
           considered appropriate, in conformity with Article 27 of the basic Regulation, to
           examine whether sampling should be used. In order to enable the Commission to
           decide whether sampling would be necessary and, if so, to select a sample, the above
           parties were requested, pursuant to Article 27 of the basic Regulation, to make
           themselves known within 15 days of the initiation of the reviews and to provide the
           Commission with the information requested in the notice of initiation.
   (14)    After examination of the information submitted, given the low number of exporting
           producers in India indicating their willingness to co-operate, it was decided that
           sampling was not necessary as regards exporting producers in India.
   (15)    Having examined the information submitted by Community producers and importers,
           and given the relative small number of replies, it was considered that sampling for
           none of these categories would be warranted.
   (16)    Questionnaires were therefore sent to all known exporting producers in the country
           concerned, importers, suppliers, Community producers and users.
   (17)    Replies to the questionnaires were received from three Indian producers, from twelve
           Community producers, from one importer, one supplier and from ten converters/users.
   (18)    The Commission sought and verified all the information it deemed necessary for its
           analysis and carried out verification visits at the premises of the following companies:
             1.     Community producers
   11
           OJ C 304, 1.12.2005, p.9
   12
           OJ C 304, 1.12.2005, p.9
EN                                                  7                                               EN
 ---pagebreak---             Voridian BV (The Netherlands)
            M & G Polimeri Italia Spa (Italy)
            Equipolymers Srl (Italia)
            La Seda de Barcelona SA (Spain)
            Novapet SA(Spain)
            Selenis Industria de Polímeros SA (Portugal)
            Selenis Itália Spa (Italy)
            Community Suppliers
            Interquisa SA (Spain)
            Unrelated importers in the Community
            Global Service International SRL (Italy)
            Community users
            Coca Cola Enterprises Europe Ltd (Belgium)
            2.    Government of India
            Ministry of Commerce, New Delhi
            Government of Maharashtra -Directorate of Industries, Mumbai
            3.    Exporting producers in India
                         SENPET Ltd, Calcutta (formerly Elque Polyesters Limited)
                         Futura Polyesters Limited, Chennai (formerly Futura Polymer Limited)
                         Pearl Engineering Polymers Limited, New Delhi
                      B. PRODUCT CONCERNED AND LIKE PRODUCT
   1. Product concerned
   (19)   The product concerned is the same as in the original investigation, i.e. PET with a
          viscosity number of 78 ml/g or higher, according to ISO Standard 1628-5, originating
          in the country concerned. It is currently classifiable within CN Code 3907 60 20.
   2. Like product
   (20)   As in the original investigation, it was found that the product concerned, PET
          produced and sold on the domestic markets in the country concerned and PET
          produced and sold by the Community producers have the same basic physical and
EN                                                 8                                           EN
 ---pagebreak---           chemical characteristics and uses. It is therefore concluded that all types of PET with a
          viscosity of 78 ml/g or higher are alike within the meaning of Article 1(5) of the basic
          Regulation.
     C. LIKELIHOOD OF CONTINUATION OR RECURRENCE OF SUBSIDISATION
   I. Continuation of Subsidisation- Introduction
   (21)   On the basis of the information contained in the review request and the replies to the
          Commission’s questionnaire, the following schemes, which allegedly involve the
          granting of subsidies, were investigated.
   1.     Subsidy schemes originally investigated
   Nationwide Schemes
            (a)   Duty Entitlement Passbook Scheme (DEPBS)
            (b)   Income Tax Exemption Scheme (ITES)
            (c)   Export Promotion Capital Goods Scheme (EPCGS)
            (d)   Export         Processing          Zones         (EPZ)/Special          Economic
                  Zones (SEZ)/Export Oriented Units (EOU)
   2.     Subsidy schemes not originally investigated
   Nationwide Schemes
            (e)   Advance Licence Scheme (ALS)
            (f)   Export Credit Scheme (pre-shipment and post-shipment) (ECS)
   Regional Schemes
            (g)   Gujarat Sales Tax Incentive Scheme (GSTIS)
            (h)   Gujarat Electricity Duty Exemption Scheme (GEDES)
            (i)   West Bengal Incentive Schemes (WBIS)
            (j)   Package        Scheme          of       Incentives       (PSI)        of      the
                  Government of Maharashtra
   (22)   The schemes (a) and (c)-(e) 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, since 1 September 2004 named 'Foreign Trade
          Policy', and are issued by the Ministry of Commerce every five years and updated
          regularly. One Export and Import Policy document is relevant to the review
          investigation period of this case; i.e. the five-year plan relating to the period 1
          September 2004 to 31 March 2009 (‘EXIM-policy 2004-2009’). In addition, the GOI
EN                                                 9                                                EN
 ---pagebreak---           also sets out the procedures governing the EXIM-policy 2004-2009 in a ‘Handbook of
          Procedures - 1 September 2004 to 31 March 2009, Volume I’ (‘HOP I 2004-2009’).
          The Handbook of Procedure (HOP) is also updated on a regular basis.
   (23)   The Income Tax Scheme specified above under (b) is 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 allows the Reserve Bank of India (‘RBI’)
          to direct commercial banks in the field of export credits.
   (25)   The Gujarat Sales Tax Incentive Scheme specified above under (g) is administered by
          the Government of Gujarat and based on its industrial incentive policy; the Gujarat
          Electricity Duty Exemption scheme stipulated above under (h) is based on the Bombay
          Electricity Duty Act of 1958.
   (26)   The scheme (j) is managed by the state of Maharashtra and is based on resolutions of
          the Government of Maharashtra Industries, Energy and Labour Department.
   (27)   The scheme (i) is set up by the Government of West Bengal through the Commerce &
          Industries Department notification No 588-CI/H of 22 June 1999 (WBIS 1999) which
          was last replaced by notification No 134-CI/O/Incentive/17/03/I of 24 March 2004
          (WBIS 2004).
   (28)   Following the disclosure of the findings concerning the alleged subsidisation, the GOI
          reiterates a number of concerns regarding the countervailability of the schemes and the
          calculation of the subsidy amounts.It also reiterates arguments that there was no likely
          continuation of subsidisation in the present case. To this end, it should be noted that
          this submission does not contain any new arguments which would alter the
          conclusions as set out in this regulation..
   II. Nationwide Schemes
   1. Duty Entitlement Passbook Scheme (‘DEPBS’)
            (a) Legal Basis
   (29)   The detailed description of the DEPBS is contained in section 4.3 of the EXIM-policy
          2004-2009 and in section 4.3-.4.4 of the HOP I 2004-2009.
   (30)   It was found that none of the cooperating exporting producers obtained any
          countervailable benefits under the (DEPBS). It was therefore not found necessary to
          further analyse this scheme in the scope of this investigation.
   2. Income Tax Schemes
   (31)   It was found that that none of the cooperating exporting producers obtained any
          countervailable benefits under the ITES. It was therefore not found necessary to
          further analyse this scheme in the scope of this investigation.
   3. Export Promotion Capital Goods Scheme (‘EPCGS’)
EN                                                10                                               EN
 ---pagebreak---           (a) Legal basis
   (32) The detailed description of the EPCGS is contained in chapter 5 of the EXIM-policy
        2004-2009 and in chapter 5 of the HOP I 2004-2009.
          (b) Eligibility
   (33) Manufacturer-exporters, merchant-exporters “tied to” supporting manufacturers and
        service providers are eligible for this scheme.
          (c) Practical implementation
   (34) 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 or zero rate of duty. To this end the GOI issues upon application and
        payment of a fee an EPCG license. 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.
   (35) The EPCGS licence holder can also source the capital goods indigenously. In such
        case, the indigenous manufacturer of capital goods may avail of the benefit for duty
        free import of components required to manufacture such capital goods. Alternatively,
        the indigenous manufacturer can claim the benefit of deemed export in respect to the
        supply of capital goods to an EPCGS licence holder.
          (d) Conclusion on EPCG Scheme
   (36) 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.
   (37) Furthermore, the EPCGS is contingent in law upon export performance, since such
        licences cannot be obtained without a commitment to export. Therefore it is deemed to
        be specific and countervailable under Article 3(4)(a) of the basic Regulation.
   (38) Consequently, 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. 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.
          (e) Calculation of the subsidy amount
   (39) None of the cooperating exporters had purchased any capital goods in the IP. One
        company continued however to benefit from duty exemptions for capital goods
        purchased before the IP at the amount established in the original investigation.. The
        subsidy amount obtained during the RIP 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 actual depreciation period of
        such capital goods of the exporting producer. In accordance with the established
EN                                               11                                              EN
 ---pagebreak---           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. 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 denominator, because the
          subsidy is contingent upon export performance and it was not granted by reference to
          the quantities manufactured, produced, exported or transported. The subsidy obtained
          for the company that continued to benefit from the scheme was 0.38%
   4. Export Credit Scheme (‘ECS’)
            (a) Legal basis
   (40)   The details of the scheme are set out in the Master Circular IECD No 5/04.02.01/2002-
          03 (Export Credit in Foreign Currency) and the Master Circular IECD No
          10/04.02.01/2003-04 (Rupee Export Credit) of the Reserve Bank of India (‘RBI’),
          which is addressed to all commercial banks in India.
            (b) Eligibility
   (41)   Manufacturing exporters and merchant exporters are eligible for this scheme. It was
          found that one of the companies cooperating in the proceeding availed of benefits
          under the ECS.
            (c) Practical implementation
   (42)   Under this scheme, the RBI sets compulsory maximum ceiling interest rates applicable
          to export credits, both in Indian rupees or in foreign currency, which commercial
          banks can charge an exporter 'with a view to making credit available to exporters at
          internationally competitive rates' . The ECS consists of two sub-schemes, the Pre-
          Shipment Export Credit Scheme (“packing credit”), which covers credits provided to
          an exporter for financing the purchase, processing, manufacturing, packing and/or
          shipping of goods prior to export, and the Post-Shipment Export Credit Scheme, which
          provides for working capital loans with the purpose of financing export receivables.
          The RBI also directs the banks to provide a certain amount of their net bank credit
          towards export finance.
   (43)   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.
            (d) Conclusion on the ECS
   (44)   Firstly, the preferential interest rates of an ECS credit set by the RBI Master Circulars
          can decrease interest costs of an exporter as compared with credit costs purely set by
          market conditions and confer in this case a benefit within the meaning of Article 2(2)
          of the basic Regulation on such an exporter. Only in the case of those co-operating
          exporters, where such interest rate differences were found to exist, it was concluded
          that a benefit was conferred. The differences in rates between the credits given further
EN                                                  12                                              EN
 ---pagebreak---           to the RBI Master Circulars and commercial 'cash credit' rates cannot be explained by
          pure market behaviour of the commercial bank.
   (45)   Secondly, and despite the fact that the preferential credits under the ECS are granted
          by commercial banks, this benefit is a financial contribution by a government within
          the meaning of Article 2(1)(iv) 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, pursuant to Article 3(4)(a) of the basic
          Regulation.
            (e) Calculation of the subsidy amount
   (46)   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 denominator in accordance with Article 7(2) basic
          Regulation, because the subsidy is contingent upon export performance and it was not
          granted by reference to the quantities manufactured, produced, exported or
          transported. The company that availed of benefits under the ECS obtained a subsidy of
          0.1%.
   5. Export Oriented Units Scheme (‘EOUS’)/Special Economic Zones Scheme (‘SEZS’)
   (47)   It was found that none of the cooperating exporting producers obtained countervailable
          benefits under the SEZS. However, two Indian companies had the status of an EOU
          and received countervailable subsidies in the RIP. The description and assessment
          below is therefore limited to the EOUS.
            (a) Legal basis
   (48)   The details of the EOU scheme are contained in chapter 6 of the EXIM-policy 2004-
          2009 and the HOP I 2004-2009.
            (b) Eligibility
EN                                                13                                               EN
 ---pagebreak---    (49) 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 EOUS. Undertakings in the industrial sectors have to fulfil a minimum investment
        threshold in fixed assets (10 million Indian rupees) to be eligible for the EOUS
          (c) Practical implementation
   (50) As found in the original investigation, EOUs can be located and established anywhere
        in India.
   (51) An application for EOU 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. Upon acceptance by the authorities of the
        company’s application, the terms and conditions attached to this acceptance will be
        communicated to the company. The agreement to be recognised as a company under
        EOU is valid for a five-year period. The agreement may be renewed for further
        periods.
   (52) A crucial obligation of an EOU as set out in the EXIM-policy 2004-2009 is to achieve
        net foreign exchange (‘NFE’) earnings, i.e. in a reference period (5 years) the total
        value of exports has to be higher than the total value of imported goods.
   (53) EOU units are entitled to the following concessions:
          (i)   exemption from import duties on all types of goods (including capital goods,
                raw materials and consumables) required for the manufacture, production,
                processing, or in connection therewith;
          (ii)  exemption from excise duty on goods procured from indigenous sources;
          (iii) reimbursement of central sales tax paid on goods procured locally;
          (iv) the facility to sell part of production on the domestic market of up to 50% of
                FOB value of exports, subject to fulfilment of positive NFE earnings upon
                payment of concessional duties, i.e. excise duties on finished products;
          v)    partial reimbursement of duty paid on fuel procured from domestic oil
                companies;
          (vi) exemption from income tax normally due on profits realised on export sales in
                accordance with Section 10B of the Income Tax Act, for a 10 year period after
                starting its operations, but no longer than up to 2010;
          (vii) possibility of 100% foreign equity ownership.
   (54) Units operating under these schemes are bonded under the surveillance of customs
        officials in accordance with Section 65 of the Customs Act.
   (55) They are legally obliged to maintain a proper account of all imports, of the
        consumption and utilisation of all imported materials and of the exports made in
        accordance with 6.11.1 HOP 2004-2009. These documents should be submitted
EN                                                14                                           EN
 ---pagebreak---         periodically, to the competent authorities through quarterly and annual progress
        reports.
   (56) However, “at no point in time [an EOU] shall be required to co-relate every import
        consignment with its exports, transfers to other units, sales in DTA or stocks”, as
        section 6.11.2 of the HOP I 2004-2009 states.
   (57) 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.
   (58) In the present case, the EOUS was used by two of the co-operating exporters. These
        co-operating exporters utilized the scheme to import raw materials and capital goods
        free of import duties, to procure goods domestically free of excise duty and to obtain
        sales tax reimbursement and to sell part of its production on the domestic market. One
        of the exporting companies also utilized the scheme to obtain partial reimbursement of
        duty paid on fuel procured from domestic oil companies. They thereby availed of all
        benefits as described in recital (53) above under (i) to (v). The investigation showed
        that the exporters concerned did not avail of benefits under the income tax exemption
        provisions of the EOUS.
          (d) Conclusions on the EOUS
   (59) 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.
   (60) 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 its 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.
   (61) Thus, only the exemption from basic customs duty, special additional customs duty,
        the partial reimbursement of duty paid on fuel procured from domestic oil companies
        and the sales tax reimbursement, constitute subsidies within 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.
   (62) One of the cooperating exporters asserted that the Commission has departed from the
        reasoning used in the original investigation in terms of the assessment of the duty
        exemption of raw materials and that only excess remission if any should be
        countervailed.. However, in reply to this it should be noted that at the time of the
        original investigation, in the assessment of the countervailable amount, the question on
EN                                              15                                               EN
 ---pagebreak---         whether the EOU was a permissible duty draw back system or not was made 'without
        prejudice to the question of whether the scheme constitutes a draw back system in
        conformity the provisions of the basic Regulation13'. (Within the framework of this
        review, the scheme as a whole, along with the monitoring system was carefully
        investigated.
   (63) The investigation revealed that these subsidies cannot 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. In
        the circumstance that the sales tax reimbursement and import duty exemption
        provisions are used for purchasing capital goods, they are already not in conformity
        with the rules for permitted drawback systems since capital goods are not consumed in
        the production process, as required by Annex I item (h) (sales tax reimbursement) and
        (i) (import duties remission).
   (64) In addition, it has not been established that that the GOI has a 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). The verification system
        in place aims at monitoring the Net foreign exchange earning obligation and not the
        consumption of imports in relation to the production of exported goods.
   (65) 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 legal obligation exists to
        export the total amount of manufactured resultant products. In addition, these domestic
        transactions take place without the supervision and control of a government official
        and are only subject to a self-certification procedure. Consequently, the bonded
        premises of an EOU are at least in part not subject to a physical control by the Indian
        authorities. These circumstances increase 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.
   (66) Concerning further verification steps installed it should be recalled, that an EOU is
        already de jure and at no point in time is required to co-relate every import
        consignment with the corresponding resultant product. Only if such controls were in
        place would the Indian authorities be able to obtain sufficient information about the
        final destination of inputs so as to allow for an efficient 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. In addition, the purpose of the monthly tax returns is
        to monitor excise duties and not to control the destination of inputs. Company internal
        systems, which are kept without legal obligation, would not as such suffice since a
        duty drawback verification system would need to be designed and enforced by a
        government and should not left to the discretion of the management of each individual
        company concerned. Consequently, the investigation has established that the EOU is
   13
        Recital 26, Council Regulation (EC) No 2603/2000OJ L 301, 30.11.2000. p1.
EN                                                  16                                             EN
 ---pagebreak---            explicitly not required by the Indian EXIM policy to record the nexus between input
           materials and the finished product and no effective control mechanism was set up by
           the GOI to determine which inputs were consumed in export production and in what
           amounts.
   (67)    Also, the GOI neither carried out a further examination based on actual inputs
           involved, although this would normally be required in the absence of an effective
           verification system (Annex II(II)(5) and Annex III(II)(3) to the basic Regulation).
           Furthermore no evidence was provided by the GOI demonstrating that no excess
           remission took place.
   (68)    In light of the above, the company's claim that the Commission has departed from the
           reasoning used in the original investigation in terms of the assessment of the duty
           exemption of raw materials and that only excess remission if any should be
           countervailed has to be rejected.
             (e) Calculation of the subsidy amount
   (69)    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 reimbursement of duty paid on fuel procured from domestic
           oil companies and the sales tax reimbursement, during the review investigation period.
   (i) Exemption from import duties (basic customs duty and special additional customs duty),
   sales tax reimbursement on raw materials and reimbursement of duty paid on fuel procured
   from domestic oil companies
   (70)    The subsidy amount for the exporters that are EOUS was calculated on the basis of
           import duties forgone (basic customs duty and special additional customs duty) on the
           materials imported for the EOU as a whole, the sales tax reimbursed, and the
           reimbursement of duties paid on domestically purchased fuel all 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 appropriate export turnover generated
           during the review investigation period as appropriate denominator, because the
           subsidy is contingent upon export performance and it was not granted by reference to
           the quantities manufactured, produced, exported or transported. The subsidy margins
           thus obtained were 0.9 % and 5.8% respectively for the two companies.
   (ii) Exemption from import duties (basic customs duty and special additional customs duty) on
   capital goods
   (71)    Capital goods are not physically incorporated into the finished goods. In accordance
           with Article 7(3) of the basic Regulation, the benefit to the investigated companies 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 investigated companies. In order to determine such normal
           depreciation period the actual depreciation periods used by the two co-operating
           exporters concerned have been used as a reference, i.e. 18 years. The amount so
EN                                                17                                                EN
 ---pagebreak---           calculated is then attributable to the review investigation period and has been adjusted
          by adding interest during this period in order to reflect the value of the benefit over
          time and thereby establish the full benefit of this scheme to the recipient. In
          accordance with Article 7(2) and 7(3) of the basic Regulation, this subsidy amount has
          been allocated over the appropriate export turnover generated during the review
          investigation period as appropriate denominator, because the subsidy is contingent
          upon export performance and it was not granted by reference to the quantities
          manufactured, produced, exported or transported. The subsidy margins thus obtained
          for the two companies were 1.8% and 0.4% respectively.
   (72)   Thus, the total subsidy margin under the EOUS for the companies concerned amounts
          to 2.7% and 6.2% respectively.
   6. Advance Licence Scheme (‘ALS’)
            (a) Legal basis
   (73)   The detailed description of the scheme is contained in sections 4.1 to 4.1.14 of the
          EXIM-policy 2004-2009 and chapters 4.1 to 4.30 of the HOP I 2004-2009.
            (b) Eligibility
   (74)   The ALS consists of six sub-schemes, as described in more detail below. Those sub-
          schemes inter alia differ in the scope of eligibility. Manufacturer-exporters and
          merchant-exporters “tied to” supporting manufacturers are eligible for the ALS
          physical exports and for the ALS annual requirement. Manufacturer–exporters
          supplying the ultimate exporter are eligible for ALS for intermediate supplies. Main
          contractors which supply to the “deemed export” categories mentioned in paragraph
          8.2 of the EXIM-policy 2004-2009, such as suppliers of an export oriented unit
          (‘EOU’), are eligible for ALS deemed export. Eventually, intermediate suppliers to
          manufacturer-exporters are eligible for “deemed export” benefits under the sub-
          schemes Advance Release Order (‘ARO’) and back to back inland letter of credit.
            (c) Practical implementation
   (75)   Advance licences can be issued for:
            (i)   Physical exports: This is the main sub-scheme. It allows for duty free import of
                  input materials for the production of a specific resultant export product. The
                  export must be “physical” in the sense that the export product has to leave
                  Indian Territory. The terms of the import allowance and export obligation
                  including the type of export product are specified in the licence.
            (ii)  Annual requirement: Such a licence is not linked to a specific export product,
                  but to a wider product group (e.g. chemical and allied products). The licence
                  holder can, up to a certain value threshold set by its past export performance,
                  import duty free any input to be used in manufacturing any of the items falling
                  under such a product group. It can choose to export any resultant product
                  falling under the product group using such duty-exempt material.
            (iii) Intermediate supplies: This sub-scheme covers cases where two manufacturers
                  intend to produce a single export product and divide the production process.
EN                                                 18                                              EN
 ---pagebreak---                  The manufacturer-exporter produces the intermediate product. It can import
                 duty free input materials and can obtain for this purpose an ALS for
                 intermediate supplies. The ultimate exporter finalizes the production and is
                 obliged to export the finished product.
          (iv) Deemed exports: This sub-scheme allows a main contractor to import inputs
                 free of duty which are required in manufacturing goods to be sold as “deemed
                 exports” to the categories of customers mentioned in paragraph 8.2. (b - g) and
                 (i - j) of the EXIM policy 2004-2009. The finished goods will, in other words,
                 not have to leave the country but are by virtue of the status of the customer to
                 be considered deemed exports. This would include supply to an EOU or to a
                 licence holder under the Export Promotion Capital Goods scheme.
          (v)    ARO: The ALS holder intending to source the inputs from indigenous sources,
                 instead of direct import, has the option to source them against AROs. In such
                 cases the Advance Licences are validated as AROs and are endorsed to the
                 indigenous supplier upon delivery of the items specified therein. The
                 endorsement of the ARO entitles the indigenous supplier to the benefits of
                 deemed exports as set out in paragraph 8.3 of the EXIM-policy 02-07 (i.e. ALS
                 for intermediate supplies/deemed export, deemed export drawback and refund
                 of terminal excise duty). The ARO mechanism refunds taxes and duties to the
                 supplier instead of refunding the same to the ultimate exporter in the form of
                 drawback/refund of duties. The refund of taxes/duties is available both for
                 indigenous inputs as well as imported inputs.
          (vi) Back to back inland letter of credit: This sub-scheme again covers indigenous
                 supplies to an ALS holder. The holder of an ALS can approach a bank for
                 opening an inland letter of credit in favour of an indigenous supplier. The
                 licence will be invalidated by the bank for direct import, only in respect of the
                 value and volume of items being sourced indigenously instead of importation.
                 The indigenous supplier will be entitled to deemed export benefits as set out in
                 paragraph 8.3 of the EXIM-policy 02-07 (i.e. ALS for intermediate
                 supplies/deemed export, deemed export drawback and refund of terminal
                 excise duty).
   (76) It was established that during the review investigation period, one co-operating
        exporter only obtained concessions under three sub-schemes linked to the product
        concerned, i.e. (i) ALS physical exports, (v) ARO and (iv) ALS deemed export. . It is
        therefore not necessary to establish the countervailability of (ii) annual requirement,
        (iii) Intermediate supplies, and (vi) the back to back inland letter of credit scheme.
   (77) For verification purposes by the Indian authorities, a licence holder is legally obliged
        to maintain “a true and proper account of licence-wise consumption and utilisation of
        imported goods” in a specified format (chapter 4.30 and appendix 23 HOP I 2004-
        2009), i.e. an actual consumption register (“appendix 23 register”). As of May 2005
        appendix 23 must not only be preserved with the company but it must also be
        countersigned by a chartered accountant and sent to the Indian authorities. The
        obligation to submit the appendix 23 applies to licences issued after the entry into
        force of the new rules in May 2005. The practical implementation of this new system
        could therefore not be verified as no report relating to these licences was due at the
        time of the investigation.
EN                                               19                                                EN
 ---pagebreak---    (78) In regard to the sub-schemes (i), (iv) and (v) listed above, 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 2004-2009.
   (79) Imported input materials are not transferable and have to be used to produce the
        resultant export product. The export obligation must be fulfilled within a prescribed
        time frame after issuance of the licence (18 months with two possible extensions of 6
        months each).
   (80) The advance licence holder intending to source the inputs from domestic sources,
        instead of direct imports has the option to source them against Advance Release
        Orders (ARO). In such cases the advance licences are validated as ARO's and are
        endorsed to the supplier upon delivery of the items specified therein.
   (81) In the course of the review investigation, it was established that the input materials
        imported according to the SIONs import allowance duty-free under the various sub-
        schemes by the co-operating exporter exceeded the material needed to produce the
        reference quantity of the resultant export product. Thus, the SIONs for the product
        concerned were not accurate.
          (d) Conclusion
   (82) 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.
   (83) In addition, ALS 'physical exports' is clearly contingent in law upon export
        performance, and therefore deemed to be specific and countervailable under Article
        3(4)(a) of the basic Regulation. Without an export commitment a company cannot
        obtain benefits under these schemes.
   (84) ALS 'deemed export' 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.
   (85) In this case the cooperating company made no use of advance licence for the purpose
        of importing duty free imports. Instead the company obtained a benefit by sourcing
        raw materials from domestic suppliers through the conversion of the licences into
        ARO. Under this scheme the right of exemption of taxes and duties falls on the
EN                                               20                                                EN
 ---pagebreak---         supplier instead of to the ultimate exporter in the form of drawback/refund of duties.
        The exemption of taxes/duties is available both for indigenous inputs as well as
        imported inputs. The investigation revealed there was a significant difference in price
        between raw material sourced through the indigenous unrelated supplier by use of the
        ARO scheme as opposed to raw materials sourced through an indigenous supplier
        when no licence was used. The benefit of the exemption from duties and taxes was
        passed on through lower prices from the supplier to the company using the raw
        material and concerned by this proceeding. The company could make a clear
        distinction between the purchase prices of raw material under the use of the licence
        and the price paid for the same raw material when no licence was used. The company
        defined the benefit thus obtained as the difference in price between supplies sourced
        under the ARO and the price of supplies sourced without such licence.
   (86) None of the three sub-schemes used in the present case can be considered as
        permissible duty drawback systems or substitution drawback systems within the
        meaning of Article 2(1)(a)(ii) of the basic Regulation. 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.
        Although the GOI mentioned that the system had undergone a change as from May
        2005, it should be clear that these changes had no impact on the schemes during the
        RIP, since the new verification system was not yet fully implemented.
        Notwithstanding the possible change of the verification system by the GOI, the
        investigation revealed that during the RIP the GOI did not effectively apply its
        verification system. Nor did it apply procedures 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 and overestimated the raw material consumption. The
        investigation revealed that the SIONs are being amended in view of better reflecting
        the consumption of inputs but these new SION's were not in place during the RIP.
        Thus, it is confirmed that the SIONs themselves cannot be considered a verification
        system of actual consumption, since these generous standard norms do not enable the
        GOI to verify with sufficient precision what amount of inputs were actually consumed
        in the export production. Furthermore, an effective control done by the GOI based on a
        correctly kept actual consumption register (“appendix 23 register”, formerly appendix
        18 ), did not take place for the licences used in the RIP. 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.
   (87) These three sub-schemes are therefore countervailable.
          (e) Calculation of the subsidy amount
   (88) In the absence of permitted duty drawback systems or substitution drawback systems,
        the subsidy amount has been established, as demonstrated by the company, on the
        basis of the difference in price between the same raw material purchased with and
        without the licence.
EN                                             21                                                EN
 ---pagebreak---    (89)   In accordance with Article 7(2) of the basic Regulation, the subsidy amount has been
          allocated over the total export turnover generated as appropriate denominator, because
          the subsidy is contingent upon export performance and was not granted by reference to
          the quantities manufactured, produced, exported or transported.
   (90)   One company benefited from this scheme during the review investigation period and
          obtained subsidies of 20.9%.
   III. Regional Schemes
   1      Gujarat Sales Tax Incentive Scheme (GSTIS) and       Gujarat        Electricity    Duty
   Exemption Scheme (GEDES)
   (91)   It was found that none of the cooperating exporting producers obtained any
          countervailable benefits under the Gujarat Sales Tax Incentive Scheme (GSTIS) or the
          Gujarat Electricity Duty Exemption Scheme (GEDES). It was therefore not found
          necessary to further analyse this scheme within the scope of this investigation.
   2      West Bengal Incentive Schemes (WBIS)
   (92)   The detailed description of the WBIS is set out in Government of West Bengal
          (GOWB) Commerce & Industries Department notification No 588-CI/H of 22 June
          1999 (WBIS 1999) which was last replaced by notification No 134-
          CI/O/Incentive/17/03/I of 24 March 2004 (WBIS 2004). The scheme conferred a
          number of benefits on the recipient such as deferred payment of sales tax, subsidy for
          installation of capital goods, and development subsidies. The investigation established
          that one company had benefited from these schemes in the past. However, the impact
          of these benefits during the RIP was negligible. For this reason it was not found
          necessary to further analyse these schemes within the scope of this investigation.
   3      Package Scheme of Incentives (‘PSI’) of the Government of Maharashtra (‘GOM’)
            (a) Legal basis
   (93)   In order to encourage the dispersal of industries in the Maharashtra to the less
          developed areas of the State, the GOM has been granting incentives to new-expansion
          units set up in developing regions of the State since 1964. The scheme has been
          amended many times since its introduction and the '2001 Scheme' was operative from
          1 April 2001 until 31 March 2006 after which it was extended for one year until 31
          March 2007. The PSI of the GOM is composed of several sub-schemes amongst which
          the main ones are: (i) the refund of octroi tax /entry tax, (ii) the exemption from
          electricity duty and (iii) the exemption from local sales tax which expired on
          24.10.2004. The investigation revealed that the only sub scheme used by one of the
          cooperating exporting producers was the local sales tax exemption.
            (b) Eligibility
   (94)   In order to be eligible, companies must as a rule invest in less developed areas either
          by setting up a new industrial establishment or by making a large scale capital
          investment in expansion or diversification of an existing industrial establishment.
          These areas are classified according to their economic development into different
          categories (e.g. less developed areas, lesser developed areas and least developed
EN                                               22                                               EN
 ---pagebreak---          areas). The main criterion to establish the amount of incentives is the area in which the
         enterprise is or will be located and the size of the investment.
           (c) Practical implementation
   (95)  Under the local sales tax exemption scheme which expired in October 2004,
         designated units were not required to collect any sales tax on their sales transactions.
         Similarly, designated units were exempted from the payment of the local sales tax on
         their purchases of goods from a supplier itself eligible for the scheme. Whereas the
         exemption in relation to sales transactions does not confer any benefit on the
         designated sales unit, the exemption in relation to purchase transactions, however,
         does confer a benefit on the designated purchasing unit. The investigation established
         that the company concerned enjoyed sales tax exemption until 24 October 2006.
           (d) Conclusion
   (96)  The PSI of the GOM provides subsidies within the meaning of Article 2(1)(a)(ii) and
         Article 2(2) of the basic Regulation. The sub scheme examined constitutes a financial
         contribution by the GOM, since this concession decreases the GOM's revenue which
         would be otherwise due. In addition, this exemption/refund confers a benefit upon the
         company as it improves the company's liquidity.
   (97)  The sub-scheme is only available to companies having invested within certain
         designated geographical areas within the jurisdiction of the State of Maharashtra. It is
         not available for companies located outside these areas. The level of benefit is
         different according to the area concerned. The scheme is specific in accordance with
         Article 3(2)(a) and Article 3(3) of the basic Regulation and therefore countervailable.
           (e) Calculation of the subsidy amount
   (98)  Concerning the sales tax exemption, the subsidy amount was calculated on the basis of
         the amount of the sales tax normally due during the review investigation period but
         which remained unpaid under the scheme. Since the sales tax exemption scheme
         expired on 24.10.2004m only the sales unpaid during the period 1.10.2004 –
         24.10.2004 were taken into consideration because only this period fell in the review
         investigation period. Pursuant to Article 7(2) of the basic Regulation, the amount of
         subsidy (numerator) has then been allocated over the total company turnover during
         the review investigation period as the 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 the RIP one company
         benefited from the sub scheme; however the subsidy amount obtained was less than
         0.1% i.e. negligible.
   IV. Amount of countervailable subsidies
   (99)  The amount of countervailable subsidies in accordance with the provisions of the basic
         Regulation, expressed ad valorem, for the investigated exporting producers ranges
         between 2.7% and 20.9 %.
   (100) Although there was a high level of cooperation in terms of proportion of exports to the
         Community it should be noted that several exporting producers did not cooperate in
EN                                                23                                               EN
 ---pagebreak---             the proceeding, including the exporting producer with the highest subsidy margin in
            the original investigation. The capacity and production of the non cooperating
            producers in India is significant and it is also likely that these exporting producers will
            continue to avail of benefits under the investigated subsidisation schemes at at least
            the same rate as that established in the original investigation.
      SCHEME→           DEPBS     ITES   EPGS   EOU    ALS    ECS    GSTIS   GEDES    WBIS   PSI  Total
      COMPANY↓           %        %      %      %      %      %      %       %        %      %    %
      Senpet
      (Former Elque)    nil       nil    nil    2.7    nil    nil    nil     nil      nil    nil  2.7
      Futura            nil       nil    nil    6.2    nil    0.1    nil     nil      nil    nil  6.3
      Pearl             nil       nil    0.3    Nil    20.6   nil    nil     nil      nil    neg  20.9
   V. CONCLUSIONS
   (101) 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.
   (102) As set out under recitals (21) to (100) above, it was established that during the review
            investigation period Indian exporters of the product concerned continued to benefit
            from countervailable subsidisation by the Indian authorities. In fact, the subsidy
            margins found during the review are higher than those established during the original
            investigation, except for one exporting producer. The subsidy schemes concerned give
            recurring benefits and there is no indication that these programmes will be phased out
            in the foreseeable future. In the absence of information on how the amendment to the
            ALS verification system will be implemented in practice, no conclusions can be drawn
            as to the possible effect of these changes. Under these conditions, the exporters of the
            product in question will continue to receive countervailable subsidies. Each exporter is
            eligible for several of the subsidy programmes. Under these circumstances, it was
            considered reasonable to conclude that subsidisation would be likely to continue in the
            future.
   (103) Since it has been demonstrated that subsidisation continued at the time of the review
            and is likely to continue in the future, the issue of likelihood of recurrence of
            subsidisation is irrelevant.
                       D. DEFINITION OF THE COMMUNITY INDUSTRY
   1.       Community production
   (104) PET is manufactured in the Community by the following companies:
              Twelve producers which requested the expiry review, supported them and co-
              operated in the investigation (see recital (107))
EN                                                   24                                                 EN
 ---pagebreak---            Two producers which have requested the expiry review but have not co-operated in
           the current investigation;
           One subsidiary of a Korean producer located in the Community who has cooperated
           in the investigation and has supported the request;
   (105) PET produced by all these companies constitutes the total Community production
         within the meaning of Article 9(1) of the basic Regulation.
   2.    Community industry
   (106) The Commission examined whether the co-operating Community producers
         requesting or supporting the request for the expiry reviews represented a major
         proportion of the total Community production of PET. Those Community producers
         accounted for 88% of the total Community production of PET. Those Community
         producers who did not fully cooperate were excluded from the definition of the
         Community industry. The Commission therefore considered that the twelve fully
         cooperating Community producers represent the Community industry within the
         meaning of Articles 9(1) and 10(8) of the basic Regulation. In the original
         investigations the Community industry represented more than 85% of the total PET
         production in the Community at that time.
   (107) The following twelve Community producers constitute the Community industry.
           Voridian BV (The Netherlands)
           M & G Polimeri Italia Spa (Italy)
           Equipolymers Srl (Italia)
           La Seda de Barcelona SA (Spain)
           Novapet SA (Spain)
           Selenis Industria de Polimeros SA (Portugal)
           Aussapol Spa (Italy)
           Advansa Ltd (UK)
           Wellman BV (The Netherlands)
           Boryszew subsidiary Elana Wse (Poland)
           V.P.I. SA (Greece)
           SK Eurochem Sp.Z. o.o. (Poland)
EN                                              25                                          EN
 ---pagebreak---                        E. SITUATION ON THE COMMUNITY MARKET
   1.     Consumption in the Community market
   (108) Community consumption was established on the basis of the sales volumes of the
          Community industry, of estimates of the sales of the other Community producers on
          the Community market based on data provided at the complaint stage, and Eurostat
          data for all Community imports from third countries.
   (109) Between 2002 and the RIP, Community consumption of the product concerned in the
          Community continuously increased to reach a total of 2.400.000 tonnes in the RIP.
          The overall increase over the period was 18%. The increase was partly due to new
          applications (beer and wine bottles, inter alia) and partly due to the increase of
          consumption in the accession countries.
             Table 1                      2002          2003         2004       RIP
             Community                   2.041.836     2.213.157    2.226.751  2.407.387
             consumption (tonnes)
             Index                             100           108          109        118
   2.     Imports from India
   2.1    Volume, market share and prices of imports
   (110) Between 2002 and the RIP, total imports from India increased by 13%. Whereas
          imports decreased by 17% from 2002 to 2003, they increased by 100 percentage points
          in 2004 and decreased again during the RIP to around 6800 tonnes, i.e. by around 70
          percentage points. Import prices rose by 5 percentage points in 2003 and by further 3
          and 7 percentage points respectively in 2004 and during the RIP. This price trend only
          partially reflects the strong increase of the raw material costs.Market share of Indian
          imports remained relatively small throughout the period considered, i.e. 0.3% in 2002,
          0.2% in 2003, 0.5% in 2004 and 0.3% in the RIP.
                Table 2                           2002       2003      2004   RIP
                India
                Volume (tonnes)                    6 046      4 999    11 079   6 831
                Index                                100         83       183     113
                Price (EUR per tonne)                883        930       955    1018
                Index                                100        105       108     115
                Market share                       0,3%       0,2%      0,5%    0,3%
   3. Imports from other countries
EN                                                  26                                            EN
 ---pagebreak---    (111) The volume of imports from other third countries increased by 25 percentage points
         during the period considered. The biggest increase was observed in 2003, when
         imports rose by 41 percentage points. After the imposition of anti-dumping measures
         on Chinese exports in 2004, imports declined by 14 percentage points in 2004 and by
         2 further percentage points in the RIP. Market shares followed a similar trend passing
         from 15.9% in 2002 to 20.6% in 2003, to 18.5% in 2004 and to 16.9% during the RIP.
         The increase of the market share of imports was lower than the increase of the imports
         in absolute terms, due to the stronger consumption. Import prices were on average
         constantly lower than the EU prices between 2002 and 2004. Only during the RIP,
         were they slightly above Community industry prices.
                Table 3                       2002      2003       2004      RIP
                Volume (tonnes)              324 749   456 499    411 020   406 562
                Index                            100       141        127       125
                Average price (EURpert)          869       821        907      1061
                Index                       100             94        104       122
                Market share                  15,9%     20,6%      18,5%     16,9%
                Main exporters
                Korea                        113 685   129 188    139 296   127 734
                Pakistan                      28 558    83 208     55 125    73 426
                China                         47 875   131 343     49 678    72 814
                USA                           20 570    16 105     49 763    50 393
                Taiwan                        42 136    36 986     16 796    29 382
             F. ECONOMIC SITUATION OF THE COMMUNITY INDUSTRY
   1.    Preliminary remarks
   (112) At the beginning of the review, sampling of the Community producers was foreseen
         but considering that their number was not excessive, it was decided to include all of
         them and the injury factors have been assessed on the basis of information collected at
         the level of the entire Community industry.
   (113) Pursuant to Article 8(5) of the basic Regulation, the Commission examined all
         relevant economic factors and indices having a bearing on the state of the Community
         industry.
   2.1.  Production
   (114) The Community industry’s production increased by 20% between 2002 and the RIP,
         i.e. from a level of 1.465.000 tonnes in 2002 to 1.760.000 tonnes in the RIP. The
EN                                              27                                               EN
 ---pagebreak---          yearly increase was 4.8% in 2003 and 4.6% in 2004. A further increase occurred in the
         RIP, when production soared by 150.000 tonnes, i.e. by 10.8%. This was due to the
         restructuring process undertaken by the industry with the aim to better control the
         production costs and thereby take advantage of the growing consumption in the
         Community market which, as stated above, increased by 19% between 2002 and the
         RIP (from 2 million tonnes in 2002 to 2.4 million tonnes in the RIP).
            Table 4                     2002          2003         2004         RIP
            Production (tonnes)        1 464 522     1 534 480   1 602 086     1 760 828
            Index                            100           105          109          120
   2.2.  Capacity and capacity utilisation
   (115) Production capacity increased by 22% between 2002 and the RIP, i.e. from a level of
         1.760.000 tonnes in 2002 to 2.156.000 tonnes in the IP. The increase occurred mainly
         in the RIP, when production capacity, compared to the year 2004, increased by
         300.000 tonnes, i.e. 16.7%. This significant increase of production capacity was
         parallel to the increase of production over the same period (see recital (114)). The
         increase in production capacity resulted from additional investments in production
         lines designed to take advantage of the growing market. The capacity utilisation
         increased by 4 percentage points in 2003, remained on this level in 2004 and then
         decreased in the RIP by 5 percentage points to the level of 82%. The decrease between
         2004 and the RIP results from the significant increase of production capacity in that
         period. Consequently, a higher production volume in the RIP, when compared with
         2004, coincided with a lower capacity utilisation rate.
         Table 5                          2002          2003         2004          RIP
         Production capacity (tonnes)    1 760 332     1 762 378    1 848 315     2 156 294
         Index                                 100           100          105           122
         Capacity utilisation                 83%           87%          87%           82%
         Index                                 100           105          104            98
   2.3.  Sales and market share
   (116) The volume sold by the Community industry on the Community market increased by
         21% between 2002 and the RIP. A growth of 2% in 2003 was followed by an increase
         in both 2004 and RIP, by 8 and 11 percentage points respectively. Notwithstanding the
         increase of sales, due to the higher consumption the Community industry's market
         share fell by 4 percentage points in 2003 and then gradually rose by 5 percentage
         points in 2004 and 1 percentage point in the RIP.
         Table 6                          2002          2003         2004          RIP
         Sales in the EC (tonnes)        1 306 768     1 333 976    1 438 883     1 586 902
         Index                                 100           102          110           121
EN                                              28                                             EN
 ---pagebreak---           Market share                         64%          60%          65%         66%
   2.4.  Growth
   (117) Overall, it has to be noted that the Community industry’s market share increased by
         2% in the period considered, which shows that its growth lagged behind the growth of
         consumption of the overall market.
   2.5.  Employment
   (118) The level of employment of the Community industry increased by 18% in the period
         considered. The main increase occurred in 2003 (11 percentage points) and 2004
         (further 6 percentage points). Although this rising tendency continued in the RIP, the
         increase amounted to only 2 percentage points. This increase of 18% during the whole
         period is linked to the production level which increased by 20%.
               Table 7                          2002      2003     2004       RIP
               Employees                         1 010     1 124     1 170     1 190
               Index                               100       111       116       118
   2.6.  Productivity
   (119) The Community industry’s productivity, measured as the output in tonnes per person
         employed per year, increased overall over the period considered. After initially falling
         by 6% in 2003 compared to the year 2002 and remaining at this level in 2004, when
         productivity in the RIP increased significantly by more than 8% compared to 2004, a
         period when production increased significantly.
               Table 8                        2002       2003      2004       RIP
               Productivity(t/employee)         1450        1365      1369      1480
               Index
                                                  100         94        94       102
   2.7. Wages
   (120) It has to be noted that PET chips production is a capital intensive industry and that
         therefore labour costs have a limited impact on the overall cost of the product. During
         the period, wages increased by 12%, compared to a 20% increase of the overall
         production cost. Another significant indicator is the cost of wages spent per tonne
         produced. During the period, this cost decreased by 6%.
               Table 9                        2002       2003      2004       RIP
               Wages (million Euro)              62,3       63,0      66,3      69,5
               Index                              100        101       106       112
               Wages        per      tonne       44,4       42,9      43,6      41,9
               produced(€)
EN                                                29                                              EN
 ---pagebreak---                Index
                                             100               96         98         94
   2.8.  Sales prices and factors affecting Community prices
   (121) The unit sales prices increased from 924 EUR/tonne in 2002 to 1058 EUR/tonne in the
         RIP. Overall, the tendency was rising (by 15% in the whole period). This increase is to
         a large extent a consequence of the increase in the price of raw materials, which is due
         to the increase in the oil price. Although the Community industry had increased prices
         it was not in the position to pass the increase on to the downstream sector and fully
         reflect the increase of raw materials prices in its sales prices. This was principally due
         to the fact that the increase in the price of raw materials was higher than the increase
         of PET prices. With the aim to maintain its market share, the Community industry
         could only moderately increase its prices and thus experienced price suppression.
               Table 10                        2002       2003        2004       RIP
               Weighted average       price       924         902       1006      1058
               (EUR/tonne)
               Index
                                                  100          98        109       115
   2.9.  Cost of production of the main raw materials
   (122) Bearing in mind that around 850 kg of purified terephthalic acid (PTA) and 350 kg of
         mono ethylene glycol (MEG) (the main raw materials) are needed to produce 1 tonne
         of PET, the costs of raw materials (PTA and MEG) increased significantly
         respectively by 67% and by 31% between 2002 and the RIP to reach the level of 770
         EUR/tonne (PTA) and 721 EUR/tonne (MEG) (average of the RIP). Although a small
         decline in prices of PTA has been noted in the third quarter of 2005 when the prices
         dropped to the level of 700 EUR/tonne, and a substantially stable price was observed
         for MEG, it has to be pointed out that the raw materials are purchased in advance
         based on long term contracts. As a result, for the period considered, despite the small
         decline in prices of PTA at the end of the RIP, the Community industry still bears the
         consequences of the heavily increased costs. In addition, due to the situation on the
         world oil market the prices of raw materials for the production of PET are susceptible
         to unpredictable changes but they are most likely to remain at a high level. All these
         factors contribute to an increased level of vulnerability of the Community PET
         producers. It should be noted, however, that the main raw materials are products
         traded on a global level, and should therefore also affect the Indian exporting
         producers to the same extent.
               Table 11                        2002       2003        2004       RIP
               average cost (EUR/tonne)
               -PTA                               460         566        718       770
               Index                              100         123        156       167
EN                                                30                                                EN
 ---pagebreak---                -MEG                               551         550        650       721
               Index                              100         100        118       131
   (123) By comparison the average unit cost per tonne of PET chips produced by the
         Community industry was the following:
               Table 12                        2002      2003        2004       RIP
               Weighted      average   cost       899         918      1013       1092
               (EUR/tonne)
               Index
                                                  100         102        113       121
   (124) During the period considered, as indicated in tables 11 and 12, the main raw materials
         have continuously increased (PTA by 67%, MEG by 31%), while the overall cost of
         production raised only by 21%. However, as shown in table 10, prices have only
         increased by 15% due to the fact that the Community industry was not in a position to
         pass the increase onto the downstream sector and fully reflect the rise of raw materials
         prices in its sales prices.
   2.10. Stocks
   (125) The evolution of stocks over the whole period considered, i.e. between 2002 and the
         RIP, is down by 10%. However, as in the original investigations, stocks should not be
         considered as a meaningful indicator as regards PET produced by the Community
         industry, given the seasonal nature of the PET market throughout the year. When
         compared to the production, stocks represent around 5/6% of the output.
               Table 13                        2002      2003        2004       RIP
               Stocks (tonnes)                101 554    110 695     90 422     91 123
               Index                              100         109         89        90
   2.11. Profitability, return on investments and cash flow
   (126) Profitability on sales represents the profit generated by sales of the product concerned
         in the Community. Return on total assets and cash flow could only be measured at the
         level of the narrowest group of products which included the like product, pursuant to
         Article 8(8) of the basic Regulation. Moreover, return on investments has been
         calculated on the basis of return on total assets, as return on total assets is considered
         more relevant for the analysis of the trend.
               Table 14                         2002      2003       2004       RIP
               Pre-tax profit margin on sales
               in the Community                   2,7%     -1,8%      -0,7%     -3,2%
               Return on total assets             2,0%     -1,4%      -0,6%     -2,4%
EN                                                31                                                EN
 ---pagebreak---                Cash flow(% of total sales)       18,1%       5,5%      10,1%    -2,6%
   (127) Further to the price suppression starting in 2002 and coinciding with a strong increase
         of dumped imports from the PRC, Taiwan, Malaysia, Korea and Australia (until
         2004), and of subsidised imports from India the financial situation of the Community
         industry deteriorated and turned into losses in 2003. After a small recovery in 2004
         due to the anti-dumping measures imposed on PRC and Australia, losses increased to -
         3,2% in the RIP. It is therefore noted that there is a clear downward trend.
   (128) The trends for return on total assets and for cash flow developed similarly i.e. showed
         a relatively good situation in 2002, a sharp deterioration in 2003, a small recovery in
         2004 and a further deterioration in the RIP.
   2.12. Investments and ability to raise capital
               Table 15                        2002       2003         2004    RIP
               Investments ('000 EUR)          31.779      42.302      63.986  50.397
               Index                               100         133        201      159
   (129) The investments were partly dedicated to an increase of capacity and partly to the
         improvement of the production process. The bulk of the expenditure was made in 2004
         and during the RIP, coinciding with the increase of the capacity and with the aim to
         keep the market share in view of the increased consumption. Nevertheless, the current
         situation of the Community industry and the evolution of the Community and world
         markets for PET marked out by lack of profitability were not an incentive to make
         excessive investments. Although in some circumstances Community producers have
         been able to raise capital (in particular from related companies), the lack of
         profitability of PET did not encourage investment and in some cases the decision was
         postponed.
   2.13. Magnitude of the actual margin of subsidy
   (130) As concerns the impact on the Community industry of the magnitude of the actual
         margin of subsidy of Indian imports, given the price sensitivity of the market for this
         product, this impact cannot be considered to be negligible. It should be noted that this
         indicator is more relevant in the context of the likelihood of recurrence of injury
         analysis. Should measures lapse, it is likely that subsidized imports would come back
         at such volumes and prices that the impact of the magnitude of the subsidy margin
         would be significant.
   2.14  Recovery from the effects of past subsidisation
   (131) While the indicators examined above show some improvement in some economic
         indicators of the Community industry, further to the imposition of definitive
         countervailing measures in 2001, they also provide evidence that the Community
         industry is still fragile and vulnerable.
   3.    Conclusion on the situation of the Community industry
EN                                                 32                                             EN
 ---pagebreak---    (132) The constant increase of consumption partly due to new applications (inter alia beer
          and wine bottles) and partly due to the increase of consumption in the accession
          countries, obliged the Community industry to increase capacity and production in
          order not to lose market share. To do so, an important restructuring process
          accompanied by a frequent change of the ownership of the different producers, took
          place in 2004 and during the RIP. In parallel, the number of production lines was
          generally increased in order to follow the increase of the consumption and to
          concurrently achieve economies of scale. Thus, some economic indicators, i.e.
          consumption, capacity production, production, EU sales and employment indeed
          followed a positive trend. In addition, the sales price also increased during the period
          considered. However, all those restructuring efforts described above could not
          counterbalance the impact of the constant and massive increase of raw material prices
          in the period considered. The higher raw material costs could not be passed on to the
          downstream sector to the extent it would have been necessary to maintain a certain
          level of profitability. This caused a serious deterioration of the profitability which
          decreased from +2.7% in 2002 to -3.2% during the RIP. Similar negative trends were
          observed for the return on investments and for the cash flow.
   (133) This coincided with the low price level of the imports from the country concerned
          which clearly contributed to the downward pressure on the price of the Community
          industry. However, given the small volumes of subsidised imports in the framework of
          this expiry review, the focus is on the likelihood of recurrence of injury analysis. Thus,
          despite the apparent positive developments concerning production, sales and sales
          price, the overall financial situation of the Community deteriorated and is reflected in
          the negative developments of profitability (from 2,7% profit in 2002 to 3,2% losses in
          the RIP), of export sales, production cost, return on investments and cash flow.
   (134) If one compares the above trends with the ones described in the Regulations imposing
          provisional and definitive countervailing measures, again the assessment is mixed. As
          concerns market share, the Community industry lost one percentage point between
          2002 and the RIP, whilst it had earned five percentage points in the four years
          preceding the adoption of the definitive countervailing measures. On the other hand,
          the profitability of the Community industry during the RIP is less negative than before
          the imposition of definitive countervailing measures. Consequently, despite some
          apparent positive trends showed by the injury indicators, the situation of the
          Community industry is still far from the levels that could be expected had it fully
          recovered from the injury found in the original investigations.
   (135) It is therefore concluded that the situation of the Community industry has slightly
          improved, as compared to the period preceding the imposition of measures, but is still
          very fragile and vulnerable. Furthermore, the price pressure from imports of the
          country concerned did not allow the Community industry to fully reflect the increase
          in the price of raw materials in its sales prices.
                       G. LIKELIHOOD OF RECURRENCE OF INJURY
   Relationship between export volumes and prices to third countries and export volumes
   and prices to the Community
   (136) It was found that the average export price of Indian sales to non-EU countries was
          significantly below the average export price to the Community and also below the
EN                                                 33                                                EN
 ---pagebreak---          prices on the domestic market. The Indian exporter’s sales to non-EU countries were
         made in significant quantities, accounting for over 95% of total export sales.
         Therefore, it was considered that, should measures lapse, Indian exporters would have
         an incentive to shift significant quantities of exports from other third countries to the
         more attractive Community market, at price levels, which, even if they increased, were
         likely to still be below the current price levels of export to the Community.
   Production capacity, unused capacity and stocks
   (137) As indicated further under recital (140), the exporting producers in India have the
         potential to increase their export volumes to the Community market. India had a
         significant growth in its production capacity from the level of 330.000 tonnes in 2003
         to 600.000 tonnes in 2005. According to market forecasts, it is expected to increase by
         a further 220.000 tonnes in 2008. In 2005, the domestic sales amounted to 220.000
         tonnes and exports to 290.000 tonnes (including 6.831 tonnes to the EU). On the basis
         of the data available, on average, the current spare capacity should amount to around
         90.000 tonnes and has to be considered as significant as it represents around 4% of the
         current Community consumption. This estimate is confirmed by the results of the co-
         operating Indian producers, who had significant spare capacities.
   (138) Concerning the stock level, the investigation has shown that the level of stocks held by
         the co-operating Indian producers was not significant. However, it should be noted
         that the level of stocks is not a meaningful factor as the market for PET is cyclical.
   (139) To conclude, although the imports to the EU were low, there exists a risk that
         significant exports could be diverted to the EU.
   Conclusions
   (140) The producers in the country concerned therefore have the potential to raise and/or
         redirect their export volumes to the Community market. The investigation showed that
         the cooperating exporting producers sold the product concerned at a lower price than
         the Community industry. These low prices would most likely continue to be charged
         or even decrease in line with the lower prices charged to the rest of the world, as
         mentioned in recital (137), also in order to regain the level of market shares held in the
         period before the imposition of measures. Such price behaviour, coupled with the
         ability of the exporters in the country concerned to deliver significant quantities of the
         product concerned to the Community market, would in all likelihood have the effect of
         reinforcing the price-depressive trend on the market, with an expected negative impact
         on the economic situation of the Community industry.
   (141) As shown above, the situation of the Community industry remains vulnerable and
         fragile. It is likely that if the Community industry was exposed to increased volumes
         of imports from the country concerned at subsidized prices, this would result in a
         deterioration of its sales, market shares, sales prices as well as the consequent
         deterioration of the financial situation, to the levels found in the original investigation.
         On this basis, it is therefore concluded that the repeal of the measures would in all
         likelihood result in a worsening of the already fragile situation and a recurrence of an
         even more injurious state of the Community industry.
EN                                                34                                                  EN
 ---pagebreak---    (142) On the basis of the foregoing it is concluded that the import prices would most likely
         be lower on the Community market in the absence of anti-subsidy measures, as the
         producers in India would possibly try to increase their market shares. Such price
         behaviour, coupled with the ability of the exporting producers in India to sell
         significant quantities of PET on the Community market, would in all likelihood have
         the effect of reinforcing the price pressure, with an expected negative impact on the
         situation of the Community industry.
                                 H. COMMUNITY INTEREST
   1.    Introduction
   (143) According to Article 31 of the basic Regulation, it was examined whether the
         maintenance of the existing anti-subsidy measures would be against the interest of the
         Community as a whole. The determination of the Community interest was based on an
         appreciation of all the various interests involved. The present investigation analyses a
         situation in which anti-subsidy measures have already been in place and allows for
         assessment of any undue negative impact on the parties concerned due to the current
         anti-subsidy measures.
   (144) On this basis, it was examined whether, despite the conclusions on the likelihood of a
         continuation or recurrence of injurious subsidisation, compelling reasons existed
         which would lead to the conclusion that it is not in the Community interest to maintain
         measures in this particular case.
   2.    Interest of the Community industry
   (145) As outlined above, there is a clear likelihood of recurrence of injurious subsidisation if
         measures were to be repealed. All the Community producers but two fully co-operated
         and indicated their support for the ongoing measures.
   (146) The continuation of anti-subsidy measures on imports from India would enhance the
         possibility for the Community industry to reach a reasonable level of profitability
         because it is likely that in the short medium term, it would be able to increase sales
         quantities and thereby benefit from economies of scale and at the same time is likely
         to be able to moderately increase their sales price and thereby reach a satisfactory
         profit level. Even if subsidised imports in the RIP originating in the India were low
         and, therefore, could not have caused severe injury, they would be likely to negatively
         affect the situation of the Community industry if the anti-subsidy measures were
         repealed. These measures are thus essential to guarantee the viability of the
         Community industry’s PET chips business, which has been facing competition from
         subsidised imports from India for several years.
   3.    Interest of importers
   (147) Low cooperation was obtained from the importers/traders, and amongst those
         cooperating importers none were purchasing from India. However, the cooperating
         importers/traders could be regarded as representative as their sales volume represented
         around 5% of the EU consumption. They would prefer a market with zero duties also
         if they are constantly enjoying good financial results.
EN                                               35                                                 EN
 ---pagebreak---    (148) The investigation showed that there are still alternative sources of supply with no anti-
         subsidy or anti-dumping measures, i.e. from Mexico, Brazil, USA, Turkey, Pakistan,
         Iran, Saudi Arabia, available. The importers/traders would thus be able to rely on (or
         to switch to) considerable alternative sources of supply.
   (149) Bearing in mind that the measures in force did not considerably affect the importers, it
         is concluded that maintaining the existing countervailing measures against imports
         originating in India would continue not have a significant negative effect on the
         situation of the importers in the Community.
   4.    Interest of converters/users
   (150) The Commission sent questionnaires to 47 known converters/users. Only ten
         converters/users with an overall low representativity replied to the questionnaire.
         According to the information on purchases supplied in their responses to the
         questionnaire, co-operating converters/users during the IP represent about 20% of total
         Community consumption of PET. They purchased during the IP 95% of their PET
         from Community producers and the remainder from imports originating in countries
         other than the country subject to this review. A number of arguments against the
         imposition of duties were presented.
   (151) Five converters (transforming PET chips in preforms and bottle grade and representing
         10% of the consumption) replied to the questionnaire. The cost of PET chips accounts
         for 55% of their final product (mostly preforms). It has been established that they
         import negligible quantities from India and other third countries. Nevertheless they
         oppose the continuation of duties claiming that the measures could have the effect of
         artificially raising the prices in Europe.
   (152) Five users accounting for about 10% of the consumption supplied rather incomplete
         data. The low level of co-operation from the big users is likely to be due to the fact
         that the last investigation concerning imports of PET from the PRC, Australia and
         Pakistan took place only two years ago. PET costs account for around 6/7% of the
         overall cost and are therefore rather limited. Although they have declared no imports
         from India, similarly as the converters, they oppose the imposition of duties claiming
         that the measures could have the effect of artificially raising the prices in Europe.
   (153) Considering the rather good financial situation of the downstream industry, in contrast
         to the one of the Community industry, no converter/user put forward the argument that
         maintaining the current duties could lead to a loss of jobs or to moving manufacturing
         facilities overseas.
   (154) Furthermore, in terms of output, the Community industry adapted its size to match the
         increased consumption and therefore it is very likely that the unused capacity of the
         Community industry could fully cover the amount of the imports.
   (155) Bearing in mind that there are still alternative sources of supply with no anti- subsidy
         or anti-dumping measures, i.e. from Mexico, Brazil, USA, Turkey, Pakistan, Iran,
         Saudi Arabia, the Community users would moreover be able to rely on (or to switch
         to) diversified suppliers of the product concerned.
EN                                                36                                               EN
 ---pagebreak---    (156) As concerns the performance of the user industry, the investigation has shown that
         during the period considered the co-operating users increased their turnover,
         maintained employment stable and rather improved overall their profitability.
         Therefore it was found that they were not negatively affected by the anti-subsidy
         measures.
   (157) On the basis of the above, it is concluded that maintaining the existing anti-subsidy
         measures against imports originating in India would not have a significant negative
         effect on the situation of the users in the Community.
   5.    Interest of suppliers
   (158) The suppliers of raw material (mono ethylene glycol (MEG) and purified terephthalic
         acid (PTA), DMT and IPA, all petrochemical products derivatives of naphtha, clearly
         indicated their support for the measures and provided good co-operation. They would
         benefit if measures are maintained as the Community industry would be likely to be
         able to recover allowing them to improve their performance.
   6.    Conclusion on Community interest
   (159) Taking into account all of the above factors, it is concluded that there are no
         compelling reasons against the maintenance of the current anti-subsidy measures
         against India.
                              I. COUNTERVAILING MEASURES
   (160) All interested parties were informed of the essential facts and considerations on the
         basis of which it is intended to recommend that the existing measures be maintained.
         They were also granted a period to make representations subsequent to this disclosure.
         The Government of India made comments on injury aspects alleging that it was not
         demonstrated that the Community industry suffered continued injury and that import
         pressure from India was not the reason that the European producers did not fully
         reflect the increase of the raw materials cost in their sale price. It is to be recalled that ,
         as indicated in the analysis of the situation of the Community industry, its financial
         situation deteriorated and, as explained in recital (127), the low price level of the
         imports from the country concerned clearly contributed to the downward pressure on
         the price of the Community industry. However, given the small volumes of subsidised
         imports in the framework of this expiry review, the likelihood of recurrence of injury
         had to be examined. In this regard it was concluded, as stated in recital (127) above,
         that in absence of measures, increased volume of imports from India at low prices
         would have a negative impact on the situation of the Community industry.
         Furthermore, one Indian exporter alleged that in the absence of measures it is not
         likely that India will re-direct sales to the Community. This exporter claimed that
         emerging markets are more attractive than the Community, that Indian demand is
         growing fast and that, therefore, no spare capacity is available. It is however to be
         considered that, notwithstanding an increase of the demand in the Indian market, the
         investigation at company level indicated spare capacities, as also confirmed by the
         market intelligence. It is therefore concluded that none of the disclosure comments
         received were such as to alter the conclusions as contained in this regulation.
EN                                                 37                                                    EN
 ---pagebreak---    (161) It follows from the above that, as provided for by Article 21(2) of the basic
           Regulation, the countervailing measures applicable to imports of PET chips,
           originating in India should be maintained. It is recalled that these measures consist of
           specific duties.
   (162) The individual company countervailing duty rates specified in this Regulation reflect
           the situation found during the review with respect to the co-operating exporters. Thus,
           they are solely applicable to imports of the product concerned manufactured by these
           companies and thus by the specific legal entities mentioned. Imports of the product
           concerned produced by any other company not specifically mentioned in the operative
           part of this Regulation with its name and address, 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 ".
   (163) 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 14 forthwith with
           all relevant information, in particular any modification in the company's activity linked
           to production, domestic and export sales associated with, for instance, that name
           change or that change in the production and sales entities. If appropriate, and after
           consultation of the Advisory Committee, the Regulation will be amended accordingly
           by updating the list of companies benefiting from individual duty rates.
   (164) In order to ensure proper enforcement of the countervailing duty, the residual duty
           level should not only apply to non-cooperating exporters but also apply to those
           companies which did not have any exports during the RIP. However, the latter
           companies are invited, when they fulfil the requirements of Article 20 of the basic
           Regulation, to present a request for a review pursuant to that Article in order to have
           their situation examined individually.
   HAS ADOPTED THIS REGULATION:
                                                 Article 1
   1 A definitive countervailing duty is hereby imposed on imports of polyethylene terephthalate
   having a viscosity of 78 ml/g or higher, according to ISO Standard 1628-5, falling within CN
   code 3907 60 20 and originating in India.
   2. Except as provided for in Article 2, the rate of the countervailing duty applicable to the net,
   free-at-Community frontier price, before duty for products manufactured by the companies
   listed below shall be as follows:
   Country                   Company                               Countervaili TARIC              additional
                                                                   ng         duty code
                                                                   (EUR/tonne)
   India                     Reliance Industries Limited            41,3              A181
   14
           European Commission, Directorate-General for Trade, Directorate H, J-79 5/17, B-1049 Brussels
EN                                                    38                                                      EN
 ---pagebreak---    India                      Pearl Engineering Polymers            31,3          A182
                              Ltd
   India                      Senpet Ltd                            22,2          A183
   India                      Futura Polyesters Ltd                 0             A184
   India                      South Asian Petrochem Ltd             106,5         A585
   India                      All other companies                   41,3          A999
   3. In cases where goods have been damaged before entry into free circulation and, therefore,
   the price actually paid or payable is apportioned for the determination of the customs value
   pursuant to Article 145 of Commission Regulation (EEC) No 2454/9315, the amount of
   countervailing duty, calculated on the basis of the amounts set above, shall be reduced by a
   percentage which corresponds to the apportioning of the price actually paid or payable.
   4. Notwithstanding paragraphs 1 and 2, the definitive countervailing duty shall not apply to
   imports released for free circulation in accordance with Article 2.
   5. Unless otherwise specified, the provisions in force concerning customs duties shall apply.
                                                    Article 2
   1.      Imports shall be exempt from the countervailing duties imposed by Article 1 provided
   that they are produced and directly exported (i.e. invoiced and shipped) to a company acting
   as an importer in the Community by the companies mentioned in paragraph 3, declared under
   the appropriate TARIC additional code and that the conditions set out in paragraph 2 are met.
   2.      When the request for release for free circulation is presented, exemption from the
   duties shall be conditional upon presentation to the customs service of the Member State
   concerned of a valid ‘Undertaking Invoice’ issued by the exporting companies mentioned in
   paragraph 3, containing the essential elements listed in the Annex. Exemption from the duty
   shall further be conditional on the goods declared and presented to customs corresponding
   precisely to the description on the ‘Undertaking Invoice’.
   3.      Imports accompanied by an ‘Undertaking Invoice’ shall be declared under the
   following TARIC additional codes:
   Country                    Company                              TARIC       additional
                                                                   code
   India                      Pearl Engineering Polymers A182
                              Ltd
   15
           OJ L 253, 11.10.1993, p.1 Regulation as last amended by Commission Regulation (EC) No 2286/2003
           (OJ L 343, 31.12.2003, p.1)
EN                                                      39                                                 EN
 ---pagebreak---    India                    Reliance Industries Ltd           A181
   India                    South Asian Petrochem Ltd         A585
                                               Article 3
   This Regulation shall enter into force on the day following that of its publication in the
   Official Journal of the European Union.
   This Regulation shall be binding in its entirety and directly applicable in all Member States.
   Done at Brussels,
                                                 For the Council
                                                 The President
EN                                                 40                                             EN
 ---pagebreak---                                                 ANNEX
   Elements to be indicated in the Undertaking Invoice referred to in Article 2(2):
   1. The Undertaking Invoice number.
   2. The TARIC additional code under which the goods on the invoice may be customs-cleared
   at Community borders (as specified in the Regulation).
   3. The exact description of the goods, including:
   — the product reporting code number (PRC) (as established in the undertaking offered by the
   producing exporter in question),
   — CN code,
   — quantity (to be given in units).
   4. The description of the terms of the sale, including:
   — price per unit,
   — the applicable payment terms,
   — the applicable delivery terms,
   — total discounts and rebates.
   5. Name of the company acting as an importer to which the invoice is issued directly by the
   company.
   6. The name of the official of the company that has issued the undertaking invoice and the
   following signed declaration:
   ‘I, the undersigned, certify that the sale for direct export to the European Community of the
   goods covered by this invoice is being made within the scope and under the terms of the
   undertaking offered by …… [company], and accepted by the European Commission through
   Decision 2000/745/EC . I declare that the information provided in this invoice is complete and
   correct.’
EN                                                 41                                             EN