WORLD TRADE
ORGANIZATIONG/SG/N/8/IND/4
25 February 1999
(99-0737)
Committee on Safeguards Original:  English
NOTIFICATION UNDER ARTICLE 12.1(B) OF THE
AGREEMENT ON SAFEGUARDS ON FINDING A SERIOUS INJURY
OR THREAT THEREOF CAUSED BY INCREASED IMPORTS
INDIA
The following communication, dated 18 February 1999, has been received from the Permanent
Mission of the India.
_______________G/SG/N/8/IND/4
Page 2
OFFICE OF THE DIRECTOR GENERAL (Safeguards)
NOTIFICATION
New Delhi, 11 September 1998
Subject : Safeguard investigation concerning imports of Propylene Glycol into India.
G.S.R 591 (E). Having regard to the Customs Tariff Act, 1975 and the Customs Tariff (Identification
and Assessment of Safeguard Duty) Rules, 1997 thereof.
I. PROCEDURE
(i) The Notice of Initiation of safeguard inves tigation concerning imports of Propylene Glycol
(hereinafter referred to as PG) into India was issued on 26 February 1998 and was published in the
Gazette of India, Extraordinary on 3 March 1998.  A copy of the Notice was sent to all known
interested parties, namely:
Domestic producers
1. Manali Petrochemicals Ltd. (MPL), Chennai.
2. Spic Organics Ltd. (SORL), Chennai.
Importers
1. Antriksha Pharma Chemicals, Mumbai.
2. Alembic Chemicals, Baroda.
3. Bio Ind Laboratories Pvt. Ltd. Thrissur.
4. IPCA Health Products Pvt. Ltd, Chennai.5. Lupin Laboratories, Aurangabad.
6. Asian Paints India Ltd,. Mumbai.
7. Asian Chemical Works, Mumbai.
8. Apex Plastics Pvt. Ltd,. Bhiwadi, Rajasthan.
9. Bakelite Hylam Ltd,. Hyderabad.10. Chemidye Manufacturing Co. Pvt. Ltd., Ranipet.
11. GTC Industries, Mumbai.
12. Goodlass Narolac, Ahmedabad.
13. Jewel Polymers Pvt. Ltd., Palghar.
14. Revex Plasticiser Pvt. Ltd, Bhiwadi, Rajasthan.
15. Swan Beauties Pvt. Ltd., Mumbai.
16. Unibond Resins Pvt. Ltd., Valsad.17. Uniset Polymers, Valsad.
18. Lakshmi Chemicals, Chennai.
19. Quest International Ltd., Mumbai.
20. C.J. Shah, Mumbai.
21. Eastern Organics, Mumbai.22. Gobind Ram Chella Ram & Co., Mumbai.
23. Aarti Drugs, Mumbai.
24. J. Kirit and Brothers, Mumbai.
25. Kautilal Manilal &Co., Mumbai.
26. K. Uttamlal &Co. Mumbai.G/SG/N/8/IND/4
Page 3
Exporters
1. Shell Chemicals, Singapore.
2. Dow Chemicals Pacific Ltd., Hong Kong China.
3. Arco Chemical (Singapore) Pte. Ltd., Singapore.
4. Asahi Denka Kogyo K.K., Japan.5. Helm AG, Hamburg, Germany.
6. Asahi Glass Company Ltd., Singapore.
7. Yokong Ltd., Seoul, Republic of Korea.
8. ARCO Chemicals, USA.
(ii) A copy of the notice was also sent to the governments of exporting countries through their
High Commission/Embassies in New Delhi.
(iii) Questionnaires were also sent on the same day to all known domestic producers and
importers.
(iv) All parties were asked to submit their response by 13 April 1998.  Request for extension for
time to submit their reply was made by the following parties:
1. Bakelite Hylam Ltd., Hyderabad.
2. Dow Chemical Pacific Ltd., Hong Kong China, and
3. Shell Chemicals, Singapore.
Keeping their request in mind and the need to co mplete the investigation within the statutory
time-period, extension up to 24 April 1998 was allowed and parties concerned were accordingly
informed.
(v) Replies to the Notice dated 26 February 1998 and to questionnaire were received from the
following parties:
Domestic Producers
1. Manali Petrochemicals Ltd. (MPL), Chennai.
2. Spic Organics Ltd. (SORL), Chennai.
Importers
1. C.J. Shah and Co., Mumbai.
2. Uniset Polymers & Resins Pvt. Ltd., Mumbai.3. Unibond Resins Pvt. Ltd., Mumbai.
4. Unique Resins & Chemicals Pvt. Ld., Mumbai
5. Kaylex Chemicals, Palghar.
6. Polyblend Polymers Pvt. Ltd., Mumbai.
7. Jewel Polymers Pvt. Ltd., Mumbai
Parties mentioned at Sr. No. 4 to 7 above were not figuring in the application.  Since replies
have been received from them, they have been included as interested parties.G/SG/N/8/IND/4
Page 4
Exporters
1. Shell companies in Singapore.
2. Dow Chemical Pacific (Singapore) Pte. Ltd., Singapore.
(vi) Verification of the information considered necessary for the investigation was done and to
this end a team of officers visited the premises of M/s Manali Petrochemicals Ltd. (MPL), Chennai
and M/s Spic Organics Ltd. (SORL), Chennai.  The outcome of investigation was conveyed to the
concerned parties.
(vii) A Public Hearing was given to all interested parties on 7 August 1998, notice for which was
sent on 6 July 1998.
II. VIEWS OF DOMESTIC INDUSTRY
The domestic producers of Propylene Glycol (PG) have made the following main points:
1. MPL and SORL are ISO 9001 and 9002 accredited companies respectively with the quality
control laboratory recognised by Department of Scientific and Industrial Research under the Ministry
of Science and Technology.  They have capability of detecting impurities even at PPM level.
2. Their product conforms to international standards set for its category.  The product is second
to none and meets several parameters as set forth under IP, BP and USP.
3. They regularly collect feedback from their customers about the superiority and services as
perceived by them.
4. Multinationals and even small customers have appreciated the quality of their product and
services rendered by them.
5. Injury was because of increased imports on account of high raw material cost, low level of
customs duty, low interest credit extended by multinationals and sales tax and octroi on indigenous
products.
6. They adjusted prices frequently to match the terms offered by the international producers and
their agents/dealers of the product.
7. MPL plants have been set up with the technology of Atochem and the detailed engineering
was executed by Engineers India Ltd. (EIL).  SORL  has been set up with the technology of Enichem
and the detailed engineering was carried out by U hde, India.  The contract for PG technology was
entered in the year 1983 and upgraded with modern techniques of heat and mass transfer and most
modern plants with structured packing, stainless steel vessels and piping and automated control
systems were incorporated.
8. The plants were commissioned in the year 1990 and guarantee test runs were completed
immediately thereafter.  The plants when built in 1989-1990 were designed to produce 7800 and
7500 MTPA respectively.  The design documents dated 1988 are produced for reference.  The MPL
plant during the guarantee run recorded a produ ction capacity of 8000 MTPA and SORL recorded
7500 MTPA.  The capacity of the plants can be further enhanced by upgrading the packing of the
distillation columns in SORL and by installing one mo re distillation column in MPL.  Detailed studies
have already been completed and capacity can be enhanced with a marginal investment to around
10000 MTPA in each company and without adding to any of the infrastructure already available toG/SG/N/8/IND/4
Page 5
support the production.  Presently MPL and SORL have capacity to produce 7815 MT and 7500 MT
of PG respectively.
9. The PO plant capacity as per the design and as verified in the guarantee performance test, is
15000 MTPA each.  The supporting utility plants like Boiler, Nitrogen, Cooling Tower, raw and
finished products storage, waste water treatment plant and the expensive cross-country pipeline topump the effluent into the Sea 6 to 7 kms. away, are of much higher capacity and can support these
capacity enhancements comfortably.  The capacity utilisation of the PO plant is at 8900-10000 MTPA
only and production can easily be stepped up to 15000 MTPA, if only sufficient markets are available
to cater to.  It can also be stepped up further in a short span of time with marginal investment and this
will have attractive investment to turn to over rati o, if the opportunity is afforded for the company to
run the plant at higher plant load factors and meet the demand of the country.
10. Their plants are producing 100 per cent quality product odour free, which will meet the
specifications as set forth in the pharmacopia.  As per the Drug Control Act of India, a product
classified under IP and documented in the production records, can be sold only to dealers and end
users with drug licence, issued by the Drug Controller of the respective State Government.  Drug and
Cosmetics Act 1940 enables sale of "IP" grade products only by a licenser to another licensee.  Henceto cater to the needs of the users, who want a product conforming to IP grade but not used in bulk
drug formulations, a new grade called Food Flavour Grade (FFG) had to be created.  This product is
the same as that of IP but not classified as IP grade and declared to the Drug Controller.  It is packed
separately as FFG grade, however, observing all the usual precautions as done for the IP grade.  This
can be sold to users, who use it in the flavour, frag rance and cosmetic industries.  The industrial grade
meant for manufacture of resins is packed in non-epicoated drums.
11. They have exported/exporting PG to Australia, New Zealand, Singapore, Nepal and Middle
East Countries and are also qualified by Iran Drug Directorate.
12. The international producers of the product need not have a FFG grade as they are at liberty to
sell their USP grades to any user in India as they are not subjected to the discipline of the Drug
Controller of India.
13. After touching an all time peak of 11300 MT in the year 1994-1995, the quantities sold came
down in the subsequent years and has not shown im provement even in the just ended financial year
(10894 MT).  The rate at which the prices are coming down particularly the industrial grade may
sweep them off their feet.  The average sale of IP/FFG grade have come down from 600 MT/Month
average to 500 MT/Month and in the case of industrial grade the quantities have come down from
400 MT/Month average to the vicinity of 200 MT/Month currently.  The total market consistently and
steadily has come down and the effect is more pronounced since September 1997.  The prices had to
be dropped constantly since the beginning of the financial year April 1997, reaching an all time lowlevel for 3 months since September 1997.  The effect of depreciation of Indian Rupee which partially
gave some relief has already been eroded with the further drop in prices.  The low levels of
Maharashtra Sales Tax of 2 per cent and the fact that imports under DEPB Pass Books and also
imports by traders do not attract the 4 per cent ACD imposed in the recent Budget is driving the prices
down the hill once again.
14. Subsequent to the take over of UBPPL by the SPIC Group, the companies are managed by a
common management  team and have maintained a transparent policy and also resorted to marketing
the product directly wherever required.  Many of the multinational users have respected and
appreciated the services of the company and the feed back as set forth in the ISO 9001 procedures,which have also been furnished to the Directorate, speak for themselves about the stature of the
company.G/SG/N/8/IND/4
Page 6
15. They have maintained transparent pricing policy and the prices of the products are known to
all customers in the market and no special discounts are offered for quantity uplifted from the
company and all the customers are more or less treated at a par.  they have never resorted to any
manipulation or bias at the market-place.
16. The indigenous industry is suffering in spite of the various efforts put in the last 7 –8 years.
The USA had a market share of 19 per cent which has progressively increased to 25 per cent, 53 per
cent and 70 per cent;  quantities rising from 52 MT in 1994 to 1995 to 742 MT currently.  The
increase in cost of production starting from November 1996 until April 1997 caused heavy damage
and they had to incur heavy cash loss.
17. MPL and SORL; inspite of excellent technologies, excellent specific consumption norms
comparable to any medium or large scale plant in the World, yet could not compete primarily becauseof the cost of the raw material and inability to expend on capital expenditure further as even the
current capacities are not used up fully.  MPL has entered into a 10 year long term contract for supply
of propylene with MRL.  They have produced a copy of the agreement for reference.  The
Government of India decides the price of LPG m onth-wise since September 1993 and as this price
varies, the price of Propylene also varies monthwise.  The statistical data of the international price ofpropylene and LPG clearly pointed out that they are inter-related and the price of MRL propylene will
follow the pattern of international price of propylene.
18. The fire accident at MRL in 1993 forced them to conceive a make shift propylene importation
terminal at port Cuddalore.  The major ports at Ch ennai, Mumbai and Tuticorin did not have facility
to import propylene and they were also not interested creating one because of the congestion and
because of lack of space within the port area to accommodate the hazardous cargo shipment.  Hence
till the time the Ennore Satelite terminal comes up, wh ere independent chemical terminal is being set
up, they have decided to upgrade the storage terminal at Cuddalore.  They have now 1000 MT storage
and the combined storage of all their units and the road tankers make another 500 MT and thus theycan comfortably handle 1500 MT parcels of propylene.  MRL easily supply 70 per cent of the
requirement of the company and the balance 30 per cent is to be imported.  This also gives them
stability of operation in terms of maintaining the price line and in terms of availability of raw material
to take care of the customers requirement, whenever MRL is under shutdown due to technical
problem.
19. The landed cost of propylene through the Cudd alore terminal is roughly Re.3/kg more due to
the method of handling and they have decided to further upgrade the system with the SBM facility to
bridge the gap and reduce the cost.  This can be done over the next 2 years with additional storage so
that larger shipments of size 2000-2500 MT can be received thus reducing the freight cost and
propylene at international price would be available from Cuddalore and also from the proposed
Pennar Refineries coming at Cuddalore.  M/s. Penn ar Refineries are also proposing to construct a
jetty, where the ships can come alongside and discharge the liquid cargo including LPG and
Propylene.  This enhances possibility of integrating/enhancing their facilities at Cuddalore.  Their
current problem of high cost of production due to  the high raw material cost would totally be
addressed and continuous availability of the market, which will enable the plant to run at higher
capacity utilisation, will enable them to cut the production cost further and also enable them to expandthe plant to make use of the favourable capital turn over ratio.
20. Because of the high cost of investment in POSM route and POTBA route, the technology
adopted by MPL and SORL is ideally suited for medium capacities and favourable raw material
pricing and full utilisation of the capacities will en able them to meet the international competition
successfully.  Technip along with MPL have proposed  now to construct plants in China, Thailand and
Chinese Taipei with MPL as the model.  The Chinese plant will also include Polyol plant based on the
design of SORL.G/SG/N/8/IND/4
Page 7
21. They have submitted cost of production data based on the Balance Sheet of the recently
completed year of operation 97-98 and updated one based on the audited Balance Sheet of the just
ended financial year.  Earlier as part of the confidential documentation of Cost of Production data was
as of 31 July 1997.  This will even out errors due to seasonal fluctuations if any on the off take of the
products.
22. The differing levels of equity in both the companies and hence the profit to take care of the
interest of the shareholders make the level of safeguard duty requested different in both the
companies.  However, they request the Directorate to consider a weighted-average safeguard duty to
be recommended which will simplify the operation.
23. Imposition of the safeguard duty is likely to ensure adequate market for them, which will
enable them to run the plant a higher capacity util isation thus reducing the overheads.  It will also
provide them sufficient breathing time to debottleneck the plants, to step up the production and also
complete the unloading arrangements at Cuddalore a nd also enter into a long-term contract for supply
of Propylene apart from the quantity supplied by MRL.
III. VIEWS OF IMPORTERS
The users/importers of PG have made the following main points:
(a) C.J. Shah & Co.
1. The applicants owned by the same group control 85 per cent of the market share.  They have
made this application with malafide motive of preventing competition and maintaining their
monopolistic position in the market.
2. The domestic users prefer use of imported PG  even though priced higher because of high
quality and reliability factor for delivery and after sales service.
3. The local producers are unable to meet the rapidly increasing demand because of inadequate
production.
4. Applicants have not made out a case to show  serious injury to domestic industry because of
increased imports.
5. In case of levy of SGD, the domestic producers should give written undertaking that they
would not increase the prices of PG so that the consumers are not affected.
(b) (i) Uniset Polymer & Resin Pvt. Ltd.
(ii) Unique Resin & Chemicals Pvt. Ltd. and
(iii) Unibond Resins Pvt. Ltd.
1. Due to single local supplier availability is not assured at reasonable price.2. Overseas suppliers were providing them with technical services and formulation and also
helped them update their health, safety and environment concern.
3. Capacity of the MPL/SORL plants was unviable.  The smallest plant in the world was having
capacity of 70000 MT.G/SG/N/8/IND/4
Page 8
4. Procurement price of Propylene by MPL/SORL wa s also higher compared to the international
level.
(c) Poly Blend Polymer Pvt. Ltd.
1. Clear monopolistic situation in domestic market will jeopardize their products.2. As the prices offered by local manufacturers is much higher than that prevailing in the
international market in absence of overseas suppliers their cost of production will increase which in
turn will invite imports of the final end-pr oduct namely Unsaturated Polyester Resin (UPR).
(d) Jewel Polymer Pvt. Ltd.
1. The overseas supplies were offering better and competitive prices and business terms which
enabled them to export their end-product.
2. Since there is only one supplier of PG in the c ountry, they have to be at their mercy for the
production/price during shortage.
(e) Kalex Chemicals
1. Due to single local supplier availability is not assured at reasonable price.  Imported products
provide assured availability at competitive prices which help us compete imports of the end-product(UPR).
2. Local pricing is invariably not in line with international prices, hence if additional duties are
imposed, the local manufacture gives us a raw deal.
3. Overseas suppliers are providing us with technical services and formulations and also helps us
update our health, safety and environment concern.
(f) R.K. Industries
The imported material offered following advantages and, therefore, safeguard duty should not
be imposed on PG:
(i) Better quality
(ii) Regular availability
(iii) Better terms of business
(iv) Reasonable and competitive prices.
(g) All India Federation of Plastic Industries
1. Unsaturated Polyester Resin (UPR) is an item reserved for small scale sector which caters to
the requirements to the fibre glass industry which is conserving already scarce natural resources.
2. UPR industry providing employment to thousands of people is growing at about 5 per cent
p.a. and there is a gap of about 3000 MT p.a. of PG.  If safeguard duty is imposed to guarantee profits
to a monopoly, it will put domestic UPR industry in problems and threat of closure.
3. Recent reduction in price of propylene by Madras Refining Ltd. (MRL), imposition of 6.5 per
cent additional duty in recent Budget and fall in Indian Rupee by about 20 per cent have provided
significant gains to domestic producers.G/SG/N/8/IND/4
Page 9
IV. VIEWS OF EXPORTERS/EXPORTING GOVERNMENTS
The exporters of PG to India exporting governments have made the following main points:
(a) Shell Companies in Singapore
1. PG is utilised in pharmaceutical, food and flavour, cosmetic and unsaturated polyester resin
industries.  To ensure the durability and integrity of these end products, it is important that the PG
used is of high quality.  Shell manufactures PG of a consistent quality by the use of cutting edge
technology.
2. Their capacity is 30000 MT per annum.  They service market in all the Asia-Pacific countries
and in the Middle East, Africa, Europe and America.   PG is sold as USP/BP/IP/ Industrial Grade.
Since 1996, Shell has supplied only PG of Industrial Grade to India and linking of shell to USP gradePG was incorrect.  Their sales into India in 1 997 represented only 1.8 per cent of total PG plant
capacity.  In 1997, Shell exported only 550 MT of PG into India.
3. Total consumption of PG in India was 12000 MT (approx.) against total production of
10183 MT.  Import of PG was, therefore, necessitated by domestic demand exceeding domesticsupply for the product.
4. Interest rates and credit periods offered by them were generally in accordance with US prime
rates and on 90 day credit basis.
5. Their sales policy was to offer the product to customers at prices consistent with local market
pricing levels and conditions.  Shell India Pvt.Ltd. was a registered Indian company which provided
Shell with marketing assistance only.  The fact that Shell has started dropping the prices of industrial
grade PG into India sharply and that the products were sold at much higher prices in other countries
are incorrect.
6. Their export of PG from Shell forms only a small portion of Indian PG market which was
increasing with consumption growth.
7. Import duty in India was the highest.  Local producers in other countries where import duties
were much lower were nonetheless able to sustain themselves in the face of large import volumes of
PG.  Per capita consumption of PG in India was lowest and high rate of duty did not facilitate
consumption growth.
8. Due to appreciation of 12 per cent of US dollar against Indian rupee in 1997, imports have
become dearer in spite of duty reduction.
9. CIF prices for India was higher than that for other countries.
10. Shell Chemicals produces and markets only industrial grade of PG, known variously as PG
Industrial, PGI or PG Technical.  Their submission, therefore, pertains only to this grade.
11. The only use of their product is in Unsatura ted Polyester Resin (UPR) industry, which is
overwhelmingly in this small scale sector.
12. The total installed capacity/Production of Manali Petrochemcials Limited (MPL) and SPIC
Organics Limited (SORL) is:
Installed Capacity t/a Production t/a @80 % All India Demand t/aG/SG/N/8/IND/4
Page 10
13,250 10,400 13,000
Thus imports are necessitated by the shortfall in domestic production and that domestic
consumption of PG is rising by an average of 5- 6 per cent  per year.  Competitive imports are thus
necessary for this industry.  Failure to provide the same would make the downstream users of PG
uncompetitive.
13. They supplied only a small quantity of PG during the period of investigation and that they
have not appointed any agent or distributor in India.
14. MPL and SORL are a part of the same business group.  The levy of safeguard duty would
encourage monopoly.
15. Any claim by MPL and SORL about serious inju ry must be looked into seriously especially
their ability to prudently manage their own costs.  The Safeguard Duty provisions are not meant as a
cover for improper cost management.
16. It seems that MPL/SORL at present do not have any plans for expansion of existing units and
by their own admission import of 1500 tons of Propylene was too large for them as it consumed more
than a months requirement.  Therefore, their plans to import large quantities of Propylene on
competitive terms does not seem feasible as globally such quantities are considered very small tosupply.  It, therefore, appears that MPL/SORL ne ed to resolve their supply issues with MRL rather
than trying to look for Propylene imports.
17. They have learnt that this problem has now  been sorted out and MPL/SORL will receive
substantial portion of their Propylene imports from MRL at internationally competitive prices.  Themain stated cause of their request has thus disappeared.  This reason for Safeguard Duty has also thus
disappeared.
18. Since October 1997 import duty has increased by about 9.5 per cent (3 per cent surcharge plus
recent 4 per cent special customs duty that works to about 6.5 per cent).  US dollar to Indian Rupeeparity has also deteriorated and there has been a net drop of 19 per cent in the Indian Rupee value.
Both these factors alone have made the imports expensive by about 30 per cent when compared to the
period mentioned by MPL/SORL:  Thus redress sought through Safeguard Duty is no longer valid.
19. Two different amounts of Safeguard Duty sought on the basis of difference between alleged
cost of production of two units and landed price of import product is, in their opinion, with due
respect to MPL/SORL, absurd.  Apart from being contrary to the provisions of the WTO Agreement,
Section 8B of the Customs Tariff Act, 1975 and the provisions of the Safeguard Duty Rules 1997, it is
simply not workable in practice as it is not practicable to have two different duty rates for the same
product from the same source for the same application.  The rules provide for a uniform SafeguardDuty on a non-discriminatory basis.  What this request reveals about the contention of MPL/SORL's
thinking is however more worrisome.  They have, by the admission of their representatives, clearly
shown they view Safeguard Duty as a ploy to guarantee returns to their shareholder.  Surely this is not
what the Safeguard Duty is for.
20. No public interest will be served by levy of safeguard duty which is an essential interest under
the WTO Agreement on Safeguard.  It would also be against the Directive Principles of the StatePolicy.
21. Levy of Safeguard duty can only be a temporary measure as provided by in the Act and
Safeguard Duty Rules and the applicants need to produce sufficient evidence to show that problems ofG/SG/N/8/IND/4
Page 11
cost competitiveness would be resolved in the inte rvening period.  However, as is evident form the
facts and figures submitted herein above, problems  of MPL/SORL are of permanent nature as their
size is too uneconomic.  Imports of Propylene will  not be economically viable because of minimal
parcel size of the cargo and other penalties associated with small imports.  As such levy of Safeguard
Duty would be contrary to India's international obligations, particularly under the WTO regime and
GATT obligations.
(b) Dow Chemical Pacific (Singapore) Pvt. Ltd.
1. Dow Chemical Pacific (Singapore) Pvt. Ltd, Sing apore affect all sales of PG USP into India
and have only one agent in India namely M/s Dow Chemical International Ltd, Mumbai.
2. UB Petroproducts Ltd. (now SORL) was broug ht over by MPL to eliminate all domestic
supplier of PG in an effort to establish monopoly to  enable them to dictate and manipulate the terms
in the market at the expense of user industry.
3. Decline in sales of PG by MP L/SORL was not as a result of unfair competition from imported
PG but through their product and market management practices and non-competitive manufacturingcapability.
4. Exports made by Dow were costlier because of incidence of basic customs duty, special duty
and additional duty.
5. Dow do not have any manufacturing facility at an y location closer to India, Singapore is their
stocking and distribution centre.
6. The PG USP market in India has been growin g at approx. 5 per cent to 6 per cent p.a. since
1994.  There has been no quantum jump of imports bu t a gradual increase linked with growing local
demand which the local producers were unable to fulfil.
7. The import duty rates in India were still highest as compared to those prevailing in other
countries.
8. Raw materials required for manufacturing PG were manufactured by Dow itself and hence
availability of the same at lower international prices did not arise.
9. Dow offers credit selectively at the prevailing USD prime rate (approximately 8.5 per
cent pa).  Credit period was over 90 days from the date of Bill of Lading.  No credit for duties levied
was extended.  40-45 days was lead time till actual receipt of the consignment.  The Indian companies
also offered 30-45 days credit.
10. Raw material prices have been higher in the case of MPL/SORL.  They failed to enter into
long term binding with Madras Refineries Ltd. for supply of Propylene.  They are attempting to
penalise the Indian consumers for their own mistakes.
11. MPL/SORL have failed to establish any causal relationship or correlation to prove that
increased imports of PG USP have resulted in any se rious injury or have caused any threat of serious
injury to the domestic producers of PG USP.
12. Dow did not resort to price undercutting.  They  were supplying PG USP to Indian Market for
the last 25 years and had always adopted a fair business practice.  Consumers patronised them despite
their higher selling price.G/SG/N/8/IND/4
Page 12
13. Propylene Oxide manufacturing facilities of MPL/SORL were of a size that did not allow
production of PO at economically viable rate.  High propylene and chlorine rates have increased their
cost of production up to two fold higher than world-scale facilities.
14. MPL/SORL have not taken any steps since their inception to improve their competitiveness
against international competition.
15. From 1 April 1997, Naphtha prices have gone down by Re.700/- per MT which would result
into lower prices of Propylene.
16. Capacity utilisation by MPL/SORL had been up to 106 per cent.  Increased imports were due
to increasing domestic demand which they were unable to meet.
17. MPL/SORL were suffering cash losses because of erroneous strategic business decisions in
terms of location of plant, sourcing of raw materi als, uneconomical size of plants and unfair trade
practices adopted by them.  The price of PG USP charge by Dow were higher than that charged by
MPL/SORL.
18. If imports are curtailed by imposition of SGD; the Government would lose more customs
duty as compared to sales tax earned.
19. Trend in Propylene prices available from ICIS indicate decreasing Propylene prices.
MPL/SORL are not in a position to negotiate more attractive prices due to their small scale ofoperation despite import duty on Propylene declining to 15 per cent.
20. Continuous depreciation of the Rupee from Re.31.37/USD in March 1994 to about
Re.40/USD has already eroded the competitiveness of imports.
21. Even building of special terminal at Ennore port would not improve their cost
competitiveness as imports of less than 5000 MT of Propylene would not be cost-effective.
22. DG has no jurisdiction in this matter as the condition of serious injury to the domestic
industry is missing.
23. No public interest would be served by levy of Safeguard Duty (SGD) which was an essential
requirement under WTO Agreement on Safeguards.  On the contrary imposition of SGD would
severely prejudice the public interest as a number of end user industries may close down.
24. Levy of SGD would be contrary to the provisions of the MRTP Act, 1969 and the 'Directive
Principles of State Policy' as enshrined in Article 39(b) and (c) of the Constitution of India.
25. Imposition of different SGD for the two companies was against the provisions of WTO
Agreement.  The applicant cannot demand guarant eed return on equity capital in the form of
Safeguard Duty.
26. The principle objective for initiating this safeguard investigation has become infructuous as
the applicants are now getting the principle raw material at even lower than the international prices.
27. The argument of disparity between imported and local pricing on account of local Sales Tax
does not survive as the same is already taken care of by the Government.
28. Rupee has depreciated by almost 18 per cent since then and the current rate of exchange is
US$1 = Re.42.5.  Therefore, the imports have already become significantly less competitive on
account of the higher c.i.f. value and the resultant higher import duty payable on such value.G/SG/N/8/IND/4
Page 13
29. They submitted a statement showing the estimated working of how the applicants have been
benefited by about US$464/PMT of Polyol due to these changes as against the Safeguard duty of
US$329/- and US$268/- sought by them.
30. The figures of imports stated by the applicants are incomplete and inaccurate and there is no
quantum jump but a gradual increase in the imports over a period of time on account of increasing
local demand which the applicants are unable to meet.
31. They are surprised at the statements of the applicants that their manufacturing plants are of
substantially higher installed capacity than what is stated in their application for levy of Safeguard
Duty.  The Applicants be directed to produce documentary evidence to substantiate their claim that
their plants are designed for much higher capacity than what is disclosed by them.
32. So far as SORL is concerned the demand for Safeguard Duty is totally unjustified as the said
unit was consciously acquired by the applicants in the post-liberalisation era knowing full well that
the plant was an uneconomical size, incurring losses and that duty protection available in India would
no longer be available on account of India being a signatory to WTO.
33. As per Article XIX of GATT 1994, WTO Ag reement on Safeguard and Section 8B of
Customs Tariff Act, 1975, Safeguard Duty Rules 1997 clearly provide that these are Emergency
Measures to be used sparingly in rare cases, where there is a grave danger and irreparable injury due
to massive increase in imports which may lead to overall impairment of the domestic industry.
34. There is no increase in imports, either in absolute terms or relative to domestic production, as
total imports still constitute less than 15 per cent of market share.  There is no injury to the applicants
as the applicants have admitted on Page 4 of the Application that their plant is still operating at
106 per cent of the Installed Capacity.  The Applicants have failed to provide any objective evidenceof the "Causal Link" between increased imports and the alleged injury to the Applicants.
35. As both the applicants are under common ownership and are the monopoly producers
controlling 84 per cent of all India market share of the product (as stated on Page 52 of their
application) of the product in question, it would be against the provisions of MRTP Act 1969, and theDirective Principles of State Policy enshrined in Article 39 of the Constitution.G/SG/N/8/IND/4
Page 14
(c) ARCO Chemicals (Singapore) Pvt. Ltd.
1. Prices offered to India by global major chemical companies, including ARCO Chemical are
in line with the prices offered in Asia region.  No special prices are being offered to India.
2. The import duty in India at current 35 per cent is one of the highest in the region.  Countries
like China which has more than 10 local production plants only put import tax at 16 per cent.
3. Indian market is large to accommodate import material and there is high potential to grow.
Both local producers and exporters will be benefited from this industrial growth provided the import
tax is comparable to the other countries.
4. Global players like ARCO Chemical will provide Indian market with the latest product and
technology.
5. Imposition of safeguard duty will reduce the purchasing options available to the Indian
customers since the applicant is the sole producer in India.
6. The local producer is already enjoying the benefit of:
(i) Duties exceeding the 40 per cent level including the imposition of additional Special
Duty in the recent budget.
(ii) The depreciating Rupee against US dollar.
(d) Embassy of Japan
The Embassy of Japan in India has expressed that safeguard measure serves an emergency
measure for exceptional circumstances to be implemented under strict requirements and that they are
gravely concerned about the situation and would like to monitor the consistency of the measure with
the WTO Agreement and its adequacy as a trade policy.
V. FINDINGS OF THE DIRECTOR GENERAL
I have carefully gone through the case records and the replies filed by the domestic producers,
users/importers, exporters and exporting governments.  Submissions made by various parties and the
issues arising therefrom are dealt with at appropriate places in the findings below.
1. Product under investigation
1. The product under investigation is Propylene Glycol (PG) also known as Mono Propylene
Glycol or as 1, 2 Propan e Diol.  PG is a chemical manufactu red from Propylene oxide by hydrating
the product at a higher pressure and temperature which forms a mixture or Mono, Di and Tripropylene
Glycol.  Monopropylene Glycol, generally known as Pr opylene Glycol is separated from this mixture
by fractionation and distillation.  Propylene Glycol is available in Pharmacopial grade and Industrial
grade which are used in the manufacture of drugs, in food and flavour industry and industrialapplications respectively.  The two grades are similar in their composition and characteristics.  World
over pharmaceutical grade product conferring to USP/BP/IP is used for application in food/flavour
industry.  In India, however, pharmacopial grade product can be sold only to a valid drug licence
holder.  A new grade called Food and Flavour grade has been created by the domestic producers in
India which is exactly the same as IP grade but sold to people without drug licence.
2. PG for food and flavour industry is the same as for the drug industry but is set apart and not
classified as IP grade and declared to the Drug Controller.  It is packed separately as FFG grade,G/SG/N/8/IND/4
Page 15
however, observing all the precautions as done for IP grade.  This can be sold to users, who use it in
the flavour, fragrance and cosmetic industries.
3. The industrial grade meant for manufacture of resins is packed in non-epicoated drums.  The
control measure exercised on the content of heavier glycol, presence of heavy metals, chlorides and
odour of the product need not be stringent.
4. Imported PG conforming to BP/USP standards can be sold for any use in India as the
international producers of PG are not subjected to the discipline of the Drug Controller of India.  The
certificates issued by the drug controllers in the country of origin are accepted in India and no
restrictions are imposed on the product sold for non-drug use in the importing country.
5. Both pharmacopeal grade and industrial grade PG are imported into India.  The present
investigation, therefore, covers all grades of PG.  PG is classified under sub-heading No. 2905.32 of
the First Schedule to the Customs Tariff Act, 1975, and under 29053200 of the Indian Trade
Classification based on the Harmonised Commodity Description.  The above classification is
indicated only for the purpose of convenience and in no way restricts the scope of the coverage of the
product under investigation i.e. PG:
2. Domestic industry
1. The application has been filed by M/s Manali Petrochemicals Ltd, Chennai and M/s SPIC
Organics Ltd., Chennai who are the only domestic producers of Propylene Glycol accounting for thetotal domestic production of Propylene Glycol.  The application, therefore, is considered to be made
by the domestic industry.
3.. Increased Imports
1. PG is imported into India from Germany, Hong Kong, Japan, Rep. of Korea, Mexico,
Singapore and the USA:  PG attracted import duty of 65 per cent in 1994-1995, 50 per cent in 1995-
1996, 42 per cent in 1996-1997 and 32 per cent in 1997-1998 up to September 1997 and 35 per cent
from October 1997.  The domestic producers have stated that the imports of PG during this period
were 395 MT in 1994-1995, 783 MT in 1995-1996, 1419 MT in 1996-1997 and 854 MT during theperiod April-August 1997.  The applicants have, however, mentioned that the import figures
mentioned in the application were part data only.  This is also supported by Dow who have mentioned
that the actual imports in India were more than what has been stated in the application.  In this regard
it is observed that the Directorate General of Commercial Intelligence and Statistics has reported
imports of PG during 1994-1995 to 1997-1998 (April-August) as is table 1 below.
Table 1
Imports Quantity MT Value Re. Average CIF Re/PMT
1994-95 839.698 26,376,069 31,411.38
1995-96 1,667.239 76,780,376 46,052.41
1996-97 2,627.758 120,710,619 45,936.73
1997-98 1,743.973 66,357,996 38,049.90
2. The DGCIS figures have been considered to be reliable, especially in view of the fact at the
time of Public Hearing, the parties were requested to comment on the correctness of these figures and
no comments in this regard have been received from any party.
3. The imports have thus increased from 840 MT in 1994-1995 to 1667 MT in 1995-1996,
2628 MT in 1996-1997 and 1744 MT in April-August 1997.  The domestic production of PG duringG/SG/N/8/IND/4
Page 16
this period was 9939 MT in 1994-1995, 10006 MT in 1995-1996, 9943 MT in 1996-1997 and
5553 MT in April-August 1997.  In comparative terms the imports were 8.45 per cent, 16.61 per cent,
26.43 per cent and 31.4 per cent of the domestic production in 1994-1995, 1995-1996, 1996-1997 and
1997-1998 (April-August).  The domestic production and import figures during the above period are
tabulated below:
Table 2
Imports Year Domestic Production
MT Qty. Value (Re. Mn)Imports as % of
domestic
production
1994-95 9939 840 26.376 8.45
1995-96 10006 1,667 76.78 16.11
1996-97 9943 2,628 120.71 26.43
1997-98
(April-August)5553 1,744 66.358 31.40
4. The imports have thus increased both absolutely as well as compared to domestic production.
5. It has been claimed by some parties that the imports have increased gradually and not
suddenly.  In this regard, it is observed that the Customs Tariff (Identification and Assessment of
Safeguard Duty) Rules, 1997 define 'Increased Quantity' to include increase in imports whether in
absolute terms or relative to domestic production.  There is, thus, no requirement that the importsshould increase suddenly or gradually but if the imports have increased either absolutely or relatively
as compared to domestic production, they can be considered to have qualified as increased imports
and to form the basis for a safeguard measure.
6. Even Article XIX of the General Agreement on Tariffs and Trade (GATT) which deals with
'Emergency Action on Imports of Particular Products' or the WTO Agreement on Safeguards require
that if any product is being imported into the territory of a Member in such increased quantities,
absolute or relative to domestic production and under such condition as to cause or threaten to cause
serious injury to the domestic industry that produces like or directly competitive products, that
Member may apply a safeguard measure.
7. The essential condition for imposition of a safeguard measure is 'increased imports' as defined
under the Rules and not any 'sudden' increase are comparative terms deriving their meaning from the
facts and circumstances of a given situation.  In the present case the imports which were 840 MT in
1994-1995 increased to 1667 MT i.e. by 98.45 per cent in 1995-1996 as compared to 1994-1995;  to
2628 MT i.e. by 57.65 per cent in 1996-1997 as compared to 1995-1996 and to 1744 in 1997-1998
(April-August) which amounts to an increase of 59.28 per cent over 1996-1997, compared on a pro-rata basis.  As compared to 1994-1995, the imports in 1997-1998 (April-August) have increased by
398.33 per cent which is a significant increase.  The im ports of PG into India have thus increased both
absolutely as well as compared to domestic production.
4. Gap in Domestic Demand and Supply
1. It has been claimed that the domestic market of  PG is growing at the rate of 5-6 per cent and
that the domestic demand is about 12000-13000 MT pa. whereas the domestic producers can cater to
only about 10,000 MT pa. and thus there is a short fall of about 3000 MT which the domesticproducers cannot meet.  Imports to meet this gap are necessary.G/SG/N/8/IND/4
Page 17
2. In this regard, it is observed that the apparent domestic consumption (domestic sales +
imports) during the last three years was 12146 MT in 1994-1995, 11926 MT in 1995-1996 and
12811 MT in 1996-1997.  In 1997-1998 (April-August), the apparent consumption was 6368 MT.
The domestic production during 1994-1995 to 1996-1997 was about 10,000 MT pa. with a capacity
utilisation of about 75 per cent.  In 1997- 1998 (April-August) the production was 5553 MT with
capacity utilisation of 101 per cent.
3. In their application, the domestic producers mentioned their installed capacity as 6250 MT pa.
for MPL and 7000 MT pa. for SORL, the total installed capacity being 13,250 MT pa.  With this
installed capacity, the domestic producers had sufficient production capacity to cater to the entire
domestic demand of about 12800 MT during 1994-1995 to 1996-1997.  It may also be mentioned here
that the domestic producers were capable of producing to their 100 per cent installed capacity as is
evident from the capacity utilisation of over 100 per cent achieved in 1997-1998 (April-August).
4. The domestic producers have, however, claimed that they have a combined capacity of
15,300 MT pa., 7800 MT pa. for MPL and 7500 MT pa. for SORL.  This claim of domestic producers
has been challenged by some parties and they have requested for examination of documentary
evidence in this regard.  The domestic producers have explained that the plants when built in 1989-1990 were designed to produce 7800 and 7500 MT pa. of PG respectively.  The MPL plant during the
guarantee run recorded a production capacity of 8000 MT pa. and SORL 7500 MT pa.  They have
also produced as a part of their non-confidential data submitted during the Public Hearing
documentary evidence in respect of MPL showing the contractual capacity for Mono Propylene
Glycol as 6250 MT pa. and the Design Capacity as 7815 MT pa. being 1.25 times the contractualcapacity.
5. Although the domestic producers can meet the entire domestic demand with the existing
capacity, they have submitted that the capacity of the plants can be further enhanced by upgrading the
packing of the distillation columns in SORL and by installing one more distillation column in MPL.Detailed studies have already been completed in this regard indicating that capacity can be enhanced
with a marginal investment to around 10000 MT pa. in both the companies without adding to any of
the infrastructure already available to support the production.
6. It is also appropriate here to recall that the domestic producers carried on with an inventory of
701 MT in 1994-1995 which declined to 447 MT in 1995-1996 and 207 MT in 1996-1997, the period
during which the domestic producers operated at about 75 per cent capacity.  During the first five
months of 1997-1998 when the domestic producers op erated at 101 per cent capacity and achieved a
production of 5553 MT, they had to carry on with an inventory of 1137 MT.
7. There is, therefore, no ground to hold that the domestic producers did not, have capacity
adequate to meet the entire domestic demand and that the imports were necessitated because thedomestic producers were not able to cater to the entire domestic demand.
5. Inefficiency of Domestic Producers
1. It has been stated that domestic producers failed  to enter into long term binding with MRL for
supply of Propylene and they are attempting to penalise the Indian customers for their own mistakes.
Further, it is no great wisdom that for any business and particularly for petrochemical plants, it
devolves on the management and directors of the company to ensure that they have contractual raw
material arrangement in place which enables them to  be competitive.  MPL/SORL have failed to do
this.  They decided to go ahead with the investment  of MPL willing to take a gamble.  Not only that,
MPL went one step further when they took ov er UB Petrochemicals (SORL) even after the
liberalisation process had started.G/SG/N/8/IND/4
Page 18
2. In this regard it is observed that the domestic producers obtain propylene, the principle raw
material used in the manufacture of PG, mainly from the Madras Refineries Ltd. (MRL) and some
quantities are imported.  Both MPL and SORL have entered into 10 year long term contract for supply
of Propylene with MRL and they have produced a copy of the agreements on a confidential basis.
Propylene is separated from LPG.  The contract is based on the price of LPG with addition of notional
processing cost to make up the price of Propylene.  LPG prices were controlled by the Government ofIndia and decided month-wise since September 1993 and the prices of Propylene followed the LPG
price trend.  The domestic producers have also stated that the project was conceived to make use of
indigenous propylene as the import tariff on propylene was nearly 100 per cent making it impossible
to conceive the project on imported propylene.  The customs duty on Propylene was brought down
only in March 1993.  Besides, a fire accident in MRL in 1993 forced the domestic producers to
conceive a make shift propylene importation terminal at the port of Cuddalore the major ports at
Chennai, Mumbai and Tuticorin did not have facility and interest in creating one because of thecongestion and lack of space within the port area to accommodate the hazardous cargo shipment.
3. It is, therefore, not correct to say that the domestic producers failed to enter into long term
binding with MRL for supply of propylene or th at they are attempting to penalise the Indian
customers for their own mistakes.
4. Another issue that has been highlighted in  the context of inefficiency of the domestic
producers is the size of their Propylene Oxide (PO) manufacturing capacity which allegedly did not
allow production of PO at economically viable rate and the high price of raw materials which has
increased their cost of production.
5. In this regard it is observed that the PO plant capacity as per design and as verified in the
guarantee performance test is 15000 MT pa. each whereas the capacity utilisation of the PO plants is
around 8900-10000 MT pa. only.  It can not be expected that the domestic producers should have set-
up plant capacities far in excess of what is necessary to meet the demand.  The domestic producershave also submitted that because of the high cost of investment in POSM route and POTBA route, the
technology adopted by them is ideally suited fo r medium capacity plants and Technip along with
MPL have proposed now to construct plants in Ch ina, Thailand and Chinese Taipei with MPL as the
model.  The Chinese plant will also include Polyol plant based on the design of SORL.  A team from
Chinese Taipei and China has visited them twice last year and once this year to finalise the designspecifically.
6. Besides, it needs, to be appreciated that the basic objective of imposition of Safeguard Duty is
to allow time to domestic industry to make positive adjustment to meet with the new situation of
competition offered by the increased imports.  If the domestic industry was fully efficient and
competitive, perhaps it needed no safeguard measures for protection.  The question that needs to be
answered in the context of desirability of imposing Safeguard Duty is whether there is reasonablepossibility of domestic industry making positive adjustment and to become competitive.  If the answer
is in the affirmative the domestic industry needs to be protected.
6. Quality and Technical Support
1. Some of the parties have stated that they used imported PG as it had better quality and the
overseas suppliers were providing them with technical services and formulation and also helped them
update their health, safety and environment concerns.
2. In this regard it is observed that no allegation has been made by any party concerning quality
of the domestically produced PG.  Both MPL and SORL are ISO 9001 and ISO 9002 accredited
companies respectively.  They have claimed that their product conforms to international standards set
for its category, the product being second to none and meeting with several parameters as set forth
under IP, BP and USP.  They have also submitted that as part of ISO accreditation they regularlyG/SG/N/8/IND/4
Page 19
collect feedback from their customer.  A copy of characteristics of MPL and imported product has
also been produced by the applicants which show s that their product is fully comparable with the
imported PG.  Copies of feedback received from various customers have also been produced which
also support the domestic producers claim in th is regard.  The domestic producers have claimed
excellent R & D infrastructure with sophisticated laboratory, instrument facility, pilot plant facility
and proto type design and development facility with adequate library support.  Their quality controllaboratory has gained recognition from the Department of Scientific and Industrial Research under the
Ministry of Science and Technology of the Govern ment of India.  They have also exported/are
exporting PG to Australia, New Zealand, Singapore, Nepal and Middle East Countries.
3. In view of the above, it is considered that it is not on account of Quality and Technical
support requirements that the imports have increased and the threat of serious injury is faced by the
domestic producers.
7. Monopoly Status of Domestic Producers
1. Some of the parties have argued that both the applicants i.e. MPL and SORL are under
common ownership and are the monopoly producers controlling 84 per cent  of all India market shareof PG.  Imposition of Safeguard Duty would, therefore, be against the provision of MRTP Act, 1969
and the Directive Principles of State Policy enshrined in Article 39 of the Constitution which
contemplate that the operation of the economic system should not result in the concentration of
economic power to the common detriment.
2. In this regard, it is observed that the MRTP Act 1969 is based on the principle of abuse and
not prohibition.  In other words the Act does not declare any monopoly to be illegal ipso facto  but it
endeavours to strike a balance between the injury caused as a result of monopolistic or restrictive
trade practices and the reasonableness thereof in the context of benefits accruing thereby.
3. MPL and SORL started their production in around 1990.  Both the companies belong to SPIC
group having common management and operating Propylene Oxide, Propylene Glycol and Polyol
plants.  'TIDCO' the Tamil Nadu State Government Industrial Development Corporation is the Joint
promoter of SORL.  Alt hough both MPL and SORL belong to the same group of companies, they are
two individual entities.  UBPPL was taken over by the SPIC group in around August 1994 andrenamed SORL.  The applicants have claimed that af ter take over of UBPPL, they have maintained a
consistent and transparent pricing policy-making available the product at almost the same price to all
the users in India.
4. The domestic user industry has grown with MP L and SORL who have catered to the domestic
market for the last 7-8 years.  The exporters/importers have in no way provided any evidence of injury
caused by MPL and SORL to the domestic users of PG.  They have done nothing else except statingthat MPL and SORL together control a major share of domestic market.  On the other hand the
domestic producers have mentioned that they have maintained a consistent and transparent pricing
policy.  In July-October 1995,  when the prices of petroleum products were ruling high and imported
PG landed at a price of over Re.88 per Kg, they did not raise the price indiscriminately and levelled it
once it reached the satisfactory level of about Re.73 per Kg.  The price of the product were known toall customers in the market and no special discounts were offered for quantity uplifted and all the
customers were more or less treated at par and they never resorted to any manipulation or bias at the
market-place.  They, however, offered a prompt payment discount of R3.1.5 per Kg of the payment
was made on the 45
th day without delay.  In case the purchase is made on immediate payment or
against Demand Draft, a cash discount at applicable rate of interest of the company on the grossinvoice value was extended as so much money was realised by the company 45 days in advance.  To
their dealers they paid a commission of 1 per cent which was probably the lowest ever paid by any
Indian or International Companies operating in the country currently.G/SG/N/8/IND/4
Page 20
5. The domestic producers have further referred to the data of the amounts outstanding by more
than 90 days from the date of dispatch and have submitted that these customers who were primarily in
the resin sector with a consumption of about 20 MT to 200 MT pa., had become a cause of worry after
the advent of imported products into the country, especially from the US and Singapore through
traders in a big way.  Collection of dues was always a problem with these customers right from 1991
as they resorted to alternating between MPL and SORL when they were under different ManagementGroups.  These customers should have now switched over to products offered by the multinationals
whose products are available from traders.
6. It is appropriate to observe here that the domestic producers have a total capacity of about
15300 MT of PG as compared to substantially larger capacities of exporters to the Indian market.  The
imports of PG are allowed into India without any restrictions.  Any one who so desired could import
PG or meet his requirement domestically.  In the light of unrestricted imports, it is not correct topresume that the domestic producers enjoyed any monopoly – specially in view of the fact that the
imports of PG into India have increased during the period 1994-1995 to 1997-1998 (April – August).
The Law also does not require the interests of a single producer or of two companies belonging to the
same group, not to be protected on that ground alone even it they deserve to be rightfully protected.
7. It is also observed that Safeguard Duty is aimed not at encouraging monopolistic practices.  It
is specifically targeted at protecting the interest of domestic producers if increased imports cause or
threaten to cause serious injury to them so as to allow them time to make a positive adjustment to
meet with the new situation of competition offered by the increased imports.  Safeguard duty is a
temporary measure imposed only to the extent adequate to remove the injury.  Besides, the CustomsTariff Act, 1975 which empowers the Central Government to impose Safeguard Duty is an Act of the
Parliament having the same force of law as the MRTP Act 1969.  Imposition of Safeguard Duty in
cases meeting with the requirements set forth in this regard is, therefore, not in violation of the
provision of the MRTP Act 1969, or the Directive Principle of the State Policy as enshrined in the
Constitution of India.
8. Public Interest
1. Some of the parties have argued that imposition of Safeguard Duty would not serve any
public interest.  On the contrary imposition of safeguard duty would severely prejudice the publicinterest as a number of end user industries may close down.
2. In this regard it is observed that the expression 'public interest' does not cover in its ambit
consumer interest alone.  It is a much wider term which covers in its ambit the general social welfare
taking into account the larger community interest.  While the imposition of Safeguard Duty may result
in increased cost of imported PG in the hands of buyers and therefore, it may also effect the end
products manufactured therefrom, it is important to keep in mind the objective of imposition ofSafeguard Duty.  The purpose of imposition of Safeguard Duty is to provide time to the domestic
industry to make positive adjustment to meet with the new situation of competition offered by the
increased imports.  The imposition of Safeguard Duty, for the period and to the extent just adequate,
would, therefore, not only minimise the adverse effect, if any, for the customers but also allow them a
wider choice to source their requirements, and at competitive prices.  The domestic producers whohave set up plants with huge public investments provide employment to a large number of people and
make valuable contribution to the national economy.  Safeguard Duty which would enable the
domestic producers to survive in the face of competition offered by the increased imports will,
therefore, also be in the long term interest of the buyers of PG as well as of the buyers of products
manufactured therefrom.  It is, therefore, consider ed that imposition of Safeguard Duty on PG will be
in public interest.
9. Other IssuesG/SG/N/8/IND/4
Page 21
1. It has been argued by some of the parties that  import duty on PG in India is the highest in the
region.  This argument, however, is considered to be irrelevant in the context of safeguard duty as the
level of import duty on a particular product depends upon various factors some of which are level of
import duties on comparable and competitive products and on inputs, the need to raise revenue and
the disadvantages suffered by the domestic producers vis-à-vis international producers etc.  Each
country, therefore, decides the level of import duties according to its needs, which cannot be viewedas reference point for others.
2. It has also been submitted that safeguard measure serves an emergency measure for
exceptional circumstances which can only be implemented under strict requirements and that India
has initiated 5 investigations within 5 months out of 15 investigations initiated during the last three
years.
3. In this regard it is observed that the present safeguard investigation has been initiated in
accordance with the domestic Safeguard law which reflects the WTO provisions on the subject.
Article XIX of the General Agreement on Tariffs and Trade (GATT) deals with Emergency Action on
Imports of Particular Products and the Agreement on Safeguard (AOS) clarifies and reinforces the
disciplines of GATT 1994 and specially those of its Article XIX.
4. Article 2 of AOS deals with conditions necessary for imposition of safeguard measures and
stipulates that if increased imports, absolute or relative to domestic production, cause or threaten to
cause serious injury to domestic producers that produce like or directly competitive products, a
safeguard measure can be applied.
5. Since the investigation in the present case has b een initiated in accordance with the provisions
of the Indian Safeguard law which reflect the relevant WTO provisions, it is considered that the
requirements in this regard have been fully met with.
6. It has also been submitted that the domestic producers have claimed different amounts of
safeguard duty for the two units and that the safeguard duty can not be imposed to ensure guaranteed
returns on equity capital.
7. In this regard it is observed that the domestic producers had initially requested for two
different amounts of safeguard duty for the two companies based on their calculation of a fair sales
realisation for the two companies separately.  They have, however, subsequently requested for a
uniform safeguard duty worked out on weighted average basis for the two companies, who are the
only producers of the product.
8. As far as return on equity capital is concerned, it is observed that under rule 8 of the Customs
Tariff (Identification and Assessment of Safeguard Duty) Rules 1997, profits and losses of domesticindustry is one of the factors which is required specifically to be evaluated to determine whether
increased imports have caused or threatened to cause serious injury to the domestic industry.  Return
on equity capital is one of the reflections of the profits or losses made by the companies and,
therefore, relevant for the determination of existence of serious injury to the domestic industry.  Since
the safeguard duty is intended to redress or prevent the serious injury caused to the domestic byincreased imports, there appears to be nothing wrong in the domestic producers taking into
consideration a reasonable return on the equity capital while seeking the amount of safeguard duty
that would be adequate to remove or prevent the serious injury to them.
10. Threat of Serious Injury
1. The domestic producers of PG are stagnating at a total production of about 10,000 MT during
the last three years i.e. 1994-1995, 1995-1996 and 1996-1997 and similarly the capacity utilisation has
also been stagnating.  In 1997-1998 (April-August), however, the domestic producers have registeredG/SG/N/8/IND/4
Page 22
a production of 5553 MT and capacity utilisation of about 100.6 per cent in order to contain the per
MT cost of production but which resulted in their closing stock increasing from 207 MT in 1996-1997
to 1137 MT i.e. the closing stock increased by 449.3 per cent.  The domestic producers have lost
sales.  As compared to a total sales of 11306 MT in 1994-1995, they registered total sales of
10259 MT in 1995-1996 i.e. a loss of 9.26 per cent as compared to 1994-1995.  In 1996-1997, the
domestic producers could maintain the sales at 1995-1996 level but only at the cost of a reduction inaverage selling price (inclusive of excise duty) from Re.80.658 PMT to Re.74.896 PMT i.e. a
reduction of about 7.14 per cent.  In 1997-1998 (April-August), the domestic producers have achieved
a total sale of 4624 MT but only by further reducing their average selling price (inclusive of excise
duty) drastically to a level of Re.63060 PMT i.e. a reduction of 21.82 per cent as compared to 1995-
1996 and 15.8 per cent as compared to 1996-1997.  In order to retain the market, the domestic
producers have kept on lowering the prices at the risk of incurring cash losses.  The domestic
producers have also not been able to meet their financial obligation to banks and financial institutions.
2. The imports during this period increased drastically to 1744 MT in April-August 1997-1998
from 2628 MT in 1996-1997 i.e. on pro-rata basis the imports increased to 159 per cent compared to
1996-1997.  The domestic producers could sell only about 83 per cent of their production in April-
August 1997 that too only by reducing their average selling price from Re.74,896 PMT (inclusive ofcentral excise duty) to Re.63.060 PMT (inclusive of central excise duty) i.e. a reduction of about
15.8 per cent and the inventory increasing from 207 MT in 1996-1997 to 1137 MT i.e. 449.3 per cent.
3. If this trend continues, a serious injury is clearly imminent as the domestic industry would
suffer a significant overall impairment.
11. Causal Link
1. As discussed above, the domestic industry is facing a threat of serious injury.  The domestic
producers of PG catered to the domestic demand.  They sold 11306 MT in 1994-1995, 10259 MT in1995-1996, 10183 MT in 1996-1997 and 4624 MT in April-August 1997.  The total apparent
consumption (sales by domestic producers plus imports) during this period stood at 12146 MT in
1994-1995 which fell down to 11926 MT in 1995-1996 and again went up to 12811 MT in 1996-
1997.  The share of domestic producers in the apparent consumption which was 93 per cent in 1994-
1995, however, fell down to 86 per cent in 1995-1996 and to 79.5 per cent in 1996-1997.  In 1997-1998 (April-August), the share of the domestic producers was only 4624 MT in the total apparent
consumption of 6368 MT representing in percentage terms a share of only 72.6 per cent.  The
domestic producers thus lost their share in apparent consumption from 93 per cent in 1994-1995 to
72.6 per cent in April-August 1997-1998.  At the same time the imports increased form 840 MT in
1994-1995 to 1667 MT in 1995-1996, 2628 MT in 1996-1997 and to 1744 MT in the first five months
of 1997-1998.  The share of imports in the apparent consumption increased from 6.9 per cent  in
1994-1995 to 14 per cent in 1995-1996, 20.5 per cent in 1996-1997 and to 27.4 per cent in 1997-1998(April-August).  In comparative terms the imports increased their share by 102.9 per cent in 1995-
1996, 46.4 per cent in 1996-1997 and by 59.3 per cent in April-August 1997-1998 and as compared to
1994-1995 increased by 297 per cent.
2. The total apparent consumption in 1996-1997 stood at 12811 MT which on a pro-rata basis
increased by 19.3 per cent to 6368 MT in the first five months April-August of 1997-1998.  The
domestic sales, however, did not grow at the same pace.  The domestic producer who should have
registered sale of {(10183/12)x5x119.3%} i.e. 5062 MT could achieve a sale of only 4624 MT i.e.
they lost sales of 438 MT which were taken over by the imports which captured an additional market
of {1744-(2628/12)x5x119.3%} 438 MT taking into account the growth of 19.3 per cent in theapparent consumption.
3. The domestic producers have submitted that they adjusted prices frequently to match the
terms offered by the exporters.  The exporters sold the product at much higher prices in otherG/SG/N/8/IND/4
Page 23
countries USP grade at $200-250 more than the prices for India and resorted to price-undercutting as a
result of which the imports have increased significantl y in the recent years.  Shell in this regard has
mentioned that it is not correct that they have st arted dropping the prices of industrial grade PG into
India sharply and that products were sold at much higher prices in other countries.  Dow also
submitted that they did not resort to price undercutting.  They were supplying PG-USP to Indian
market for the last 25 years and they adopted a fair business practice.  ARCO also have mentionedthat prices offered to India are in line with the prices offered in Asia region.  The domestic producers
on the contrary have submitted that they are able to export their product to countries like Australia and
South Africa at the price much higher than at what  is being sold by these producers in India.  They
have also produced documentary evidence in this re gard.  The users/importer of PG have categorically
mentioned in their submissions that the imported PG  was cheaper.  Polyblend Polymers Pvt. Ltd. have
stated that the prices offered by local manufacturers is much higher than that prevailing in
international market.  Jewel Polymers Pvt. Ltd. have mentioned that the imported product offered
them the advantage of competitive and better prices.  Unibond Resins Pvt. Ltd., Uniset Polymers &
Resins Pvt. Ltd. and Unique Resi ns & Chemicals Pvt. Ltd. have stated that local supplies are not
assured at reasonable prices whereas imported PG is available at competitive prices.  R. K. Industries
have mentioned that imported PG provides them the benefit of favourable terms of credit hence better
financial flow and competitive prices.
4. It is observed that the average c.i.f. price and landed price i.e. c.i.f. price plus import duty
(excluding Additional Duty of Customs which is levied at the applicable rate of Central Excise duty)
have been declining over the year as is evident from the data tabulated below:
Table 3
Imported goods Domestically produced goods
Year Avg. c.i.f.
price
Re./MTImport duty
(excluding
additional
duty of
customs) %Landed
price
Re./MTAvg. selling
price
(inclusive
of C Ex
duty)
Re./MTRate of C
Ex duty %Avg. sales
realisation
Re./MT
1994-1995 31,411 65 51,828 61,501 20 51,251
1995-1996 46,052 50 69,078 80,658 20 67,215
1996-1997 45,937 42 65,230 74,896 20 62,413
1997-1998
(April-
August)38,050 32 50,226 63,060 18 53,440
5. The domestic producers have stated that they frequently adjusted their prices to match the
imported price and they did so till about 1996-1997 when their average sales realisation was lower orcomparable with the landed price of imported material, (which was available to the users/imported at
prices lower than the landed prices indicated above due to better credit terms and other advantages as
stated by importers).  With the import prices and landed prices declining further drastically in 1997-
1998, the domestic producers were unable to keep pace as they started incurring cash losses.  This had
its consequences, so long the domestic prices were lower or comparable the domestic producers wereable to sell their entire production and they were able to liquidate the inventory significantly which
declined from 701 MT in 1994-1995 to 447 MT in 1995-1996 and to 207 MT in 1996-1997.  In 1997-
1998 when the domestic producers could not compete with the import prices and their prices were
about Re.3 per Kg more than the landed price, they could not sell their entire production as before and
huge inventory built up.  The domestic producers could sell only 83.3 per cent of their production inthe first five months of 1997-1998 and their closing stock piled up to 1137 MT i.e 449.3 per cent ofG/SG/N/8/IND/4
Page 24
the closing stock at the end of 1996-1997 and 20.5 per cent of the production during 1997-1998
(April-August).  At the same time the imports increased to 1744 MT during this period which on a
pro-rata basis amounted to 4186 MT for the whole of 1997-1998 i.e. the imports increased to 159 per
cent of the 1996-1997 imports, taking a significantly increased share of 27.4 per cent of the domestic
market.
6. The CIF import prices as well as landed prices have been declining over the year as discussed
above.  This clearly shows the trend of increasing imports of declining prices.  The increased imports
have thus threatened the domestic industry of serious injury which is clearly imminent if this trend
continues.
12. Impact of Subsequent Changes
1. The drop in exchange rate and propylene prices by MRL and increase in customs duty after
the initiation of safeguard investigation have been stated as some of the developments by some of the
parties which have taken away the need to provide any protection to the domestic industry by way of
safeguard duty.
2. Dow in this regard have submitted calculations on impact of changes in economic situation
since May 1997 (should be PG) and according to them the impact of reduction in propylene price on
Polyol cost is US$113/MT, impact of increases in customs duties sine May 1997 is US$94/MT and
impact of depreciation of Rupee vis-à-vis US$ is US$257/MT.  In conclusion they have calculated the
total price advantage in terms of safeguard duty sought as US$464/MT.  On the other hand, thedomestic producers have challenged Dow's calculations and have submitted their version of
calculations of the impact of post initiation chan ges and according to them the combined effect of
change in propylene price, increase of customs duty and depreciation of Indian Rupee has to be
viewed in the light of drop in the c.i.f. price of imported PG which has come down to a level of
US$850/MT in May 1998 from US$110/PMT in July 1997.  They have, taking into account all thesefactors worked out the net effect as US$55PMT instead of US$464/MT worked out by Dow.
3. Be it as it may.  The main issue to be considered here is whether the changes in the period
after initiation of an investigation and before the recommendations are made should be taken into
account in arriving at a decision regarding the finding of the serious injury or the quantum of thesafeguard duty.
4. It must be appreciated that safeguard duty can be imposed only if' 'increased imports' have
caused 'serious injury'.  This implies that 'increased  imports' is a condition precedent to or co-existing
with the occurrence of 'serious injury'.  The inve stigation, therefore, must show that imports have
increased and they have caused serious injury.  The finding of serious injury needs to be based on an
objective evaluation of various parameters and the interested parties need to be given fullestopportunity to present their case and to rebut evidence and arguments submitted by others.  It is in this
context that the parties need to know the facts and figures on the basis of which the investigation has
been initiated and which they have to prove or disprove.  If this framework of reference is not fixed,
perhaps it may lead to confusion where various parties may speak of situations prevailing in different
periods and there may be no meeting ground.  While this is true of facts and figures, the same logicmay not apply for the changes in governmental policies which have a bearing on the outcome of the
investigation such as changes in the rates of import duties which might have taken place in the
intervening period.
5. It will, therefore, be appropriate:(i) to base the findings on the data considered for initiation of investigation and which was
thrown open for the parties to comment upon by incorporating them in the initiation documents, andG/SG/N/8/IND/4
Page 25
(ii) to take into account policy changes which have taken place subsequently.
6. In the present case while initiating the investigation data up to the period August 1997 has
been relied upon.  Accordingly, it is considered th at changes in exchange rate and c.i.f. value of
imported PG after August 97 are not to be taken into account-  Change in price of propylene as a
result of decontrol of LPG price being a policy change would need to be taken into account, so alsothe changes in customs duty.
13. Positive Adjustment
1. The domestic producers have submitted details of efforts being made by them for making a
positive adjustment to meet with the new situation of competition offered by the increased imports.
2. The domestic producers have been already importing propylene from Cuddalore port but
these results, in an additional cost of about Re.3 per Kg in the cost of propylene imported by them.
The major ports of Chennai, Mumbai and Tuticorin do not have facility to import propylene, nor are
they interested in creating one because of the congestion and lack of space within the port area to
accommodate the hazardous cargo shipment.  An independent chemical terminal is being set up atEnnore Satellite Port by their group company MAC – VORMAN, a joint venture of VORMAN of the
Netherlands, which is coming up rapidly and is likely to be operational in the year 2000.  Till the time
Ennore Satellite Terminal becomes operative, the domestic producers have decided to upgrade with
the Single Buoy Mooring (SBM) facility the storag e terminal at Cuddalore.  This will also enable
them to operate during monsoon period.  They are currently having 1000 MT storage capacity andanother 500 MT capacity by way of road tankers etc. and thus they can handle about 1500 MT
propylene parcels.  During the next two years they intend to upgrade the storage facility so as to
handle larger shipments of 2000-2500 MT size, re ducing the freight cost and making propylene
available at prices comparative to international prices.
3. MPL and SORL receive about 70 per cent of th eir propylene requirements from MRL and the
balance 30 per cent is imported.  The domestic producers have stated that Madras Refineries Ltd. have
also realised the need to support them with better  price and making use of phased dismantling of the
administered pricing mechanism, which is already effective from 1 April 1998.  They are
contemplating to make available the feedstock close to international price by the year 2000.  They canalso obtain propylene from the proposed Pennar Refi neries coming up at Cuddalore.  They are likely
to get propylene to run their plant at full load at international f.o.b. price levels.  Pennar Refineries are
also proposing to construct a jetty where ships can come alongside and discharge liquid cargo
including LPG and propylene.  This enhances possibility of integrating/enhancing their facility at
Cuddalore.
4. The domestic producers have further stated that they have brought down the energy levels and
thus cut down the cost of production.  They can step-up their production capacities in a short space of
time with the marginal investment with attractive in vestment to turn over ratio, if the opportunity is
offered for the company to run the plant at higher plant load factors.
5. With the enhanced possibilities of getting propylene at competitive prices, the problems of
high cost of production due to high raw material co st is likely to be totally addressed and continuous
availability of markets, which will enable the plant to run at high capacity utilisation, will enable them
to cut the production cost further and also enable them to expand the plant to make use of the
favourable capital turn over ratio.
6. In view of the above, it is considered that  the domestic industry would need a period of about
eighteen months to make a positive adjustment to the import competition.
14. Share of Exporting CountriesG/SG/N/8/IND/4
Page 26
1. On the basis of information available, share of exporting countries in India's imports of PG
was as under:
Country Share in %
Belgium 2.96
Chinese Taipei 1.49
Denmark 0.6
German FR 2.8
Japan 26.95
Mexico 0.64
Singapore 8.27
USA 56.29
VI. CONCLUSIONS AND RECOMMENDATION
1. In view of the findings above, it is concluded that increased imports of Propylene Glycol into
India have threatened to cause serious injury to domestic producers of Propylene Glycol and it will bein public interest to impose safeguard duty for a period of eighteen months on imports of Propylene
Glycol into India.
2. In arriving at the amount of safeguard duty that would be adequate to prevent serious injury to
domestic industry and to facilitate positive adjustment, weighted average cost of production for bothMPL and SORL has been taken into account for the period April-August 1997 on the basis of the data
for the whole of 1997-1998 as the data for the entire 1997-1998 is a more representative data and the
cost of production for the whole of 1997-1998 is less er than that for April-August 1997-  Adjustment
has also been made for the reduction in price of propylene, the principle raw material for the
manufacture of Propylene Glycol.  The domestic pr oducers have claimed a certain amount of profit
(confidential) which is considered to be on the higher side and, therefore, a lower amount of profit
considered to be appropriate has been allowed.  Adjustment in COP has also been made for by-product recovery.  Similarly, the c.i.f. import prices of Propylene Glycol also have been considered on
weighted average basis for the period April-August 1997.  Adjustment in the c.i.f. import price have
been made for credit terms and handling charges on an average basis.  No adjustment for sales tax
paid on domestically produced Propylene Glycol has been made as Special Additional Duty of
customs has been imposed in the recent Budget on imports which takes into account the incidence ofsales tax etc. on locally produced goods.  Change in the applicable rate of customs duty has been
taken into account in working out the landed price of imported Propylene Glycol.
3. Considering the need to progressively liberalise the Safeguard duty in order to facilitate
positive adjustment by the domestic industry, it is recommended that safeguard duty be imposed onimports of Propylene Glycol at the rates specified below for a period of eighteen months as under
being the minimum necessary for the protection of  the domestic industry from the serious injury
threatened to be caused by the increased imports of Propylene Glycol.
Period Level of protection
recommended %Existing level of
protection %Safeguard duty
recommended
(2)-(3) %
(1) (2) (3) (4)
First twelve months 57 35 22
Next six months 46 35 11G/SG/N/8/IND/4
Page 27
__________