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Safeguard investigation concerning imports of Dioctyl Phthalate (DOP) –Final findings under Rule 11 of Customs Tariff (Identification and Assessment of Safeguard Duty) Rules, 1997.

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.... PCL Oil & Solvent Ltd and (d) N.K. Polymers & Additives Mfg .Co, seeking imposition of Safeguard Duty on imports of Dioctyl Phthalate (hereinafter referred to as DOP) into India alleging that increased imports of Dioctyl Phthalate was causing and/or threatening to cause serious injury to the domestic producers of Dioctyl Phthalate in India. The Notice of Initiation of safeguard investigation concerning imports of Dioctyl Phthalate into India was issued on 23rd May, 2012 and was published in the Gazette of India Extraordinary on the same day vide GSR 383(E). 2. A copy of the Notice of Initiation dated 23rd May, 2012 along with copy of non-confidential version of the application filed by the Domestic Industry were forwarded to the Central Government, in the Ministry of Commerce and other ministries concerned, Govts of exporting countries through their Embassies/ High Commission in New Delhi and all known interested parties listed below in accordance with Rule 6(2) and 6(3) of the Customs Tariff (Identification and Assessment of Safeguards Duty) Rules, 1997: Domestic Producers a. KLJ Plasticizers Limited, b. Payal Polyplast Pvt Ltd. c. PCL Oil & Solvent Ltd. d. N....

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....Indl. Est. Kadaiya, Daman aa. Poonam International, 195/2, Chikkanahalli Road, Bommanahalli, Bangalore 560068 bb. Royal Cushion Vinyl Products Ltd, Plot No. 55, Village, Garadhia, Taluka, Sayli, Distt Baroda, Gujarat cc. Viny Royal Plasticoats Ltd, Plot No. 319, Baroda, Godhra Road, Baska Village Halol, Panchmahal Exporters a. M/s. BASF Petronas Chemicals, SDN B DC 802, Central Tower, Wisma Conspant 1, Jalan SS16/4, Subang Jaya, 47500, Malaysia b. Chemcross Inc, Aisa, Yongsei Bldg; 4th Floor, Namdaeun Road, 5-KA, Chung-Ku, Seoul, South Korea c. Humade Corporation, Room No. 1505, Master Tower B/D 553, Dowha Dong, Mapo Gu, Seoul, 121-748, South Korea d. M/s Woori Pand Corporation, Rm. 905, Olympia Bldg. No. 196, Jamsilb On Dorg Sorgpa Gu, Seoul, South Korea e. The Normandy Group, S.A., Temple Financial Centre, P.O. Box 228, Leeward Highway, Providenciales, Turks and Cacos Islands, British West Indies, Netherlands f. Gulf Resources Development Corporation, P.O. Box 61283, Jebal Ali, Dubai, U.A.E. g. Petrochem Middle East FZE, P.O. Box 17028, Jabel Ali, Dubai, U.A.E. h. KASB Petroleum FZ Co., P.O. Box 117280, Dubai, U.A.E. i. UPC Technology Corpor....

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....2012. All interested parties who participated in the public hearing were requested to file a written submission of the views presented orally in terms of sub rule (6) of rule 6 of the Customs Tariff (Identification and Assessment of Safeguard Duty) Rules, 1997 by 1^st October, 2012. Copy of written submissions filed by one interested party was made available to all the other interested parties. Interested parties were also given an opportunity to file rejoinders, if any, to the written submissions of other interested parties by 4th October, 2012. All the views expressed by the interested parties either in the written submissions or in the rejoinders were examined and have been taken into account in making appropriate determination. The Govt. of Taiwan and the Govt. of Republic of Korea filed post hearing written submissions through emails dated 25/9/12 and 1/10/12 respectively with no hard copies filed. M/s LCPMA also filed hard copy of post hearing written submissions on 5/10/12. M/s LCPMA also filed hard copy of post hearing rejoinder submissions on 5/10/12, i.e. after the due date. However, all these procedural lapse/delay have been considered and are condoned. 9. All the ....

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....cing the problem of accumulated inventories due to decline in market share affecting production and capacity utilization. i. In order to sustain in the market, the domestic industry has to reduce its prices far lower than the cost of sales thereby suffering significant losses. At the same time, the profitability and consequently cash profits and return on investment have started declining in the most recent period, which had actually improved previously. j. Threat of serious injury is established by following factors. i. The price difference between domestic and imported product is significant; ii. The foreign producers are holding significant unutilized capacities. Resultantly, the foreign producers are looking for additional markets to the extent possible; iii. The major Chinese market has clogged for the export oriented producers of Korea and Taiwan, whereas the Indian market is quite strong; iv. There has been restriction in usage of DOP in Europe worsened by the crisis in Europe. Due to such restriction, the producers/exporters started looking for new markets for their products and India with its growing demand offered a better opportunity for them to export ....

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....dustry. d. There has been an increase in production, capacity, capacity utilization and sales of domestic industry. Further, the domestic industry has excess capacity not in concurrence with the demand and hence imports are not causing any losses to domestic industry. e. Any loss of domestic industry is due to low capacity utilization of domestic industry which in turn is due to excess built up capacities and imports of domestic industry. f. Being the major users of DOP, its members would be the major affected parties in case of safeguard duty imposition, since its members' product does not get any protection. g. Thus safeguard duty should not be imposed if it is against Public interest as held in Supreme Court in Food Corpn. of India v. Kamdhenu Cattle Feed Industries (1992 Indlaw SC 426), National Buildings Construction Corporation v. S. Raghunathan and Others reported in 1998 (7) SCC 66, United Phosphorous in 1999 for imposition of safeguard duty on white/yellow phosphorous, United Phosphorous v. Director General (Safeguards), 2000 (118) E.L.T. 326 (Del.), Phosphorous Ltd. Versus Director General (Safeguards) 2000 (118) E.L.T. 310 (S.C.), h. There is no unforeseen....

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.... of safeguard duty. The duty is imposed to facilitate the positive adjustment planned/provided by the domestic industry. On submissions made by Government of Korea a. The actual data provided for the entire period 2011-12, comparison of which with the annualized data provided earlier would show that there is no significant difference between the annualized data and the actual data. b. It is reiterated that the imports of Dioctyl Phthalate have increased in absolute terms as also in relation to production and consumption. c. Individual country movements in imports are entirely irrelevant under safeguard investigations. d. As a result of decline in demand for the eventual end product in Europe and coupled with significant additions to capacities in China (for Phthalic Anhydride and DOP), procurement of DOP by the Chinese manufacturers declined very steeply. e. The domestic industry performance is not linked to safeguard duty on Phthalic Anhydride. F. Rejoinder by importers/user industry Leather Cloth and Plastics Manufacturers Association a. Stake of exporters to Indian market is very small and hence they have not participated. Non participation does not ma....

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....he product under investigation: 5. The product under investigation is Dioctyl Phthalate (an organic compound) and abbreviated as 'DOP'. It is also known as Bis (2-ethylhexyl) phthalate, commonly abbreviated DEHP. This product is a colorless viscous liquid, soluble in oil, but not in water. It possesses good plasticizing properties. Being produced on a massive scale by many companies, it has acquired many names and acronyms, including BEHP and di-2-ethyl hexyl phthalate. It is widely used as a plasticizer in manufacturing of articles made of PVC. Plastics may contain 1% to 40% of DEHP. It is also used as a hydraulic fluid and as a dielectric fluid in capacitors. DEHP also finds use as a solvent in glow sticks as it has suitable properties and the low cost. It has been used as a plasticizer in medical devices such as intravenous tubing and bags, catheters, nasogastric tubes, dialysis bags and tubing, and blood bags, transfusion tubing and air tubes. 6. Dioctyl Phthalate (DOP) is classified under Customs sub-heading No. 29173920 under the Customs Tariff Act, 1975. 7. The product under investigation is Dioctyl Phthalate (an organic compound) and abbreviated as 'DOP'. It is als....

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....vestigation (POI): 12. The Customs Tariff Act, 1975, Customs Tariff (Identification and Assessment of Safeguard Duty) Rules, 1997, Agreement on Safeguard and the relevant Article XIX of GATT do not specifically define what the Period of Investigation should be. From several case laws on safeguard measures, it is clear that neither the domestic laws on Safeguard nor Agreement on Safeguard and Article XIX of GATT provides specific guidelines on the period of investigation except the fact that the relevant investigation period should be sufficiently long to allow conclusion to be drawn on increased imports and serious injury. 13. The applicants in the instant case submitted import and injury data from 2009-10 to 2011-12 (upto Dec 2011) contending that year 2008-09 should be ignored and information should be considered from 2009-10 onwards for the present investigations, as the period 2008-09 was an abnormal period where industries both at domestic and international level, not only in the product under consideration, but in a large number of sectors, suffered due to global recession. The Directorate conducted the verification of data pertaining to injury parameters to the extent ....

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....1-12 has been updated for the entire year 2011-12, in respect of various economic parameters, as per certified cost statements furnished by the applicants. The IBIS import data for the year 2011-12 has been considered keeping in view the following facts- (a) DGCIS data for 2011-12 available with the Directorate is not for the complete financial year, in the absence of which it had to be annualized which would not have been appropriate, keeping in view the objections raised by one of the interested party namely Korean Govt against annualization of import data in their post hearing submissions. (b) IBIS data for 2011-12 is available for the whole year and is also transaction wise, which has also been demanded by one of the interested party namely LCPMA in their post hearing submissions. (c) Even the domestic industry has also questioned the accuracy of DGCIS data for the year 2011-12 on the ground that it does not reflect complete transaction wise import of Dioctyl Phthalate in the country which is crucial for the injury analysis. They have submitted transaction wise import data from IBIS for the year 2011-12 along with their letter requesting for considering the same. E.....

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....ired increase in imports under Articles 2.1 and 4.2(a), the Panel in Argentina-Footwear case^2 stated the following: ... the Agreement requires not just an increase (i.e., any increase) in imports, but an increase in "such...quantities" as to cause or threaten to cause serious injury. The Agreement provides no numerical guidance as to how this is to be judged, nor in our view could it do so. But this does not mean that this requirement is meaningless. To the contrary, we believe that it means that the increase in imports must be judged in its full context, in particular with regard to its "rate and amount" as required by Article 4.2(a). Thus, considering the changes in import levels over the entire period of investigation, as discussed above, seems unavoidable when making a determination of whether there has been an increase in imports "in such quantities" in the sense of Article 2.1. (emphasis added) 23. With regard to the nature of the increase in imports, the Appellate Body in Argentina-Footwear (EC)^3, in contrast to the Panel, held that the increase in imports must have been recent, sudden, sharp and significant enough to cause or threaten to cause serious injury. Releva....

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....ootwear Safeguard found that 'the phrase "is being imported" implies that the increase in imports must have been sudden and recent'. According to Korea, the phrase 'is being imported ... in such increased quantities' refers to 'the period immediately preceding the authority's decision'. The word 'recent' - which was used by the Appellate Body in interpreting the phrase 'is being imported' - is defined as 'not long past; that happened, appeared, began to exist, or existed lately'. In other words, the word 'recent' implies some form of retrospective analysis. It does not imply an analysis of the conditions immediately preceding the authority's decision. Nor does it imply that the analysis must focus exclusively on conditions at the very end of the period of investigation. We consider that an analysis that compares the first semester of 1998 with the first semester of 1999 is not inconsistent with the requirement that the increase in imports be 'recent'." 26. The analysis of the increased imports of Dioctyl Phthalate has been conducted in the light of the above mentioned evaluations. Dioctyl Phthalate is imported into India from a number of co....

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....iscriminatory basis and therefore any imports made, whether by domestic industry or otherwise, would be liable for payment of safeguard duty. 27. In view of the above, I have determined increased imports by excluding the imports made by the domestic producers themselves from the total imports of Dioctyl Phthalate for the POI. 28. It is determined that Dioctyl Phthalate has been imported into India (after excluding the imports made by domestic producers) in such increased quantities and under such conditions in absolute terms as well as compared to the domestic production and consumption as to cause or threaten to cause serious injury to the domestic industry which is as under: (a) Imports: Description Unit 2008-09 2009-10 2010-11 2011-12 Total Imports MT 40,608 35,210 35,346 41,632 Imports made by DI MT 13,312 13,726 12,798 2,665 Imports(excluding DI imports) MT 27,296 21,484 22,548 38,967   29. There is a surge in import both in absolute and relative terms. Imports declined from 27,296 MT in 2008-09 to 21,484 MT in 2009-10 and thereafter increased to 22,548 MT (2010-11) and 38,967 MT in 201....

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.... that should be followed for analyzing unforeseen developments. The Agreement on Safeguard also does not make any prescription with regard to the methodology that should be followed or the parameters that must be met in deciding unforeseen developments. However, it is important to examine the circumstances which have led to increased imports. 34. In Argentina - Footwear (EC) and Korea - Dairy, the Appellate Body held that "any Safeguard measure imposed after the entry into force of the WTO Agreement must comply with the provisions of both the Agreement on Safeguards and Article XIX of the GATT 1994. Article XIX of GATT 1994 states as follows:- 1. (a) If, as a result of unforeseen developments and of the effect of the obligations incurred by a contracting party under this Agreement, including tariff concessions, any product is being imported into the territory of that contracting party in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers in that territory of like or directly competitive products, the contracting party shall be free, in respect of such product, and to the extent and for such time as may be necessary....

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....8,172 2011 1,93,678 32,404 Source: Korea Customs Malaysia Exports of Dioctyl Phthalate Period World China 2007 75,954 18,262 2008 62,768 9,969 2009 68,026 16,689 2010 62,344 13,959 2011 37,409 3,224 Source: Malaysia Customs Taiwan Exports of Dioctyl Phthalate Period World China 2007 1,60,843 1,32,649 2008 1,08,075 81,115 2009 1,73,896 1,55,783 2010 84,597 70,212 2011 46,343 19,502 Source: Taiwan Customs b) Imports from these countries to India is given below:- Period Korea RP Taiwan Malaysia Total 2008-09 13,424 4,875 11,971 30,270 2009-10 13,967 1,340 15,657 30,964 2010-11 19,223 1,605 6,174 27,002 2011-12 16,798 17,386 6,698 40,882 It may be seen from the table above that Imports to India from Korea RP, Malaysia and Taiwan remained at significant level and cumulatively increased from 30,270 MT to 40,882 MT over the POI and sharply from 27002 MT in 2010-11 to 40882 MT in 2011-12 i.e. an increase of 34%, which roughly constitutes to about 98 % of the total imports (includi....

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....oduction of dioctyl phthalate (DOP). DOP is used heavily in the production of construction materials and consumer goods. The euro zone is a large importer of these products from both China and southeast. Regional traders, however, cautioned that the price rally could be short-lived, because of global economic uncertainty and the euro zone financial crisis. ICIS PRICING (PHTHALIC ANHYDRIDE), 23 December, 2011 Traders and buyers said that they were also concerned about the continuing euro zone sovereign debt crisis. The euro zone is a large importer of construction materials and consumer goods from China. ICIS PRICING (PHTHALIC ANHYDRIDE), 30th December 2011 Meanwhile, the sovereign debt crisis in the euro zone remains unresolved and buying interest from the construction industry has plummeted as a mood of austerity prevails in the region. 39. Having regard to the information on record and submissions made by the interested parties, it is observed that the imports of product under consideration increased for a number of reasons. Setting up of new plants of phthalic anhydride in China which resulted in increase in production of Phthalic Anhydride, the production o....

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....impairment' in the position of that industry. Although Article 4.2(a) technically requires that certain listed factors must be evaluated, and that all other relevant factors must be evaluated, that provision does not specify what such an evaluation must demonstrate. Obviously, any such evaluation will be different for different industries in different cases, depending on the facts of the particular case and the situation of the industry concerned. An evaluation of each listed factor will not necessarily have to show that each such factor is 'declining'. In one case, for example, there may be significant declines in sales, employment and productivity that will show 'significant overall impairment' in the position of the industry, and therefore will justify a finding of serious injury. In another case, a certain factor may not be declining, but the overall picture may nevertheless demonstrate 'significant overall impairment' of the industry. Thus, in addition to a technical examination of whether the competent authorities in a particular case have evaluated all the listed factors and any other relevant factors, we believe that it is essential for a panel to take the definition of 'se....

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.... 2009-10 2010-11 2011-12 Sales of Domestic Industry MT 58,880 67,959 72,035 65,221 Sales of other producers MT 3,532 4,759 7,121 1,905 Imports Volume MT 27,296 21,484 22,548 38,967 Total Demand/Consumption MT 89,708 94,202 101,704 106,093 47. It is seen that with the increase in demand, the sales of domestic industry have only increased by 11% in 2011-12 since the base year but the Imports have increased by 43% in 2011-12 since the base year. b. Market Share: 48. It is seen from the table below that the market share of the domestic industry in the total consumption has declined. Market share (in Demand) Unit 2008-09 2009-10 2010-11 2011-12 Domestic Industry MT 66% 72% 71% 61% Producers (other than DI) MT 4% 5% 7% 2% Import MT 30% 23% 22% 37% The market share of the domestic industry increased from 66% (2008-09) to 72% (2009-10) and thereafter declined to 71% (2010-11) and further to 61% (2011-12). It is noted that the market share of imports was high and consequently market share of the domestic industry was low in 2008....

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.... industry was increasing from 39% (2008-09) to 45% (2009-10) and then to 50% (2010-11). The capacity utilization however thereafter declined to 39% in 2011-12. 55. Given that the domestic industry enhanced its capacity in 2011-12, it was considered whether the decline in capacity utilization was due to increase in capacity. It is noted that had the domestic industry not enhanced capacity, its utilization in 2011-12 would have been 48%. Thus, capacity utilization would have shown decline even if the domestic industry would not have enhanced capacity. 56. It is argued by the interested parties that the domestic industry has excessive capacities. The domestic industry clarified in this regard that it has capacities which are being used for production of other products as well and the domestic industry on its part made efforts to utilize the plants and hence the low utilization given above does not mean inefficiencies of the domestic industry or high fixed costs of the domestic industry. f. Inventories: 57. As the market share of the domestic industry is decreasing and that of imports is increasing, the domestic industry was unable to increase its sales volume in proportion....

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....se in cost of production is due to increase in raw material prices. i. Profit & Loss: 62. The Domestic Industry has reported profit before tax, duly certified by a practicing Chartered Accountant. The pro fit ability of the domestic industry has steeply deteriorated to such a situation that the domestic industry is now suffering financial losses. This is evident from the table below:- Particulars Unit 2008-09 2009-10 2010-11 2011-12 Profit/(Loss) Rs./Lacs (****) **** **** (****) Profit/Loss (Indexed) %   (100) 404 509 (210) (Source: Certified cost statements of the four companies constituting domestic industry) 63. It is seen that the domestic industry suffered losses during 2008-09, which the domestic industry contended was due to recession. The domestic industry was however thereafter able to earn profits in 2009-10, extent of which increased till 2010-11. The domestic industry however suffered significant financial losses once again in 2011-12 clearly showing the effect of increased imports. 64. As regards the argument of the interested parties that the balance sheet of the domestic industry does not sh....

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....jury to a demonstrate industry, the Director General shall evaluate all relevant factors of an objective and quantifiable nature having a bearing on the situation of that industry, in particular, the rate and amount of the increase in imports of the article concerned in absolute and relative terms, the share of the domestic market taken by increased imports, changes in the level of sales, production, productivity, capacity utilization, profits and losses, and employment." 68. The Panel on US - Lamb considered that a focus on the recent data available pertaining to the end of an investigation period was logical in view of the future-oriented nature of a threat of serious injury analysis. The relevant extracts are as follows: "In our view, due to the future-oriented nature of a threat analysis, it would seem logical that occurrences at the beginning of an investigation period are less relevant than those at the end of that period. While the SG Agreement does not specify the appropriate duration of the time-period to be considered in an investigation, the Panel and Appellate Body in Argentina - Footwear both considered this issue to some extent. Both concluded that (for an actua....

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....at of increased imports as such cannot be equated with threat of serious injury. However, in our view, this is not what the USITC has done in this case. Moreover, we also deem it possible that imports continuing on an elevated level for a longer period without further increasing at the end of the investigation period may, if unchecked, go on to cause serious injury (i.e., may threaten to cause serious injury). That is, if increased imports at a certain point in time cause less than serious injury, it is not necessarily true that a threat of serious injury can only be caused by a further increase, i.e., additional increased imports. In our view, in the particular circumstances of a case, a continuation of imports at an already recently increased level may suffice to cause such threat. 70. There is a threat of serious injury to the DI due to surge in imports & due to excessive capacity creation by China to meet its short-lived demand for DOP and other downstream products like PVC. Source: ICIS PRICING (PHTHALIC ANHYDRIDE), 28 October 2011 China's Continental Petrochemicals (Zhuhai) has resumed the construction work at its new integrated petrochemicals facility at Zhuhai in C....

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.... positive making the imports lucrative and threatening injury to the domestic industry. k. Other Factors of Injury: 73.Para (2) of Annexure to Rule 8 of the Customs Tariff (Identification and Assessment of Safeguard Duty) Rules, 1997 lays down that The determination referred to in subparagraph (1) shall not be made unless the investigation demonstrates, on the basis of objective evidence, the existence of the causal link between increased imports of the article concerned and serious injury or threat thereof. When factors other than increased import are causing "serious injury" to the Domestic Industry at the same time, such "serious injury" shall not be attributed to increased imports. As such, the possible other factors that may be attributed to the serious injury to Domestic Industry have been examined. 74. Followings are relevant in this regard - a) Demand of the product: While overall demand has increased, volume of imports remained significant. In fact, it is noted whereas the market share of the domestic industry and domestic producers as a whole declined, that of imports increased. It is thus clearly seen that the increased imports have taken away higher share of....

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....vestigation by the competent authorities of that Member pursuant to procedures previously established and made public in consonance with Article X of GATT 1994. This investigation shall include reasonable public notice to all interested parties and public hearings or other appropriate means in which importers, exporters and other interested parties could present evidence and their views, including the opportunity to respond to the presentations of other parties and to submit their views, inter alia, as to whether or not the application of a Safeguard measure would be in the public interest. The competent authorities shall publish a report setting forth their findings and reasoned conclusions reached on all pertinent issues of fact and law. 78. The imposition of safeguard duty can affect different players differently and the impacts may not always be most suitable for different economic players when they have competing interests. Therefore interests of various economic player groups have been analyzed based on the available information. 79.LCPMA submitted as follows: a) Being the major users of DOP, LCPMA members would be the major affected parties in case of imposition of ....

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....eventual downstream products. It is found that the 20% increase in price on account of safeguard duty, if fully passed onto the eventual end product (assuming that the domestic industry increases the prices by 20%) would have minimal impact on the eventual end products, as is seen from the following a. Leather Cloth 0.29%, b. Copper cable 0.02% c. PVC flexible pipe is 0.43%. 84. The above claim of domestic industry has not been disputed by the consumer association or other interested parties present at the time of oral hearing. Nor the written submissions filed by any interested party contain any other quantified claim to the contrary. It is concluded that even if the prices are increased by 20%, the impact of the same on the eventual end product would not be significantly adverse. The imposition of safeguard duty will not result in significant increase in the prices of eventual end products. 85. In the light of the facts on record, it is concluded that imposition of safeguard duty would be in public interest and the interests of end users would not be very adversely impacted. K. Adjustment Plan: 86. It has been argued by opposing interested parties that the do....

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....s to improve efficiency in operating norms in the recent period. L. Developing Nations: 93. The percentages of imports from developing nations have also been examined. Except Malaysia who constitutes 16.72% of total imports in India during FY 2010-11 and FY 2011-12, other developing nations individually and collectively have less than 3% and 9% share respectively of total imports in India. Therefore, imports of product under consideration originating from developing nations except Malaysia may not attract Safeguard Duty in terms of proviso to Section 8B of the Customs Tariff Act, 1975. M. Conclusion: 94. In view of the findings above, it is concluded that increased imports of Dioctyl Phthalate into India have caused or threatened to cause serious injury to the domestic producers of Dioctyl Phthalate and it will be in the public interest to impose safeguard duty on imports of Dioctyl Phthalate into India, in terms of Rule 12 of the Customs Tariff   (Identification and Assessment of Safeguard Duty) Rules 1997. The period is considered to be the minimum requirement to protect the interest of domestic industry. Further, the calculated safeguard duty has been moder....