DGTR's safeguard investigation
Safeguard measures can be invoked when the imports of a product increase due to unforeseen developments and the increase negatively affects the domestic industry. The provisions required to invoke safeguard measures are as follows:
- There must be increased import of the product.
- The increase in imports must be a result of unforeseen developments and obligations incurred under the General Agreement on Tariffs and Trade (GATT).
- The imports must have caused serious injury to the domestic industry.
- The increase in imports must be the only contributing factor to the negative effect on the domestic industry.
- The domestic industry must agree to act to positively adjust to the increase in imports.
- The safeguard measure should be in the public interest.
A safeguard measure can take the form of a duty, quantitative restrictions or a tariff quota.
DGTR's safeguard investigation
On 4 November 2019, India initiated its first safeguard investigation (resulting in quantitative restrictions). The investigation concerned isopropyl alcohol imports. The investigation involved the participation of:
- producers and exporters from a number of countries; and
- associations of exporters, importers and users in India.
On 30 September 2021, after conducting a detailed investigation, the Directorate General of Trade Remedies (DGTR) concluded that there was a need for quantitative restrictions to be invoked. The DGTR investigation concluded the following.
Increase in imports
In its application, the industry had shown that the imports of isopropyl alcohol had increased between April 2016 and June 2019. The DGTR noted that the increase amounted to a sudden, sharp, significant and recent increase in imports, warranting the initiation of a safeguard investigation.
Since a safeguard investigation is based on the most recent data available, the DGTR called for the data from April 2016 to June 2019. However, the DGTR noted that the data for the period from December 2019 onwards was impacted by the covid-19 pandemic and was therefore abnormal.
Unforeseen developments and result of obligation under GATT
As per the GATT, safeguard measures may be imposed only when the imports have increased as a result of unforeseen developments and obligations incurred under the GATT. In this regard, the DGTR noted that the imports had increased as a result of the uncompetitiveness of propylene-based isopropyl alcohol produced by the domestic industry in India, compared with acetone-based isopropyl alcohol, which is made and sold by foreign producers.
The DGTR noted that the demand for phenol had increased, which had led to an increase in its production capacity. Since acetone is a co-product of the phenol production process, the acetone supply also increased, without a commensurate increase in its demand. As a result, the prices of acetone declined steeply. Since the domestic industry was producing isopropyl alcohol through only the propylene-based method, the domestic market was severely affected. Therefore, the DGTR concluded that the imports had increased as a result of unforeseen developments.
With regard to the requirement that the imports must have increased as an effect of obligations incurred under the GATT, the DGTR noted that the product had attracted a base customs duty rate of 115%, while the bound rate for the product was 40%. The current rate of duty applicable on the product is 7.5%. Therefore, India had incurred obligations under the GATT and the increased imports were a result of obligations incurred under the GATT.
Imports must have caused serious injury to domestic industry
The information on record established that imports of isopropyl alcohol had increased, while the market share of the domestic industry had declined. The production, sales and capacity use of the domestic industry had also declined. This meant that the domestic industry was suffering from underutilised capacity. Further, the domestic industry's profitability had deteriorated significantly and it was incurring losses.
While the industry had provided information for up until June 2019, the DGTR also considered more recent data. It noted that the volume of imports continued to remain at increased levels, while the production and capacity utilisation of the domestic industry remained low. The DGTR also noted that while the performance of the domestic industry had improved during 2020, it declined again from July 2021 onwards.
Causal link between increased imports and injury to domestic industry
Before recommending safeguard measures, the DGTR must be satisfied that the injury to the domestic industry is caused by the subject imports, and not by any other factor. In this regard, the interested parties contended that the domestic industry had suffered injury due to its own imports. The DGTR noted that if the imports made by the domestic industry were excluded, imports from foreign producers showed an even greater increase. Further, the price at which the domestic industry had imported the product was higher than the price of other imports. Therefore, the injury to the domestic industry could not have been self-inflicted.
Domestic market's adjustment plan
The domestic industry submitted that since acetone-based isopropyl alcohol had become more competitive than propylene-based isopropyl alcohol, it would set up an acetone-based plant for isopropyl alcohol, in order to make itself a competitive market player after the safeguard measures had expired. The DGTR accepted this submission.
The DGTR noted that the imposition of measures was necessary to ensure the domestic industry's viability. Further, the measures would not impact the availability of sanitisers as the demand for sanitisers had declined and restrictions on the trade thereof had been removed. Moreover, the government no longer classifies sanitisers as an essential commodity.
In light of the above, the DGTR concluded that isopropyl alcohol was being imported into India in such increased quantities that it was causing serious injury to the domestic industry. The DGTR made the following remarks:
- Quantitative restrictions should be imposed on the import of isopropyl alcohol for two years.
- The quantitative restrictions have been recommended based on the average import volumes from each of the countries included in the investigation, as calculated for three years within the investigated period.
- Imports from developing countries, not including China, would be excluded from the scope of recommended measures since the imports from included developing countries do not exceed 3% individually or 9% collectively.
- Imports through the electronic data exchange ports would be permitted, to facilitate electronic and real-time quota monitoring.
- The quota would be monitored on a quarterly basis. The total imports allowed in any quarter would not exceed the total of that quarter plus the next quarter. Any unutilised quota for a quarter would be added to the next quarter. Further, any excessively utilised quota for a quarter would be deducted from the next quarter's quota.
- The DGTR has recommended that the quantitative restrictions be progressively lifted over the course of the next year, to adequately facilitate positive adjustment.
For further information on this topic please contact Aastha Gupta at TPM Solicitors & Consultants by telephone (+91 11 4989 2200) or email ([email protected]). The TPM Solicitors & Consultants' website can be accessed at www.tpm.in.