Council Regulation (EC) No 193/2007 of 22 February 2007 imposing a definitive countervailing duty on imports of polyethylene terephthalate (PET) originating in India following an expiry review pursuant to Article 18 of Regulation (EC) No 2026/97

PROFITABILITY, RETURN ON INVESTMENTS AND CASH FLOW

• (126) Profitability on sales represents the profit generated by sales of the product concerned in the Community. Return on total assets and cash flow could only be measured at the level of the narrowest group of products which included the like product, pursuant to Article 8(8) of the basic Regulation. Moreover, return on investments has been calculated on the basis of return on total assets, as return on total assets is considered more relevant for the analysis of the trend.

Table 14

• (127) Further to the price suppression starting in 2002 and coinciding with a strong increase of dumped imports from the PRC, Taiwan, Malaysia, Korea and Australia (until 2004), and of subsidised imports from India the financial situation of the Community industry deteriorated and turned into losses in 2003. After a small recovery in 2004 due to the anti-dumping measures imposed on PRC and Australia, losses increased to – 3,2 % in the RIP. It is therefore noted that there is a clear downward trend.

• (128) The trends for return on total assets and for cash flow developed similarly i.e. showed a relatively good situation in 2002, a sharp deterioration in 2003, a small recovery in 2004 and a further deterioration in the RIP.

INVESTMENTS AND ABILITY TO RAISE CAPITAL

Table 15

• (129) The investments were partly dedicated to an increase of capacity and partly to the improvement of the production process. The bulk of the expenditure was made in 2004 and during the RIP, coinciding with the increase of the capacity and with the aim to keep the market share in view of the increased consumption. Nevertheless, the current situation of the Community industry and the evolution of the Community and world markets for PET marked out by lack of profitability were not an incentive to make excessive investments. Although in some circumstances Community producers have been able to raise capital (in particular from related companies), the lack of profitability of PET did not encourage investment and in some cases the decision was postponed.

MAGNITUDE OF THE ACTUAL MARGIN OF SUBSIDY

• (130) As concerns the impact on the Community industry of the magnitude of the actual margin of subsidy of Indian imports, given the price sensitivity of the market for this product, this impact cannot be considered to be negligible. It should be noted that this indicator is more relevant in the context of the likelihood of recurrence of injury analysis. Should measures lapse, it is likely that subsidised imports would come back at such volumes and prices that the impact of the magnitude of the subsidy margin would be significant.

RECOVERY FROM THE EFFECTS OF PAST SUBSIDISATION

• (131) While the indicators examined above show some improvement in some economic indicators of the Community industry, further to the imposition of definitive countervailing measures in 2001, they also provide evidence that the Community industry is still fragile and vulnerable.

CONCLUSION ON THE SITUATION OF THE COMMUNITY INDUSTRY

• (132) The constant increase of consumption partly due to new applications (inter alia beer and wine bottles) and partly due to the increase of consumption in the accession countries, obliged the Community industry to increase capacity and production in order not to lose market share. To do so, an important restructuring process accompanied by a frequent change of the ownership of the different producers, took place in 2004 and during the RIP. In parallel, the number of production lines was generally increased in order to follow the increase of the consumption and to concurrently achieve economies of scale. Thus, some economic indicators, i.e. consumption, capacity production, production, EU sales and employment indeed followed a positive trend. In addition, the sales price also increased during the period considered. However, all those restructuring efforts described above could not counterbalance the impact of the constant and massive increase of raw material prices in the period considered. The higher raw material costs could not be passed on to the downstream sector to the extent it would have been necessary to maintain a certain level of profitability. This caused a serious deterioration of the profitability which decreased from + 2,7 % in 2002 to – 3,2 % during the RIP. Similar negative trends were observed for the return on investments and for the cash flow.

• (133) This coincided with the low price level of the imports from the country concerned which clearly contributed to the downward pressure on the price of the Community industry. However, given the small volumes of subsidised imports in the framework of this expiry review, the focus is on the likelihood of recurrence of injury analysis. Thus, despite the apparent positive developments concerning production, sales and sales price, the overall financial situation of the Community deteriorated and is reflected in the negative developments of profitability (from 2,7 % profit in 2002 to 3,2 % losses in the RIP), of export sales, production cost, return on investments and cash flow.

• (134) If one compares the above trends with the ones described in the Regulations imposing provisional and definitive countervailing measures, again the assessment is mixed. As concerns market share, the Community industry lost one percentage point between 2002 and the RIP, whilst it had earned five percentage points in the four years preceding the adoption of the definitive countervailing measures. On the other hand, the profitability of the Community industry during the RIP is less negative than before the imposition of definitive countervailing measures. Consequently, despite some apparent positive trends showed by the injury indicators, the situation of the Community industry is still far from the levels that could be expected had it fully recovered from the injury found in the original investigations.

• (135) It is therefore concluded that the situation of the Community industry has slightly improved, as compared to the period preceding the imposition of measures, but is still very fragile and vulnerable. Furthermore, the price pressure from imports of the country concerned did not allow the Community industry to fully reflect the increase in the price of raw materials in its sales prices.

LIKELIHOOD OF RECURRENCE OF INJURY

RELATIONSHIP BETWEEN EXPORT VOLUMES AND PRICES TO THIRD COUNTRIES AND EXPORT VOLUMES AND PRICES TO THE COMMUNITY

• (136) It was found that the average export price of Indian sales to non-EU countries was significantly below the average export price to the Community and also below the prices on the domestic market. The Indian exporter's sales to non-EU countries were made in significant quantities, accounting for over 95 % of total export sales. Therefore, it was considered that, should measures lapse, Indian exporters would have an incentive to shift significant quantities of exports from other third countries to the more attractive Community market, at price levels, which, even if they increased, were likely to still be below the current price levels of export to the Community.

PRODUCTION CAPACITY, UNUSED CAPACITY AND STOCKS

• (137) As indicated further under recital 140, the exporting producers in India have the potential to increase their export volumes to the Community market. India had a significant growth in its production capacity from the level of 330 000 tonnes in 2003 to 600 000 tonnes in 2005. According to market forecasts, it is expected to increase by a further 220 000 tonnes in 2008. In 2005, the domestic sales amounted to 220 000 tonnes and exports to 290 000 tonnes (including 6 831 tonnes to the EU). On the basis of the data available, on average, the current spare capacity should amount to around 90 000 tonnes and has to be considered as significant as it represents around 4 % of the current Community consumption. This estimate is confirmed by the results of the cooperating Indian producers, who had significant spare capacities.

• (138) Concerning the stock level, the investigation has shown that the level of stocks held by the cooperating Indian producers was not significant. However, it should be noted that the level of stocks is not a meaningful factor as the market for PET is cyclical.

• (139) To conclude, although the imports to the EU were low, there exists a risk that significant exports could be diverted to the EU.

CONCLUSIONS

• (140) The producers in the country concerned therefore have the potential to raise and/or redirect their export volumes to the Community market. The investigation showed that the cooperating exporting producers sold the product concerned at a lower price than the Community industry. These low prices would most likely continue to be charged or even decrease in line with the lower prices charged to the rest of the world, as mentioned in recital 137, also in order to regain the level of market shares held in the period before the imposition of measures. Such price behaviour, coupled with the ability of the exporters in the country concerned to deliver significant quantities of the product concerned to the Community market, would in all likelihood have the effect of reinforcing the price-depressive trend on the market, with an expected negative impact on the economic situation of the Community industry.

• (141) As shown above, the situation of the Community industry remains vulnerable and fragile. It is likely that if the Community industry were exposed to increased volumes of imports from the country concerned at subsidised prices, this would result in a deterioration of its sales, market shares, sales prices as well as the consequent deterioration of the financial situation, to the levels found in the original investigation. On this basis, it is therefore concluded that the repeal of the measures would in all likelihood result in a worsening of the already fragile situation and a recurrence of an even more injurious state of the Community industry.

• (142) On the basis of the foregoing it is concluded that the import prices would most likely be lower on the Community market in the absence of anti-subsidy measures, as the producers in India would possibly try to increase their market shares. Such price behaviour, coupled with the ability of the exporting producers in India to sell significant quantities of PET on the Community market, would in all likelihood have the effect of reinforcing the price pressure, with an expected negative impact on the situation of the Community industry.

COMMUNITY INTERESTINTRODUCTION

• (143) According to Article 31 of the basic Regulation, it was examined whether the maintenance of the existing anti-subsidy measures would be against the interest of the Community as a whole. The determination of the Community interest was based on an appreciation of all the various interests involved. The present investigation analyses a situation in which anti-subsidy measures have already been in place and allows for assessment of any undue negative impact on the parties concerned due to the current anti-subsidy measures.

• (144) On this basis, it was examined whether, despite the conclusions on the likelihood of a continuation or recurrence of injurious subsidisation, compelling reasons existed which would lead to the conclusion that it is not in the Community interest to maintain measures in this particular case.

INTEREST OF THE COMMUNITY INDUSTRY

• (145) As outlined above, there is a clear likelihood of recurrence of injurious subsidisation if measures were to be repealed. All the Community producers but two fully cooperated and indicated their support for the ongoing measures.

• (146) The continuation of anti-subsidy measures on imports from India would enhance the possibility for the Community industry to reach a reasonable level of profitability because it is likely that in the short medium-term, it would be able to increase sales quantities and thereby benefit from economies of scale and at the same time is likely to be able to moderately increase their sales price and thereby reach a satisfactory profit level. Even if subsidised imports in the RIP originating in the India were low and, therefore, could not have caused severe injury, they would be likely to negatively affect the situation of the Community industry if the anti-subsidy measures were repealed. These measures are thus essential to guarantee the viability of the Community industry's PET chips business, which has been facing competition from subsidised imports from India for several years.

INTEREST OF IMPORTERS

• (147) Low cooperation was obtained from the importers/traders, and amongst those cooperating importers none were purchasing from India. However, the cooperating importers/traders could be regarded as representative as their sales volume represented around 5 % of the EU consumption. They would prefer a market with zero duties also if they are constantly enjoying good financial results.

• (148) The investigation showed that there are still alternative sources of supply with no anti-subsidy or anti-dumping measures, i.e. from Mexico, Brazil, USA, Turkey, Pakistan, Iran, Saudi Arabia, available. The importers/traders would thus be able to rely on (or to switch to) considerable alternative sources of supply.

• (149) Bearing in mind that the measures in force did not considerably affect the importers, it is concluded that maintaining the existing countervailing measures against imports originating in India would continue not have a significant negative effect on the situation of the importers in the Community.

INTEREST OF CONVERTERS/USERS

• (150) The Commission sent questionnaires to 47 known converters/users. Only 10 converters/users with an overall low representativity replied to the questionnaire. According to the information on purchases supplied in their responses to the questionnaire, cooperating converters/users during the IP represent about 20 % of total Community consumption of PET. They purchased during the IP 95 % of their PET from Community producers and the remainder from imports originating in countries other than the country subject to this review. A number of arguments against the imposition of duties were presented.

• (151) Five converters (transforming PET chips in preforms and bottle grade and representing 10 % of the consumption) replied to the questionnaire. The cost of PET chips accounts for 55 % of their final product (mostly preforms). It has been established that they import negligible quantities from India and other third countries. Nevertheless they oppose the continuation of duties claiming that the measures could have the effect of artificially raising the prices in Europe.

• (152) Five users accounting for about 10 % of the consumption supplied rather incomplete data. The low level of cooperation from the big users is likely to be due to the fact that the last investigation concerning imports of PET from the PRC, Australia and Pakistan took place only two years ago. PET costs account for around 6 or 7 % of the overall cost and are therefore rather limited. Although they have declared no imports from India, similarly as the converters, they oppose the imposition of duties claiming that the measures could have the effect of artificially raising the prices in Europe.

• (153) Considering the rather good financial situation of the downstream industry, in contrast to that of the Community industry, no converter/user put forward the argument that maintaining the current duties could lead to a loss of jobs or to moving manufacturing facilities overseas.

• (154) Furthermore, in terms of output, the Community industry adapted its size to match the increased consumption and therefore it is very likely that the unused capacity of the Community industry could fully cover the amount of the imports.

• (155) Bearing in mind that there are still alternative sources of supply with no anti-subsidy or anti-dumping measures, i.e. from Mexico, Brazil, USA, Turkey, Pakistan, Iran, Saudi Arabia, the Community users would moreover be able to rely on (or to switch to) diversified suppliers of the product concerned.

• (156) As concerns the performance of the user industry, the investigation has shown that during the period considered the cooperating users increased their turnover, maintained employment stable and rather improved overall their profitability. Therefore it was found that they were not negatively affected by the anti-subsidy measures.

• (157) On the basis of the above, it is concluded that maintaining the existing anti-subsidy measures against imports originating in India would not have a significant negative effect on the situation of the users in the Community.

INTEREST OF SUPPLIERS

• (158) The suppliers of raw material (monoethylene glycol (MEG) and purified terephthalic acid (PTA), DMT and IPA, all petrochemical products derivatives of naphtha, clearly indicated their support for the measures and provided good cooperation. They would benefit if measures are maintained as the Community industry would be likely to be able to recover allowing them to improve their performance.

CONCLUSION ON COMMUNITY INTEREST

• (159) Taking into account all of the above factors, it is concluded that there are no compelling reasons against the maintenance of the current anti-subsidy measures against India.

COUNTERVAILING MEASURES

• (160) All interested parties were informed of the essential facts and considerations on the basis of which it is intended to recommend that the existing measures be maintained. They were also granted a period to make representations subsequent to this disclosure. The Government of India made comments on injury aspects alleging that it was not demonstrated that the Community industry suffered continued injury and that import pressure from India was not the reason that the European producers did not fully reflect the increase of the raw materials cost in their sale price. It is to be recalled that, as indicated in the analysis of the situation of the Community industry, its financial situation deteriorated and, as explained in recital 127, the low price level of the imports from the country concerned clearly contributed to the downward pressure on the price of the Community industry. However, given the small volumes of subsidised imports in the framework of this expiry review, the likelihood of recurrence of injury had to be examined. In this regard it was concluded, as stated in recital 127, that in absence of measures, increased volume of imports from India at low prices would have a negative impact on the situation of the Community industry. Furthermore, one Indian exporter alleged that in the absence of measures it is not likely that India will re-direct sales to the Community. This exporter claimed that emerging markets are more attractive than the Community, that Indian demand is growing fast and that, therefore, no spare capacity is available. It is however to be considered that, notwithstanding an increase of the demand in the Indian market, the investigation at company level indicated spare capacities, as also confirmed by the market intelligence. It is therefore concluded that none of the disclosure comments received were such as to alter the conclusions as contained in this regulation.

• (161) It follows from the above that, as provided for by Article 21(2) of the basic Regulation, the countervailing measures applicable to imports of PET chips, originating in India should be maintained. It is recalled that these measures consist of specific duties.

• (162) The individual company countervailing duty rates specified in this Regulation reflect the situation found during the review with respect to the cooperating exporters. Thus, they are solely applicable to imports of the product concerned manufactured by these companies and thus by the specific legal entities mentioned. Imports of the product concerned produced by any other company not specifically mentioned in the operative part of this Regulation with its name and address, including entities related to those specifically mentioned, cannot benefit from these rates and shall be subject to the duty rate applicable to all ‘other companies’.

• (163) Any claim requesting the application of these individual countervailing duty rates (e.g. following a change in the name of the entity or following the setting up of new production or sales entities) should be addressed to the Commission ([^E0010]) forthwith with all relevant information, in particular any modification in the company's activity linked to production, domestic and export sales associated with, for instance, that name change or that change in the production and sales entities. If appropriate, and after consultation of the Advisory Committee, the Regulation will be amended accordingly by updating the list of companies benefiting from individual duty rates.

• (164) In order to ensure proper enforcement of the countervailing duty, the residual duty level should not only apply to non-cooperating exporters but also apply to those companies which did not have any exports during the RIP. However, the latter companies are invited, when they fulfil the requirements of Article 20 of the basic Regulation, to present a request for a review pursuant to that Article in order to have their situation examined individually,

HAS ADOPTED THIS REGULATION:

Article 1

Article 2

Article 3

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

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

ANNEX

Elements to be indicated in the Undertaking Invoice referred to in Article 2(2):

• 1.The Undertaking Invoice number.

• 2.The TARIC additional code under which the goods on the invoice may be customs-cleared at Community borders (as specified in the Regulation).

• 3.The exact description of the goods, including: —the product reporting code number (PRC) (as established in the undertaking offered by the producing exporter in question), —CN code, —quantity (to be given in units).

• 4.The description of the terms of the sale, including: —price per unit, —the applicable payment terms, —the applicable delivery terms, —total discounts and rebates.

• 5.Name of the company acting as an importer to which the invoice is issued directly by the company.

• 6.The name of the official of the company that has issued the undertaking invoice and the following signed declaration: ‘I, the undersigned, certify that the sale for direct export to the European Community of the goods covered by this invoice is being made within the scope and under the terms of the undertaking offered by … (company), and accepted by the European Commission through Decision 2000/745/EC. I declare that the information provided in this invoice is complete and correct.’

[^E0001]: OJ L 288, 21.10.1997, p. 1. Regulation as last amended by Regulation (EC) No 461/2004 (OJ L 77, 13.3.2004, p. 12).

[^E0002]: OJ L 56, 6.3.1996, p. 1. Regulation as last amended by Regulation (EC) No 2117/2005 (OJ L 340, 23.12.2005, p. 17).

[^E0003]: OJ L 301, 30.11.2000, p. 1.

[^E0004]: OJ L 301, 30.11.2000, p. 21. Regulation as last amended by Regulation (EC) No 1646/2005 (OJ L 266, 11.10.2005, p. 10).

[^E0005]: OJ L 271, 19.8.2004, p. 1.

[^E0006]: OJ L 266, 11.10.2005, p. 1.

[^E0007]: OJ C 304, 1.12.2005, p. 4.

[^E0008]: OJ C 304, 1.12.2005, p. 9.

[^E0009]: Recital 26, Regulation (EC) No 2603/2000 (OJ L 301, 30.11.2000, p. 1).

[^E0010]: European Commission, Directorate-General for Trade, Directorate H, J-79 5/17, B-1049 Brussels.

[^E0011]: OJ L 253, 11.10.1993, p. 1. Regulation as last amended by Regulation (EC) No 1875/2006 (OJ L 360, 19.12.2006, p. 64).