WORLD TRADE
ORGANIZATIONG/SG/N/8/IND/6
18 June 1999
(99-2488)
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 14 June 1999, has been received from the Permanent
Mission of India.
_______________
The attached notification under Article 12.1(b) (No. SG/INV/2/98 dated 12 May 1999)
contains the final findings of the Director General (Safeguards) regarding India's safeguard
investigation concerning imports of Phenol.
The findings of the Director General (Safeguards) are under consideration of the Government
of India.  India is ready to consult with WTO Members, having a substantial interest as exporters of
this product into India, on the issue of imposition of safeguards duty based on the findings of the
Director General (Safeguards).  Interested WTO Members, having a substantial interest as exportersof this product into India, wishing to consult India on this issue may make a written request in this
regard.
I. PROCEDURE
1. The Notice of Initiation of safeguard investigation concerning imports of Phenol into India
was issued on 2 February 1999 and was published in the Gazette of India, Extraordinary on
8 February 1999.  A copy of the Notice was sent to all known interested parties, namely:
Domestic Producers
(i) Hindustan Organic Chemicals Ltd (HOC), Mumbai
(ii) Herdillia Chemicals Ltd. (HCL), Mumbai(iii) Neyveli Lignite Corporation, Tamilnadu.
Importers
(i) C.J.Shah & Company, Mumbai
(ii) Haresh Kumar & Company, Mumbai(iii) PCL Industries, New Delhi.G/SG/N/8/IND/6
Page 2
(iv) Kantilal Manilal & Company, Mumbai
(v) Vinmar International India Pvt. Ltd., Mumbai
User Industries
(i) Xpro India, Mumbai
(ii) Bakelite Hylam Ltd., Hyderabad
(iii) Greenply Industries Ltd., Distt. Ratnagiri, Maharashtra(iv) Gargi Huttenes Albertus Private Limited, Mumbai(v) Alta Laboratories Ltd.,Dadar, Mumbai
(vi) United Phosphorus Limited, Mumbai
(vii) Colour Chem Limited, Balkum, Thane
Exporters
(i) Phenolchemie GmbH, Germany
(ii) Enichem, Italy
(iii) Georgia Gulf Corporation, U.S.A.
(iv) Mitsui Chemicals, Tokyo(v) Kumho Chemical Company, Seoul, Korea(vi) Taiwan Prosperity Chemical Company, Taiwan(vii) Merisol, South Africa(viii) Kolmar Petrochemicals AG, Switzerland.
(ix) ICC Chemical Co rporation, New York,
(x) Verband der Chemischen Industrie - VCL Germany
Overseas Associations
(i) Chemical Safety Management Centre, Japa n Chemical Industry Association-JCIA, Tokyo
100, Japan.
(ii) Chemical and Allied Industies Association -(CAIA) Auckland Park 2006, South Africa.(iii) Korean Petrochemical Industry Association -(KPIA) Chongno-ku, Seoul, Korea.(iv) Petrochemical Industry Association of Taiw an (PIAT) Section 4, Chutung, Hsinchu, Taiwan.G/SG/N/8/IND/6
Page 3
(v) Chemical Manufacturers Association (CMA) Virginia-22209, USA
Indian Associations
(i) Society of Thermosetting Industries, Mumbai
(ii) Indian Laminates Manufacturers Association, Mumbai(iii) Indian Chemical Manufacturers Association, Mumbai2. A copy of the notice along with the application and questionnaire was also sent to the
governments of exporting countries through their High Commissions/Embassies in New Delhi namely
China, Chinese Taipei, Germany, Indonesia, Italy, Japan, Korea DPR, Korea RP, Kuwait, Malaysia,
the Netherlands, New Zealand, Russia, Saudi Arabia , Singapore, South Africa, Spain, U.K. and USA.
3. Questionnaires were also sent on the same day to all known domestic producers, exporters
and importers who were asked to submit their response by 12 March 1999.
4. Request for extension of time to submit their reply was made by the following parties:
(i) Hindustan Organic Chemicals Ltd., Mumbai
(ii) Herdillia Chemicals Ltd., Mumbai
(iii) Mitsui Chemicals Inc., Japan
(iv) Kumho P&B Chemicals Inc., Seoul, Korea(v) Haresh Kumar & Co., Mumbai
Keeping their request in mind and the need to co mplete the investigation within the statutory
period, extension up to 19 March 1999 was allowed and parties concerned were accordingly
informed.
5. Replies to the Notice dated 2 February 1999 and to the questionnaire were received from the
following parties:-
Domestic Producers
(i) Hindustan Organic Chemicals Ltd., Mumbai
(ii) Herdillia Chemicals Ltd., Mumbai(iii) Neyveli Lignite Corporation Ltd., Neyveli.
Importers
(i) C.J.Shah & Compay, Mumbai
(ii) Haresh Kumar & Co., Mumbai(iii) Kantilal Manilal & Co., MumbaiG/SG/N/8/IND/6
Page 4
User Industries
(i) Gargi Huttenes Albertus Private Limited, Mumbai
(ii) Alta Laboratories Ltd.,Dadar, Mumbai
Exporters
(i) Phenolchemie GMBH & Co., Germany
(ii) Enichem, Italy(iii) Mitsui Chemicals Inc., Japan(iv) Kumho Chemical Company, Seoul, Korea
(v) Merisol, South Africa
(vi) Taiwan Prosperity Chemical Corporation, Taiwan.
The European Union/Delegation of the European Commission in India also requested the
Director General (Safeguards) to consider them as  an interested party in the investigations. Their
request as an interested party was taken on record and the European Union/Delegation of the
European Commission in India was informed accordingly.
Indian Associations
Indian Chemical Manufacturers Association, Mumbai
6. Response to the notice has also been filed by the following parties:
(i) Laghu-Udyog Bharti, Faridabad
(ii) Indian Core Oils Pvt. Ltd., Faridabad(iii) Kesar Petroproducts Ltd., Mumbai(iv) Marvel Thermosets Pvt. Ltd., Mumbai
(v) The Institute of Indian Foundrymen, Calcutta
(vi) Romit Resins Pvt. Ltd., Panvel-410206(vii) Foseco India Ltd., Pune(viii) Atul Ltd., Gujarat(ix) Schenectady Specialities Asia Ltd., Mumbai
(x) Century Laminating Co. Ltd., Calcutta
(xi) ABC Products Ltd., CalcuttaG/SG/N/8/IND/6
Page 5
(xii) Kitply Industries Ltd., Calcutta
(xiii) Winlam Industries Ltd., Calcutta
(xiv) Andamans Timber Industries Ltd., Calcutta
(xv) Wonder Laminates Pvt. Ltd., Calcutta(xvi) Kiran Trading Co., Calcutta(xvii) United Metachem Private Ltd., Pune(xviii) Farmson Pharmaceutical Gujarat Ltd.,Vadodara.7. 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. Hindustan Organic Chemicals Ltd., Cochin;M/s. Herdillia Chemicals Ltd., Mumbai; M/s. Kesar Petroproducts Ltd., Mumbai;
M/s. C.J.Shah &Co., Mumbai and M/s. Kantilal Manilal & Co. Mumbai. The outcome of
investigations was conveyed to the concerned parties and a copy of the investigation report was also
placed in the Public File.
8. A Public Hearing was given to all interested parties on 16 April 1999, notice for which was
sent on 19 March 1999.  During the Public Hearing the interested parties were requested to file their
written submission of oral arguments made by them by 23 April 1999; collect replies filed by others
on 26 April 1999 and to file rebuttals if any, by 7 May 1999.  The following parties attended the
public hearing:
(i) Hindustan Organic Chemicals, Mumbai
(ii) Herdillia Chemicals Ltd., Mumbai(iii) Neyveli Lignite Corporation, Neyveli(iv) Deguisse Huls India Pvt. Ltd., re presenting Phenol Chemie, Germany
(v) Samsung Corporation, Mumbai repres enting Kumho P & B Chemicals, Korea
(vi) Schenectady Specialities Asia Ltd., Mumbai
(vii) Kanoria Petroproducts Ltd., New Delhi.
(viii) Merichem-Sasol RSA (Pty) Ltd.,South Africa through their Delhi representative.(ix) Embassy of Korea, New Delhi.(x) Embassy of Japan, New Delhi.(xi) European Union, Delegation of the European Commission in India, New Delhi.
(xii) Sumitomo Corporation, Japan.G/SG/N/8/IND/6
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(xiii) Mitsui Chemicals/ Mitsui & Co., Japan (through counsel)
(xiv) United Metachem Ltd., Pune.(xv) Foseco India Ltd., Pune.(xvi) Andhra Sugars Ltd., New Delhi.(xvii) Haresh Kumar & Company, Mumbai.(xviii) Kesar Petroproducts Ltd., Mumbai (through counsel)
(xix) Farmson Pharmaceuticals, Vadodara
(xx) Gargi Hutteness Albertus, Mumbai.(xxi) Atul Ltd., Gujrat.(xxii) ABC Products Ltd., Calcutta.(xxiii) Allied Resins and Chemicals Ltd., Calcutta.
(xxiv) Century Laminati ng Co. Ltd., New Delhi.
(xxv) Bakelite Hylam Ltd., Hyderabad.(xxvi) Institute of Indian Foundrymen and Lag hu Udyog Bharti, Faridabad (through its President)
(xxvii) Alta Laboratories, Mumbai.
II. VIEWS OF EXPORTERS
The following main points have been made by the exporters:
1. M/s. Phenol Chemie GMBH and Co., Germany
1. They have thoroughly checked their records of export sales of Phenol going back to 1995 and
have not been able to find any direct sales effected by them to India.
2. Phenol Chemie sporadically sells Phenol to international trading companies & they are not
aware of the final destination of such quantities.  This perhaps has led to imports being shown from
Germany.
3. During the last fifteen months or so all regional phenol markets (Europe, North America,
Asia) have shown a price erosion of up to 50 per cent due to a growing imbalance of supply anddemand and also due to almost historically low raw material costs (Cumene, Benzene, Propylene)  It
was, therefore, no surprise to find a similar development in India.  This development was enhanced by
continuous technology improvements making existing phenol plants substantially more cost effective
as well as the addition of new, modern world scale phenol plants with capacities of up to 4,00,000/-
Mt/year.G/SG/N/8/IND/6
Page 7
4. During the next 24 months a total of approximate 80000 MT/year capacity will be added
world-wide.  These new plants will apply state- of-the-art-technology and further improve the cost
effectiveness of making phenol.  Under prevailing market circumstances most of the benefits of such
a development will be resting with phenol consumers world wide and improve their economics.
5. All phenol consumers in India would welcome the opportunity to participate in the benefits a
modern, globally competitive phenol industry is able to offer.
2. Mitsui Chemicals Inc., Japan
1. The applicant Indian manufacturers of Phenol are in a monopolistic position in India (as per
their own claim they control upto 91 per cent of the domestic market) and it appears that the present
application is being used as an instrument to secure and perpetuate that monopolistic position.Several of the issues currently complained of, have also existed in earlier years, in which years the
applicants achieved a capacity utilization in excess of 94 per cent, clearly indicating that these factors
did not affect them significantly.  It is apparent that the sharp decrease in exports which indicate that
the Applicants have become internationally uncompetitive is the reason for the current application
with a view to secure and sustain the Appli cants monopolistic dominance of the Indian market.
2. The quantum of the levy claimed effectively also indicates that the Applicants are trying to
secure for themselves a level of profitability w holly unconnected with the current trend in the
international market.  This would clearly be at the cost of the Indian Domestic User Industry.  The
action indicated appears to be detrimental to the Indian Industry as a whole and with a very narrowperspective to secure market dominance and unrealisti c price/profit realization for the two Applicants.
3. The Application fails to indicate "serious injury" and in particular fails to establish any causal
link between the claimed injury and the imports.
4. The Application fails to establish "critical circumstances" and more particularly, "irreparable
damage" consequently the request for imposition of provisional duty does not appear sustainable.
5. The application sets out information on certain critical issues in a selective and improper
manner.  One such instance is regarding the informa tion as to the Production Capacity Utilization for
which the figures have been set out in relation to "Utilization of capacity to satisfy domestic demand".
It is submitted that what was required to be indicated is the figures as to entire Production CapacityUtilization for all streams of production and not only information relevant to capacity utilization for
domestic demand.  A consideration of this issue is vital to a determination of the injury claimed and
the sort of selective information offered must be construed as a conscious act of the Applicants with a
view to not disclosing the information requ ired which presumably is adverse to them.
6. On the issue of injury, various important issues, inter alia  employment, etc.  have not been
referred to, indicating that information on these issues is not supportive of the Applicant's case.
7. The source of information in support of various submissions of the Applicants have not been
indicated or indicated as Market Information Sour ces.  Such Market Information Sources are clearly
nebulous and are not capable of sustainable ve rification and this vitiates the Application.
8. Various figures such as the domestic demand figures are not absolute figures and have been
derived by using mathematical formulae and therefore such figures are not reflective of the true
position.
9. Certain figures set out regarding a drop in the percentage of profitability do not seem to
accurately reflect the position as set out in certain published audited accounts of the ApplicantG/SG/N/8/IND/6
Page 8
Company.  It is submitted that this is a matter of some serious concern as to the credibility of the
Application.
10. With regard to decrease of production, although Hindustan Organic Chemicals Ltd.  (HOC)
and Herdillia Chemicals Ltd.  (HERDILLIA) state that domestic production of Phenol is decreasingfrom 1997-98 to 1998-99, domestic production to meet with the domestic Phenol demand has
increased as shown in the following table.  Decrea se of total production should be attributed to the
decrease of export which is in the control of HOC and HERDILLIA, but not to the increase of
imports.
(Metric Tonnes)
Period 1997-1998
(A)1998 upto
Dec (B)1998-99
(estimate)
(Bx4/3=C)Difference
(C-A)
Total Domestic
Production (X)69,281 48,703 64,937 -4,344
Exports(Y) 7,675 52 69 -7,606
Domestic
production to meet
with domestic
demand (X-Y)-61,606 48,651 64,868 3,262
11. HOC and HERDILLIA could have raised their total production (for both domestic demand
and exports) by exporting their Phenol to other countries as they did in the previous years.  The levy
of Safeguard Duty in India has no effect on HOC  and HERDILLIA's exportation of Phenol into other
countries, which depends on their own international competitiveness in price and quality of their
products.
12. With regard to Capacity Utilization, the capa city utilization rate of HOC and HERDILLIA to
meet with the domestic demand remains stable at 86 per cent, as would be evident from the tablebelow:
(Metric Tonnes)
Period 1997-98 1998-1999 (Up to Dec.)
Production Capacity 71,500 56,250
Production to meet
with domestic demand61,606 48,651
Capacity Utilization to
meet with domesticdemand86.2  per cent 86.5 per cent
13. The figures set out in the Application are the figures of capacity utilization for the domestic
demand, which is not an appropriate basis of reference as capacity utilization in all streams of
production is required to be considered.  An analysis of capacity utilization indicates that capacity
utilization in earlier periods after accounting for domestic sales and exports was extremely high e.g.
for the year 1995-96 the capacity utilization is 99.56 per cent.  It is clear from the figures on record
that there has been a significant decrease in the export markets for the Applicants and any decrease inG/SG/N/8/IND/6
Page 9
the capacity utilization is directly attributable, inter alia to the factor that the Applicants have ceased
to remain internationally competitive.
14. The applicants have stated that Phenol price on CIF India basis has more drastically fallen
than prices in other areas comparing the prices in January 1998 and those in September 1998.However, comparison in other period will give a different view. Phenol is a commodity product sold
world-wide and its price is dropping due to overall decline of international market prices.  Rate of
decline in India is at the same level as other areas.
15. Although HOC and HERDILLIA show the im port price of each shipment in their
Application, they are of the opinion USD 395/MT is an exceptional case and should not be used for
general consideration.
16. In the present phase of globalization, local prices are also reflective of international prices.
The expectation of the Applicants as indicated from the Application is that they should be able to
sustain within India, (at the cost of the Indian Domestic User Industry), profit as they were making in
the past, which wholly fails to recognize the impact of international prices. The applicants appeared tobe using these proceedings as an instrument to try and secure an unrealistic level of profitability,
which they can exploit in view of their monopolistic dominance of the Indian market.
17. An examination of the sales figures of both the Applicants indicates that the sales figures of
HERDILLIA have consistently shown an increase, which pattern of increase is sustained even on thebasis of the annualized figures set out for year 1998-99. As regards HOC, the figures set out clearly
indicate a fluctuating trend of sale from 1991-92 and thereafter. The projective sales for 1998-99 are
also reflective of this fluctuating trend of sale which has earlier existed for HOC.  The imports in
question therefore, appear not to have caused any serious injury to the Applicants in respect of their
sales.
18. As to the issue of the stocks built up an examination of HOC's stock position clearly indicates
that this has also shown a fluctuating pattern, which pattern is likely to sustain in 1998-99 and
thereafter. As regards HERDILLIA, their figures as to closing stock when examined in the context of
the factor that as compared to their earlier exports, they have had no exports in the years 1997-98 and
1998-99 clearly indicate any stock built up is directly attributable to their failure to sustain their
competitiveness in the international market. The im ports in question therefore, have had no adverse
impact on the stock position of the Applicants.
19. The various published documents and returns of the Applicants clearly indicate that they have
made specific statements on various issues critical to these proceedings, where elaborate reasons have
been set out as to lower profitability.  In such st atements, there are in fact, specific averments made as
to higher sales volume.  The various reasons set out are levy of indirect taxes; Imposition of local
taxes; Power failures; Inadequate infrastructure facilities at ports, etc.  Therefore, that the injury, if
any, to the Applicants is factors and issues other than the imports in question.
20. It is pertinent that as distinguished from other such proceedings which require the
establishment of injury, safeguard proceedings specifically require the establishment of "serious
injury".  In the present case, serious injury as required, or for that matter, even injury, has not been
established.  An appraisal of injury is required to be made in the context of the interested domestic
industry and on a balance of the interest of such domestic industry.  The present proceeding is merely
to secure the narrow interest of the Applicant at the cost of the larger interest of the Domestic UserIndustry.  They believe that the supplies of the Applicants are not of a commensurate quality and
require further processing, that the Applicants are unable to maintain delivery schedule and have
adopted distribution and pricing strategies which are not entirely acceptable to local Indian
consumers.G/SG/N/8/IND/6
Page 10
21. The domestic consumption of Phenol (including imports) has highly increased from 1997-98
to 1998-99.  Although HOC and HERDILLIA increased their production to meet with domestic
demand they could not satisfy such increased consumption to fill in the gap between domestic demand
and supply.  Therefore, Phenol users in India had to import Phenol to keep their production.  Decline
of share of HOC and HERDILLIA in domestic cons umption is caused by their failure to produce
more Phenol though they have enough nameplate pr oduction capacity, and not caused by increase of
imports.
22. HOC and HERDILLIA's calculation of requested Safeguard Duty rate of 72 per cent is based
on their asserted minimum fair price using 12 per cent as reasonable return on employed capital.  This
rate of 12 per cent is unfairly high for manufactures of commodity chemicals today and even higherthan the profitability rates realized by HOC or HERDILLIA in the past.  In 1995-96, HOC realized
profitability of 14.20 per cent, but during that period, prices of chemical products were exceptionally
high and those prices went down in 1997.
23. Demand of Phenol in India is rapidly increasing .  Phenol is one of the most important basic
chemicals to produce many kinds of phenol derivatives. These phenol derivatives are used in various
industries, from plywood industry to electrical eq uipment industry or pharmaceutical industry which
are in a severe international competition.  Imposition of Safeguard Duty on Phenol would benefit 2
domestic Phenol producers at the expense of many manufacturers demanding Phenol. Delay of
growth of such manufacturers would cause irreparable adverse effect on general economy of India.They admit that the domestic Phenol producers are experiencing difficulty to decreased import duty
rate on Phenol.  However, import duty rate on Phenol in India is still considerably higher than other
countries.
24. As production capacity of domestic Phenol producers cannot satisfy the total demand of
Phenol in India, Phenol user will have to purchase imported Phenol even after imposition of
Safeguard Duty.  Procurement of Phenol at higher than international market price would severely
deteriorate competitiveness of those users. They have been requested by Phenol users in India to
supply them Phenol at competitive price with high quality which domestic Phenol producers are
unable to attain and hope to cooperate with them by continuous supply of Phenol manufactured by
Mitsui.
3. Merisol, South Africa
1. Merichem-Sasol RSA (Pty) Ltd.  (Merisol RSA) and its antecedent Sasol Phenolics, has been
a long standing supplier of Phenol to the Indian market through its distributing agent M/s.Kanoria
Petroproducts Ltd. as well as ICC Chemical Co rporation's representative office in India.
2. Merisol RSA is a supplier of natural phenol, opposed to synthetic phenol as produced by the
major producers in India, accounting for less than 1 per cent of total world production capacity.
Producing in excess of the domestic South African demand, Merisol RSA follows a strategy of
exporting its phenol to markets on a widespread global basis.  As a small producer Merisol RSA is not
in a position to determine prices but rather adopts a strategy of adjusting its prices as dictated bydomestic and international market conditions.
3. Phenol prices in the Indian market are related to world prices with discrepancies attributable
to freight differentials.  Prices for the various world regions, as reported by ICIS-LOR in Quarter I of
1999, ranged from USD 410-450/mt CFR(SE As ia), USD 400-430/mt CRF (China) to USD 430-
470/mt FD at customer (Europe) In their experien ce prices reported by ICIS-LOR are always higher
than actual prices realized in the market.  Accordin g to their information, prices achieved in the Indian
market during the same period ranged from USD 400-420/mt.  CIF.G/SG/N/8/IND/6
Page 11
4. World phenol prices result from equilibrium established in balancing demand and supply of
phenol world-wide. Being a commodity product, phenol prices across the globe follow similar trends
as consumers and producers thereof establish price levels based on this principle. This is evident in
the price levels quoted above as well as in high price levels observed during First Quarter of 1998,
US$660-710/mt CFR (SE Asia), US$670-700/mt (C hina) and US$780-820/mt FD at customer
(Europe)  According to their general information, phenol traded at price levels of USD 670-700/mt
(CIF) in India during the same period.
5. As a net importer of phenol, India's consumer s would continue to depend on imports thereof
to satisfy demand with expectations of economic growth in the country, the deficit will almost
certainly continue to increase.
6. The introduction of safeguard duties against imports on phenol will undoubtedly create
imbalances in the supply and demand thereof not only in India, but in the region and world markets as
well.  The result will be detrimental to consumers of phenol and its derivative products in India,
creating market conditions that may take a long time to correct.
7. As a company committed to continue doing bus iness in India, Merisol RSA therefore wishes
to express its concern over the introduction of safeguard duties on the imports of phenol, even for
limited periods of time.
4. Enichem, Italy
1. Their exports to India have been decreasing all over the years accounting a minimum of 0.08
per cent in quantity and 1 per cent in value of all imports in the fiscal year 1996-97.
2. Enichem sell products of their own production both directly and through Enichem branch
offices.  Very seldom, marginal quantity of Phenol was sold to International Traders for the rest of theworld. The main outlet market is Europe with marginal quantity (around 1 per cent of total sales)
shipped to rest of the world.
3. Enichem's strategic marketing policy is to serve the Italian market keeping the domestic
market share as highest as possible (over 70 per cent.  Second priority is to follow increasing
consumption of main European Accounts, i.e. produc ers of Bisphenol-A and to keep a presence in the
European markets. Enichem normally have around 50 per cent of phenol production consumed forcaptive use.
4. Details of their capacity, production, domestic selling price, export price to India, quantum of
exports were as under :
Price in US$
Year Capacity
(KT)Production
(KT) Domestic Export
(India)Quantity
Exported to
India (MT)
1996 390 373 648 850 196
1997 390 373 560 738 16.3
1998 390 343 525 - -
1999 390 345
(Budget)450
(Budget)--G/SG/N/8/IND/6
Page 12
5. Kumho P & B Chemical Inc., Seoul, Korea
1.  The company has submitted certain details relating to their capacity, production, cost of
production, selling price in domestic market, and export price per unit in India during the year 1998-
99 which is as under:
1998 1999
Capacity 1,20,000 1,20,000
Production 1,24,248 1,24,000
Cost of production US$416 US$411
Selling price in domestic
industryUS$450 US$450
Export price US$437.06
FOB Korea-
2. The company has also stated that they exported Phenol as under during the last 3 years.
1996 2009 MT
1997 4351 MT
1998 9801 MT  1999 NIL
6. Taiwan Prosperity Chemical Corporation
1. Their exports of phenol to India from 1996 to 1998 were 3069 MT, 3519 MT & 999 MT
respectively.  Their orders are only shipped a few times per year, and that the total quantity of phenol
shipped in 1998 has significantly decreased, from 3519 MT in 1997 to only 999 MT in 1998 and that
they have no agent in India.
2. They started producing Cyclohexanone, which required phenol.  Because their own phenol
production is sometimes inadequate to meet this new demand, they need to import phenol.  Since their
own production is currently insufficient for their needs, they cannot aggressively export phenol.
3. Taiwan Prosperity Chemical Corporation has always operated with high ethical standards and
has earned a good reputation in Taiwan.  The manage ment of the company strongly believes that a
moral integrity is required in all aspects of business.   As a result, their company has always respected
and obeyed laws and regulations of the authorities in  Taiwan.  In dealing with foreign companies they
also fully comply with the laws and regulations set by the foreign authorities.  During the course of
doing business with companies trading in phenol in India, they have abided by the relevant laws set
by government.
III. VIEWS OF THE EXPORTING GOVERNMENTS
1. U.K.
The Department of Trade & Industry, London through the British High Commission, New
Delhi had stated that there was currently no British interest in the Phenol market in India and they
have no official objection to make, to the initiation of Safeguard investigation against increasedimports of Phenol into India.G/SG/N/8/IND/6
Page 13
2. Japan
Recent increase in the import of Phenol to India is due to the increase in domestic demand
which exceeds domestic product capability.  The domestic consignment from domestic producers has
not experienced major change.  A sharp decline in the export by Indian domestic producers can be
understood to have been caused by their lack of price competitiveness after the recent drastic drop ofinternational price.  Therefore, it is not necessarily clear whether sufficient ground persists to establish
causal link between the sharp rise in imports and "th reat of serious injury to domestic industry". In
any case, the imposition of safeguard measures should be understood akin to droit de necessite  and
should not be abused.  If a safeguard measure were to be introduced, it should meet the prerequisite
stipulated in WTO Agreement, and its extent of necessity and period should be construed strictly.
Should a safeguard duty be imposed, it would affect not only the users of the product concerned, but
also the industry as a whole.  Japan would like to observe future measures by the Government ofIndia, with serious interest.
IV. VIEWS OF THE INDIAN ASSOCIATIONS
The following main points have been made by some of the Trade Associations and ICMA.
1. Indian Chemical Manufacturers Association, Mumbai
1. Hindustan organic Chemicals Lt d.  and Herdillia Chemicals Ltd.  are members of ICMA and
they have requested for restoration of customs duty on Phenol to peak level duty on chemicals.  Their
request was considered favourably in the Trade & Business Development Expert Committee meeting
and they have recommended to the Govt.  of India that the customs duty on Phenol should be restored
to peak level duty on chemicals.
2. Phenol consistently attracted maximum rate of customs duty applicable for chemical products
for the last 3 decades.  However, during the last 4 fiscal years, duty on Phenol was fixed at a lower
level.  In the Union Budget 1998-99, basic custom s duty on Phenol continued to be lower (at 25 per
cent than on other chemicals (by and large at 30 per cent.
3. Phenol is manufactured after number of stag es of processing from building block stage
(Benzene and Propylene)  With liberalisation, import duty on Benzene and Propylene have been
reduced to 10 per cent.  Despite this, in the past few years the differential between customs duty on
Phenol and its importable feedstock benzene has come down from 70 per cent to 15 per cent which
has led to serious erosion of the value addition potential available to domestic manufacturers.
2. Laghu Udyog Bharti, Faridabad
1. It is a fact that Phenol is manufactured in  India by Hindustan Organi c Chemicals Ltd.  (HOC)
and Herdillia Chemicals Ltd.  and both these manufacturers have monopoly.  They should be
governed by Monopoly Act.
2. It is absolutely false that a serious injury has been caused to the domestic producers by the
increase in imports of Phenol into India.
3. The increased imports of Phenol have not caused serious injury to the domestic producers of
Phenol.  As a matter of fact both the manufacturers enjoyed monopoly in this business and they
increased the price of Phenol by creating artificial shortage as and when they desired.  The shortage of
Phenol was manipulated and Phenol was sold at a very high price.G/SG/N/8/IND/6
Page 14
4. There was no justification in initiating of an y safeguard against import of Phenol into India
and there is absolutely no ground for imposition of safeguard duty on import of Phenol.
5. An inquiry as to why the shortage of phenol is created and then phenol is made available at a
premium ranging from 25 per cent to 50 per cent by the domestic producers should be initiated.
3. The Institute of Indian Foundrymen, Calcutta
1. They represent more than 6000 foundries in the country.  In the last 50 years foundries were
starved of Phenol and the prices were increased as and when the manufacturers wanted.  The
manufacturers also created artificial shortage using special methods. There is no justification of
levying safeguard import duty etc.  on Phenol imported into India.
2. This was for the first time in 50 years that during last two months the Phenol price has
decreased and the manufacturers had to contact the consumers otherwise it was always the consumers
who were knocking the doors of the manufacturers.  Therefore, there was no justification of imposing
any additional import duty on Phenol even when the present market price which the manufacturers are
charging is higher than the international price of Phenol.
V. VIEWS OF IMPORTERS/USER INDUSTRIES
They have made the following main points:
1. Indian Core Oils Pvt. Ltd., Faridabad
1. They are the consumers of phenol and manufacture various types of resins based on phenol.
2. It is a fact that phenol is manufactured in  India by Hindustan Orga nic Chemicals Ltd. and
Herdillia Chemicals Ltd.  and both these manufactu rers have monopoly.  They should be governed by
Monopoly Act.
3. It is absolutely false that a serious injury has been caused to the domestic producers by the
increase in imports of phenol into India.
4. They are manufacturing resins to be used by foundries. These days the foundries have started
importing resins and many of the big foundries are not buying resins from Indian manufacturer
because they find it cheaper to import.  It is a fact the prices of raw materials of chemicals required to
manufacture Phenol, Formaldehyde, Furan resins etc. are much cheaper abroad.  For example,Methanol, the basic raw material required is sold at less than US $ 90 per MT where as the price of
Methanol in India is more than 200 Dollar per MT. Same is the situation for other solvents required to
manufacture resins.
5. There was absolutely no justification for increase in the duty on imports of raw material like
Phenol.
6. The increased imports of Phenol have not caused serious injury to the domestic producers of
Phenol. As a matter of fact both the manufacturers enjoyed monopoly in this business and they
increased the price of Phenol by creating artificial shortage as and when they desired. The shortage ofPhenol was manipulated and Phenol was sold at a very high price.
7. An inquiry as why the shortage of phenol is created and then phenol is made available at a
premium ranging from 25 per cent to 50 per cent by the domestic producers should be initiated.G/SG/N/8/IND/6
Page 15
2. Kesar Petroproducts Ltd., Mumbai
1. They are the largest consumers of Phenol in India manufacturing Bisphenol-A.  Phenol is the
main raw material along with Acet one for manufacturing Bisphenol-A.
2. Imposing of Safeguard duty would benefit only two manufacturers viz.  M/s.  Hindustan
Organic Chemicals Ltd. and M/s.  Herdillia Chemicals Ltd. These two manufacturers are enjoying
monopolistic position and have been increasing the price in unison with each other on regular basis
which is detrimental to interest of users of Phenol and national economy, as such, undesirable increase
in Phenol prices due to monopolistic position would result in lower production and revenue to nation.
3. Normal imports of Phenol in country is around 10000-15000 TPA.  This year the imports
have somewhat increased due to local manufacturers having shut down their plant for 2 and 1/2months which resulted in increase in imports to around 25000 Mt.(from normal annual imports of
15000 MT)
4. International Prices of all chemicals i.e. Benzene, Cumene, Acetone and Bisphenol-A have
been substantially reduced due to demand and supply gap and recession in South East Asia andPhenol prices are no exception.
5. Demand of Phenol in India is increasing due to the fact that Phenol is the main Building
Block for Chemical Industry.  Hence any increase in Phenol prices will very adversely affect the other
products of Phenol-Chain.
6. Imports of Phenol in last quarter of 1998 has increased due to local manufacturers’ reluctance
to reduce the prices based on Imported landed cost at the right time.  They have reduced the prices
only after large quantity of Phenol have been imported in the country.  Now, HOC has also started
offering the price matching to international rates a nd they have entered into a contract with them for
supply of 1000 Mt.  Phenol during Jan-March 99.
7. During May-July 98 local manufacturers had created shortage of Phenol, even though the
international prices were lowered, they had increased the rates of Phenol.
8. Consumers of Phenol were compelled to import Phenol as the local manufacturers did not
pass on the benefit of reduction in their input costs.  Whenever there was any reduction in price oftheir raw materials viz.  Benzene, Cumene or reduction in duty, the benefit of the same was not passed
on to consumers of Phenol.  This monopolistic attitude in delaying the reduction of prices have
attributed to larger quantity of imports which could have been avoided by them.
9. Inefficient plant has been set up by local manufacturers during 1970 and 1980 with old
technology and small capacities, whereas international plant capacities of 100.000 TPA with better
technologies achieving economical scale of production.
10. For the local industry to survive in the domestic and international market, Phenol consumers
should get goods at international prices.
11. Imposing any Safeguard Duty on Phenol, definitely injure the consumers of Phenol and in
turn the Chemical Industry at large.
12. It is evident from the information provided by the petitioners that there is apparently dumping
of phenol in the Indian market and Director Ge neral (Safeguards) was prevented from proceeding
further in the matter by virtue of the Rules.G/SG/N/8/IND/6
Page 16
13. The applicants consume phenol captively also and the facilities available with them to that
extent are not available for the merchant market and should be excluded from the capacities of the
applicants to cater to the demand in the country.
14. Since phenol and acetone are joint products, it would not be appropriate to assess injury to the
domestic industry for phenol alone without assessing position with regard to acetone. Profitability of
acetone needs to be considered while examining the serious injury to the domestic industry.
15. The notice of initiation states that domestic industry has requested for duty for a period of two
years.  This is contrary to the request made by the petitioners.  Petitioners have requested for
imposition of duty for three years extendable at the end of three years.
16. There is no evidence of the imports of phenol claimed for the period April-December 1998
and are unauthenticated.  A mere statement of imports on a piece of paper prepared by the company
does not constitute an evidence and in the absence of full information raises doubt about the
authenticity of information furnished by the applicants. The applicants have also quoted different
figures of their closing stock which was within their control.
17. Steep decline in share price has been argued as an indicator of serious injury.  If share prices
are an indicator of serious injury, the entire Indian industry is seriously injured.  The entire case of the
petitioners seems to be deteriorating profitability and losses in December 1998.  Net loss in one month
and deteriorating profitability cannot be described as serious injury.
18. Import of Phenol for those goods going in for export promotion (protection) can not be
claimed as imports affecting the petitioners.  No duties are chargeable on such imports.  Such goods
are said to have not entered the Commerce of the country.  Import of Phenol for export purposes
should therefore, be excluded.  In case these imports are excluded, it would be evident that theimports have not increased at all.
19. HOC's profitability is under pressure due to high interest cost and depreciation on account of
its recently completed projects, viz Chloro Alkali and Hydrogen Peroxide. These diversification
projects involved substantial capital expenditure relative to the size of the existing operations of the
company and were funded mainly through debt.  These investments are yet to produce positive cash
flows and has a significant impact on the company's overall financial position.
3. Marvel Thermosets Pvt.  Ltd., Mumbai; and
4. Romit Resins Pvt. Ltd., Panvel, Maharashtra
1. They are Small Scale Industrial Unit manufacturing Phenol Formaldehyde Resins being used
for Thermosetting and Cold Setting binding in Bakelite, Laminates, Plywood, Grinding Wheels,Refractory Bricks, Cork, Foundries etc.  This basic organic thermosetting binder is manufactured
from Phenol.
2. Presently it is a known fact that on an average, 20,000 tonnes of Phenol per year is being
imported into India since 1995-96, which is steady constant import.
3. Imported Phenol is a source of checking basic price of indigenous manufacturers of Phenol.4. The Indian manufacturers of Phenol shut down their manufacturing plants of Phenol twice in
a year for maintenance of their machinery which appears to be technically necessary.  However, shut-down of Phenol manufacturing plants but at the same time raising its prices shows arm-twisting
tactics of the manufacturers.G/SG/N/8/IND/6
Page 17
5. Price revision of Phenol is done by the Indian manufacturers at their will.  This affects the
S.S.I.  Units as the yearly or half-yearly orders or tenders are finalised in advance which is a
commitment and any increase in the price of Phenol increases their burden and leads to losses in the
year.
6. In 1998-99, the domestic production of Phenol up to December'98 is shown as 48703 Ton and
is claimed as declined compared to the figure of 1997-98. If 48703 tons are produced in 9 months
period, the figure for twelve months would touch 65000 tons which is the average production.
7. In 1998-99, between June 98 and August 98, the Indian Manufacturers stopped producing and
marketing Phenol and simultaneously prices were raised as shortage was created.  During this period,the manufacturers of Resin products survived due to imported Phenol.
8. By using Phenol, value-added products like Re sins are manufactured. The Phenol users' list
can be had from the Indian Manufacturing Units which will show the finance and investments made
in this Phenol-user line which again is much higher than those made by Phenol manufacturers.Further, more employment opportunity is provided in the Phenol-user line than the Phenol
manufacturers.
5. Foseco India Ltd., Pune
1. They are one of the leading manufacturers of Foundry Resins and Fluxes in India and
supplying materials to all leading foundries and steel plants. These foundries produce specialised
castings for core sectors like automotive, railway, thermal power and exports.
2. They have been procuring their 100 per cent requirement of Phenol exclusively from the
Indian manufacturers - M/s.  Hind ustan Organic Chemicals Ltd.  and M/s.  Herdillia Chemicals Ltd.
After the Govt. has liberalised their policy, both the Indian manufacturers have been pricing their
products based on the price of imported Phenol rather than their own costing.  They keep their price
Rs.0.50 to Re.1/- per kg.  higher than landed cost of imported Phenol.
3. In the Union Budget of 1998, the duty on Phe nol as well as Cumene was reduced.  They
requested both HOC and Herdillia to reduce the price of Phenol due to reduction in duty on their input
cost. HOC and Herdillia very clearly told that their pricing was not based on budget, but based oninternational prices of Phenol and they were denied the benefit which the Govt. had offered to
industry.
4. The Govt.  of India has liberalised their policy and introduced reforms to make Indian goods
globally competitive, which would ultimately help to grow the business/export, but both HOC andHerdillia increased the price of Phenol whenever no imported Phenol was in the pipe line.
5. HOC and Herdillia took advantage of natural calamities.  In the month of June 98, devastating
cyclone hit Gujarat and all activities at Kandla Port came to a standstill, which only has unloading
facilities for imported Phenol.  Both the Indian ma nufacturers knew that in the near future no imports
of Phenol will be possible due to the devastating effect of cyclone and they increased their basic price
of Phenol to Rs.40/- per kg, even though landed cost of imported Phenol was coming to Rs.33.50 per
kg.  at that time.
6. HOC and Herdillia totally ignored the demand of Indian industries and started profiteering.
FOSECO requested not to be unreasonable and to re duce the price of Phenol since the customers will
not be able to bear any increase due to the recessionary trend in the market.  Both the manufacturersG/SG/N/8/IND/6
Page 18
did not even bothered to give a reply.  They ultimately reduced their prices when imported Phenol
landed at Kandla Port.
7. The automotive sector/steel sector/textile machinery manufacturers are reeling under deep
recession and it is not possible to get any price increase from their customers.  They have to absorb allthe increase due to unjustified price increase by HOC and Herdillia. This situation forced them to look
for imports since they had no other alternative.
8. They are afraid that once the Govt.  imposes safeguard duty, both the Indian manufacturers
will again increase their prices and their customers will not be able to give any price increase.  Some
of their customers had told them that they will import the resin itself in case of price increase because
both HOC and Herdillia were likely to increase their price once safeguard duty is put on importedPhenol.
6. Gargi Huttenes - Albertus Ltd., Mumbai
1. The manufacturers Hindustan Organic Chemicals Ltd.  and Herdillia Chemicals Ltd.  have not
given the true picture, have formed a cartel and played with the price of phenol since last few years.
2. They are a small scale industry registered with the Govt.  of India, manufacturing Phenol
Formaldehyde Resins used in the foundry industry.  Their main raw material is liquid phenol.  They
have their plant located near Herdillia Chemicals and purchase from both M/s.  HCL and HOC.
3. About 3 years back, phenol was in short supply.  Whenever shortage was created, prices were
increased.  It has been the imported material which has helped the Industry in India to get the material
at low cost and also as per their requirement.  Both HCL and HOC have always tried to make profit
whenever there was shortage.
4. The erosion in profitability of HOC and HCL could be due to their efficiency in
manufacturing Phenol.  This cannot be a reason for increasing Import Duty on Phenol.
5. They as buyers would like to buy from local sources as it saves time, cost and foreign
exchange to the country. But due to the cartel game  played by the suppliers, import is the only answer
to keep members of the cartel in control and disciplined.
6. Phenol Industry in India does not need a safeguard as there is no onslaught of foreign
producers.
7. The prices were raised by HOC and HCL immediately during the period 3 June to
24
 June 1998 when Kandla had faced natural calamities and most of the storage tanks were destroyed,
which can be proved by them with documents.
8. Both the Indian manufacturers always shut down their plant at least once a year or twice a
year and they abruptly stop supply of Phenol to the customers.  They never informed the customers in
advance which increased the local prices, as the prices are settled between them.  There was no choicebut to accept the fresh prices and take delivery of the material.
9. Because of the liberal policy of Govt.  of India, the foundries can import Phenolic Resins at
International prices.  Due to high cost of Indian Phenol two of the main suppliers of Phenol in the
world market i.e.  M/s.  Ashland Chemicals, USA and M/s. Borden Chemicals, UK have planned tomake a break through in the Indian market and already supplied material at lower price to M/s. DCM
Engg.  Ropar; HDC, Calcutta; M/s.Secals, Ranipet and many others.G/SG/N/8/IND/6
Page 19
7. Atul Ltd., Gujarat
1. They are one of the leading manufacturers of Phenoxy Herbicides in India and fourth largest
in the world wherein Phenol is used as a major raw material along with MCA Acid.  Their
consumption of Phenol is to the tune of approximately 3000 MT per annum and the products
manufactured are exported to various countries in large quantities apart from that sold in domesticmarket.
2. The two major manufacturers of phenol in the country enjoy a monopolistic situation and
have been deciding the price in congruence with each other at regular intervals which is harmful and
causing loss to the users of Phenol.
3. The local manufacturers of Phenol are unable to meet the total domestic requirement(on
account of various reasons, viz. higher price, artificial shortage, plant shutdown) and therefore
quantity of approx.20000MT was imported to meet the requirement.
4. The two local manufacturers have been maintaining their price at a comparatively higher level
as against the current international price th ereby rendering the imports more lucrative.
5. Phenoxy Herbicides are manufactured by many multinational companies some of whom are
also manufacturers of the basic raw material - Phenol.  They (Atul) have to compete with such
companies in the global market and imposition of Safeguard Duty would render their products totally
uncompetitive.
6. The expected annual turnover from Phenoxy herbicides (manufactured from Phenol) is to the
tune of Rs.45-50 crores. Any increase in Phenol prices would not only adversely affect this business,
but also force closure of a large part of their production capacity which caters to the international
market requirements.
8. Alta Laboratories Ltd., Mumbai
1. They are the manufacturers of Aspirin (Acetyl Salicylic Acid I.P.) and Phenol is their basic
raw material. Their annual consumption of Phenol is approximately 1400 MT. The price of Aspirin is
statutorily controlled by the Govt.  under DPCO 1987. Phenol being the main raw material for
manufacture of this product, the cost of Phenol has a direct bearing on the price of Aspirin.  Due to
unusually high price of Phenol charged by indigenous manufacturers during the last three years, theyhave incurred losses as the selling price is revised by the Government once in three years and the
process of getting interim relief is lengthy and laborious.  There is always inordinate delay between
the escalation in the cost and the revision of price.
2. M/s.  Herdillia Chemicals Ltd.  were the sole manufacturer of Phenol in the country until the
advent of M/s.  Hindustan Organic Chemicals Ltd.  in the year 1987.  Even today there are only two
manufacturers in the country and M/s.  Hindustan Organic Chemicals Ltd.  controls almost 65 per
cent of the total market share.  In effect, this is a virtual monopoly situation and it would not be wrong
to say that there is a strong price cartel between M/s.  Hindustan Organic Chemicals Ltd.  and M/s.
Herdillia Chemicals Ltd.
3. Low production and under utilisation of capacity is a general phenomena applicable to all the
major industries in the various sectors of the economy during the last three years.  All domestic
producers were subject to serious injury as the winds of liberalisation swept the Indian economy and
the reduction of custom duties from 200 per cent to 35 per cent further aggravated the situation andadversely affected the market share of Indian manufacturers.G/SG/N/8/IND/6
Page 20
4. The emphasis should be on the cost reduction and cost competitiveness rather than
maximisation of profits.  The quantum of profitability is always subjective and debatable issue.  Due
to high cost of Phenol, people are hesitant to en ter into the production of Phenol based products.  In
case, the price of Phenol is settled at reasonable level in the long term, the demand for this product
would accelerate and as a corollary to this the manufacturers would be able to operate at mostbeneficial economic scale of operations.
5. They are not aware of any quantity of Phenol imported into India for less than 410 U.S.  $ per
MT. At present the international price is more th an 500 U.S.$ per M.T.  and the upward trend has
already started.
6.  Fiscal exercise is the annual event and every year, a review is made on the basis of national
and international development and the demand for imposing dumping duties for two years is
unreasonable and unjustified.
7. In case, the request for levy of dumping duties is accepted it will open the flood gates to all
other petroleum based chemicals and this disease may also spread to various other manufacturingsectors.
8. During the last five years the Phenol manufacturers especially M/s.  Hindustan Organic
Chemicals Ltd.  have exported huge quantities to all the countries world over.  In the year 1997-98
itself the total export of Phenol was 7675 MT They fail to understand, that in case the prices of Phenolwere unremunerative in the international market, how such a huge quantity of 7675 M.Tons could be
exported by the domestic manufacturers.
9. It would be wrong for the Phenol manufacturers to make the general statement that
profitability is adversely affected due to cheap imports of Phenol. In fact, they have a broad range ofmany other products.  It is accepted fact that due to general slackness in the economy followed by
demand recession major manufacturing units in all sectors of economy are facing problems and
Phenol manufacturers cannot be exception to this.  The cost of Phenol to the domestic consumer is
determined not only by the price of Phenol offered by the various foreign suppliers and duty structure,
but also by Foreign Exchange Rate which is very volatile and the experts anticipate that the dollar
price may go up to Rs.45/- as against the present Rs.42.50/-.
10. The sluggish growth in export is a cause of great anxiety for the Indian economy and
supporting of higher sale price for Phenol would adversely affect the export of Phenol based products.
In other words the cost competitiveness would be lost in the international market.
11. They strongly feel, that in case the request for imposition of Safeguard Duty is acceded it
would amount to retracting from the globalisa tion of Indian Economy and would lead the
manufacturers of Phenol to disintegrate from intern ational market.  The Government therefore, should
not take any hasty step which would pose a threat to the new liberalisation policy.
9.  Winlam Industries Ltd. Calcutta
1. They are a leading manufacturer and exporter of decorative laminate in Eastern India and
have requested for quashing the demand for imposing anti-dumping duty on phenol.
2. Imposition of anti-dumping duty will help only the local manufacturers at the cost of general
consumers.G/SG/N/8/IND/6
Page 21
3. They have observed in the past that when there were no imports, the local manufacturers
increased their prices substantially.  Moreover, such high are also contrary to the healthy environment
of business and promotes monopoly and high price regime.
4. Import of Phenol at low price makes Indian Product competitive in the international market
and thus earns precious foreign exchange.
10. Andamans Timber Industries Ltd., Calcutta
1. They have come to know that Govt.  was planning to impose 72 per cent Safeguard duty
against import of Phenol into India.
2. They are not in favour of such imposition, since it will only help the local suppliers to
increase prices substantially as they have done in the past when there were no imports.
3. Imposition of such high duties are contrary to the healthy environment of business and
promotes monopoly and higher price regime.
4. Domestic prices are very high and imports are actually benefiting the local industrial
consumption of Phenol.
11. Wonder Laminates Pvt. Ltd., West Bengal
1. They have come to know that there is a proposal to impose anti-dumping duty/safeguard duty
against import of Phenol into India for a period of 3 years.
2. They as a major importer of Phenol are not in favour of such imposition of duty.3. It will help only the local manufacturers like HOC and HCL to increase their prices
substantially as it was their regular practice whenever there was no import.
4. Imposition of such high duties are contrary to the healthy environment of business and
promotes monopoly and higher price regime.
12.  Kiran Trading Company, Calcutta
1. They have come to know that there is a proposal to impose anti-dumping duty/safeguard duty
against import of Phenol into India for a period of 3 years.
2. They as a major importer of Phenol are not in favour of such imposition of duty.3. It will help only the local manufacturers like HOC and HCL to increase their prices
substantially as it was their regular practice whenever there was no import.
4. Imposition of such high duties are contrary to the healthy environment of business and
promotes monopoly and higher price regime.
13. M/s. ABC Products Ltd., Calcutta; and
14. M/s. Kitply Industries Ltd., Calcutta
1. Policy of Liberalisation & Globalisation is irreversible. As per the agreement with WTO,
Custom Duty has to be reduced to the accepted level. Having brought down the duty from 85 per centG/SG/N/8/IND/6
Page 22
in 1992-93 to now 25 per cent, any increase in the duty under the guise of Safeguard Duty is nothing
but backtracking from the accepted policy.
2. From the information provided by the Director General's (Safeguard) Office, it is clear that
demand for Phenol in India has been always more than the domestic capacity.  This is even afteraccounting for the exports of Phenol made by the domestic producers. Thus, import of Phenol is
inevitable even if international prices of Phenol are higher than the domestic price.
3. It is surprising that the existing plants even at 85-90 per cent capacity utilisation can not
break-even. Taking advantage of the huge trade barrier, Indian Manufacturers opted for easier route of
keeping domestic prices higher than global prices.  Prudent route for the existing manufacturers
should have been to increase plant efficiency and upgrade capacities.  Existing Manufacturersthemselves admit that the cost of production of Phenol can be reduced by Rs.4/- to Rs.6/- per kg.  It is
unfortunate that even now they are lobbying for ea sier route of safeguard duty rather implementing
cost reduction measures.
4. While 12 per cent return of Capital in such recessionary trend itself is unreasonable, even the
assumption of Rs.53 crores of Investment in Phenol plant by M/s.  Herdillia is not acceptable.  These
plants are more than 15 years old and are already fully depreciated.  Incidentally, this was the time
when the trade barrier of 30 to 85 per cent duty was available to them. Surely, enough profits would
have been made in the earlier years of the plants, more so when the domestic demand was more than
the production capacity.  With fully depreciated plants, there is no justification to ask for anysafeguard duty.
5. It is true that in the year 1998, the phenol prices globally has come down significantly.  But
this can be considered only a short-term phenomena.  Phenol prices do fluctuate from year to year
quite substantially.  This year's lowest price can not be considered as the basis for working out thelanded price.
6. In order to prove wide difference between the so called reasonable price and landed price, the
cost of clearing and forwarding has been shown t oo low.  As against the CNF cost of Rs.510/- per
MT, the present clearing and forwarding costs is between Rs.1200/- to Rs.1500/- per MT.  Further, the
importer also incurs L/C opening cost (up to 1.25 per cent of value), inventory cost (large quantity has
to be imported at a time), storage cost (tank rent is Rs.165/- per MT per month), exchange risk covercost, extra custom duty on high seas sales margin, etc.  At least Rs.1500/- per MT must be added to
the landed cost worked out by M/s.  Herdillia Chemicals Ltd.
7. The domestic manufacturers are silent about the advantage of negligible custom duty on raw
materials of Phenol. They should take the advantage of reduced duties and thereby reduce their owncosts instead of demanding safeguard duty.
8. Many of the users of Phenol manufacture value-added products for exports.  Even, with the
trade barrier of duty (25 per cent CD + 10 per cent Surcharge), if the domestic manufacturers are not
able to break-even, it is better that such units are allowed to close down rather than passing on theirinefficiency to the users of Phenol and in turn, making them uncompetitive in the International
Market.
15. Schenectady Specialities Asia Ltd., Mumbai
1. They are joint venture company between Schene ctady International Inc.  (SII) of USA (the
world's largest manufacturer of Alkylated Phenols) and Sunshield Chemicals Ltd.  (SCC) a listed
company manufacturing speciality chemicals.  They manufacture with the state-of-art technology
widest range of Alkylated Phen ols which finds its use in various vital and core sectors.G/SG/N/8/IND/6
Page 23
2. Phenol is the basic raw material, accounting for 50 per cent of their raw material input for
manufacture of Alkylated Phenols, and its purity, reliable quality and competitive prices are of utmost
importance to the successful quality production of their products.
3. Phenol which is available indigenously contains  moisture up to 1000 PPM and moisture is the
biggest enemy to manufacture of Alkyl Phenols.
4. Alkyl Phenol are readily available from plants outside India at very competitive prices based
on international prices of Phenol.  If there is any increase in cost of Phenol in India because of
increased Import Duty and consequential increase in price of Phenol by the local manufacturers it will
destroy the Indian Alkyl Phenols manufacturing sect ors.  In fact, FICOM Organics and Hico Products
could not withstand the competition and have virtually remained inactive manufacturers' of Alkyl
Phenols.
5. Besides Phenol, Herdillia Chemicals also manufacture Alkyl Phenols and if they get an
opportunity to hike the price of Phenol it will no more remain viable to manufacture Alkyl Phenols inIndia by others. In such a situation, the Alkyl Phenols Industry will become a total monopoly of
Herdillia and end product industry such as Surfactants, Antioxidants which go in Agriculture,
Textiles, Pesticides, Plastics, Food and many more industries producing day to day necessities of
Indian public will also become cost inefficient.
6. The Government needs to consider very carefully whether Safeguard Duty should be imposed
on Phenol. If the Safeguard Duty is to result into increased price of Phenol by the local manufacturer,
it will destroy Alkyl Phenol industries.
7. The problems of import are by themselves a benefit for local Phenol manufacturers like
Herdillia and HOC because of which the user industry is agreeable to pay a little more price than the
landed cost of Phenol.
8. There are constraints in importing 100 per cent pure Phenol due to its melting point;
requirement of Special Sea Worthy Tankers; Heated Road Tankers; Heated Storage Tank at the port
of Import.
9. The higher cost is due to higher Ocean Freight, Storage Charges, port to factory gate freight
and besides Special Additional Customs Duty (SAD)
10. The present capacity of the Indian manufacturer to manufacture Phenol is about 70,000
tonnes (45,000 tonnes - HOC and 26,500 tonnes - Herdillia) and the requirement in India is about100,000 tonnes.  In light of the above, there is bound to be import of Phenol and it will not affect
domestic manufacturers if they can maintain prices at international level plus a little more that they
get because of infrastructural cost of import of Phenol.
11. Request of Herdillia and HOC to levy Safeguard Duty on 100 per cent solid Phenol should
not be accepted.
12. If manufacturers in Asia and Europe, USA who have smaller capacity plants and they are able
to compete in the world market, why should I ndian Government protect only 2 manufacturers in
India, namely Herdillia and HOC by giving them a special Safeguard Duty.G/SG/N/8/IND/6
Page 24
16. United Metachem Private Ltd., Pune
1. They are a small scale Industry manufacturing supplying Phenol-Formalene Resins (P.F.
resins) and Flux to Automobile Industry, Foundry, and Steel Industries, all over India.
2. They are procuring requirement of Phenol e ither from Hindustan Organic Chemicals Ltd.  or
from Herdillia Chemicals Ltd.  Their sister concern Ajay Metachem Ltd.  is having export, and Phenol
is purchased from Hindustan Organic Ch emicals Ltd.  against advance license.
3. Consequent to reduction in import duty on inputs they requested HOC and Herdillia to reduce
the price of Phenol as their input cost is reduced and were informed by them that their price is based
on International prices of Phenol, and has nothing to do with the import duty.
4. The basic price of both the companies is always same.
5. HOC and Herdillia increased the price in June and July and took advantage of natural
calamities in Kandla port.  It may be recalled that during June and July, the operation at Kandla port
which has unloading facilities for imported Phenol came to a standstill due to devastating floods inGujrat.
6. The manufacturers knew that in near future, no imports of Phenol will be possible due to
devastating effect of Cyclone and they increased th e price of Phenol to Rs.40/- per kg.  even though
Landed cost of imported Phenol was approximately Rs.33.50 per kg.  at that time.
7. Instead of helping the Indian Industries by supplying the material at the same rate, the HOC
and Herdillia took advantage of shortage of material in market and increased the price, which resulted
in great hardship to their Industry.
8. In case the imported Phenol is made costly either by increasing the duty or by levying anti-
dumping charges, their Overseas buyer will not accept any increase in cost of finished product, which
will result in stoppage of export.  Government of India is encouraging export, and if the export is
stopped, it will be against the policy of Government of India.
9. They are afraid that once the Government imposes safeguard duties, both the Indian
manufactures will again increase their prices and it will not be possible for them to absorb the increasein cost of Phenol.
10. In case, the prices of Phenol goes up, the cost of imported P.F.  Resin will be less than that
manufactured by them and customers will prefer  the imported PF resins and stop purchasing from
them.
17. Farmson Pharmaceutical Gujrat Ltd., Vadodara
1. They manufacture bulk drug Paracetamol through Phenol route.  Phenol constitutes approx.
30-35 per cent of their Raw Material cost.  More than 40 per cent of their production is exported
globally and any imposition of additional duties will jeopardise their exports.
2. They have long term commitments and prices are based on the prevailing international prices
and the present duty structure.
3. They are facing severe competition from China and with stringent approval norms announced
by the EEC, the Indian exports are badly affected and any increase in duty will severely affect theirG/SG/N/8/IND/6
Page 25
exports. Due to restrictions of import of Acetic Anhydride against the QABAL based licenses, they
have to carry out exports under DEPB scheme which does not permit duty free imports.
4. The applicants have enjoyed monopoly during the controlled regime and have opportunistic
track record and hence are not favoured by bulk consumers of Phenol.
5. The domestic prices are controlled by their cartel and the consumers have been severely
affected in the past because of their monopolistic attitude and artificial price hikes.
6. More or less, their imports are export oriented and the safeguard measures are uncalled for if
exports are taken into account.
7. In the past Phenol was also being imported by the petitioners against the export of value
added products by them.
8. They sincerely wish and endeavour to promote Indian Manufacturers but experience with
both Herdillia and HOC has left them with no other option but to import Phenol.  On one hand,Phenol was being imported in the country while at the same time HOC and Herdillia were exporting
Phenol at much lower prices than prevailing in the International Market.  The prices offered on
deemed export basis to local exporters were much higher with stringent credit terms and conditions.
9. Any imposition of safeguard duty will start a wrong precedent and will be against the basic
notion of free trade.  In the globally competitive economy, the inefficiencies are to be shrugged off if
one has to survive.  The Industry will have to learn to adjust to the globally competitive world and it is
only the efficient and fittest who will survive.
18. C.J. Shah & Co., Mumbai.
1. They are one of the bulk importers of various solvents and chemicals in India and have been
regularly importing Phenol into India.
2. They have been regularly importing Phenol for actual users from Japan, Korea, USA etc., and
that their prices are more or less competitive compared to local material and to the best of their
knowledge, no foreign suppliers are dumping the material into India.
3. They feel that the proposed imposition of Safeguard duty on Phenol into India is totally
unwarranted and if the same is implemented it will have adverse impact on the Indian economy which
is already in bad shape.
4. The locally available phenol is inadequate to meet the ever increasing demand from the end-
users and this is being taken care of by imported material, the price of which is more or less the same
as compared to locally available material.  In case the proposed Safeguard duty is implemented, it will
not be economical to import this item and the production activities will come to a stand still as the
local manufacturers will not be able to cater the entire needs of the end-users.
5. In case the proposed imposition of Safeguard duty is implemented, it will not be economical
to import this item and automatically the price of indigenous material will go up and accordingly the
end-users will be compelled to jack up the price of their products. This will put additional burden on
the Indian economy.
6. In case of any shut down of the local manufacturer's plant due to technical or other reasons,
and if there is no import of Phenol into India, the end-users of Phenol will have to shut down theirG/SG/N/8/IND/6
Page 26
plants for want of material which will have adverse impact on the economy, which in the past has
happened.
19. M/s. Kantilal Manilal & Co., Mumbai
1. They have been importing Phenol into India from various Overseas sources and serving
various customers. The prices prevailing internat ionally has been regularly coming down during the
course of this year, which is in relation to the steep fall in the key raw material prices like
Benzene/Cumene.
2. The Indian import duty is already very high compared to most of the countries in the World
and despite this difference, the imports are regularly coming due to competitive nature of the terms
offered by the overseas suppliers.
3. In case these imports are curbed, a lot of Industries, who are consuming Phenol as one of their
key inputs, may suffer in term of their competitiveness and may also become uncompetitive while
looking at the global market.  It is also clear from the demands/supply situation that both local makers
are not in a position to meet the 100 per cent demand in the country and if any higher duty is imposed,it will cause damage to the competitiveness of the downstream products.
4. The market forces should be allowed to take care of the demand/supply situation and allowing
the consumer to source their raw material from the most competitive areas/suppliers.
20. Haresh Kumar & Company Mumbai
1. The consumption of Phenol is much higher compared to local capacity of mainly two
producers i.e.  Hindustan Organic Chemicals Ltd.  and Herdillia Chemicals Ltd.  The gap between the
demand and supply has led to the increased imports.  It may also be noted that the domestic sale of the
local manufacturers has not decreased in 1998-99 compared to the earlier year. In fact the exports ofHOC has decreased by almost 7700 MTs which might have forced them to decrease their production
2. The exports of finished products manufactured from Phenol such as Laminates,
Pharmaceutical Bulk Drugs like Paracetamol, Aspirin, Pesticide and Agro Products have increased.
3. The major import is still against duty free and is one of the reasons for the increased import of
Phenol.
4. Few major importers who have imported Phenol  against advance license along with their
consumption are as under:
Mitsui Industries Ltd. and 2500 Mts
Hindustan Inks & Resins Ltd.
Century Laminating Co. Ltd. 1800 Mts
Atul Limited 2000 Mts
Kesar Petroproducts Ltd. 3000 MtsUnited Phosphorus Ltd.  300 MtsFarmson Pharmaceuticals Guj Ltd. 1500 MtsG/SG/N/8/IND/6
Page 27
Other laminate manufacturers
such as Meghdev & Milton Laminates 3000 Mts
Misc. Importers against duty free 2500 Mts
The duty free imports is more than 50 per cent of the total imports which is approximately
23000 Mts.  on annualised basis.
4. The other main reason for increased imports is due to monopolistic situation created by the
two manufacturers.  At times they have increased th e price without intimation taking advantage of the
monopoly situation.  For example in June 1998 during cyclone at Kandla (almost 100 per cent of the
quantity is imported at Kandla) imports and deliveries were suspended until August 1998. Both the
manufacturers increased their price sharply whereas the price of their imported Cumene were
unchanged or dropping.  (Phenol manufacturers imported their raw material i.e.  Cumene at
Mumbai/Mangalore).  They took the advantage of their monopoly during cyclone increasing theirprice from Rs.35/- per KG in May'98 to Rs.40/- per KG in July'98 till the imports/deliveries from
Kandla re-started.
5. Quality of Phenol is not of international standard for few end users who export their final
product like Bisphenol-A.  They have to rely on imports.
6. Inconsistent deliveries and sudden upward price revisions have forced the Phenol users to
import as they are left with no alternative and have lost the confidence in indigenous manufacturers.
Manufacturers have invariably delayed the deliveries of the material, increased the price even after the
delivery order was issued.  (Price is subject to change at time of delivery) as a result of which thePhenol users were put to hardship, creating uncertainty on the final cost of their finished products,
because of upward price revision by the Phenol manufacturers.
7. The increase in imported Phenol is not because of lower international price.  In fact the prices
of both i.e.  Phenol and its raw materials has dropped. Also the duty on Phenol is much higher 30 per
cent as compared to duty of 15 per cent on Cumene/Benzene.
CIF
97-98CIF
98-99Duty
Phenol 690 400 30 per cent
Cumene 475 275 15 per cent
Benzene 280 210 15 per cent
From the above figures of international prices/duties it is quite evident that local
manufacturers are getting a better price realisation and as such there is no threat against imports.
8. Based on the raw material price and other cost they are achieving a value addition of
approximately 60 per cent which is quite higher than the normal value addition.  Even the other major
Phenol plants world over with much higher cap acity and low over run do not achieve such higher
value addition.
9. It may be noted the phenol division of both manufacturers are making good profit in spite of
old plants, higher run-over cost etc.G/SG/N/8/IND/6
Page 28
10. From the stock statement of domestic producers they carry inventory of 2000-3000 MTs
which is not even 5 per cent of their annual product ion and 3 per cent of total consumption.  The stock
position itself suggest that they have no difficulty in their sale/price realisation and as such there is no
threat against imports which is only covering the demand and supply gap.
11. Imposition of safeguard duty would lead to a total monopolistic situation which shall pose a
serious threat to the several domestic industries.
VI. VIEWS OF DOMESTIC PRODUCERS
The domestic producers have made the following main points:
1. M/s. Hindustan Organic Chemicals Ltd., Cochin.
1. They have their manufacturing units at (1) Rasayani-410027, Distt. Raigad Maharashtra (2)
Ambalamugal-682302, Distt.  Ernakulam, Kerala and Phenol plant is located at Ambalamugal only.
2. They manufacture Basic Organic Chemicals namely Phenol also known as Carbolic Acid or
Hydroxy Benzene, Acetone, Aniline, Nitrotol uenes, Nitrochlorobenzens, Monochlorobenzene,
Formaldehyde, Nitrobenzene, Sulphuric Acid, Cyclohexylamine, Acetanilide, Caustic Soda,
Hydrogen Peroxide, Butene-1, 4-Diol.
3. Phenol manufactured by them, both Crystal and Hydrated form, is used in the manufacture of
Phenol Formaldehyde Resins, Laminates, Plywood, Particle Boards, Pharmaceuticals, etc. In themanufacture of Leather Chemicals, Bisphenol-A a nd Alkyl Phenols only Crystal form of Phenol is
used.
4. Benzene and Propylene are the major raw materials while Cumene is an intermediate in the
manufacture of Phenol.  Acetone is formed as a co-product in the manufacture of Phenol.  Phenol andAcetone are formed in the ratio of 1:0.6.
5. Their product has similar qualities and characteristics as of imported product.6. Their present cost of production of Phenol is in excess of Rs.25,000/-Ton.  The indigenous
selling price is governed by the landed cost of imported Phenol.
7. Even when total domestic demand of Phenol has improved over the years their capacity
utilization has come down due to abnormal increase in imports causing injury to their unit.
8. There was a sharp fall in prices of imported Phenol during 1998-99 resulting in steep fall in
domestic prices.
9. According to current Union Budget 1999-2000 Customs Duty on Phenol has been further
reduced from 25 per cent + 5 per cent to 25 per cent + 2.5 per cent.  Thus, making imported Phenol
cheaper by about Rs.420/- MT.  Present landed cost including Customs Duty works out to be about
Rs.22,000/-MT.
10. Increased imports will lead to lower capacity utilisation.  This will also result into losses due
to increase in cost of production and poor sales realisation.  The unit which remained a healthy unit
for a long time and provided Phenol to consumer industry consistently will turn to loss making unit
and may become unviable.G/SG/N/8/IND/6
Page 29
11. Whereas the cost of production has been by and large increasing over a period of time, the
domestic prices (which are a function of international prices (CIF India), import duty and the
exchange rate) have had to be by and large either held stable or drastically reduced (as has been done
of late) in order to maintain the market share, because if the market is once lost, it would be very
difficult to regain the same, which has led to compression of margins.
12. CIF India Phenol prices, which used to be in line with the prices in other parts of the world,
have come down more drastically than in other part s of the world like U.S.A.  Europe and Far East.
Whereas the drop in USGC (US Gulf Coast) prices has been to the extent of USD 110/Ton till end
September'98 (from USD 716/Ton in Jan.  1998 to USD 606/Ton in Sept.  1998, a drop of 15.36 per
cent, the drop in CIF India prices has been mo re drastic at USD 275/Ton (from USD 715/Ton to USD
440/Ton, a drop of 38.46 per cent, for the same period).  The CIF India prices have dropped furthertill end December to USD 395 per Ton (an overall drop of 44.75 per cent.
13. In view of economic crisis in other parts of Asia, overseas Phenol producers look at the Indian
market as a safe and lucrative target because of the reliability of Indian banking system and the
consequent payment security.  As a result, they are willing to sell to India at very low prices.
14. The prices to India are at a discount of around USD 70/Ton over the USGC prices for Dec.
1998.  This is causing serious injury to the Indian industry, which needs to be safeguarded by a
suitable additional levy on imports.  In view of the rapid fall in CIF India prices to an all time low in
the past 5 years, there is a significant further spurt in import over and above the past three yearaverage of 18500 TPA and there is a further compression of margins equivalent to the compression of
landed cost of import over and above current levels.
15. Imports equal to 1.63 times of the whole of past year's imports have arrived in a short span of
9 months out of which imports equal to 60 per cent  of last years imports have arrived in the 3rd
quarter of 1998-99.  Due to these extremely low priced imports, Indian manufacturers will have to
reduce their prices (which have already been reduced from Rs.37/kg in January 1998 to Rs.29/kg in
October 1998 to the present price level of Rs.28/kg, all prices being list prices)to nearly match the
landed cost of import at around Rs.24/kg net of CVD se toff.  So far, there is a drop of Rs.9/kg in list
prices on a January 1998 level of Rs.37/kg.
16. There has been no corresponding reduction in the raw material prices.  In view of this, cost of
manufacture remains to be high and profitability is under pressure.  Steep fall in realisation and
margins is causing serious injury to their unit on th e following fronts also (a) Share prices of HOC has
come ,and (b) Credit rating by CRISIL has been down graded from AA(-) to A(-) on long term and
from P1(+) to P2(+) on short term borrowings.
17. The profit on Phenol sale in bulk condition has fallen sharply since August, 1998 to a loss of
Rs. 1,198 / Ton in December, 1998 with corresponding drop in gross margins of 63 per cent in a span
of just 4 months due to increased imports at lower prices.
18. The increased imports have not only come at low prices but also at long credit to the traders.
The additional benefit accruing on this account led to similar demand by the consumers from the
domestic industry. The debtors of Phenol increased from 62 days of sales during July, 1998 to 69 days
in December, 1998. The lower gross margins, increased stock/inventory and longer credit resulted in
reduced cash flows and thereby reducing availability of funds to maintain normal operation.
19. There is steep drop in price realisation from Rs. 30,420 / MT in September, 1998 to Rs.
24,620 / MT (drop of 19 per cent in December, 1998 and this was the period when Phenol in
substantial quantities was imported at lower prices.G/SG/N/8/IND/6
Page 30
20. They sold 3,137 MT of Phenol during April- December, 1998 under Deemed Export Scheme
to various end users of Phenol and this will prove that they were export competitive.
21. The real injury is going to be caused in the weeks and months that follow.  The injury in case
of extinction of the Phenol Industry, with its impact on downstream industries and consequentunemployment, will be far beyond.
22. They have been upgrading their technology and debottlenecking manufacturing facilities with
the objective of reducing the operating costs per unit and increasing effective capacity to satisfy the
increasing domestic demand from most of the sectors.  They have recently increased their effective
capacity from 40000 TPA to 45000 TPA.  To reduce the power cost, they have taken steps to setting
up of captive power generation facilities by the co-generation route and gains could start accruing inthe current financial year 1998-99. They are planning to set up a World Scale Greenfield Phenol
manufacturing facilities either 100000 TPA or 150000 TPA at Dahej at Maharashtra or Gujarat State.
There is a possibility of a co-operative effort  between HOC and HCL.  They intend to become
internationally competitive by extending their capa cities, upgrade and modernise technology with the
help of technology suppliers and consultants.
2. Herdillia Chemicals Ltd. Mumbai
1. They manufacture Basic Organic Chemicals and Specialties like Phenol, Acetone, Phthalic
Anhydride, Diacetone Alcohol, Dodecyl Phenol, Nonyl Phenol, Diphenyl Oxide, Isobutyl Benzene,
Isophorone, Heat Transfer Media, Acetophenone.
2. There are two grades of Phenol manufactured by them namely Crystalline and Hydrated.
Whereas Crystalline Phenol is solid Phenol in crystal form, hydrated Phenol is a composition of
Phenol and water with a percentage of water being less than 10 per cent.  Due to this, Phenol remains
in molten form even in ambient or cold conditions and simplifies material handling procedure by theend users during unloading.  The purity of Crysta lline Phenol is minimum 99.5 per cent by weight.
However, the billing of Hydrated Phenol is done on the basis of the actual Phenol content in the
material.
3. Phenol is used in the manufacture of Ph enol Formaldehyde Resins, Laminates, Plywood,
Particle Boards, Bisphenol-A, Alkyl Phenols, Pharmaceuticals, Diphenyl Oxide etc.  Applications
such as Leather Chemicals and Bisphenol-A normally require only Crystalline Phenol.
4. The imported Phenol and the Phenol manufactured by them is same in all respects.5. The average of cost of production of the first ni ne months of the present fiscal year and of the
previous three fiscal years is Rs.33,900 per MT.
6. Phenol facility of 10,000 TPA capacity was set up in the 1960s and became operational in
1968. Initial investment in the Phenol manufacturing facility was Rs.3.31 crores.  Over a period of
time, the capacity was increased to well over 20,000 TPA till the end of the fiscal year 1996-97
through investments in debottlenecking financed entirely through internal accruals.  The presentcapacity of the plant is 30000 TPA.
7. Packing cost for Phenol was around Rs.3.5/Kg.  for the year 1995-96, Rs.3.75/Kg (Average)
for the year 1996-97, and Rs.4/Kg for the years 1997-98. This is approximately the difference
between the net sales realisation of Bulk and packed Phenol.  The selling price of Phenol is based onthe landed price parity and not on a cost plus basis concept.  As a result there is no correlation
between the raw material cost and the selling price.G/SG/N/8/IND/6
Page 31
8. Whereas the cost of production has been stable or increasing over a period of time, the
domestic prices (which are a function of international prices (CIF India), import duty and the
exchange rate) have had to be by and large either held stable or drastically reduced (as has been done
of late) in order to maintain the market share, because if the market is once lost, it would be very
difficult to regain the same.
9. CIF India Phenol prices, which used to be in line with the prices in other parts of the world,
have come down more drastically than in other pa rts of the world like US A, Europe and Far East.
10. Whereas the drop in USGC (US Gulf Coast) prices has been to the extent of US$ 110/Ton
Till end September'98 (from USD 716/Ton in Jan.  1998 to US$ 606/Ton in Sept.  1998, a drop of
15.36 per cent, the drop in CIF India prices has b een more drastic at US$275/Ton (from USD 715/Ton
to USD 440/Ton, a drop of 38.46 per cent, for the same  period).  The CIF India prices have dropped
further till end December to USD 395 per Ton (an overall drop of 44.75 per cent.
11. In view of economic crisis in other parts of Asia, overseas Phenol producers looked at the
Indian market as a safe and lucrative target because of the reliability of Indian Banking System andthe consequent payment security.  As a result, they were willing to sell Phenol to India at very low
prices.
12. The prices to India are at a discount of  around USD 70/Ton over the USGC prices for
Dec.1998. This is causing serious injury to the Indian industry, which needs to be safeguarded by asuitable additional levy on imports.
13. In view of the rapid fall in CIF India prices to an all time low in the past 5 years, there is a
significant further spurt in import over and above the past three year average of 18500 TPA and there
is a further compression of margins equivalent to the compression of landed cost of import over andabove current levels.
14. Imports equal to 1.63 times of the whole of past year's imports have arrived in a short span of
9 months out of which imports equal to 60 per cent  of last years imports have arrived in the 3rd
quarter of 1998-99.
15. Due to these low priced imports, Herdillia had to reduce its prices from Rs.37/Kg in January
1998 to Rs.29/Kg in October 1998 to the present price level of Rs.28/Kg, all prices being list prices.
On this, discounts are required to be given for the net price to nearly match the landed cost of
imported material.  As a sequel profitability of Herdillia is under severe pressure.
16. They acted as a catalyst in the development of a host of downstream industries many of
whom were export oriented with assured domestic availability of Phenol.
17. During May-June, 1998, they reduced their captive consumption of Phenol by sacrificing
production of high value Phenol derivatives to maintain adequate supplies to the consumers.
18. Imports of Phenol have more than doubled during the first three quarters of 1998-99 and
during September, 1998 to December,1998 it far exceeded the entire imports made during 1997-98.
The imports effected in 1998-99 were even more than the market share of Phenol enjoyed by
Herdillia.
19. The price realisation for Phenol (bulk) which stood at Rs. 35,772 PMT during April, 1998
reduced to Rs. 24,934 PMT in December, 1998. The profit on Phenol sale in bulk condition fell
sharply since August, 1998 to a loss  of Rs. 3,298 per ton in December, 1998.G/SG/N/8/IND/6
Page 32
20. The decrease in capacity utilisation would be resulting in a substantial increase in the fixed
costs per ton of Phenol for Herdillia, thus further shrinking the margins.
21. Due to the large scale Phenol imports at substantially lower costs and long credit periods
flooding the Indian Markets, the situation is forc ing the domestic manufacturers to offer more credit
period to the customers. The debtors have gone up substantially during the past few months
elongating the Working Capital cycle finally resulting in a severe cash crunch.  As a result Herdillia is
finding it difficult to pay to the suppliers on time.  They have to borrow funds, as inter-corporate
deposits, at rates substantially higher than the prev ailing market rate resulting in a further loss of
profitability.
22. Herdillia's performance parameters for credit rating have also deteriorated due to low Phenol
prices making it further difficult to access funds at reasonable cost.
23. Due to the liquidity crunch (and the consequent loss of profitability), Herdillia is finding it
extremely difficult to access funds from financial institutions.  This is, in turn, resulting in delay of
implementation of the long-term plans to build a Greenfield Phenol plant of capacity 100,000 TPA.On the other hand, the quick implementation of this project is imperative for future survival of
Herdillia in the emerging economic situation consequent to India's commitments to the WTO.
24. The import duty on Phenol has been lowered drastically in the past few years whereas the
import duty on its raw materials has been reduced by a much smaller margin.  The differentialbetween the import duty on Phenol and its raw materials Benzene and Propylene has been steadily
narrowing.  Moreover, the freight on Propylene is very high (and a significant  per cent of the FOB
price) due to it being a gas under atmospheric conditions.  Furthermore, Propylene cannot be imported
due to absence of adequate facilities at our ports for its handling.  Propylene prices to Herdillia are
substantially higher than in USA, Europe or the Middle East to add to the hardship.
25. From the available information, it is being felt that the growth in Phenol capacity expected in
the coming five years will far outstrip supply.  Actually, there is a concern about the future demand
supply balance of co-product Acetone also.  Based on the new project as well as
expansion/debottlenecking plans of the existing/new Phenol manufacturers, 40 per cent additional
capacity is expected to come up.  Recent and the near future expansions include a majority in Europe
including 70,000 TPA of Phenolchemie at Gladbe ck, of Caproleuna (70,000TPA), and of DSM
(20,000 TPA) apart from 1,50,000 TPA of Ertisa, Spain as has been reported by an international
market agency of repute.
26. Major US projects are still to come on stream and Phenolchemie's Mobil Alabama plant and
Shell's investment are still poised to be introduced in the year 1999 as has been reported by aninternational agency of repute.  Kumho and Mitsui are also reported to be active on their plans in
Asia, which would mean significant additional capacity in our region in addition to the threat of
import from the other continents/regions.  Asian Phenol capacity is set to rise with Mitsui Chemicals
announcing plans for 200,000 TPA plant.  Only the Indian sub-continent with its one of the fastest
expected future demand growth and its strategic location vis-a-vis feedstock availability from theMiddle East offers best opportunity for a Greenfield Phenol facility in a somewhat longer term than
the commissioning of the Mitsui project.
27. The proposed expansions in global Phenol cap acity look broadly on track.  This is clearly
unwarranted in view of concerns about demand not likely to keep pace with the growth in capacity
following the Asian economic crisis.  As has been forecasted by one of the globally leading agencies
watching the Phenol scenario, the market is headed for a very difficult patch between 1999 and 2005.
Prices are expected to continue to remain at very low levels.G/SG/N/8/IND/6
Page 33
28. Herdillia imports small quantities of Phenol only duty free for the manufacture of Diphenyl
Oxide for export.
29. They have taken a number of steps to make positive adjustments to improve competitiveness
of their product vis-a-vis the imported phenol.
30. The import figures submitted by them are authentic, taken from various reliable sources.31. In mentioning the closing stock there has been some clerical error. The closing stock figures
mentioned in the Petition are the correct one.
3. Neyveli Lignite Corporation, Neyveli
1. Phenol also known as Carbolic Acid is manufactured by them as byproduct in Carbonisation
process of Lignite Briquettes in Briquetting and Carbonisation Plant.
2. Their installed capacity, production, sales and closing stock of Phenol during the year 1995-
96 onwards is as under:
(MT)
Installed capacity Production Sales Closing Stock
1995-96 800 504.210 541.611 109.846
1996-97 800 352.597 419.206 48.805
1997-98 800 835.215 571.007 307.445
1998-99 800 529.002 541.222 295.245
3. Phenol manufactured by them is used in the manufacture of various chemical products like
Polymers, Bakelite laminates, Resins, explosives, perfumery disinfectants, electrical insulation etc.Against the production of 835 tonnes during 1997-98 the production during 1998-99 was only 529
tonnes and the loss of production was 306 tonnes.  Fall in capacity utilisation was around 35 per cent.
4. They have lost nearly Rs. one crore because of inventory of 309 tonnes as on 31.3.99.
Because of loss of production of 306 tonnes during 1998-99 compared to last year (i.e.  1997-98), the
loss of sales realisation is around Rs.  one crore
5. At the present price of Rs.34000/- Per Tonne, they are already losing around Rs.2500/Tonne.
If one match the sales price to the imported cost of Rs.24000/Per Tonne, the loss will increase
additionally to Rs.10000/PerTonne. Against the targeted production of 800 tonnes, the additional loss
will be around Rs.80 lakhs.
VII. FINDINGS
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. However, before
proceeding to discuss the merits of the case it is considered necessary to discuss a preliminary issueconcerning Service of the Notice of Initiation.
VIII.  SERVICE OF THE NOTICE OF INITIATION
It has been alleged that the Notice of Initiation wa s not served on all interested parties. In this
regard, it is observed that the Notice dated 2
nd February, 1999 was published in the Official Gazette ofG/SG/N/8/IND/6
Page 34
the Government of India on 8th February, 1999 and a copy of the Notice of Initiation was served on all
known interested parties whose names and addresses were made available by the petitioners.
Paragraph 10 of the Notice specifically provided fo r any other party to the investigation who wished
to be considered as an interested party to submit its representation to the DG. Some parties that were
not initially named in the petition did represent to the DG and they were included in the investigationas interested parties. It is, therefore, observed that the requirement of notifying all interested parties as
per the law has been met with.
1. Product under Investigation
1. The product under investigation is ‘Phenol’, a basic organic chemical with chemical formula
C6H5OH, also known as ‘Carbolic Acid’.
2. Phenol is manufactured out of tar obtained by the destructive distillation of lignite/coal or
synthetically by the oxidation of Cumene using air at elevated temperature and pressure. The product
is Cumene Hydroperoxide at lower concentration, which is then alkali washed and concentrated to a
higher strength. This is then mixed with H2SO4, wh ich causes a cleavage reaction to give Phenol and
Acetone. This is washed to remove acidity and distilled in a series of distillation columns to givePhenol, Acetone and unreacted Cumene (which is recycled for conversion to Phenol and Acetone).
Cumene in turn is produced by the reaction between Propylene and Benzene.
3. Phenol is manufactured in two forms viz. Crystal form and Hydrated form. The melting point
of Phenol is 43 degree celsius and unless ambient temperatures are high it is in crystalline form. Inhydrated Phenol, a small quantity of water is added to keep the Phenol in liquid condition. However,
sale of Hydrated Phenol is based on actual Phenol content i.e. on 100 per cent Phenol content basis.
4. Phenol is used in the manufacture of Ph enol Formaldehyde Resins, Laminates, Plywood,
Plastic Boards, Bisphenol-A, Alkyl Phenols, Pharmaceuticals etc.
5. Phenol is classified under sub-heading 2907.11 of the First Schedule to the Customs Tariff
Act, 1975 and under 29071101 and 29071102 of the Indian Trade Classification (based on
Harmonised Commodity Description and Coding Syst em). This classification of Phenol under the
Customs Tariff Act, 1975 and the Indian Trade Classification has been indicated for the purpose of
convenience and in no way restricts the scope of the coverage of the product under investigation.
6. A claim has been made to exclude 100 per cent pure Phenol i.e. Phenol in crystal form
because of its melting point and need to have Special Sea worthy Tankers, Heated Road Tankers and
Heated Storage Tank at the port of Import. This claim, however, needs to be examined in the light of
the fact that Phenol in Hydrated form is obtained by adding a small quantity of water to pure Phenol
to keep it in liquid form. The exclusion of 100 per cent pure Phenol would, therefore, defeat the wholepurpose. The factors enumerated in favour of excl usion of 100 per cent pure Phenol do not distinguish
100 per cent pure Phenol from the Hydrated Phenol, but only point out towards additional handling
requirements and/or the additional costs involved in importing 100 per cent pure Phenol as compared
to Hydrated Phenol. This claim, therefore, has no merit. The present investigation, therefore, covers
both Crystalline Phenol and Hydrated Phenol.
2. Domestic Industry
The application has been filed by M/s Hi ndustan Organic Chemicals Ltd., Mumbai (HOC)
and M/s Herdillia Chemicals Ltd., Mumbai (HCL), w ho are the only two producers of Phenol through
the synthetic route i.e. through the Cumene route. They have a combined capacity of 75,000 MT(1998-99) of Phenol production. During 1997-98, they produced 69,281 MT of Phenol (capacity
71,500 MT) and in the first nine months of 1998-99, they produced 48,703 MT of Phenol. M/sG/SG/N/8/IND/6
Page 35
Neyveli Lignite Corporation Ltd. (NLC) also manufacture Phenol out of tar obtained by the
destructive distillation of Lignite/Coal but their production capacity is only 800 MT. HOC and HCL
together, therefore, constitute a major proportion of domestic production.  NLC although did not join
the petitioners in filing the application, they have participated in the investigation and extended their
support for imposition of safeguard duty on imports of Phenol. The application by HOC and HCL is,therefore, considered to have been made on behalf of the domestic industry.
3. Increased Imports
1. Phenol is imported into India from China, Chinese Taipei, France, Germany, Indonesia, Italy,
Japan, Korea DPR, Korea RP, Kuwait, Malaysia, Netherlands, New Zealand, Russia, Saudi Arabia,
Singapore, South Africa, Spain, Un ited Kingdom and United States of America. Currently, the major
exporters of Phenol to India are South Africa, South Korea, Japan and Taiwan. The import duty onPhenol that was 85 per cent in 1993-94 was broug ht down to 65 per cent in 1994-95, 40 per cent in
1995-96 and to 30 per cent in 1996-97. Initially in 1997-98, the import duty on Phenol was 25 per
cent + 2 per cent but later on an additional 3 per cent duty was levied on imports of Phenol. Currently,
Phenol attracts import duty @ 25 per cent + 2.5 per cent ad valorem excluding Additional Duty of
Customs and Special Additional Duty of Customs.
2. In 1994-95 a total of 6664 MT of Phenol entered into India mainly from Japan (2002 MT),
Germany (1225 MT), USA (968 MT) and South Africa (1263 MT). In 1995-96, the imports of Phenol
rose phenomenally to 21752 MT with major imports from Japan (4767 MT), Taiwan (1048 MT),
Germany (638 MT), Netherlands (6731 MT), Fr ance (1075 MT), USA (4539 MT), South Africa
(1871 MT) and New Zealand (539 MT). The imports during the next two years declined gradually
from the high of 21752 MT in 1995-96 to 19545 MT in 1996-97 and to 15352 MT in 1997-98. The
imports in the first nine months of 1998-99 (April, 1998 to December, 1998) have been claimed to be
25048 MT by the petitioners including duty free imports of Phenol. M/s Kesar Petroproducts have
argued that import of Phenol for use in export production cannot be claimed to be affecting thepetitioners. This argument of M/s Kesar Petroprodu cts is not tenable in as much as whether for
domestic production or for export production, whatever Phenol is used constitutes the market for the
domestic producers. The quantity of Phenol imported for use in export production, therefore, needs to
be included in the total imports.
3. Doubts have been expressed by some parties about the authenticity of import data provided
by the applicants, particularly in respect of import data for the period April-December, 1998. It hasbeen submitted that domestic producers who filed the application for initiation of safeguard duty on
Phenol on 8
th January, 1999 could not have had with them authentic data of imports till December,
1998 and that while the domestic producers have claimed that some imports of Phenol have entered
through Goa port, there has not been any import of Phenol at Goa port. The domestic producers in this
regard have submitted that the data for the years up to 1997-98 has been taken from the DGCIS,Calcutta. Due to time lag in publication of DGCIS figures, for the first three quarters of 1998-99, they
have taken the data based on market intelligence sources. They have claimed that they continuously
monitor data on month to month basis through various market intelligent sources like traders
(domestic and international), tank operators at ports, importers and exporters and that the import data
has been provided by them with adequate details. In regard to the authenticity of the import data, it is
observed that the data provided by the petitioners for the period from 1994-95 to 1997-98 is based on
the DGCIS statistics and is authentic. As far as 1998-99 (April-December) data is concerned, it is
observed that the petitioners have provided details of imports giving name of the Vessel, date of
arrival, quantity, port of loading and price in respect of 23,348 MT, 22348 MT imported at Kandla
port and 1000 MT imported at Calcutta port. They ha ve also claimed 1700 MT of Phenol to have been
imported in packed condition. As regards imports through Goa port, they have categorically stated
that M/s Kesar Petroproducts Ltd., Mumbai who had raised doubts about imports through Goa port
had themselves imported Phenol through Goa/Mormugao port and HCL had provided expertG/SG/N/8/IND/6
Page 36
assistance. It is also observed that no specific discrepancy in the import data for the period April-
December, 1998 has been pointed out by any party. However, the import data of Phenol was subjected
to verification. Kandla Custom House has conf irmed imports of 22028.414 MT of Phenol during
April-December, 1998. 1,000 MT of Phenol was imported at Calcutta port and 1521.943 MT in
packed condition at various ports. The small difference between figures of imports through Kandlaport-22348 MT mentioned by the petitioners and 22028.414 MT confirmed by the Kandla Custom
House is due to the difference between the Bill of Lading quantity (relied upon by the petitioners) and
Ullage quantity (considered as imported by the Kandla Custom House). M/s Samsung Corporation on
behalf of M/s Kumho P&B Chemicals Inc., Korea, have confirmed exports of 9,801 MT of Phenol to
India in 1998 as compared to 2,099 MT in 1996 and 4,351 MT in 1997. Verification of some of the
importers has revealed that during April to December, 1998 M/s Kesar Petroproducts imported 1683
MT of Phenol, M/s C.J. Shah & Co. 2,487 MT of Phenol and M/s Kantilal Manilal 289 MT of Phenol.
4. In view of the above discussions, it is observed that imports of Phenol into India in 1998-99
(April-December) were 24550 MT. Table 1 below gives import figures of Phenol from 1994-95 to
1998-99 (up to December).
Table 1
Year Imports
Quantity (MT) Value (Rs. Mn.)
1994-95 6663.963 130.707
1995-96 21752.174 450.512
1996-97 19545.737 443.566
1997-98 15312.373 380.512
1998-99(April-December) 24550.357 -
5. The imports thus have increased from 6,664 MT in 1994-95 to 21,752 MT in 1995-96. In
1996-97 and 1997-98, the imports declined as compared to 1995-96 to 19,546 MT and 15,312 MT
respectively. On an average during this period i.e.1995-96 to 1997-98 the quantum of imports of
Phenol into India was 18,870 MT per annum (MTpa). In the first nine months of 1998-99, the
imports, however, jumped to 24550 MT i.e. an increase by 73.5 per cent over the average imports
during 1995-98 on a pro-rata basis. As compared to the immediately preceding year 1997-98, the
imports in the first nine months of 1998-99 increased by 113.8 per cent on a pro-rata basis. Incomparative terms the imports were 11.53 per cent of domestic production in 1994-95, 34.14 per cent
in 1995-96, 34.01 per cent in 1996-97, 22.1 per cent in 1997-98 and 50.4 per cent in 1998-99 (April-
December). The domestic production, import figures and imports as  per centage of domestic
production are given below in Table 2.G/SG/N/8/IND/6
Page 37
Table 2
Year Domestic
Production(MT)Imports(MT) Imports as percentage of
Domestic Production
1994-95 57780  6664 11.53
1995-96 63719 21752 34.14
1996-97 57466 19546 34.01
1997-98 69281 15312 22.1
1998-99
(April-December)48703 24550 50.4
5. The imports have thus increased both in absolute terms as well as compared to domestic
production.
6. An issue has been raised by M/s Kesar Petroproducts that the initiation notification does not
follow a uniform period. The increased imports have been considered since 1994-95 apparently
because the imports were quite low in that year and comparatively shows substantial increase in the
subsequent years. The market share has been considered since 1995-96 and the production of thedomestic industry has been considered from 1996-97. In this regard, it is observed that one of the
fundamental requirements for taking a safeguard measure is that the increased imports should be the
cause of injury to the domestic industry. The fact of increased imports, therefore, must precede or co-
exist with the serious injury or threat of serious injury to the domestic industry. It is, therefore,
necessary to examine the import figures over a period so as to enable a proper appreciation of the factof increased imports. In the instant case, no undue advantage is conferred on the applicants by taking
into account imports of Phenol in 1994-95, which saw a lower quantum of imports as compared to
subsequent years. In fact, during the next year the imports of Phenol increased phenomenally to
21,752 MT but thereafter the imports declined to a low of 15,312 MT in 1997-98 before rising again
to 24550 MT in the first nine months of 1998-99. As has been observed in the foregoing discussions,the imports in the first nine months of 1998-99 increased by 73.5 per cent over the average imports
during 1995-98 on a pro-rata basis and by 113.8 per cent as compared to 1997-98 on a pro-rata basis.
This clearly establishes the fact of increased imports without any reference to the quantum of imports
in 1994-95.  In the present case the existence of threat of serious injury to the domestic industry is to
be considered.  It is, therefore, obvious that the domestic industry would need to establish a threat ofserious injury in the recent period by comparing the present state of affairs of the domestic industry
with what was prevailing in the recent past. The issue raised by M/s Kesar Petroproducts, therefore,
has no merits.
7. M/s Kesar Petroproducts have also raised another issue in the context of increased imports.
They have submitted that the legal provisions are silent as to what constitutes increase in imports in
absolute term and that an increase from 100 units to 103 units cannot be interpreted to constitute anincrease in absolute terms. They appear to su ggest considering only excess imports i.e. excess of
imports over shortage in domestic demand and domestic production to determine whether imports
have increased in absolute terms. In the context of increased imports, Rule 2(c) of the Customs Tariff
(Identification and Assessment of Safeguard Duty) Rules, 1997 defines ‘increased quantity’ to include
increase in imports whether in absolute terms or relative to domestic production. The two phrases ‘inabsolute terms’ or ‘relative to domestic production’ have been used in juxtaposition and derive their
meanings from a plain reading of the definition itself. The words ‘in absolute terms’ clearly refer to an
increase in imports in absolute terms e.g. an increase in quantity/number of units. An increase in
imports from 100 units to 103 units would, therefore, be undoubtedly a case of increase in imports in
absolute terms. The law does not require excess of imports, as argued by M/s Kesar Petroproducts toG/SG/N/8/IND/6
Page 38
be considered for determination whether imports have increased in absolute terms. In fact, it would be
impractical to imagine, in the wake of imports allowed without any restrictions, that one should like to
import more than what is required i.e. ‘exce ss imports’ and build up inventory. What the law,
therefore, requires is to consider imports in absolute terms and relative to domestic production.
Whether the imports have entered because these were needed to meet the demand may be relevant fordetermination of injury caused by such imports but it is not relevant for the determination of the fact
of increased imports. In the present case, as indicated in Table 2, the imports have increased both in
absolute terms as well as relative to domestic production.
4. Threat of Serious Injury
(a) Domestic Production
An analysis of various factors attributing to the present status of domestic industry reveals
that the domestic production was 57466 MT in 1996-97. On an average the domestic production was
about 59,655 MTpa during the period 1994-95 to 1996-97 which increased to 69,281 MT in 1997-98
but declined to 48,703 MT in the first nine months of 1998-99. On an annualised basis the domestic
production for 1998-99 works out to 64,937 MT. Thus, the domestic production that registered a
growth of about 16.1 per cent in 1997-98 over the average production during 1994-97 and 20.6 percent over 1996-97 production registered a fall of 6.69 per cent in 1998-99 over 1997-98.
(b) Capacity Utilisation1. The domestic producers have constantly improved upon their capacities to produce phenol.
HOC have increased their capacity from 40,000 MTpa in 1994-97 to 45,000 MTpa in 1997-99. HCL
have improved their capacity from 20,000 MTpa in 1994-95 to 24,000 MTpa in 1995-96, 26,500
MTpa in 1996-98 and to 30,000 MTpa in 1998-99. The two domestic producers have thus increased
their combined capacity from 60,000 MTpa in 1994-95 to 75,000 MTpa in 1998-99, an increase of 25
per cent. The capacity utilisation, however, declined in 1998-99 to 86.58 per cent as compared to96.89  per cent during 1997-98, a loss of 10.31 per centage points.
2. It has been argued by some of the interested parties that one of the petitioners has reported
highest ever-capacity utilisation and sales volume, as appeared in some newspapers. This reference
appears to have been made in the context of HOC. In fact, M/s Mitsui Chemicals have specifically
referred to official Press release dated November 4,1998 and April l6, 1999 of HOC published by the
Press Trust of India (PTI). The Press release dated April 6,1999 in the context of capacity utilisationmentions that “ capacity utilisation was 94 per cent compared to 91 per cent in the previous year.”
This capacity utilisation, however, does not refer to capacity utilisation of Phenol plant, but refers to
the capacity utilisation of the HOC as a whole, whic h is a multi-product, multi-plant enterprise. As the
total Phenol production capacity of HOC was 45,000 MT, the capacity utilisation of 2.71 lakh tonnes
in 1998-99 as compared to 2.69 lakh tonnes in the previous year and sales volumes of 1.85 lakhtonnes do not refer to Phenol production and sales alone although production and sales of Phenol may
be included in these figures.  This argument, therefore, is irrelevant for the purpose of present
investigation, which is in respect of Phenol alone. What needs to be considered for the purpose of
determination of the state of affairs of the domestic industry is the performance of the Phenol plant.
3. Some parties have submitted that the capacity utilisation of the domestic producers to meet
the domestic demand has remained stable at about 86 per cent and that capacity utilisation in all
streams of production needs to be considered rather than to consider capacity utilisation for the
domestic demand alone. In this regard, it is observed that capacity Utilisation can not be considered
for domestic demand alone as the same plant is used to meet the demand for domestic production aswell as export production. Accordingly, capacity utilisation both for domestic demand and exports
would need to be considered. On this basis, the total production in 1997-98 including both to meetG/SG/N/8/IND/6
Page 39
domestic demand and exports was 69,281 MT, 61,606 MT for domestic demand and 7,675 MT for
exports and 48,703 MT in 1998-99 (April to December) including 52 MT for exports and 48,372 MT
for domestic demand. The domestic producers thus achieved capacity utilisation of 96.89 per cent in
1997-98 and 86.58 per cent in the first three quarters of 1998-99, and thus suffered a loss of 10.31 per
centage points in the capacity utilisation.
(c) Sales
The domestic producers registered a total domestic sales of 51,538 MT in 1994-95 (3,172 +
57,780 – 3,448 – 5,244 – 722 = 51,538), 61,490 MT in 1995-96, 56,535 MT in 1996-97, 62,390 MT
in 1997-98 and 48,372 MT in April-December, 1998. As compared to 1997-98, on a pro-rata basis,
the domestic producers in 1998-99 (April-December) achieved 3.38 per cent more sales. This growth
in sales, however, is to be viewed in the bac kground of growth in the total apparent consumption
which stood at 58,202 MT in 1994-95, 83,242 MT in 1995-96, 76,081 MT in 1996-97, 77,742 MT in
1997-98 and 73922 MT in the period April-December, 1998. The growth in the apparent consumption
in 1998-99 (April-December) over 1997-98 on a pro-rata basis was 25.1 per cent whereas the growth
in domestic sales of domestic producers was only 3.38 per cent. The domestic producers could
achieve this small growth only at the cost of a drastic reduction in their average sales price which wasreduced to Rs. 28 per kg in December, 1998 as compared to Rs. 37 per kg in January-March, 1998.
(d) Stocks
The closing stocks of domestic producers which reduced from 3,248 MT in 1996-97 to 2,464
MT in 1997-98 has increased to 2,743 MT at the end of December, 1998 i.e. by 10.2 per cent over
1997-98.
(e) Employment
The domestic producers have submitted that the talented, experienced and contributing
employees have started resigning from the services of the companies thereby leading to irreparable
loss to the knowledge pool and skills inventory of the domestic industry. They are also facing
difficulties in attracting new recruits as they see lack of growth prospects in the limping Phenol
industry. In this regard, it is observed that the number of employees with the domestic industry has
remained almost the same.
(f) Productivity
As the domestic industry has lost production (6.69 per cent in April-December, 1998 over
1997-98) and capacity utilisation (by 10.31 per centage points in April-December, 1998 as compared
to 1997-98), the domestic industry has obviously lost productivity i.e. quantum of production peremployee engaged by the domestic industry.
(g) Profitability1. The domestic producers had to reduce the list price of Phenol and offer various additional
discounts to prevent their customers from shifting to imports completely. On an average, they reduced
their selling price from Rs. 37 per kg in March, 1998 to Rs. 28 per kg in December, 1998 i.e. a decline
of about 24.3 per cent in the list price. HCL’s net realisation of Phenol (bulk), which was Rs. 35,772
per MT during April 1998, reduced to Rs. 24,934 per MT in December 1998. In case of HOC, the net
realisation dropped from Rs. 32,620 per MT in August 1998 to Rs. 24,620 MT in December 1998.The reduction in net realisation has had serious effect on profitability of the domestic industry. Both
HOC and HCL have started incurring losses. In the case of HOC the losses in December 1998 were
Rs. 1,198 per MT and in the case of HCL the losses were Rs. 3,298 per MT. This also had the effectG/SG/N/8/IND/6
Page 40
of depressing the share prices of both the companies. The share prices of HOC reduced from Rs. 18
per share in April 1998 to Rs. 9 per share in December 1998 and in the case of HCL, the share price
declined from Rs. 23.50 to Rs. 18.70 per share in the same period.
2. M/s Kesar Petroproducts have claimed that the domestic producers till at least November
1998 made profits and as they have made profits in the past it can hardly be held that the petitioners
have suffered injury. In this regard, it is observed that with the list price of Rs.28 per Kg., the
domestic producers incurred losses of Rs.1198 PMT in the case of HOC and Rs.3298 PMT in the case
of HCL. The domestic producers, therefore, could not have made profits unless the list price was a
minimum of (28 +1.198) i.e. Rs29.20 per Kg. in the case of HOC and (28 +3.298) i.e. Rs31.30 per
Kg. in the case of HCL, presuming that they maintained same level of discounts etc. It is, however,
seen from the information provided by the petitioners that the list price of both HOC and HCL wasRs.29 per Kg. in Oct.98 and Nov.98. The claim of M/s Kesar Petroproducts, therefore, does not
appear to be borne out on the face of the facts in question. As regards their argument concerning
injury in the wake of past profits, it is observed that for determination of injury various factors have to
be evaluated in an objective manner. If it appears that the domestic industry is suffering a significant
overall impairment, a determination of existence of serious injury can be made. It may also be kept inmind that the present investigation concerns determination of existence of a threat of serious injury
i.e. a situation where serious injury is clearly immi nent. The turning of profits into losses is, therefore,
to be viewed in the above background.
(h) Threat of Serious Injury
Clause 6(d) of Section 8B of the Customs Tariff Act, 1975 defines ‘threat of serious injury’ to
mean a clear and imminent danger of serious inju ry. Clause 6(c) of this Section defines ‘serious
injury’ to mean an injury causing significant overall impairment in the position of a domestic
industry. An analysis of various parameters as discussed above clearly brings out that the domesticindustry in the first three quarters of 1998-99 has witnessed a severely depressed condition of
operation. As compared to 1997-98, it has lost on account of production, capacity utilisation, sales
realisation, profit, and productivity and has ended up in build up of inventory. It achieved a small
growth in sales but which was far below the growth in apparent consumption, that too only at the cost
of a sharp reduction in the sale price. Serious injury to the domestic industry is thus clearly imminent.
It is, therefore, observed that the domestic industry is suffering a threat of serious injury.
5. Cause of Injury
(a) Supply-Demand Gap
1. Some of the parties have claimed that the cause of injury to the domestic industry was not
increased imports as the imports were necessitated to meet the gap between domestic supply and
domestic demand. It may be appropriate to mention at the outset that HCL, which was the first unit toproduce Phenol in India was set up in 1968 with an installed capacity of 10000 Mtpa of Phenol. In
1979 it requested for expansion of capacity by 20000 MT, but the request of the Company was turned
down by the Government as per the then prevailing  law, observing that HCL had a dominant presence
in the Indian market. However, the domestic industry, which had a capacity to produce 60,000 MTpa
of Phenol in 1994-95, gradually improved its capacity to 64,000 MT pa in 1995-96, 66,500 MTpa in1996-97, 71,500 MTpa in 1997-98 and to 75,000 MTpa currently i.e. 1998-99. The total apparent
consumption in the domestic market (i.e. domestic sales + imports) during this period increased from
58,202 MT in 1994-95 to 83,242 MT in 1995-96 and declined thereafter to 76,081 MT in 1996-97,
77,742 MT in 1997-98 before rising again to 72,922 MT in the first three quarters of 1998-99. On an
average, the apparent domestic consumption, during the last three years i.e. 1995-96 to 1997-98 was79,022 MTpa. Comparing individually the apparent consumption figures during each of these years
with the average apparent consumption during this period or with the apparent consumption in theG/SG/N/8/IND/6
Page 41
previous year it appears that the total domestic demand during this period has remained stagnant at
around 80,000 MTpa. There was a sudden increase in total apparent domestic consumption in 1995-
96 but thereafter, the apparent domestic consumption declined to around 76,000-78,000 MTpa in
1996-97 and 1997-98. A claim has been made by some parties that currently the domestic demand is
about 1,00,000 MTpa which works out to about 25 per cent more than the average consumptionduring the last three years. No evidence of increased demand of Phenol in 1998-99 has, however, been
produced by any party nor any explanation has been provided by any party for this increase of 25 per
cent in the total apparent consumption in the curren t year, which is a substantial increase and appears
difficult to be accepted without any reasonable basis. The total apparent consumption during the
current year, therefore, does not appear to be indicative of the domestic demand i.e. the real
requirement of Phenol for the domestic market. It appears that the domestic demand during the last
few years has been of the order of about 80,000 MT and the possibility that the imports in the firstthree quarters of 1998-99 increased to take advantage of cheaper prices cannot be ruled out.
2. As mentioned above, the domestic producers have upgraded their production capacity
gradually from 60,000 MTpa in 1994-95 to 75,000 MTpa in 1998-99 i.e. an improvement of 25 per
cent in 1998-99 over 1994-95. They, however, could not utilise their production capacity to the fullextent and were constrained to produce only 48,703 MT in April-December, 1998. The domestic
producers did in the past achieve nearly 100 per cent capacity Utilisation, 99.56 per cent in 1995-96
and 96.89 per cent in 1997-98. They could have achieved similar capacity utilisation in 1998-99 also.
On a pro-rata basis, they could have thus produced about 56,250 MT during this period (75,000 x
0.75). The domestic producers thus lost about 7,547 MT of production. They also carried a stock of2,743 MT at the end of December 1998. M/s Neyveli Lignite Corporation also could not utilise their
full production capacity and carried on with a substantial inventory. It is, therefore, not correct to say
that whatever imports have taken place were due to the inability of domestic producers to cater to the
domestic demand. On the contrary, the cheaper imports restrained domestic producers to achieve their
full capacity utilisation and caused price depression and inventory build up.
(b) Shut Downs
It has been argued that HCL shut down their operation for a period of 15 days and HOC for
40 days during 1998-99 (April-December) and, therefore, they were not in the market for 15 per cent
of the year during which period the domestic demand was met by the imports of Phenol. In this
regard, it is observed that it is a matter of fact that HOC took shut down from 1 April 1998 to9 May 1998 and HCL took shut down in early 1998-99 from 22 April 1998 to 8 May 1998. The total
period of shut down for the two units, therefore, wa s 39 days in the case of HOC and 17 days in the
case of HCL, which does not account for 15 per cent of the year. Some period of shut down of the two
companies over-lapped. However, shut downs are a normal feature for any chemical plant and they
are taken into account in determining the normal plant capacity. HCL’s shut down of 15 days was forcapacity enhancement and to improve supplies thereafter. HOC accumulated stock of 2,180 MT of
phenol before the commencement of shut down. Be sides, during the period of shut down HCL
reduced its captive consumption of Phenol by curtailing production of high value derivatives to
maintain adequate supplies to the consumers. After the shut down, in the July-September 1998
quarter, the domestic producers produced 19751 MT of Phenol, which on a pro-rata basis works out toabout 79000 MTpa. It is also seen from the details of India’s Phenol imports in the first three quarters
of 1998-99 furnished by the petitioners that during this period only three consignments of Phenol
were imported. First of 1,105.152 MT from South Africa in Vessel ‘Bow Fortune’ which arrived on
3
rd April, 1998 and the second of 1045.499 MT from Japan in Vessel ‘Lodestar Spirit’ which arrived
on 9th April, 1998 and the third of 1,262.846 MT from South Africa which arrived on 8th May, 1998 in
Vessel ‘Bow Spring’. These total up to 3,413 MT which does not even account for 15 per cent of the
24550 MT imported in April-December, leave aside the imports for the whole of 1998-99. In view of
the above discussion, it does not appear that the shut down of HCL and HOC for a short duration in
early 1998-99 had any impact on the surge of imports in the first three quarters of 1998-99.G/SG/N/8/IND/6
Page 42
(c) Loss of Exports
It has also been claimed that the reason for the woes of the domestic industry is loss of its
export market that has declined to 52 MT in 1998-99 as compared to 7,675 MT in 1997-98 and notthe imports of Phenol. In this regard it is observed that the domestic producers have specifically
mentioned in their application that inspite of the freight disadvantage, Indian manufacturers were
forced to export Phenol in 1997-98 at low realisation out of desperation. It is important to keep in
mind that the production line for production of Phenol is common both for the domestic consumption
and for the export market.  A domestic industry that was not able to compete in the domestic market
could hardly have been expected to compete in the international market, specially when the domestic
supplies were the major market for the domestic industry and exports constituted only a fraction of itsmarket. The injury caused to the domestic producers by the increased imports, therefore, had its effect
on the export performance of the domestic producers as well. Nevertheless, the domestic producers
did supply 3137 MT of phenol in 1998-99 during April-December, 1998 under the Deemed Export
Scheme, which are considered as exports without goods physically leaving the Indian shore.
(d) Market Share Taken Over by Imports
1. The domestic producers had a market share of 51,538 MT i.e. 88.52 per cent in the total
apparent consumption in 1994-95. Their market share fell down to 73.86 per cent in 1995-96 and to
74.3 per cent in 1996-97 before rising to 80.25 per cent in 1997-98. In the first three quarters of 1998-99, however, the domestic producers lost their market share accounting for a mere 66.3 per cent. The
share of imports in the apparent consumption increased from 11.48 per cent in 1994-95 to 26.14 per
cent in 1995-96 which decreased to 25.7 per cent in 1996-97 and to 19.75 per cent in 1997-98 before
rising to 33.7 per cent in the first three quarters of 1998-99. On a comparitive basis the share of
imports has increased by 70.6 per cent in 1998-99 (April-December) over 1997-98. The Table belowgives the market share of the domestic producers from 1994-95 onwards.G/SG/N/8/IND/6
Page 43
Table 3
Year OB
MTProd.
MTCB
MTExports
MTD.Sales
(2)+(3)-(4)-(5)
MTTotal
App.Cons.
MTShare of
D.Salesin App.
Cons.
per centShare of
Importsin App.
Cons.
per cent
12 3 4 5 6 7 8 9
1994-95 3172 57780 3448 5966 51538 58202 88.52 11.48
1995-96 3448 63719 3323 2354 61490 83242 73.86 26.14
1996-97 3323 57466 3248 1006 56535 76081 74.3  25.7
1997-98 3248 69281 2464 7675 62390 77742 80.25 19.75
1998-
99(A-D)2464 48703 2743  52 48372 72922 66.33 33.67
2. The total apparent consumption in 1997-98 stood at 77,742 MT, which on a pro-rata basis
increased by 25.1 per cent to 72922MT in the first nine months April-December of 1998-99. The
domestic sales, however, did not grow at the same pace. The domestic producers who should have
achieved sales of {(62,390/12) x 9 x125.1 per cent} 58537MT could sale only 48,372 MT of Phenol
in the domestic market during this period (including 3137 MT supplied on deemed export basis byHOC). The domestic producers thus lost a sale of 10165 MT which was taken over by the increased
imports which captured an additional market  of {24550- (15,312/12 x 9 x125.1 per cent} 10184 MT
taking into account the growth of 25.1 per cent in th e apparent consumption. The quantitative increase
in imports during this period on a pro rata basis was 13066 MT.
3. The domestic producers have submitted that they had to make several adjustments in the price
in order to match the domestic prices with the expected landed cost of Phenol. Apart from reducing
the list price of Phenol, the domestic producers had to offer various additional discounts to prevent
their customers from shifting to imports completely. It is pertinent to note here that from mid 1994 to
March, 1998 the CIF (Indian) prices of Phenol have shown a pattern different from that seen afterMarch, 1998 as indicated in Table 4 below.G/SG/N/8/IND/6
Page 44
Table 4
Month US sourced CIF Europe sourced
CIFAsia Pacific CIF India
July 94 780 780 540
Nov. 94 780 820 750
May 95 790 855 780
July 95 790 870 685
Oct. 95 850 920 530
Mar 96 814 945 530
May 96 792 820 640
Aug 96 726 670 710
Nov 96 605 630 710
Mar 97 583 603 720
May 97 720 760 710 720
June 97 730 795 685 700
Sept 97 730 810 665 680
Nov. 97 790 860 700 680
Mar 98 754 885 700 670
June 98 732 760 600 560
Sept 98 666 610 555 440
Oct 98 545 570 470 420
Nov 98 523 543 445 405
Dec 98 422 515 440 395
It is seen from the information provided in Table 4 above that the CIF India prices started falling from
about the level of $750-780 in November 1994/May 1995 to $530 in March 1996 and firming up
thereafter to $720 in May 1997. The CIF India prices started falling slowly in June 1997 from $700 to
$680 in September/November 1997 and to $670 in March 1998. After March 1998, however, the CIFIndia prices fell sharply to $560 in June98, $440 in September 98 and to a level of about $400 in
November/December 98. The declining import prices had its effect on the domestic industry. The
domestic producers with the enhanced capacity, after shut down in April-May 1998, recorded a
production of 19751 MT in the quarter July-Sept.98 but were forced to reduce production thereafter to
6,138 MT in October, 6,080 MT in November and to 5,167 MT in December 1998.
4. M/s Mitsui Chemicals Inc. have submitted that 3 shipments made in December, 1998 were at
prices higher than US $ 395 PMT claimed by the domestic producers, which is an exceptional case
and should not be used for general consideration. As regards the import prices in December 1998,
Kandla Custom House has confirmed that imports have entered in December 1998 at prices of US $G/SG/N/8/IND/6
Page 45
408-430 PMT as compared to US $ 617-675 PMT in April 1998. Most of the bulk imports of Phenol
entered through Kandla port. It is observed from the information obtained from the Kandla Custom
House that while in the first quarter of 1998-99 when  the CIF prices of Phenol ranged between US$
530-675 PMT the quantum of imports was 3989.505 MT which was slightly higher than the pro-rata
imports in the previous year in spite of both the domestic producers having taken shut down in April-May 1998. With the CIF import prices falling to US$480-555 PMT the imports in the second quarter
more than doubled to 8886.534 MT and the imports further increased to 9152.375 MT in the third
quarter with the CIF prices declining to US$ 408-475 PMT. There has, therefore, been a drastic fall in
the CIF import prices of Phenol entering into India during this period, which was the main reason for
the increased imports during this period. The increased imports entering at cheaper prices forced the
domestic producers to cut-down their production and to reduce their list prices from Rs. 37 per kg in
March 1998 to Rs. 36.5 per kg in June 1998, Rs. 31.5/33 per kg (HCL/HOC) in September1998, Rs.29 per kg in October and November, 1998 and to Rs. 28 per kg in December, 1998, even at the cost of
incurring losses.
5. Some parties have claimed that chemical industry at large has been passing through a global
recession and the Indian Chemical Industry has al so felt its impact. The down turn in business and
prices is, therefore, not peculiar to India. This argument, however, does not appear to be borne out on
facts as while on the one hand the imports have increased substantially, the apparent consumption of
the domestic market, on the other hand has also increased substantially in the first three quarters of
1998-99. The depressed condition of domestic Phenol industry thus is not due to lack of domestic
demand or due to general recession, if any, in the Chemical Industry but due to the increased importsat cheaper prices.
6. Other Issues
(a) Dumping of Phenol
M/s Kesar Petroproducts have submitted that it was evident from the information provided by
the petitioners that there is apparently dumping of Phenol in the Indian market and, therefore, the DG
was prevented from proceeding further in the matter. In support they have quoted from the petition
that “ CIF India Phenol prices, which used to be in line with the prices in other parts of the world,
have come down more drastically than in other part s of the world like USA, Europe and Far East” and
that ‘whereas the drop in USGC prices has been  to the extent of US$110 PMT till end-September
1998, the drop in CIF India price has been more drastic at US$275 PMT”.  In this regard, it isobserved that lower prices for Indian market as compared to other markets per-se  are no evidence of
dumping of Phenol into the Indian market as a product is to considered as being dumped i.e.
introduced into the commerce of another country at le ss than its normal value, if the export price of
the product exported from one country to another is less than the comparable price, in the ordinary
course of trade for the like product when destined for consumption in the exporting country. Noinformation on the normal value or any evidence of  injury to the domestic industry having resulted
from dumping from any specified sources has been provided by any party and, therefore, the claim of
M/s Kesar Petroproducts is unsubstantiated and does not merit consideration.
(b) Captive Consumption of Phenol
It has been argued that the petitioners consume Phenol captively also to some extent. The
facilities available with them to that extent are not available for the merchant market and should be
excluded from the capacities of the petitioners to ca ter to the demand in the country. This argument is
erroneous in as much as if the domestic demand includes the captive requirements of the domesticproducers, the facilities of the petitioners to that extent can not be excluded from the consideration.
Throughout this investigation, the domestic demand has been taken including the captive consumption
of the petitioners and, therefore, this argument is without merit.G/SG/N/8/IND/6
Page 46
(c) Joint Product Evaluation
It has been argued that Phenol and Acetone are joint products and, therefore, it would not be
appropriate to assess injury to the domestic indust ry for Phenol alone without assessing position with
regard to Acetone. In this regard, it is observed that both the domestic producers maintain their
records in accordance with the Generally Accepte d Accounting Principles (GAAP) and the injury in
respect of Phenol has been assessed in accordance with GAAP for joint products. Assessment of the
position of the domestic industry with regard to Ac etone is, therefore, not relevant for the purpose of
present investigation.
(d) Monopoly/Duopoly of Domestic Producers1. Some of the parties have argued that the domestic producers of Phenol have enjoyed
monopolistic situation as their production accounts for upto 91 per cent of the domestic consumption
of Phenol and that the current complaint is with a view to secure and sustain the complainant’s
duopolistic dominance in the Indian market whereb y they can continue to exploit the domestic
market. In this regard it is observed that any monopoly is not to be considered illegal ipso facto  but a
balance needs to be struck between the injury caused as a result of monopolistic or restrictive trade
practices and the reasonableness thereof in the context of benefits accruing thereby. There are three
domestic producers of Phenol, namely HCL, HOC and M/s Neyveli Lignite Corporation Ltd. While
HCL is in the private sector, the other two name ly HOC and M/s Neyveli Lignite Corporation Ltd. are
in the Public Sector who account for more than 50 per cent of the production capacity of Phenol.
Besides, the import of Phenol is under Open Genera l License. Nearly one-third of the total apparent
consumption has been catered to by the imports. The petitioners have not requested for banning the
import of Phenol, instead they have requested for imposition of safeguard duty on the imports of
Phenol in accordance with the law so as to enable th em to adjust to the new situation of competition
offered by the increased imports. The domestic Phenol industry has acted as a catalyst in the
development of a host of downstream industries with the assured domestic availability of Phenol.
HCL has made valuable contribution in the development of various applications of Phenol such as
Phenol Formaldehyde Resins used in the Plywood, Laminates, Foundry Resins and PF Molding
Powder; Salicylic Acid, Aspirin and Paracetamol for use in Pharmaceuticals; 2,4-D (Herbicide) for
use in Agrochemicals; and Synthetic Tanning Agents for use in the Leather Industry. This accelerated
the development of the downstream industries and as the demand in the Indian industry increased,HOC commenced production in 1988, using the state-of-the-art technology. HOC and HCL have
since then catered to the requirements of the downstream industries, many of which are export
oriented and HOC sold good quantities of Phenol to  them on deemed export basis. It may also not be
out of place to mention here that this situation is not peculiar to India alone. The current major
suppliers of Phenol to India namely South Africa and South Korea have only one plant each and inJapan, three industrial groups control over 70 per cent of the Japanese capacity.
2. Some parties have alleged against the domestic producers that they exploited the domestic
market. In spite of significant decline in customs duties, the selling prices of the petitioners remained
more or less unchanged, the reduction in raw material prices was not passed on to the customers andthat their selling prices were not based on the import prices. In this regard, it is observed from the
information provided by the domestic producers that during the period form July, 1994 to December
1998, the landed cost of imported Phenol and the corresponding list prices of HCL and HOC were as
given in Table 5 below.G/SG/N/8/IND/6
Page 47
Table 5
Landed cost of
imported PhenolList Price –Basic Ex-works Rs./Kg
(Bulk)Period
Rs/MT HCL HOC
July 94 28687 29 27
Nov94 39844 32 32
May95 35569 34 34
July95 31327 34 34
Oct95 26981 32 32
March96 28121 29 29
May96 31663 31 33
Aug96 34588 35 35
Nov96 34588 38 38
March97 33625 36.5 36.5
May97 33616 36.5 36.5
Sept97 32298 35.5 35
Nov97 34037 35 35
Mar98 35340 37 37
June98 33705 36.5 36.5
Sept98 26346 31.5 33
Oct98 25376 29 29
Nov98 24205 29 29
Dec98 23646 28 28
From the information tabulated above, it is abundantly clear that it is not correct that the
domestic prices remain unchanged or that the domestic producers did not reduce their prices or that
they did not match them with the landed cost of the imported Phenol. The domestic prices have
followed the trend of the landed cost of the imported Phenol. This allegation, therefore, is not
supported by the facts and is accordingly rejected.
3. It has also been alleged that the domestic producers resorted to steep hike in the price at the
time of storm at Kandla port, when the goods could not be imported. In this regard, it is observed that
the domestic producers have explained that since Phenol could also be imported in bulk at Calcutta,
Chennai, Goa and Mangalore ports, price increase to Rs. 40 per kg consequent to Kandla port beingnon-operational was not an exclusive reason. In fact, Phenol consumers who generally patronise
Kandla for import of Phenol were unable to get the product and they resorted to buying from open
market, which pushed up the demand beyond the normal offtake and consequently prices. Initially, it
was felt that the outrage of Kandla port would be for a period of around three months and there was a
panic buying to some extent. During the same period, prices of Benzene (the key raw material forPhenol) also went up by 10 per cent. Prices of several other products went up during this period. The
domestic Phenol producers accordingly adjusted prices. This was just a normal market mechanism,
which was working. In the process, both Phenol manufacturers succeeded in not permitting market
middlemen to reap profits at the cost of their own shareholders. Both HCL and HOC are active
members of the Indian Chemical Manufacturers As sociation, which sent a team to Kandla to assess
the damage. Apart from this, HCL sent a team of Safety Officers, technicians etc. soon after the
natural calamity and the service rendered by this team was appreciated by the Chairman of the Kandla
Port Trust.
4. Another allegation made against the domestic producers is that they have taken shut down at
the same time to create shortages. The domestic producers in this regard have submitted that thisG/SG/N/8/IND/6
Page 48
argument does not stand to logic and commercial sense as simultaneous shut downs will lead only to
shortages without any company reaping the benefit of the same. It is observed that generally HCL and
HOC have not taken simultaneous shut down except in 1998 when there was an overlap of about 15
days. However, during the shut down, HOC had a stock of 2,180 MT before the commencement of
the shut down and the Phenol price was reduced from Rs. 37,000 PMT to Rs. 36,000 PMT in April,1998 and further to Rs. 35,000 PMT during May, 1998. This argument, therefore, has no merit in
view of the above facts.
(e) Import Duty Structure in India
Some parties have submitted that in keeping with the growing policy of liberalisation the
import duty of Phenol has been reduced over the years but still it is the highest in this region and,therefore, provides an in built protection and competitive parity to the manufacturers of Phenol in
India. 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
imports 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. Eachcountry, therefore, decides the level of import duties according to its needs, which cannot be viewed
as a reference point for others. It is also relevant here to mention that the duty differential between
Phenol and its raw materials has reduced from 55 per cent in 1993-94 to 11.5 per cent currently.
(f) Quality1. Some concern has been expressed by some of the parties about the quality of domestically
produced Phenol. In this regard it is pertinent to note that the domestic producers have submitted that
both the Indian Phenol manufacturers by the synthetic route are ISO 9002 accredited units. HCL has
obtained ISO 14001 certification as well and HOC is in the process of obtaining it. HCL and HOC areboth signatories to the Responsible care movement. Elaborate systems for quality assurance are in
place. It is mandatory to keep records of quality complaints (if any). During the entire fiscal year
1998-99, HCL received only one complaint, which after scrutiny was found to be due to
contamination during transportation outside HCL’s factory premises on the way to the consumer’s
factory. There have been no quality complaints received by HOC. On the other hand, HOC have been
complemented for maintaining standard quality.
2. As regards quality of Phenol for manufacture of Polycarbonate grade Bisphenol-A it has been
submitted by the domestic producers that Polycarbonates are not produced in India and hence there is
no domestic requirement for Polycarbonate grade Bisphenol-A in India. The Bisphenol-A
manufacturer M/sKesar Petroproducts Ltd. has not as ked for any Phenol from HCL or from HOC of a
superior quality. However, just in case Kesar Petroproducts Ltd. are in a position to manufacture andexport Polycarbonate grade Bisphenol-A, and if they need special grade Phenol for the same, the
domestic Phenol manufacturers claim to be able to rise to the occasion to meet the quality
requirements of M/s Kesar Petroproducts. Until recently, Bisphenol-A producers have procured
majority of their requirements from the domestic producers and continue to do so.
3. It has also been stated that the domestic Phenol is not suitable for the manufacture of Alkyl
Phenols due to high moisture content. In this regard, it is observed that the domestic industry has
successfully supplied Phenol to Alkyl Phenols manufacturers for number of years without quality
complaints. In fact, HCL itself is one of the producers of Alkyl Phenols and manufacturers Alkyl
Phenols of international quality form its own manufactured Phenol without any technical difficulties.HCL has been manufacturing Alkyl Phenols based on its in house technology for the development of
which it has received the prestigious Acharya Sir P.C. Ray Award. The most stringent specifications
for Alkyl Phenols in India are laid down by the Pe rfumery Chemical industry for an Alkyl PhenolsG/SG/N/8/IND/6
Page 49
known as P.T.B.P. HCL has a letter from M/s Na iknavare Chemicals Ltd. who have manufactured the
perfumery grade of P.T.B.P. from HCL’s Phenol. HOC has received a letter from Schenectady
conveying that the quality of Phenol supplied by them fully meets the specifications and standards of
Schenectady.
7. Adjustment Plan
1. Some parties in regard to adjustment plans of the domestic industry have submitted that one
of the petitioners claims to enhance the capacity to 65,000 MT within 2-2.5 years. It is not understood
how the petitioners would become competitive in two years time, even if it is assumed that this
company would be able to increase the capacity to 65,000 MT in 2.5 years, particularly when the
petitioners have sought a relief of as high as Rs. 16,000 PMT, and the measures proposed by them
would improve their competitiveness by hardly Rs. 1500. Evidently, it cannot be clamed by thepetitioners that they would become competitive in two years, notwithstanding the policies of the
government with regard to either rate of interests or other infrastructural bottlenecks. The submission
made by the domestic industry that an investment is being envisaged to set up a Greenfield world
scale plant of 100,000 MT capacity at a cost of Rs. 650 crores is not economically viable and deserves
to be rejected outright. In fact, this argument of the petitioners alone is sufficient to hold that thepetitioners are not at all serious about improving their competitiveness. That the positive adjustment
plan proposed by the petitioners are not viable is borne out by the simple fact that the cost of interest,
depreciation and reasonable return on an investment of the tune of Rs. 650 crores comes to Rs. 27,000
PMT even if the domestic industry projects to achieve 100 percent capacity utilisation in the very first
year of its operation. The whole purpose of safeguard duty being to facilitate positive adjustment bythe domestic industry, it is the duty of the DG to ensure that the efforts proposed by the domestic
industry towards positive adjustments are technically and commercially viable.
2. In regard to making a positive adjustment to import competition both the domestic producers
have categorically stated that they understand that the relief granted as safeguard duty is a short-termmeasure. HCL have stated that the existing facilities were built in the pre-liberalisation, MRTP era
and lack economies of scale leading to high fixed costs. However, the Indian industry has been
regularly upgrading its technology and debottlenecking its manufacturing facilities with the objective
of reducing the operative costs per unit and increasing its effective capacity to satisfy the increasing
domestic demand from most of the sectors. On the capacity enhancement front (with consequent
reduction in the fixed costs of manufacture), HCL, which has very recently increased its capacity from
26,500 TPA to 30,000 TPA has active plans to increase it to 40,000 TPA. To reduce the power cost,steps have already been taken by them towards setting up of captive power generation facilities by the
Co-generation route. The facility has already been installed and would get stabilised by 1999. Apart
from this (in HCL), external consultants had been appointed to suggest various cost reduction
measures. Some such suggestions (e.g. improvement in quality of feedstock (Cumene)) are extremely
valuable from the point of view of reduction in the cost of manufacture of Phenol. All this is anongoing exercise, which would continue. In the medium term Propylene will be imported by the
industry through the new facilities being generated at ports like the J.N.P.T. near Mumbai (for which
HCL has been one of the promoters and which has got clearances from the Ministry of Surface
Transport and the Ministry of Environment and Forests) and GCPTL at Dahej. The capacity of IOC
refinery at Panipat is being increased and the process would be completed by mid 1999. Also theglobal sized refinery of Reliance Industries Limited at Jamnagar is expected to be commissioned in
1999. With the cracker complexes at GAIL and Haldia also expected to be commissioned in the near
future and with debottlenecking of the existing facilities, the domestic Propylene availability could
ease out and prices could soften and sourcing w ould be possible from the new sources. HCL is
planning to set up world scale Greenfield Phenol manufacturing facilities (either 100,000 TPA or150,000 TPA). The HCL facility is being planned at Dahej in Gujarat state. Technologies have also
been tied up. State-of the-art Zeolite technology for Cumene has been tied up with UOP of USA.
Similarly, latest generation technology has been tied up for Phenol manufacture with ABB LummusG/SG/N/8/IND/6
Page 50
Global of USA. Both technologies are environment friendly and would give HCL certain operational
and cost advantages. The raw materials would either  be imported or could be sourced from the new
facilities such as the ones mentioned above. Land has been allotted for the HCL project.
Environmental Impact Assessment study has been completed. The Gujarat Pollution Control Board
has granted N.O.C. for the project. HCL’s water requirements have been included in the commonwater supply schemes of GIDC at Dahej and they have made initial payments towards the same.
Power is planned to be generated captively by the co-generation route. On the funding aspect, HCL
has already approached the financial institutions. The raw material and finished product traffic figures
of the HCL project have been factored in the overall traffic figures of Gujarat Chemical Port Terminal
Complex coming up at Dahej. This port is expected to be operational by the end of 1999. There is a
further possibility of a co-operative effort on this front between the two manufacturers, HOC and
HCL. However, due to the liquidity crunch (and the consequent loss of profitability), HCL is finding
it extremely difficult to access funds from financial institutions. This is, in turn, resulting in delay of
implementation of the long-term plans to build a Greenfield Phenol plant of capacity 100,000 TPA.
On the other hand, the quick implementation of this project is imperative for future survival of our
organisation.
3. HOC in this regard have stated that on the capacity enhancement front (with consequent
reduction in the fixed costs of manufacture), HOC, ha s very recently increased its effective capacity
from 40,000 TPA to 45,000 TPA. To reduce the power cost, steps have already been taken by HOC
towards setting up of captive power generation facilities by the Co-generation route. The facility has
already been installed and the gains could start accruing in the current fiscal year. All this is anongoing exercise, which would continue. HOC is pl anning to set up world scale Greenfield Phenol
manufacturing facilities of 100,000 TPA as a joint venture with refinery. The HOC facility is being
planned at coastal location in either Maharashtra or Gujarat State. Technologies are in the process of
being tied up. State-of-the-art Zeolite technology for Cumene and latest generation technology is in
process of being tied up for Phenol manufacture. Both technologies would be environment friendlyand would give HOC certain operational and cost advantages. There is a further possibility of a co-
operative effort on this front between  the two manufacturers, HOC and HCL.
4. Thus, the plans of the domestic industry to make adjustment to the import competition are not
hypothetical. They have identified the reasons for their being not able to meet with the competition
offered by the increased imports. One of the reasons identified by them is the lack of economies of
scales. The domestic producers have constantly been upgrading their production facilities. During thelast few years, they have enhanced their capacity gradually from 60,000 MT pa in 1994-95 to 75,000
MTpa in 1998-99, which accounts for an increase of 25 per cent in the capacity. The domestic
producers have furnished essential details of cost saving schemes being pursued by them and the cost
reduction likely to be achieved therefrom in response to the questionnaire. This appears to be a viable
adjustment plan, which is likely to be implemented and give results in a period of two years. Thedomestic industry, although had requested for imposition of safeguard duty for a period of three years
in their petition but keeping in view the efforts planned by them, this period in the Notice of Initiation
itself was restricted to two years. As regards the long-term plan, in view of the fact that it is proposed
to consider the application of safeguard duty only for a period of two years, it is not necessary to
discuss the long-term efforts planned by the domesti c producers. However, for the sake of argument it
is observed that setting up of 100,000-150,000 MT plant by the domestic producers using Greenfield
Phenol manufacturing facilities at high costs is no exception in the case of HOC or HCL as such
Phenol plants are capital intensive world over. Besides, such plants do not produce a single product-
Phenol alone and, therefore, the costs have to be shared by different products. If world over such
plants can produce Phenol efficiently, it is not understood why in similar circumstances they can notproduce Phenol efficiently in India. It is, therefor e, observed the domestic industry is in the process of
making positive adjustment to compete with imports and that they require two years to become
competitive.G/SG/N/8/IND/6
Page 51
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 public interest as a
number of end user industry may close down. 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 inits 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 Phenol in the hand of buyers
and therefore, it may also effect the end products manufactured therefrom, it is important to keep in
mind the objective of imposition of safeguard 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 thecustomers but also allow them a wider choice to source their requirements, and at competitive prices.
The domestic producers who have 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 Phenol as well asof the buyers of products manufactured therefrom. It is, therefore, considered that imposition of
safeguard duty on Phenol will be in public interest.
2. It has also been submitted that imposition of safeguard duty will adversely affect country’s
exports, as imported Phenol used in export production will become costlier. In this regard, it isobserved that in international trade exports are net of duties and taxes i.e. all duties and taxes
including safeguard duty paid on inputs used in the manufacture of export production are entitled to
be refunded as duty drawback etc. Duties and ta xes including safeguard duty paid on imported Phenol
used in export production would also, therefore, be  entitled to be refunded. The objective of safeguard
duty is to enable the domestic producers to become internationally competitive. If, therefore, thedomestically produced Phenol is not internationally competitive for use in export production,
imposition of safeguard duty should help it in becomi ng internationally competitive, which should be
in the long-term interest of the exporters. As far as duty free imports of Phenol under various schemes
for use in export production are concerned, the same principle as discussed above applies i.e. either
such imports may not be subjected to levy of safeguard duty ab initio  or if safeguard duty is collected,
it should be entitled to be refunded on export of final product, in accordance with the existing laws. It
is, therefore, observed that imposition of safeguard duty on Phenol is neither likely to affect adverselythe export production, nor is it against the Public interest.
9. Provisional Safeguard Duty
In view of the fact that critical circumstances indicating that the domestic industry is likely to
suffer irreparable damage in case imposition of safeguard duty was delayed till the completion of theinvestigation did not exist, no recommendation to impose provisional safeguard duty was made.
10. Share of Countries in Exports to India
On the basis of information in regard to imports of Phenol into India during the period April-
December, 1998, it is observed that only six countries exported Phenol to India during this period.Their shares in India’s imports during this period on the basis of Bill of Lading quantities were as
under.G/SG/N/8/IND/6
Page 52
Country/Territory Imports-MT  percentage share
France 31.20 0.125
Japan 3932.46 15.81
Netherlands 31.20 0.125
South Africa 8063.41 32.42
South Korea 11813.03 47.50
Taiwan 999.01 4.02
Total 24870.31 100
IX. CONCLUSION AND RECOMMENDATION
1. In view of the Findings above, it is concluded that increased imports of Phenol into India have
threatened to cause serious injury to the domestic producers of Phenol and it will be in the Public
interest to impose safeguard duty for a period of two years on imports of Phenol into India.
2. In arriving at the amount of safeguard duty that would be adequate to prevent serious injury to
the domestic industry and to facilitate positive adjustment, weighted average cost of production for
HCL and HOC has been taken into account for the period April-December, 1998. The domestic
producers have claimed a certain amount of profit on the basis of expected return on capital employed
etc. which is considered to be on the higher side and, therefore, a lower amount of profit (confidential)
based on the weighted average cost of production has been considered appropriate and allowed.
Similarly, the C.I.F. import prices of Phenol also have been considered on weighted average basis for
the last six months i.e. July-December, 1998. Adjustments have been made in the C.I.F. import pricefor credit terms and handling charges on an average basis. Change in the applicable rate of customs
duty has been taken into account in working out the landed price of imported Phenol. No adjustment
in landed price of imported Phenol has, however, been made for internal freight as the domestic prices
also have been considered ex-works, and for storage at Kandla port as storing of imported Phenol at
Kandla port is an option available to the importers with attendant costs and benefits.
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 on
imports of Phenol into India at the rates specifie d below on ad-valorem basis for a period of two years
as under being the minimum necessary for the protection of the domestic industry from the seriousinjury threatened to be caused by the increased imports of Phenol.G/SG/N/8/IND/6
Page 53
Period Level of total
protection
recommended %Existing protection % Safeguard duty
recommended %
(3)-(2)
(1) (2) (3) (4)
First year 27.5+22 22
Second year 27.5+1527.5
15
(R.K.Gupta)
Director General (Safeguards)
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