In view of the large number of exporting producers in India, sampling was envisaged in the notice of initiation for the determination of subsidisation in accordance with Article 27 of the basic Regulation.

In order to enable the Commission to decide whether sampling would be necessary and, if so, to select a sample, exporting producers in India were requested to make themselves known within 15 days from the date of the initiation of the investigation and to provide basic information on their export and domestic sales, their precise activities with regard to the production of the product concerned and the names and activities of all their related companies involved in the production and/or selling of the product concerned during the period from 1 April 2010 to 31 March 2011.

The relevant Indian authorities were also consulted for the selection of a representative sample.

In total, five exporting producers, including a group of related companies in India, provided the requested information and agreed to be included in the sample within the deadline set in the notice of initiation. These cooperating companies reported exports of the product concerned to the Union during the investigation period. The comparison between Eurostat import data and the volume of exports to the Union of the product concerned reported for the investigation period by the five cooperating companies revealed that the cooperation of Indian exporting producers was close to 100 %. Thus, the sample was chosen on the basis of the information submitted by these five exporting producers.

In accordance with Article 27 of the basic Regulation, the Commission selected a sample based on the largest representative volume of exports of the product concerned to the Union which could reasonably be investigated within the time available. The sample selected consisted of three individual companies, together representing ca. 98 % of the total volume of exports from India to the Union of the product concerned.

In accordance with Article 27(2) of the basic Regulation, the parties concerned and the Indian authorities were consulted on the selection of the sample. The two non-sampled exporting producers insisted to be also included in the sample. However, in view of the representativity of the proposed sample, as mentioned in recital (11) above, it was concluded that it was not necessary to amend or enlarge the sample.

A claim for individual examination as per Article 27(3) of the basic Regulation was received from a non-sampled exporting producer. The examination of this claim at the provisional stage would have been too burdensome to be carried out. Therefore, a decision whether individual examination will be granted to this company will be taken at a later stage.

In view of the apparent large number of Union producers, sampling was provided for in the notice of initiation for the determination of injury, in accordance with Article 27 of the basic Regulation.

In the notice of initiation the Commission announced that it had provisionally selected a sample of Union producers. This sample consisted of five companies, out of the 15 Union producers that were known prior to the initiation of the investigation, selected on the basis of their sales volume, size and geographic location in the Union. They represented 37 % of the total estimated Union production during the IP. Interested parties were invited to consult the file and to comment on the appropriateness of this choice within 15 days of the date of publication of the notice of initiation. No interested party opposed to the proposed sample composed of five companies.

Subsequently one of the five sampled Union producers withdrew its cooperation. The remaining four sampled companies still represented 32 % of the total estimated Union production during the IP. Hence the sample was still considered to be representative of the Union industry. Verification visits took place at the premises of three of these companies. It was considered at this provisional stage of the investigation that a thorough desk analysis was sufficient to verify the data provided by the fourth sampled company.

In view of the potentially large number of importers involved in the proceeding, sampling was envisaged for importers in the notice of initiation in accordance with Article 27 of the basic Regulation. Two importers provided the requested information and agreed to be included in the sample within the deadline set in the notice of initiation. Given the low number of importers who made themselves known, it was decided not to apply sampling.

The Commission sent questionnaires to all parties known to be concerned and to all the other companies that made themselves known within the deadlines set out in the notice of initiation. Questionnaires were thus sent to the GOI, the sampled exporting producers in India, the sampled Union producers, the cooperating importers in the Union and to all users known to be concerned by the investigation.

Replies were received from the GOI, the sampled exporting producers and four sampled Union producers. None of the importers or users contacted replied to the questionnaire.

The detailed description of the DEPBS is contained in chapter 4.3 of the FT-policy 09-14 as well as in chapter 4 of the HOP I 09-14.

Any manufacturer-exporter or merchant-exporter is eligible for this scheme.

An exporter can apply for DEPBS credits which are calculated as a specified percentage of the value of products exported under this scheme. Such DEPBS rates have been established by the Indian authorities for most products, including the product concerned. They are determined on the basis of Standard Input Output Norms (‘SIONs’) taking into account a presumed import content of inputs in the export product and the customs duty incidence on such presumed imports, regardless of whether import duties have actually been paid or not.

To be eligible for benefits under this scheme, a company must export. At the time of the export transaction, a declaration must be made by the exporter to the Indian authorities indicating that the export is taking place under the DEPBS. In order for the goods to be exported, the Indian customs authorities issue an export shipping bill during the dispatch procedure. This document shows, inter alia, the amount of DEPBS credit which is to be granted for that export transaction. At this point in time, the exporter knows the benefit it will receive. Once the customs authorities issue an export shipping bill, the GOI has no discretion over the granting of a DEPBS credit.

It was found that in accordance with Indian accounting standards, DEPBS credits can be booked on an accrual basis as income in the commercial accounts, upon fulfilment of the export obligation. Such credits can be used for payment of customs duties on subsequent imports of any goods - except capital goods and goods where there are import restrictions. Goods imported against such credits can be sold on the domestic market (subject to sales tax) or used otherwise. DEPBS credits are freely transferable and valid for a period of 24 months from the date of issue.

Application for DEPBS credits are electronically filed and can cover an unlimited amount of export transactions. De facto no strict deadlines apply to DEPBS credits. The electronic system used to manage DEPBS does not automatically exclude export transactions exceeding the submission deadline mentioned in chapter 4.47 of the HOP I 09-14. Furthermore, as clearly provided in chapter 9.3 of the HOP I 09-14, applications received after the expiry of submission deadlines can always be considered subject to the imposition of a minor penalty fee.

It was found that two of the companies in the sample, Agarwal Fastners Pvt. Ltd. and Raajratna Ventures Ltd. used this scheme during the IP.

The DEPBS provides subsidies within the meaning of Article 3(1)(a)(ii) and Article 3(2) of the basic Regulation. A DEPBS credit is a financial contribution by the GOI since the credit will eventually be used to offset import duties, thus decreasing the GOI’s duty revenue which would otherwise be due. In addition, the DEPBS credit confers a benefit upon the exporter because it improves its liquidity.

Furthermore, the DEPBS is contingent in law upon export performance, and therefore deemed to be specific and countervailable under Article 4(4), first subparagraph, point (a) of the basic Regulation.

This scheme cannot be considered a permissible duty drawback system or substitution drawback system within the meaning of Article 3(1)(a)(ii) of the basic Regulation since it does not conform to the rules laid down in Annex I item (i), Annex II (definition and rules for drawback) and Annex III (definition and rules for substitution drawback) of the basic Regulation. In particular, an exporter is under no obligation to actually consume the goods imported free of duty in the production process and the amount of credit is not calculated in relation to actual inputs used. Moreover, there is no system or procedure in place to confirm which inputs are consumed in the production process of the exported product or whether an excess payment of import duties occurred within the meaning of item (i) of Annex I, and Annexes II and III of the basic Regulation. Lastly, an exporter is eligible for the DEPBS benefits regardless of whether it imports any inputs at all. In order to obtain the benefit, it is sufficient for an exporter to simply export goods without demonstrating that any input material was imported. Thus, even exporters which procure all of their inputs locally and do not import any goods which can be used as inputs are still entitled to benefit from the DEPBS.

In accordance with Articles 3(2) and 5 of the basic Regulation, the amount of countervailable subsidies was calculated in terms of the benefit conferred on the recipient found to exist during the IP. In this regard, it was considered that the benefit is conferred on the recipient at the point in time when an export transaction is made under this scheme. At that moment, the GOI is liable to forego the customs duties, which constitutes a financial contribution within the meaning of Article 3(1)(a)(ii) of the basic Regulation. Once the customs authorities issue an export shipping bill which shows, inter alia, the amount of DEPBS credit which is to be granted for that export transaction, the GOI has no discretion as to whether or not to grant the subsidy. In the light of the above, it is considered appropriate to assess the benefit under the DEPBS as being the sums of the credits earned on export transactions made under this scheme during the IP.

Where justified claims were made, fees necessarily incurred to obtain the subsidy were deducted from the credits so established to arrive at the subsidy amount as numerator, pursuant to Article 7(1)(a) of the basic Regulation. In accordance with Article 7(2) of the basic Regulation this subsidy amount has been allocated over the total export turnover during the IP as appropriate denominator, because the subsidy is contingent upon export performance and it was not granted by reference to the quantities manufactured, produced, exported or transported.

The subsidy rate established in respect of this scheme for the companies concerned during the IP ranged from 4,70 % to 6,53 %.

The detailed description of the scheme is contained in paragraphs 4.1.3 to 4.1.14 of the FT-policy 09-14 and chapters 4.1 to 4.30A of the HOP I 09-14.

The AAS consists of six sub-schemes, as described in more detail in recital (43) below. Those sub-schemes differ inter alia in the scope of eligibility. Manufacturer-exporters and merchant-exporters ‘tied to’ supporting manufacturers are eligible for the AAS physical exports and for the AAS for annual requirement sub-schemes. Manufacturer–exporters supplying the ultimate exporter are eligible for AAS for intermediate supplies. Main contractors which supply to the ‘deemed export’ categories mentioned in paragraph 8.2 of the FT-policy 09-14, such as suppliers of an export oriented unit (‘EOU’), are eligible for the AAS deemed export sub-scheme. Eventually, intermediate suppliers to manufacturer-exporters are eligible for ‘deemed export’ benefits under the sub-schemes Advance Release Order (‘ARO’) and back to back inland letter of credit.

One company in the sample received concessions under the AAS linked to the product concerned during the IP. This company made use of one of the sub-schemes, i.e. AAS physical exports. It is therefore not necessary to establish the countervailability of the remaining unused sub-schemes.

For verification purposes by the Indian authorities, an Advance Authorisation holder is legally obliged to maintain ‘a true and proper account of consumption and utilisation of duty-free imported/domestically procured goods’ in a specified format (chapters 4.26, 4.30 and Appendix 23 HOP I 09-14), i.e. an actual consumption register. This register has to be verified by an external chartered accountant/cost and works accountant who issues a certificate stating that the prescribed registers and relevant records have been examined and the information furnished under Appendix 23 is true and correct in all respects.

With regard to the sub-scheme used during the IP by the company concerned, i.e. physical exports, the import allowance and the export obligation are fixed in volume and value by the GOI and are documented on the Authorisation. In addition, at the time of import and of export, the corresponding transactions are to be documented by Government officials on the Authorisation. The volume of imports allowed under the AAS is determined by the GOI on the basis of Standard Input Output Norms (‘SIONs’) which exist for most products including the product concerned. Imported input materials are not transferable and have to be used to produce the resultant export product. The export obligation must be fulfilled within a prescribed time frame after issuance of the licence (24 months with two possible extensions of 6 months each).

The investigation established that the verification requirements stipulated by the Indian authorities were either not honoured or not yet tested in practice.

The company using the scheme did maintain a certain production and consumption register. The Appendix 23 was not properly completed and, therefore, could not be considered an actual consumption register as prescribed by the chapters 4.26, 4.30 of the HOP I 09-14. An actual consumption register for the IP was not available, and consequently it was not possible to verify inter alia the consumption records in order to establish which inputs were consumed in the production of the exported product and in what amounts, as stated in the copy of the Appendix 23. Regarding the verification requirements referred to in recital (45) above, there were no records kept by the company on how this certification took place. There was no audit plan or any other supporting material of the audit performed (e.g. a report of the auditing), no recorded information on the methodology used and the specific requirements needed for such scrupulous work that required detailed technical knowledge on production processes. Any potential excess remission realized by the company and reported in the Appendix 23 did not entail any intervention or control by the relevant authorities. In sum, it is considered that the investigated exporter was not able to demonstrate that the relevant provisions of FT-policy 09-14 were met.

The exemption from import duties is a subsidy within the meaning of Article 3(1)(a)(ii) and Article 3(2) of the basic Regulation, since it constitutes a financial contribution of the GOI which conferred a benefit upon the investigated exporter.

In addition, the subsidies related to AAS physical exports are clearly contingent in law upon export performance, and therefore deemed to be specific and countervailable under Article 4(4), first subparagraph, point (a) of the basic Regulation. Without an export commitment a company cannot obtain benefits under this scheme.

The sub-scheme used in the present case cannot be considered a permissible duty drawback system or substitution drawback system within the meaning of Article 3(1)(a)(ii) of the basic Regulation. It does not conform to the rules laid down in Annex I item (i), Annex II (definition and rules for drawback) and Annex III (definition and rules for substitution drawback) of the basic Regulation. The GOI did not effectively apply a verification system or a procedure to confirm whether and in what amounts inputs were consumed in the production of the exported product (Annex II(II)(4) of the basic Regulation and, in the case of substitution drawback schemes, Annex III(II)(2) of the basic Regulation). Moreover, the SIONs for the product concerned were not sufficiently precise and they cannot constitute a verification system of actual consumption because the design of those standard norms does not enable the GOI to verify with sufficient precision what amounts of inputs were consumed in the export production. In addition, the GOI did not carry out a further examination based on actual inputs involved, although this would normally need to be carried out in the absence of an effectively applied verification system (Annex II(II)(5) and Annex III(II)(3) to the basic Regulation).

The sub-scheme is therefore countervailable.

In the absence of permitted duty drawback systems or substitution drawback systems, the countervailable benefit is the remission of total import duties normally due upon importation of inputs. In this respect, it is noted that the basic Regulation does not only provide for the countervailing of an ‘excess’ remission of duties. According to Article 3(1)(a)(ii) and Annex I(i) of the basic Regulation only when the conditions of Annexes II and III of the basic Regulation are met the excess remission of duties can be countervailed. However, these conditions were not fulfilled in the present case. Thus, if an adequate monitoring process is not demonstrated, the above exception for drawback schemes is not applicable and the normal rule of the countervailing of the amount of unpaid duties (revenue forgone), applies, rather than of any purported excess remission. As set out in Annexes II(II) and III(II) of the basic Regulation the burden is not upon the investigating authority to calculate such excess remission. To the contrary, according to Article 3(1)(a)(ii) of the basic Regulation, the investigating authority only has to establish sufficient evidence to refute the appropriateness of an alleged verification system.

The subsidy amount for the company which used the AAS was calculated on the basis of import duties forgone (basic customs duty and special additional customs duty) on the material imported under the sub-scheme during the IP (numerator). In accordance with Article 7(1)(a) of the basic Regulation, fees necessarily incurred to obtain the subsidy were deducted from the subsidy amount where justified claims were made. In accordance with Article 7(2) of the basic Regulation, this subsidy amount was allocated over the export turnover of the product concerned during the IP as appropriate denominator because the subsidy is contingent upon export performance and was not granted by reference to the quantities manufactured, produced, exported or transported.

The subsidy rate established in respect of this scheme for the company concerned during the IP was 2,94 %.

The detailed description of the EPCGS is contained in chapter 5 of the FT-policy 09-14 as well as in chapter 5 of the HOP I 09-14.

Manufacturer-exporters, merchant-exporters ‘tied to’ supporting manufacturers and service providers are eligible for this scheme.

Under the condition of an export obligation, a company is allowed to import capital goods (new and second-hand capital goods) at a reduced rate of customs duty. To this end, the GOI issues an EPCGS licence upon application and payment of a fee. This scheme provides for a reduced import duty rate of 5 % applicable to all capital goods imported under this scheme. In order to meet the export obligation, the imported capital goods must be used to produce a certain amount of export goods during a certain period. Under FTP 09-14 the capital goods can be imported with 0 % duty rate under EPCGS but in such case the time period for fulfilment of the export obligation is shorter, i.e. 6 years instead of 8 years from Authorization issue-date. The EPCGS licence holder can also source the capital goods indigenously. In such case, the indigenous manufacturer of capital goods may avail himself of the benefit for duty free import of components required to manufacture such capital goods. Alternatively, the indigenous manufacturer can claim the benefit of deemed export in respect of supply of capital goods to an EPCGS licence holder.

It was found that all sampled exporting producers used this scheme during the IP.

The EPCGS provides subsidies within the meaning of Article 3(1)(a)(ii) and Article 3(2) of the basic Regulation. The duty reduction constitutes a financial contribution by the GOI since this concession decreases the GOI’s duty revenue, which would otherwise be due. In addition, the duty reduction confers a benefit upon the exporter because the duties saved upon import improve its liquidity.

Furthermore, the EPCGS is contingent in law upon export performance, since such licences cannot be obtained without a commitment to export. Therefore, it is deemed to be specific and countervailable under Article 4(4), first subparagraph, point (a) of the basic Regulation.

This scheme cannot be considered a permissible duty drawback system or substitution drawback system within the meaning of Article 3(1)(a)(ii) of the basic Regulation. Capital goods are not covered by the scope of such permissible systems, as set out in Annex I, item (i), to the basic Regulation because they are not consumed/incorporated in the production of the exported products.

The subsidy amount was calculated, in accordance with Article 7(3) of the basic Regulation, on the basis of the unpaid customs duty on imported capital goods spread across a period which reflects the normal depreciation period of such capital goods in the industry concerned. In accordance with the established practice, the amount so calculated, which is attributable to the IP, has been adjusted by adding interest during this period in order to reflect the full value of the benefit over time. The commercial interest rate during the investigation period in India was considered appropriate for this purpose. Where justified claims were made, fees necessarily incurred to obtain the subsidy were deducted in accordance with Article 7(1)(a) of the basic Regulation.

In accordance with Article 7(2) and 7(3) of the basic Regulation, this subsidy amount has been allocated over the appropriate export turnover during the IP as the appropriate denominator because the subsidy is contingent upon export performance and was not granted by reference to the quantities manufactured, produced, exported or transported.

The subsidy rates established in respect of this scheme for the companies concerned during the IP were 0,11 %, 0,16 % and 0,19 %.

The details of the EOU scheme are contained in chapter 6 of the FT-policy 09-14 as well as in chapter 6 of the HOP I 09-14.

With the exception of pure trading companies, all enterprises which, in principle, undertake to export their entire production of goods or services may be set up under the EOUS. Undertakings in the industrial sectors have to fulfil a minimum investment threshold in fixed assets to be eligible for the EOUS.

Export oriented units can be located and established anywhere in India.

An application for EOU status must include details for a period of the next five years on, inter alia, planned production quantities, projected value of exports, import requirements and indigenous requirements. Upon acceptance by the authorities of the company’s application, the terms and conditions attached to this acceptance will be communicated to the company. The agreement to be recognised as a company under EOUS is valid for a five-year period. The agreement may be renewed for further periods.

A crucial obligation of an EOU as set out in the FT-policy 09-14 is to achieve net foreign exchange (‘NFE’) earnings; i.e. in a reference period (5 years) the total value of exports has to be higher than the total value of imported goods.

Units operating under this scheme are bonded under the surveillance of customs officials.

They are legally obliged to maintain a proper account of all imports, of the consumption and utilisation of all imported materials and of the exports made in accordance with the relevant paragraph of HOP I 09-14. These documents should be submitted periodically to the competent authorities in India through quarterly and annual progress reports.

However, ‘at no point in time an EOU shall be required to co-relate every import consignment with its exports, transfers to other units, sales in DTA (“domestic tariff area”) or stocks’, as the relevant section of the HOP I 09-14 states.

Domestic sales are dispatched and recorded on a self-certification basis. The dispatch process of export consignments of an EOU is supervised by a customs/excise official.

In the present case, the EOUS was used by one of the exporters in the sample. This exporter utilised the scheme to import raw materials, consumables and capital goods free of import duties, to procure goods domestically free of excise duty and to obtain sales tax reimbursement, and to sell part of its production on the domestic market. The exporter thereby availed of all benefits as described in recital (71) above under (i) to (vi). However, as regards income tax exemption pursuant to Section 10B of the Income Tax Act, the investigation revealed that, as from 1 April 2010, the company was no longer eligible for this exemption. Consequently, the income tax exemption provisions of the EOU were not further considered in the context of this investigation.

At a very late stage, the company which was found to operate as an EOU submitted detailed comments on the scheme, inter alia alleging that the various measures available within an EOU do not constitute countervailable subsidies. The analysis of these comments could not be concluded at this point in time; however, it will be duly dealt with in the subsequent stage of this investigation.

The exemptions of an EOU from three types of import duties (‘basic customs duty’, ‘education cess on customs duty’ and ‘higher secondary education cess’) and the reimbursement of sales tax are financial contributions of the GOI within the meaning of Article 3(1)(a)(ii) of the basic Regulation. Government revenue which would be otherwise due in the absence of this scheme is forgone, thus, conferring a benefit upon the EOU within the meaning of Article 3(2) of the basic Regulation because it improved liquidity by not having to pay duties normally due and by obtaining a sales tax reimbursement.

In addition, the EOU cannot be considered as a permissible duty drawback system or substitution drawback system within the meaning of Article 3(1)(a)(ii) of the basic Regulation. It does not conform to the rules laid down in Annex I items (h) and (i), Annex II (definition and rules for drawback) and Annex III (definition and rules for substitution drawback) of the basic Regulation. The GOI did not effectively apply a verification system or a procedure to confirm whether and in what amounts inputs were consumed in the production of the exported product (Annex II(II)(4) of the basic Regulation and, in the case of substitution drawback schemes, Annex III(II)(2) of the basic Regulation). The verification system in place aims at monitoring the NFE earning obligation and not the consumption of imports in relation to the production of exported goods.

The exemption from excise duty and its import duty equivalent (‘EED’), however, do not lead to revenue forgone which is otherwise due. Excise and additional customs duty, if paid, could be used as a credit for its own future duty liabilities (the so-called ‘CENVAT mechanism’) which is a system comparable to VAT and which allows Indian companies to offset taxes on purchases with taxes payable on sales. Therefore, these duties are not definitive. By the means of ‘CENVAT’-credit only an added value bears a definitive duty, not the input materials.

Thus, only the exemption from basic customs duty, education cess on customs duty, higher secondary education cess and the central sales tax reimbursement, constitute subsidies within the meaning of Article 3 of the basic Regulation. They are contingent in law upon export performance, and therefore deemed to be specific and countervailable under Article 4(4), first subparagraph, point (a) of the basic Regulation. The export objective of an EOU as set out in chapter 6.1 of the FT-policy 09-14 is a conditio sine qua non to obtain the incentives.

Accordingly, the countervailable benefit is the remission of import duties (basic customs duty, education cess on customs duty, higher secondary education cess) normally due upon importation as well as the reimbursement of central sales tax, during the IP.

The detailed description of the scheme is contained in paragraphs 3.15 to 3.17 of the FT-policy 09-14 and chapters 3.9 to 3.11 of the HOP I 09-14.

According to paragraph 3.15.2 of the FT-policy 09-14, exporters of notified products in Appendix 37D of HOP I 09-14 are eligible for this scheme.

An exporter of products included in the list of Appendix 37D of HOP I 09-14 can apply for FPS Duty Credit scrip equivalent to 2 % or 5 % of FOB value of exports. However, Special Focus product(s)/sector(s), covered under Table 2 and table 5 of the abovementioned Appendix 37D are entitled of a Duty Credit scrip equivalent to 5 % of FOB value of exports. The product concerned under investigation is included in these Special Focus products.

FPS is a post export scheme, i.e. a company must export to be eligible for benefits under this scheme. As a result, the company proceeds to file an on-line application to the relevant authority along with copies of the export order and invoice, the bank receipt showing payment of application fees, copy of the shipping bills and bank realization certificate for the receipt of payment or foreign inward remittance certificate in the case of direct negotiation of documents. In cases where the original copy of the shipping bills and/or bank realisation certificates have been submitted for claiming benefits under any other scheme, the company can submit self-attested copies quoting the relevant authority where the original documents have been submitted. The on-line application for FPS credits can cover a maximum of up to 50 shipping bills.

It was found that, in accordance with Indian accounting standards, FPS credits can be booked on an accrual basis as income in the commercial accounts, upon fulfilment of the export obligation. Such credits can be used for payment of customs duties on subsequent imports of any goods - except capital goods and goods where there are import restrictions. Goods imported against such credits can be sold on the domestic market (subject to sales tax) or used otherwise. FPS credits are freely transferable and valid for a period of 24 months from the date of issue.

It was found that two of the companies in the sample used this scheme during the IP.

The FPS provides subsidies within the meaning of Article 3(1)(a)(ii) and Article 3(2) of the basic Regulation. An FPS credit is a financial contribution by the GOI since the credit will eventually be used to offset import duties, thus decreasing the GOI’s duty revenue which would otherwise be due. In addition, the FPS credit confers a benefit upon the exporter because it improves its liquidity.

Furthermore, the FPS is contingent in law upon export performance, and therefore deemed to be specific and countervailable under Article 4(4)(a) of the basic Regulation.

This scheme cannot be considered a permissible duty drawback system or substitution drawback system within the meaning of Article 3(1)(a)(ii) of the basic Regulation since it does not conform to the rules laid down in Annex I item (i), Annex II (definition and rules for drawback) and Annex III (definition and rules for substitution drawback) of the basic Regulation. In particular, an exporter is under no obligation to actually consume the goods imported free of duty in the production process and the amount of credit is not calculated in relation to actual inputs used. Moreover, there is no system or procedure in place to confirm which inputs are consumed in the production process of the exported product or whether an excess payment of import duties occurred within the meaning of item (i) of Annex I, and Annexes II and III of the basic Regulation. Lastly, an exporter is eligible for the FPS benefits regardless of whether it imports any inputs at all. In order to obtain the benefit, it is sufficient for an exporter to simply export goods without demonstrating that any input material was imported. Thus, even exporters which procure all of their inputs locally and do not import any goods which can be used as inputs are still entitled to benefit from the FPS.

In accordance with Articles 3(2) and 5 of the basic Regulation, the amount of countervailable subsidies was calculated in terms of the benefit conferred on the recipient found to exist during the IP. In this regard, it was considered that the benefit is conferred on the recipient at the point in time when an export transaction is made under this scheme. At that moment, the GOI is liable to forego the customs duties, which constitutes a financial contribution within the meaning of Article 3(1)(a)(ii) of the basic Regulation. Once the customs authorities issue an export shipping bill which shows, inter alia, the amount of FPS credit which is to be granted for that export transaction, the GOI has no discretion as to whether or not to grant the subsidy. In the light of the above, it is considered appropriate to assess the benefit under the FPS as being the sums of the credits earned on export transactions made under this scheme during the IP.

Where justified claims were made, fees necessarily incurred to obtain the subsidy were deducted from the credits so established to arrive at the subsidy amount as numerator, pursuant to Article 7(1)(a) of the basic Regulation. In accordance with Article 7(2) of the basic Regulation this subsidy amount has been allocated over the total export turnover during the IP as appropriate denominator, because the subsidy is contingent upon export performance and it was not granted by reference to the quantities manufactured, produced, exported or transported.

The subsidy rate established in respect of this scheme for the two companies concerned during the IP was 4,80 %.

The details of the scheme are set out in the Master Circular DBOD No. DIR.(Exp).BC. 06/04.02.002/2010-10 (Rupee/Foreign Currency Export Credit) of the Reserve Bank of India (‘RBI’), which is addressed to all commercial banks in India.

Manufacturing exporters and merchant exporters are eligible for this scheme.

The ECS consists of two sub-schemes, the Pre-Shipment Export Credit Scheme (‘packing credit’), which covers credits provided to an exporter for financing the purchase, processing, manufacturing, packing and/or shipping of goods prior to export, and the Post-Shipment Export Credit Scheme, which provides for working capital loans with the purpose of financing export receivables. Since July 1, 2010, commercial banks apply a new Base Rate System applicable for all tenors of rupee export credit advances. As regards ECS in foreign currency, the Reserve Bank of India (RBI) sets maximum ceiling interest rates applicable to export credits which commercial banks can charge an exporter. The RBI also directs the banks to provide a certain amount of their net bank credit towards export finance.

As a result of the RBI Master Circular exporters can obtain export credits at preferential interest rates as compared with the interest rates for ordinary commercial credits (‘cash credits’), which are solely set under market conditions. The difference in rates might decrease for companies with good credit ratings. In fact, high rating companies might be in a position to obtain export credits and cash credits at the same conditions.

It was found that all the sampled exporting producers used this scheme during the IP.

The preferential interest rates of an ECS credit set by the RBI Master Circular mentioned in recital (98) can decrease the interest costs of an exporter as compared with credit costs purely set by market conditions and confer in this case a benefit within the meaning of Article 3(2) of the basic Regulation on such an exporter.

Despite the fact that the preferential credits under the ECS are granted by commercial banks, this benefit is a financial contribution by a government within the meaning of Article 3(1)(a)(iv) of the basic Regulation. In this context, it should be noted that neither Article 3(1)(a)(iv) of the basic Regulation nor Article 1.1(a)(1)(iv) of the Agreement on Subsidies and Countervailing Measures require a charge on the public accounts, e.g. reimbursement of the commercial banks by the GOI, to establish a subsidy, but only government direction to carry out functions illustrated in points (i), (ii) or (iii) of Article 3(1)(a) of the basic Regulation. The RBI is a public body and falls therefore under the definition of ‘government’ as set out in Article 2(b) of the basic Regulation. It is 100 % government-owned, pursues public policy objectives, e.g. monetary policy, and its management is appointed by the GOI. The RBI directs private bodies, within the meaning of the second indent of Article 3(1)(a)(iv) of the basic Regulation, since the commercial banks are bound by the conditions it imposes, inter alia, with regard to the setting of the interest rates on export credits mandated in the RBI Master Circular and the RBI provisions that commercial banks have to provide a certain amount of their net bank credit towards export finance. This direction obliges commercial banks to carry out functions mentioned in Article 3(1)(a)(i) of the basic Regulation, in this case to provide loans in the form of preferential export financing. Such direct transfer of funds in the form of loans under certain conditions would normally be vested in the government, and the practice differs, in no real sense, from practices normally followed by governments, within the meaning of Article 3(1)(a)(iv) of the basic Regulation. This subsidy is deemed to be specific and countervailable since the preferential interest rates are only available in relation to the financing of export transactions and are therefore contingent upon export performance, pursuant to Article 4(4), first subparagraph, point (a) of the basic Regulation.

The subsidy amount has been calculated on the basis of the difference between the interest paid for export credits used during the IP and the amount that would have been payable for ordinary commercial credits used by the company concerned. This subsidy amount (numerator) has been allocated over the total export turnover during the IP as the appropriate denominator in accordance with Article 7(2) of the basic Regulation because the subsidy is contingent upon export performance and it was not granted by reference to the quantities manufactured, produced, exported or transported.

The subsidy rates established in respect of this scheme for the companies concerned during the IP were 0,25 %, 0,31 % and 0,44 %.

The scheme is included in the Package Scheme of Incentives 2007 of the Government of Maharashtra, Resolution No PSI-1707/(CR-50)/IND-8, dated 30 March 2007. Following the Amendments to the Package Scheme of Incentives 2007 issued by the Government of Maharashtra on 30 June 2011, an extension period has been provided until 31 August 2011.

The abovementioned Resolution lists the categories of industries and enterprises which can be considered eligible for incentives under the 2007 scheme.

In order to encourage the dispersal of industries to the less developed areas, the Maharashtra Government has provided a package of incentives to new/expansion industrial units set up in the developing region of the Maharashtra State. For the purpose of the Scheme, Annexure I to the Resolution classifies the area of the State eligible for incentives. However, the incentives under the 2007 Scheme cannot be claimed unless an Eligibility Certificate has been issued under the 2007 Scheme by the Implementing Agency and the eligible unit has complied with the stipulations/conditions of the Eligibility Certificate. An Eligibility Certificate is issued by the Implementing Agency with effect from the date of commencement of commercial production of the eligible unit.

Exemption from Electricity Duty is granted to eligible new units set up in specified areas for a period of 15 years. In other parts of the State, 100 % Exported Oriented Units (EOUs), Information Technology (IT) and Bio-Technology (BT) units will also be exempted from payment of Electricity Duty for a period of 10 years.

During the investigation it was found that one company in the sample, being an EOU located in Maharashtra, benefited from this scheme during the IP.

The exemption from the Electricity Duty is a subsidy within the meaning of Article 3(1)(a)(i) and Article 3(2) of the basic Regulation, since it constitutes a financial contribution of the GOI which conferred a benefit upon the investigated exporters.

The subsidy scheme is specific within the meaning of Article 4(3) of the basic Regulation given that the legislation itself, pursuant to which the granting authority operates, limited the access to this scheme to certain enterprises within a designated geographical region.

Consequently, the subsidy should be considered countervailable.

In accordance with Articles 3(2) and 5 of the basic Regulation, the amount of countervailable subsidy is calculated in terms of the benefit conferred on the recipient in relation to the product concerned, which is found to exist during the IP. This amount (numerator) has been allocated over the total sales turnover of the product concerned of the exporting producer during the IP, because the subsidy is not contingent upon export performance and was not granted by reference to the quantities manufactured, produced, exported or transported, pursuant to Article 7(2) of the basic Regulation.

The subsidy rate established with regard to this scheme during the IP for the company concerned amounts to 0,09 %.

Average prices of imports from India decreased overall by 9 % during the period considered. This explains the increase in the market share of India from 12,1 % to 18,3 % over the same period. The highest increase occurred between 2008 and 2009, when Indian exporters gained more than 6 percentage points of market share.

In order to determine price undercutting during the IP, the weighted average sales prices per product type of the sampled Union producers charged to unrelated customers on the Union market, adjusted to an ex-works level, were compared to the corresponding weighted average prices of the imports from India to the first independent customer on the Union market, established on a CIF basis, with appropriate adjustments for the existing customs duties and post-importation costs.

The price comparison was made on a type-by-type basis for transactions at the same level of trade, duly adjusted where necessary, and after deduction of rebates and discounts. The result of the comparison, when expressed as a percentage of the sampled Union producers’ turnover during the IP, showed price undercutting ranging between 3 % and 13 %.

The table above shows that production decreased significantly by 25 % over the period considered. In line with a decrease in demand, production decreased sharply by 19 % in 2009, after which it recovered by around 10 % in 2010. In the IP, although the Union consumption increased by 7 %, Union production decreased again by around 17 % compared to the previous year.

The production capacity of the Union industry decreased by around 21 % over the period considered. Capacity utilisation also decreased over the period considered, constantly remaining below 50 %.

In the context of an increasing consumption (+ 9 %), sales volume of the like product when sold to the first independent customer in the Union decreased by 14 % over the period considered. Consequently market share dropped from 46,5 % in 2008 to 36,6 % in the IP. Following sharp decrease in sales volume in 2009 (– 20 %), it recovered slightly in 2010 and in the IP.

Union consumption increased by 9 % between 2008 and the IP. However, sales volume and market share of the Union industry decreased in the same period, by 14 % and 21 % respectively. At the same time imports from India increased significantly by 65 %.

Due to the downsizing activities of the Union industry, the number of employees was reduced accordingly during the period considered by 24 %. Between 2008 and the IP labour costs per employee increased by 6 %.

Productivity of the Union industry workforce, measured as output per person employed per year, decreased slightly by 1 % over the period considered. It reached its lowest level in 2009, after which it started to recover towards the IP.

Average sales prices decreased by 2 % over the period considered. In 2009 the Union industry was forced to reduce its sales prices by 36 %, in the context of the economic downturn and of a sharp decrease of import prices from India (– 21 %). During 2010 and the IP the Union industry sales prices recovered again.

The investigation showed that the decrease in sales prices in 2009 reflected the decrease in costs which dropped by 18 % compared to 2008 levels. This decrease in costs was mainly due to the decrease in raw material prices, especially those of nickel, which has an unstable price dynamic. However, the Union industry was forced to decrease its sales prices more than the decrease in costs, in view of the expansion of the low-priced Indian imports in 2009.

The investigation showed that, even if the decrease in sales prices partly reflected the decrease in costs, the price of the Union industry was under pressure by the imports of SSF from India. The profitability of the Union industry was negative since the beginning of the period concerned. Especially in 2009 the Union industry was forced to decrease its sales prices more than the decrease in costs, in view of the expansion of the low-priced Indian imports. This lead to a significant deterioration of profitability in that year. However, in 2010 and the IP profitability improved, but it still remained negative.

Cash flow, which is the ability of the industry to self-finance its activities, followed a similar trend as profitability. It reached its lowest level in 2009, after which it showed an increasing trend and turned positive in the IP.

After making investments in 2008 in the production of SSF, investments decreased by about 94 % during the period considered. The return on investment showed a similar negative development in line with the negative results achieved by the Union industry over the period considered and remained always negative.

The evolution of profitability, the cash flow and the low level of investments points to the fact that the sampled EU producers may have experienced difficulties to raise capital.

The stock level of the sampled Union industry increased by 3 % during the period considered. In 2009 the level of closing stock decreased by 8 %; afterwards, in 2010 and in the IP it increased by 8 % and 3 % respectively.

Given the volume, market share and prices of the subsidised imports from India, the impact on the Union industry of the actual subsidy margins cannot be considered to be negligible.

Based on Eurostat data, the volume of imports into the Union of SSF originating in other third countries increased by 18 % during the period considered. At the same time, average import prices decreased by about 3 % during the period considered and their market share increased by about 9 %.

There have been anti-dumping measures in force on imports of SSF from the People’s Republic of China and Taiwan as of 19 November 2005. Despite the measures, these imports have increased significantly over the period considered, although market shares remained rather modest, at 2,5 % and 5,1 % respectively in the IP. Other main sources of imports are the Philippines and Malaysia. Imports especially from the Philippines increased significantly over the period considered, increasing their market share from 5,8 % in 2008 to 13,8 % in the IP.

As regards Malaysia, there was a decreasing trend over the period considered, however, imports still had a market share of 7,6 % in the IP. Import volume from the Philippines increased significantly during the period considered. However, as mentioned below the average import price was much higher, namely, about 20 %, than the average price of the Indian SSF.

With regard to import prices, average prices of imports from other third countries remained quite stable over the period considered and were always above the average sales prices of the Union industry and the average import prices from India.

On the basis of the above, it was provisionally concluded that imports from other third countries did not break the causal link between the impact of the subsidised imports from India and the material injury suffered by the Union industry.

The economic crisis partially explains the contraction of the Union consumption in 2009. However, it is noteworthy that despite the decrease of 16 % in consumption in 2009, the volume of Indian imports increased by 30 %.

In 2010 and the IP Union consumption increased in line with the general economic recovery. However, sales volume of the Union industry increased only slightly, by 3 % in 2010 and by 4,7 % in the IP This compares to an annual increase in Indian imports by 16 % and 10 % respectively.

Under normal economic conditions and in the absence of strong price pressure and increased import levels from the subsidised imports, the Union industry might have had some difficulty in coping with the decrease in consumption and the increase in fixed costs per unit due to the decreased capacity utilisation it experienced. However, the subsidised imports have intensified the effect of the economic downturn and even during the general economic recovery, the Union industry was unable to recover and to regain the market share lost to the Indian imports.

Therefore, although the economic crisis 2008-2009 may have contributed to the Union industry’s poor performance, it cannot be considered to have an impact such as to break the causal link between the subsidised imports and the injurious situation of the Union industry.

During the period considered the volume of export sales of the sampled Union industry decreased by 9 % while average export prices dropped by 10 %. While it cannot be excluded that the negative trend in the export performance may have had a further negative impact on the Union industry, it is considered that, given the low volume of exports in relation to sales on the Union market, the impact does not break the causal link between the subsidised imports and the injury found.