(1)

The Council, by Regulation (EC) No 74/2004 (2), imposed a definitive countervailing duty on imports of cotton-type bedlinen falling within CN codes ex 6302 21 00, ex 6302 22 90, ex 6302 31 00 and ex 6302 32 90 and originating in India. The rate of the duty ranges between 4,4 % and 10,4 % for individual sampled companies, with an average cooperating company rate of 7,6 % and a residual duty of 10,4 %.

(2)

Following the imposition of the definitive countervailing duty the Government of India (GOI) made submissions that the circumstances with regard to two subsidy schemes (the Duty Entitlement Passbook Scheme and the Income Tax Exemption under Section 80 HHC of the Income Tax Act) had changed and that these changes were of a lasting nature. They argued that the level of subsidisation was therefore likely to have decreased and thus measures that had been established partly on these schemes should be revised.

(3)

The Commission examined the evidence submitted by the GOI and considered it sufficient to justify the initiation of a review in accordance with the provisions of Article 19 of the basic Regulation. After consultation of the Advisory Committee, the Commission initiated an ex officio partial interim review of the measures in force by a notice published in the Official Journal of the European Union (3).

(4)

The purpose of this partial interim review investigation is to assess the need for the continuation, removal or amendment of the existing measures in respect of those companies which benefited from one or both the allegedly changed subsidy schemes where sufficient evidence was provided in line with the relevant requirements of the notice of initiation. Depending on its findings, the investigation will also assess the need to revise the measures applicable to other companies that cooperated in the original investigation and/or the residual measure applicable for all other companies.

(5)

The investigation covered the period from 1 October 2006 to 30 September 2007 (‘the review investigation period’ or ‘RIP’).

(6)

The Commission officially informed the Government of India (GOI) of the initiation of the partial interim review investigation, along with those Indian exporting producers who cooperated in the previous investigation and that were found to benefit from one or both of the two allegedly changed subsidy schemes and who were listed in the notice of initiation of the partial interim review, as well as the representatives of the Community industry. Interested parties had the opportunity to make their views known in writing and to request a hearing. The written and oral comments submitted by the parties were considered and, where appropriate, taken into account.

(7)

In view of the apparent number of parties involved in this review, the use of sampling for the investigation of subsidisation was proposed in accordance with Article 27 of the basic Regulation.

(8)

In order to enable the Commission to select a sample, pursuant to Article 27(2) of the basic Regulation, exporters and representatives acting on their behalf were requested to make themselves known within three weeks of the initiation of the proceeding and to provide basic information on their export and domestic turnover, on some particular subsidy schemes, and the names and activities of all related companies. The authorities of India were also informed.

(9)

More than 80 companies made themselves known and provided the information requested for the sampling. These companies represented 95 % of the total exports of India to the Community during the sampling period.

(10)

Given the large number of companies, a sample of 11 exporting companies and groups with the largest export volumes to the Community was chosen, in consultation with the Community industry, the Indian textiles association Texprocil and the GOI.

(11)

The sample represented 64 % of the total exports to the EU of the product concerned from India in the sampling period (1 April 2006 to 31 March 2007). In accordance with Article 27 of the basic Regulation, the selected sample covered the largest possible representative volume of exports that could reasonably be investigated within the time available.

(12)

Requests for the determination of an individual subsidy margin in accordance with Article 27(3) of the basic Regulation were submitted by four companies not selected in the sample. However, in view of the large number of requests and the large number of companies selected in the sample, it was considered that such individual examinations would be unduly burdensome within the meaning of Article 27(3) and would have prevented completion of the investigation in good time. The claims for the determination of individual margins by the four non-sampled companies were therefore rejected.

(13)

During the investigation it was identified that two related companies of two sampled exporting companies did not produce, export or sell domestically the product concerned produced during the RIP. They did not express any intention to do so in the future. It has therefore been decided to exclude those related companies from the sample and calculation of individual subsidy margins.

(14)

Companies not selected for the sample were informed that any anti-subsidy duty on their exports would be calculated in accordance with Article 15(3) of the basic Regulation, i.e. without exceeding the weighted average amount of countervailable subsidies established for the companies in the sample.

(15)

The companies that did not make themselves known within the deadline set in the notice of initiation were not considered as interested parties.

(16)

Questionnaire replies were received from all sampled exporting producers in India.

(17)

The Commission sought and verified all information it deemed necessary for the determination of subsidisation. Verification visits were carried out at the premises of the following interested parties:

(18)

The GOI and the other interested parties were informed of the essential facts and considerations upon which it was intended to propose to amend the duty rates applicable and continue application of existing measures. They were also given a reasonable time to comment. All submissions and comments were taken duly into consideration as set out below.

(19)

The product under review is bedlinen of cotton fibres, pure or mixed with man-made fibres or flax (flax not being the dominant fibre), bleached, dyed or printed, originating in India (the product concerned), currently classifiable within CN codes ex 6302 21 00, ex 6302 22 90, ex 6302 31 00 and ex 6302 32 90, and as defined in the original investigation.

(20)

On the basis of the information available and the replies to the Commission’s questionnaire, the following schemes allegedly granting subsidies were investigated:

(21)

The schemes 1 to 5 above are based on the Foreign Trade (Development and Regulation) Act 1992 (No 22 of 1992) which entered into force on 7 August 1992 (Foreign Trade Act). The Foreign Trade Act authorises the GOI to issue notifications regarding the export and import policy. These are summarised in ‘Export and Import Policy’ documents, which are issued by the Ministry of Commerce every five years and updated regularly. One Export and Import Policy document is relevant to the RIP of this case; i.e. the five-year plan relating to the period 1 September 2004 to 31 March 2009 (EXIM policy 04-09). In addition, the GOI also sets out the procedures governing the EXIM policy 04-09 in a ‘Handbook of Procedures — 1 September 2004 to 31 March 2009, Volume I’ (HOP I 04-09). The Handbook of Procedures is also updated on a regular basis.

(22)

The Income Tax Exemptions Scheme is based on the Income Tax Act of 1961, which is amended yearly by the Finance Act.

(23)

The Duty Drawback Scheme is based on Section 75 of the Customs Act 1962, Section 37(2)(xvi) of the Excise Act 1944 and Sections 93A and 94 of the Finance Act 1994. This is a new scheme that has not been previously investigated.

(24)

The Technology Upgradation Fund Scheme is based on a Resolution of the Ministry of Textiles, Government of India, published in the Official Gazette of India Extraordinary Part I Section I on 31 March 1999. This is a new scheme that has not been previously investigated.

(25)

The Export Credit Scheme is based on sections 21 and 35A of the Banking Regulation Act 1949, which allow the Reserve Bank of India (RBI) to direct commercial banks in the field of export credits.

(26)

In accordance with Article 11(10) of the basic Regulation, the Commission invited the GOI for additional consultations with respect to changed and unchanged schemes, as well as those not previously investigated, with the aim of clarifying the factual situation as regards the alleged schemes and arriving at a mutually agreed solution. Following these consultations, and in the absence of a mutually agreed solution in relation to these schemes, the Commission included all of them in the investigation of subsidisation.

(27)

The detailed description of the DEPB scheme is contained in paragraph 4.3 of the EXIM policy 04-09 and in chapter 4 of the HOP I 04-09.

(28)

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

(29)

An eligible exporter can apply for DEPB credits which are calculated as a percentage of the value of products exported under this scheme. Such DEPB 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.

(30)

To be eligible for benefits under this scheme, a company must export. The exporter must declare that the export is taking place under DEPB to the Indian authorities at the time of export. In order for the goods to be exported, the Indian customs authorities issue an export shipping bill during the dispatch procedure. This document declares the amount of DEPB credit which is to be granted for that export and therefore the exporter knows the benefit it will receive at that time.

(31)

Once the customs authorities issue an export shipping bill, the GOI has no discretion over the granting of a DEPB credit. The relevant DEPB rate to calculate the benefit is that which applied at the time the export declaration is made. An unusual retroactive increase of the DEPB rates took place during the RIP, increasing the DEPB benefit for exports from 1 April 2007 to 12 July 2008. However, it is not possible to assume that a retroactive decrease of DEPB rates could be implemented under the principle of legal certainty as a negative administrative decision. Therefore it can be concluded that the ability of the GOI to retroactively amend the level of the benefit is limited.

(32)

DEPB credits are freely transferable and valid for 12 months from the date of issue. They can be used for payment of customs duties on subsequent imports of any goods without import restriction, except capital goods. Goods imported against such credits can be sold on the domestic market (subject to sales tax) or otherwise used.

(33)

Applications for DEPB credits are electronically filed and can cover an unlimited amount of export transactions. De facto no strict deadlines exist to apply for DEPB credits. The electronic system used to manage the DEPB scheme does not automatically exclude export transactions outside the deadline submission periods mentioned in chapter 4.47 HOP I 04-09. Furthermore, as clearly provided in chapter 9.3 HOP I 04-09, applications received after the expiry of submission deadlines can always be considered with a minor penalty fee (10 % on the entitlement).

(34)

While the DEPB rates for exports of the product concerned during the IP of the original investigation was 8 %, at the beginning of the RIP it was only 3,7 %, which was revised during the RIP to 6,7 % (on 12 July 2007), which was unusually backdated to exports since 1 April 2007.

(35)

GOI and Texprocil alleged that no excess remissions occurred in the application of the DEPB scheme and argued that therefore the scheme was not countervailable. This argument is rejected in the light of the conclusion in recital 38 that this scheme cannot be considered a permissible duty drawback system or substitution drawback system within the meaning of Article 2(1)(a)(ii) and Annexes I(i), II and III to the basic Regulation. Consequently, the whole amount of duties foregone is countervailable.

(36)

The DEPB scheme provides subsidies within the meaning of Article 2(1)(a)(ii) and Article 2(2) of the basic Regulation. A DEPB 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 be otherwise due. In addition, the DEPB credit confers a benefit upon the exporter, because it improves their liquidity.

(37)

The DEPB scheme is contingent in law upon export performance, and therefore deemed to be specific and countervailable under Article 3(4)(a) of the basic Regulation.

(38)

This scheme cannot be considered a permissible duty drawback system or substitution drawback system within the meaning of Article 2(1)(a)(ii) of the basic Regulation. It does not conform to the strict rules laid down in Annex I item (i), Annex II (definition and rules for drawback) and Annex III (definition and rules for substitution drawback) to the basic Regulation. 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 to the basic Regulation. Lastly, an exporter is eligible for the DEPB 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 DEPB scheme.

(39)

In accordance with Articles 2(2) and 5 of the basic Regulation, the amount of countervailable subsidies was calculated in terms of the benefit conferred on the recipient which was found to exist during the RIP. In this regard, it was considered that the benefit is conferred on the recipient when an export transaction is made under this scheme. At this moment, the GOI is liable to forgo the customs duties, which constitutes a financial contribution within the meaning of Article 2(1)(a)(ii) of the basic Regulation. Once the customs authorities issue an export shipping bill which shows, inter alia, the amount of DEPB credit which is to be granted for that export transaction, the GOI has no discretion as to whether or not to grant the subsidy. Furthermore, the cooperating exporting producers booked the DEPB credits on an accrual basis as income at the time of the export transaction.

(40)

In order to take account of the impact of the backdated increase in rates, the value of the DEPB credit booked for exports made between 1 April to 12 July 2007 was increased where necessary, as the actual benefit the companies will be entitled to on receipt of the credit from the GOI is higher than formally claimed at the time of exportation.

(41)

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 review investigation period as the 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.

(42)

Several comments concerning certain details of calculation of benefit under the DEPB were submitted. Where it was found to be justified, the calculations were adjusted as a result.

(43)

Contrary to the submission of some exporting producers, even DEPBS credit generated by exporting products other than the product concerned had to be considered when establishing the amount of countervailable DEPBS credit. Under the DEPBS no obligation exists which limits the use of the credits to the importation of duty-free input material linked to a specific product. On the contrary, DEPBS credits are freely transferable, can even be sold and used for imports of any unrestrictedly importable goods (the input materials of the product concerned belong to this category), except capital goods. Consequently, the product concerned can benefit from all DEPBS credits generated.

(44)

Five companies in the sample benefited from the DEPB scheme during the RIP with subsidy margins ranging from 0,15 % to 3,96 %.

(45)

The detailed description of the DFIA is contained in chapter 4 of the EXIM policy 04-09 and in chapter 4 of the HOP I 04-09. The scheme was introduced in 1 May 2006 and replaced the DFRC scheme, which was countervailed by the original Regulation.

(46)

The DFIA is issued to any merchant-exporter or manufacturer-exporter for the imports of inputs used in the manufacture of goods for exports free of basic customs duty, additional customs duty, education cess, anti-dumping duty and safeguard duty, if any.

(47)

The DFIA is a post- and pre-export scheme which allows imports of goods determined according to SION norms, but which, in case of transferable DFIA, do not have to be necessarily used in the manufacture of the exported product.

(48)

The DFIA only covers the import of inputs as prescribed in the SION. The import entitlement is limited to the quantity and value mentioned in the SION, but can be revised by regional authorities on request.

(49)

The export obligation is subject to the minimum value addition requirement of 20 %. The exports may be performed in anticipation of a DFIA authorisation, in which case the import entitlement is set in proportion of the provisional exports.

(50)

Once the export obligation is fulfilled, the exporter can request the transferability of the DFIA authorisation, which in practice means a permission to sell the duty-free import licence on the market.

(51)

The GOI and Texprocil alleged that the DFRC is a legitimate substitution drawback scheme, since the scheme provides for replenishment of inputs used in the exported product and was considered reasonable, effective and based on the generally accepted commercial practices in India. Because the quantity, quality and technical characteristics and specifications match with inputs used in the export product, the scheme would be in the view of the GOI and Texprocil permissible under the Agreement on Subsidies and Countervailing Measures (ASCM). The GOI and Texprocil also argued that, when assessing whether it is a legitimate substitution drawback scheme, the relevant condition is to look at what is being imported and not who is importing. It was further argued that in so far as the Government is concerned, no additional benefit is granted. It was argued that the scheme was therefore not countervailable No new evidence was provided to support these arguments and therefore these arguments are rejected in the light of the findings under recitals 52 to 55 that neither of the sub-schemes be considered as permissible duty drawback systems or substitution drawback systems within the meaning of Article 2(1)(a)(ii) and Annexes I(i), II and III to the basic Regulation. Consequently, the whole amount of benefit is countervailable.

(52)

Though there are some differences in the application of the new DFIA scheme, as compared with the formerly countervailed DFRC scheme, the new DFIA has to be considered as a continuation of the DFRC scheme, because it takes over the main elements of the DFRC.

(53)

Both DFRC and DFIA are subsidies within the meaning of Article 2(1)(a)(i) and (ii) and Article 2(2) of the basic Regulation, i.e. a financial contribution in form of a grant. They involve a direct transfer of funds, as they can be sold and converted into cash, or used to offset the import duties, causing the GOI to forego revenue which is otherwise due. In addition, the DFRC and DFIA confer a benefit upon the exporter, because they improve their liquidity.

(54)

Both DFRC and DFIA are contingent in law upon export performance, and therefore deemed to be specific and countervailable under Article 3(4)(a) of the basic Regulation.

(55)

Furthermore, neither of the schemes can be considered a permissible duty drawback system or substitution drawback system within the meaning of Article 2(1)(a)(ii) of the basic Regulation. They do not conform to the strict rules laid down in Annex I item (i), Annex II (definition and rules for drawback) and Annex III (definition and rules for substitution drawback) to the basic Regulation. In particular: (i) they allow for ex post refund or drawback of import charges on inputs which are consumed in the production process of another product; (ii) there is no verification system or procedure in place to confirm whether and which inputs are consumed in the production of process of the exported product or whether excess benefit occurred within the meaning of point (i) of Annex I and Annexes II and III to the basic Regulation; and (iii) the transferability of certificates/authorisations implies that an exporter granted a DFRC or DFIA is under no obligation actually to use the certificate to import the inputs.

(56)

For the establishment of the benefit it has been considered that, unlike in DEPB, the DFRC and DFIA licences have no notional value or credit rates. The licence indicates the total quantity of the permitted inputs to be imported and the maximum total CIF value of such imports. Consequently, the benefit is not known at the time of exports, and it can be determined and booked into accounts only when the licence is used for importation or sold.

(57)

Therefore, in cases where the licences were used for imports, the benefit for the companies was calculated on the basis of the amount of the import duties forgone. In cases where the licences were transferred (sold), the benefit was calculated on the basis of revenue on such sales during the RIP.

(58)

The investigation established that five companies exporting under the DFRC and/or DFIA sold their authorisations/certificates to third parties.

(59)

One exporting producer argued that it had used one of its DFI authorisations as a substitution drawback and that it did not have excess remissions of duties on imports under the particular licence. The investigation established that the import and export quantities under that particular licence were not exhausted and that the licence was not yet closed and verified according to the rules prescribed by the EXIM policy. Therefore, and taking into account the findings under recital 55, it was concluded that the company could not prove that no excess remission was incurred under that particular licence. The whole amount of duties saved on the imports made under that licence are therefore deemed a subsidy, and the claim was therefore rejected.

(60)

Where justified claims were made, fees necessarily incurred to obtain the subsidy were deducted from the benefits 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 review investigation period 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.

(61)

Several comments concerning certain details of calculation of benefit under the DFRC/DFIA were submitted. Where it was found to be justified, the calculations were adjusted as a result.

(62)

Contrary to the submission of some exporting producers, even DFRC/DFIA credit generated by exporting products other than the product concerned had to be considered when establishing the amount of countervailable benefit. No obligation exists under DFRC/DFIA which limits the use of the credits to the importation of duty-free input material linked to a specific product. On the contrary, DFRC/DFIA credits are freely transferable, can even be sold and be used for imports of any unrestrictedly importable goods (the input materials of the product concerned belong to this category), except capital goods. Consequently, the product concerned can benefit from all DFRC/DFIA benefit generated.

(63)

Four companies in the sample were found to benefit from these schemes during the RIP with subsidy margins ranging from 0,09 % to 2,03 %.

(64)

The detailed description of the EPCG scheme is contained in chapter 5 of the EXIM policy 04-09 and in chapter 5 of the HOP I 04-09.

(65)

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

(66)

Under the condition of an export obligation, the GOI will issue upon application and payment of a fee an EPCG licence. This licence allows a company to import capital goods (new and — since April 2003 — second-hand capital goods up to 10 years old) at a reduced rate of duty. Until 31 March 2000, an effective duty rate of 11 % (including a 10 % surcharge) and, in case of high value imports, a zero duty rate was applicable. From April 2000, the scheme provided for a reduced import duty rate of 5 % applicable to all capital goods imported under the 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. On 9 May 2008, i.e. outside the RIP, the GOI announced that the duty payable on import under EPCG was lowered to 3 %.

(67)

The EPCG licence holder can also source the capital goods indigenously. In such a case, the EPCG licence holder applies for invalidation of its EPCG licence. The indigenous manufacturer of capital goods specified in the invalidation letter becomes eligible for deemed export benefit and is entitled for the benefit of duty-free import of components required to manufacture such capital goods. However, the excise duty payable on a domestic purchase of the capital good by the EPCG licence holder can be refunded or is exempted. The EPCG licence holder stays liable to fulfil the export obligation, which is set with reference to the notional customs duties saved on FOB value of the import goods.

(68)

The GOI argued that no benefit occurred in cases where EPCG licence holder applies for invalidation of its EPCG licence and purchases the capital goods indigenously, as no corresponding government regulation was issued granting exemption from payment of excise duties for such purchases. However, it was also confirmed by the GOI that under certain circumstances, the EPCG licence holder could purchase capital goods without payment of excise duty, i.e. in cases where this duty would not been set off under the Indian Central Value Added Tax (Cenvat) credit system. Moreover, the domestic supplier of capital goods is eligible in such cases for fiscal benefits which will be reflected in the price of the capital goods supplied. As this is a benefit that could be obtained on condition of export, as there are no changes in the export obligation of the EPCG licence holder in case of invalidation, it has been considered that the argument has to be rejected and the findings remain unchanged.

(69)

The EPCG scheme provides subsidies within the meaning of Article 2(1)(a)(ii) and Article 2(2) of the basic Regulation. The duty reduction, or in case of domestic sourcing, the refund of the taxes or exemption therefrom, constitute a financial contribution by the GOI, since this concession decreases the GOI’s revenue, which would be otherwise due.

(70)

In addition, the duty reduction confers a benefit upon the exporter, because the duties saved upon importation improve its liquidity. In case of excise duty refund/exemption, the refund or exemption from excise duty confers a benefit to the exporter, because the duties saved on purchase of the capital goods improve its liquidity.

(71)

Furthermore, the EPCG scheme is contingent in law upon export performance, since such licences can not be obtained without a commitment to export. Therefore, it is deemed to be specific and countervailable under Article 3(4)(a) of the basic Regulation.

(72)

This scheme cannot be considered a permissible system for remission of prior-stage cumulative indirect taxes or a permissible duty drawback or substitution drawback system within the meaning of Article 2(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, items (h) and (i), to the basic Regulation, because they are not consumed in the production of the exported products. In case of remission of prior-stage cumulative indirect taxes, it should be noted that the exporters would not be entitled to the same remission if they were not bound by the export obligation.

(73)

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 or unpaid/refunded excise duty on domestically purchased goods, as applicable, spread across a period which reflects the normal depreciation period of such capital goods. In accordance with the established practice, the amount so calculated, which is attributable to the RIP, 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 review investigation period in India was considered appropriate for this purpose. Fees necessarily incurred to obtain the subsidy were deducted in accordance with Article 7(1)(a) of the basic Regulation from this sum to arrive at the subsidy amount as numerator. In accordance with Article 7(2) and 7(3) of the basic Regulation, this subsidy amount has been allocated over the export turnover during the RIP 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.

(74)

Several comments concerning certain details of calculation of benefit under the EPCG were submitted. Where it was found to be justified, the calculations were adjusted as a result.

(75)

Contrary to the submission of some exporting producers, even EPCG benefit generated by exporting products other than the product concerned had to be considered when establishing the amount of countervailable benefit. No obligation exists under EPCGS which limits the use of the benefit to the importation of duty-free input material linked to a specific product. Consequently, the product concerned can benefit from all EPCG benefit generated.

(76)

Four companies in the sample benefited from this scheme during the RIP with subsidy margins ranging up to 1,45 %, for one company the benefit was found negligible.

(77)

The detailed description of the scheme is contained in paragraphs 4.1.1 to 4.1.14 of the EXIM policy 04-09 and chapters 4.1 to 4.30 of the HOP I 04-09. This scheme was called ‘Advance Licence Scheme’ during the previous review investigation that led to the imposition of the definitive countervailing duty currently in force.

(78)

The AAS consists of six sub-schemes, as described in more detail in recital 79. 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. 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 EXIM policy 04-09, such as suppliers of an export oriented unit (EOU), are eligible for AAS deemed export. Finally, 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.

(79)

Advance authorisations can be issued for:

(80)

It was established that during the RIP two cooperating exporters availed of benefits from two of the sub-schemes above, linked to the product concerned, i.e. (i) ALS/AAS physical exports and (ii) ALS for intermediate supplies. It was therefore not necessary to establish the countervailability of the remaining sub-schemes.

(81)

Following the imposition of the definitive countervailing duty currently in force, the GOI modified the verification system applicable to ALS/AAS. 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 04-09), 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. Nevertheless, the aforesaid provisions apply only to Advance Authorisations issued on or after 13 May 2005. For all Advance Authorisations or Advance Licenses issued before that date, holders are requested to follow the previously applicable verification provisions, i.e. to keep a true and proper account of licence-wise consumption and utilisation of imported goods in the specified format of Appendix 18 (chapter 4.30 and Appendix 18 HOP I 02-07).

(82)

In regard to the sub-schemes used during the RIP by the two exporting producers in the sample, i.e. physical exports and intermediate supplies, both the import allowance and the export obligation are fixed in volume and value by the GOI and are documented on the licences. In addition, at the time of import and of export, the corresponding transactions are to be documented by Government officials on the licence. The volume of imports allowed under this scheme is determined by the GOI on the basis of standard input-output norms (SIONs). SIONs exist for most products, including the product concerned and are published in the HOP II 04-09.

(83)

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).

(84)

The GOI alleged that it had a proper verification system for the scheme according to Appendix 23 of the HOP I 04-09, and that no excess remissions occurred in application of ALS/AAS. It was argued that therefore the scheme was not countervailable. No new evidence was provided support these allegations and therefore this argument is rejected in the light of the findings that neither of the sub-schemes be considered as permissible duty drawback systems or substitution drawback systems within the meaning of Article 2(1)(a)(ii) and Annexes II and III to the basic Regulation, as there was no proper verification system.

(85)

Furthermore, according to Annex II(II)(5) and Annex III(II)(3) to the basic Regulation, where it has been found that there is no proper verification system, this may be overcome by carrying out a further examination by the exporting country to prove whether an excess payment occurred. As no such examinations were carried out before the verification visits, as well as it was not proven that no excess payments were received, the arguments are rejected.

(86)

The exemption from import duties is a subsidy within the meaning of Article 2(1)(a)(ii) and Article 2(2) of the basic Regulation, i.e. a financial contribution of the GOI which conferred a benefit upon the exporters.

(87)

In addition, ALS/AAS physical exports and ALS for intermediate supply are clearly contingent in law upon export performance, and therefore deemed to be specific and countervailable under Article 3(4)(a) of the basic Regulation. Without an export commitment a company cannot obtain benefits under these schemes.

(88)

Neither of the two sub-schemes used in the present case, ALS/AAS physical exports and ALS for intermediate supply, can be considered as permissible duty drawback systems or substitution drawback systems within the meaning of Article 2(1)(a)(ii) of the basic Regulation. They do not conform to the strict rules laid down in Annex I item (i), Annex II (definition and rules for drawback) and Annex III (definition and rules for substitution drawback) to the basic Regulation.

(89)

As regards the exporting producer that used AAS, the investigation established that the new verification requirements stipulated by the Indian authorities had not yet been tested in practice since the licenses had not been closed by the time of verification, and therefore had not been verified according to the rules prescribed by the EXIM policy. Therefore, that company could not prove that no excess remission was incurred under that particular licence. The whole amount of duties saved on imports made under that licence shall therefore be deemed a subsidy.

(90)

The GOI did not effectively apply its verification system or procedure to confirm whether and in what amounts inputs were consumed in the production of the exported product (Annex II(II)(4) to the basic Regulation and, in the case of substitution drawback schemes, Annex III(II)(2) to the basic Regulation). The SIONs themselves cannot be considered a verification system of actual consumption, since duty-free input materials imported under authorisations/licenses with different SION yields are mixed in the same production process for an exporting good. This type of process does not enable the GOI to verify with sufficient precision what amounts of inputs were consumed in the export production and under which SION benchmark they should be compared.

(91)

Furthermore, an effective control done by the GOI based on a correctly kept actual consumption register either did not take place or has not yet been completed. 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).

(92)

These two sub-schemes are therefore countervailable.

(93)

In the absence of a permitted duty drawback system or substitution drawback system, the countervailable benefit is the amount of total remitted 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 2(1)(a)(ii) and Annex I(i) to the basic Regulation only an excess remission of duties can be countervailed, provided the conditions of Annexes II and III to the basic Regulation are met. However, these conditions were not fulfilled in the present case. Thus, if an absence of an adequate monitoring process is established, the above exception for drawback schemes is not applicable and the normal rule of the countervailing of the amount of (revenue forgone) unpaid duties, rather than any purported excess remission, applies. As set out in Annexes II(II) and III(II) to the basic Regulation the burden is not upon the investigating authority to calculate such excess remission. To the contrary, according to Article 2(1)(a)(ii) of the basic Regulation it only has to establish sufficient evidence to refute the appropriateness of an alleged verification system.

(94)

The subsidy amount was calculated on the basis of import duties forgone (basic customs duty and special additional customs duty) on the material imported under the two sub-schemes used for the product concerned during the RIP. 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 has been allocated over the export turnover generated by the product concerned during the RIP 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.

(95)

Several comments concerning certain details of calculation of benefit under the ALS/AAS were submitted. Where such comments were found to be justified, the calculations were adjusted accordingly.

(96)

Contrary to the submission of some exporting producers, even ALS/AAS benefit generated by exporting products other than the product concerned had to be considered when establishing the amount of countervailable benefit. No obligation exists under ALS/AAS which limits the use of the benefit to the importation of duty-free input material linked to a specific product. Consequently, the product concerned can benefit from all ALS/AAS benefit generated.

(97)

Two companies in the sample benefited from ALS or AAS with the benefit ranging from 0,17 % to 1,74 %.

(98)

It was found that none of the cooperating exporting producers was located in an SEZS or in an EPZS, or had a status of EOU. Therefore, it was found not necessary to further analyse this scheme in this investigation.

(99)

Under this scheme exporters could avail the benefit of a partial income tax exemption on profits derived from export sales. The legal basis for this exemption was set by Section 80HHC of the ITA.

(100)

This provision was abolished for the assessment year 2005-2006 (i.e. for the financial year from 1 April 2004 to 31 March 2005) onwards and thus 80HHC of the ITA does not confer any benefits after 31 March 2004. None of the cooperating exporting producers availed benefits under this scheme during the RIP. It was therefore not found necessary to further analyse this scheme in this investigation.

(101)

The scheme is based on Section 75 of the Customs Act 1962, Section 37(2)(xvi) of the Excise Act 1944 and Sections 93A and 94 of the Finance Act 1994.

(102)

Any exporter is eligible for this scheme.

(103)

There are two types of duty drawback rates set by the GOI — ‘all-industry’ rates applied on a lump-sum basis to all exporters of a specific product, and ‘brand’ rates applied on a company basis for products not covered by ‘all industry’ rates. The first type (all-industry rate) is the one relevant to the product concerned.

(104)

The all-industry drawback rates are calculated as a percentage of the value of products exported under this scheme. Such all-industry drawback rates have been established by the Indian authorities for various products, including the product concerned. They are determined on the basis of presumed indirect taxes and import charges charged on goods and services used in the manufacturing process of the export product (import duties, excise duty, service tax etc.), including presumed indirect taxes and import charges charged on goods and services for manufacturing the inputs, and regardless of whether those taxes have actually been paid or not. The amount of DDS is subject to a maximum value cap of the export product per unit. If the company can reclaim some of these duties from the Cenvat system then the drawback rate is lower.

(105)

The duty drawback rates on the product concerned have been revised several times during the RIP. Until 1 April 2007 the applicable rates were from 6,4 % to 6,9 % depending on the product type, until 1 September 2007 from 9,1 % to 9,8 %. On 13 December 2007, i.e. after the ed of the RIP, the drawback rates were increased to 10,1 % to 10,3 % and the increase backdated to imports from 1 September 2007, i.e. within the RIP.

(106)

To be eligible for benefits under this scheme, a company must export. A declaration must be made by the exporter to the authorities in India indicating that the export is taking place under the DDS at the time of export. In order for the goods to be exported, the Indian customs authorities issue, during the dispatch procedure, an export shipping bill. This document shows, inter alia, the amount of DDS which is to be granted for that export transaction. The exporter then knows the benefit it will receive and books it into accounts as an amount receivable. Once the customs authorities issue an export shipping bill, the GOI has no discretion over the granting of DDS. The relevant DDS rate to calculate the benefit is generally that which applied at the time the export declaration is made. A retroactive increase of the drawback rates took place during the RIP, which was taken into account in the calculation of the subsidy amount.

(107)

Several parties argued that the DDS could not be countervailed in this investigation because it was not specifically mentioned in the anti-subsidy questionnaires issued at the beginning of the investigation. This argument is rejected for the following reasons. The purpose of this review according to the notice of initiation is the ‘level of subsidisation’, which has conferred benefit on the exporting producers of the product concerned, i.e. it includes all subsidy schemes operated by the GOI.

(108)

It was argued that the DDS was not contingent on export performance because the benefit under this scheme did not relate to the level of exports performed by the exporters. This argument is rejected, because the benefit of DDS can be claimed only if the goods are exported, which is sufficient to fulfil the criterion of export contingency laid down in Article 3(4)(a) of the basic Regulation. In the light of this conclusion, it is not necessary to analyse the argument that the DDS is not specific in the meaning of Article 3(2) and (3) of the basic Regulation.

(109)

The GOI submitted that DDS is a drawback system compatible with the provisions of the basic Regulation, and that the procedure for setting the all-industry drawback rates was reasonable, effective and based on generally accepted commercial practices in the country of export according to Annex II (II)(4) and Annex III (II)(2). As set out also in recital 104 above, this procedure involved an industry-wide estimation of the inputs used in production and import duties and indirect taxes incurred. However, this procedure was not sufficiently precise even according to the GOI submission. Indeed, the GOI confirmed that there was an element of averaging, which would imply that the actual drawback paid was more than the actual duties paid. 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)), nor did it prove that no excess remission took place. The alleged parallel of the verification to the sampling techniques set out in the basic Regulation is considered irrelevant, as they clearly refer to the anti-subsidy investigations and do not form part of the criteria laid down in Annexes II and III. Therefore, these arguments are rejected.

(110)

It was also submitted that no existence of excess remissions could be presumed from the fact that in the DDS the GOI did not include all indirect taxes payable in India into the DDS, but only the central indirect taxes. This argument is rejected, because according to Annex II(II)(4) and Annex III(II)(2) excess remissions need to be assessed in the framework of a particular subsidy scheme.

(111)

The DDS provides subsidies within the meaning of Article 2(1)(a)(ii) and Article 2(2) of the basic Regulation. The duty drawback amount is equivalent to government revenue forgone that would otherwise have been collected and paid to the GOI. In addition, the DDS on exportation confers a benefit upon the exporter.

(112)

The DDS is contingent in law upon export performance, and therefore deemed to be specific and countervailable under Article 3(4)(a) of the basic Regulation.

(113)

Several parties to the proceeding argued that DDS is a drawback system compatible with the provisions of the basic Regulation and therefore the benefit conferred according to it should not be countervailed.

(114)

The investigation has established that this scheme cannot be considered a permissible system for remission of prior-stage cumulative indirect taxes or a permissible duty drawback or substitution drawback system within the meaning of Article 2(1)(a)(ii) of the basic Regulation. It does not conform to the strict rules laid down in Annex I item (h) and (i), Annex II (guidelines on consumption of inputs) and Annex III (definition and rules for substitution drawback) to the basic Regulation. An exporter is under no obligation either (i) to keep an account of the duties and taxes paid on the imported/domestically purchased goods or incorporated services or (ii) to actually consume those goods and services in the production process, and (iii) the amount of drawback is not calculated in relation to actual inputs used by the exporter and the duties and taxes actually paid.

(115)

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 refund of domestic indirect taxes within the meaning of item (h) of Annex I and Annex II to the basic Regulation or of import duties occurred within the meaning of item (i) of Annex I and Annexes II and III to the basic Regulation.

(116)

Finally, an exporter is eligible for the DDS benefits regardless of whether it imports or purchases domestically any inputs at all, and has paid duties or taxes on those purchases. In order to obtain the benefit, it is sufficient for an exporter to simply export goods without demonstrating that any input material was imported or that any input material or service was purchased domestically, and import duties or domestic indirect taxes have been paid. Consequently, there is no difference in the drawback rate whether a company owns all stages of production of the inputs and the product concerned or is a mere exporting trader.

(117)

In accordance with Articles 2(2) and 5 of the basic Regulation, the amount of countervailable subsidies was calculated in terms of the benefit conferred on the recipient, which is found to exist during the RIP. In this regard, it was considered that the benefit is conferred on the recipient when an export transaction is made under this scheme. From that moment, the GOI is liable to pay the drawback amount to the respective exporters, which constitutes a financial contribution within the meaning of Article 2(1)(a)(i) of the basic Regulation. Once the customs authorities issue an export shipping bill which shows, inter alia, the amount of DDS which is to be granted for that export transaction, the GOI has no discretion as to whether or not to grant the subsidy. Furthermore, the cooperating exporting producers booked DDS on an accrual basis as income at the time of each export transaction.

(118)

In order to take account of the impact of backdated increase in rates, the value of the DDS credit booked for exports made between 1 September to 30 September 2007 was increased where necessary as the actual benefit the companies will be entitled to receive from the GOI is higher than formally claimed at the time of exportation.

(119)

In accordance with Article 7(2) of the basic Regulation this subsidy amount has been allocated over the total export turnover during the review investigation period 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.

(120)

Seven companies in the sample submitted claims that although they benefited from the DDS, they did not incur any excess remissions, as the taxes or import duties they have accrued exceeded the drawback amounts. It has been decided to reject these claims. In recitals 113 and 115 it was concluded that the GOI did not have an adequate verification system as provided in Annexes I, II and III to the basic Regulation. The investigation also showed that companies did not keep any consumption registers or any other internal reporting system to account for possible excess remissions. Such reports were created by the companies during the verification visits and largely include the taxes paid by the companies in general.

(121)

In the absence of permitted duty drawback systems or substitution drawback systems, the countervailable benefit is the remission of total amount of drawback accrued under the DDS. Contrary to the disclosure submissions made by the GOI, Texprocil and some exporters, the basic Regulation does not only provide for the countervailing of an ‘excess’ remission of duties. According to Article 2(1)(a)(ii) and Annex I(i) to the basic Regulation, only an excess remission of duties can be countervailed, provided the conditions of Annexes II and III to the basic Regulation are met. However, these conditions were not fulfilled in the present case. Thus, if an absence of an adequate verification procedure is established, the above exception for drawback schemes is not applicable and the normal rule of the countervailing of the amount of drawback, rather than any purported excess remission, applies. As set out in Annexes II(II) and III(II) to the basic Regulation the burden is not upon the investigating authority to calculate such excess remission. To the contrary, according to Article 2(1)(a)(ii) of the basic Regulation it only has to establish sufficient evidence to refute the appropriateness of an alleged verification system. It should further be noted, that an additional examination by the Indian authorities in the absence of an effectively applied verification system needs to be done in a timely manner, i.e. normally before the on-the-spot verification in a countervailing duty investigation.

(122)

Contrary to the submission of some exporting producers, even DDS benefit generated by exporting non-product concerned had to be considered when establishing the amount of countervailable benefit. No obligation exists under DDS which limits the use of the benefit to a specific product. Consequently, the product concerned can benefit from all DDS benefit generated.

(123)

All companies in the sample benefited from the DDS scheme during the RIP with subsidy margins ranging from 1,45 % to 7,57 %.

(124)

TUFS was introduced by a Resolution of the Ministry of Textiles, Government of India, published in the Official Gazette of India Extraordinary Part I Section I on 31 March 1999 (Resolution). The scheme was approved to be in effect from 1 April 1999 to 31 March 2004. It was extended up to 31 March 2007 and subsequently extended again until the end of the RIP.

(125)

Existing or new producers in the sector of cotton processing, textile and jute industry are eligible for benefits under this scheme.

(126)

The aim of the scheme is to provide support for modernisation of technology in the textile and jute industry, including units for processing of fibres, yarns, fabrics, garments and made-ups. The scheme provides for various kinds of benefit in the form of a capital subsidy, interest subsidy or coverage of exchange rate fluctuation in foreign currency loans. The programmes under the scheme differentiate between the textile and jute sectors, and the powerloom and handloom sector. TUFS includes the following programmes:

(127)

The investigation established that two companies in the sample obtained benefit under the TUFS for purchase of machinery used in production of the product concerned. Those companies used, respectively, the interest reimbursement loans (scheme (a)) and the 10 % capital subsidy for processing machinery combined with 5 % interest reimbursement (scheme (e)).

(128)

The Resolution provides a list of the type of machinery the purchase of which is subsidised under the TUFS. To receive benefit from the TUFS, companies apply to commercial banks or other lending agencies, which grant the loans to the companies based upon their own independent assessment of the credit worthiness of the borrowers. If the borrower is eligible for an interest subsidy under the scheme, the commercial banks refer the claim to a ‘nodal agency’ who subsequently releases the benefit amount to the commercial bank involved. The commercial banks finally credit the funds so received to the account of the borrower. The nodal agencies get reimbursement from the Ministry of Textiles, Government of India. The Government of India places the required funds at the disposal of the nodal agencies on a quarterly basis.

(129)

No comments were received from interested parties regarding this scheme.

(130)

The TUFS constitutes a subsidy under the provisions of Article 2(1)(a)(i) as it involves a direct transfer of funds by the government in the form of a grant. The subsidy confers a benefit by decreasing the financing and interest costs for the purchase of the machinery.

(131)

The subsidy is deemed to be specific and therefore countervailable according to Article 3(2)(a) of the basic Regulation since it is specifically provided to an industry or a group of industries, including the manufacture of the product concerned.

(132)

The capital subsidy amount was calculated, in accordance with Article 7(3) of the basic Regulation, on the basis of the amount saved by the recipient companies on the purchased machinery, spread across a period which reflects the normal depreciation period of such capital goods. In accordance with the established practice, the amount so calculated, which is attributable to the RIP, 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 review investigation period in India was considered appropriate for this purpose. In accordance with Article 7(2) of the basic Regulation, this subsidy amount has been allocated over the total turnover of textiles during the RIP as appropriate denominator, because the subsidy is not granted by reference to the quantities manufactured, produced, exported or transported.

(133)

The interest subsidy amount was calculated, in accordance with Article 7(3) of the basic Regulation, on the basis of the amount actually repaid during the RIP to the companies concerned linked to the interest paid on the commercial loans taken out for the purchase of the machinery concerned. In accordance with Article 7(2) of the basic Regulation, this subsidy amount has been allocated over the total turnover of textiles during the RIP as appropriate denominator, because the subsidy is not granted by reference to the quantities manufactured, produced, exported or transported.

(134)

Two companies in the sample benefited from this scheme during the RIP with subsidy margins ranging from 0,01 % to 0,31 %.

(135)

The details of the scheme are set out in the Master Circular IECD No 02/04.02.02/2006-07 (Export Credit in Foreign Currency), the Master Circular IECD No 01/04.02.02/2006-07 (Rupee Export Credit) and the Master Circular DBOD.DIR(Exp.)No 01/04.02.02/2007-08 (consolidated for both Rupee and Foreign Currency export credit) of the Reserve Bank of India (RBI), which was addressed to all commercial banks in India during the RIP. The Master Circulars are regularly revised and updated.

(136)

Manufacturing exporters and merchant exporters are eligible for this scheme.

(137)

Under this scheme, the RBI mandatorily sets maximum ceiling interest rates applicable to export credits, both in Indian rupees or in foreign currency, which commercial banks can charge an exporter. 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. The RBI also directs the banks to provide a certain amount of their net bank credit towards export finance.

(138)

As a result of the RBI Master Circular exporters can obtain export credits at preferential interest rates compared with the interest rates for ordinary commercial credits (cash credits), which are purely set under market conditions.

(139)

The GOI claimed that with regard to the ECS the Commission failed to examine the scheme in the light of the provisions of Annex I point (k) to the Agreement on Subsidies and Countervailing Measures (ASCM) and argued that export credits, both in Indian rupees or in foreign currency, were not countervailable, especially as in foreign currency loans the banks were allowed to borrow funds at ‘internationally competitive rates’.

(140)

It should be noted that the export credit schemes referred to under recital 135 do not fall within the application of Annex I point (k) to the ASCM, because only export financing with a duration of two years or more can normally be regarded as ‘export credits’ in the meaning of that provision since this is the definition of the OECD Arrangement on Guidelines for Officially Supported Export Credits. Therefore this argument is rejected.

(141)

The preferential interest rates of an ECS credit set by the RBI Master Circulars mentioned in recital 135 can decrease interest costs of an exporter as compared with credit costs purely set by market conditions and confer in this case a benefit in the meaning of Article 2(2) of the basic Regulation on such exporter. Export financing is not per se more secure than domestic financing. In fact, it is usually perceived as being more risky and the extent of security required for a certain credit, regardless of the finance object, is a purely commercial decision of a given commercial bank. Rate differences with regard to different banks are the result of the methodology of the RBI to set maximum lending rates for each commercial bank individually. In addition, commercial banks would not be obliged to pass through to borrowers of export financing any more advantageous interest rates for export credits in foreign currency.

(142)

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 2(1)(a)(iv) of the basic Regulation. In this context, it should be noted that neither Article 2(1)(a)(iv) of the basic Regulation nor the WTO Agreement on Subsidies and Countervailing Measures (ASCM) 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 2(1)(a) of the basic Regulation. The RBI is a public body and falls therefore under the definition of a ‘government’ as set out in Article 1(3) 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, since the commercial banks are bound by the conditions it imposes, inter alia, with regard to the maximum ceilings for 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 2(1)(a)(i) of the basic Regulation, in this case 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, in no real sense, differs from practices normally followed by governments, within the meaning of Article 2(1)(a)(iv) of the basic Regulation.

(143)

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 3(4)(a) of the basic Regulation.

(144)

The subsidy amount has been calculated on the basis of the difference between the interest paid for export credits used during the RIP and the amount that would have been payable if the rates for ordinary commercial credits had been applied. This subsidy amount (numerator) has been allocated over the total export turnover during the RIP as 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.

(145)

Several comments concerning certain details of calculation of benefit under the ECS were submitted. Where it was found to be justified, the calculations were adjusted as a result.

(146)

All companies and groups in the sample obtained subsidies from this scheme during the RIP with rates up to 1,05 %, for one company the benefit was found negligible.

(147)

The amount of countervailable subsidies in accordance with the provisions of the basic Regulation, expressed ad valorem, for the investigated exporting producers ranged between 5,2 % and 9,7 %.

(148)

In accordance with Article 15(3) of the basic Regulation, the subsidy margin for the cooperating companies not included in the sample, calculated on the basis of the weighted average subsidy margin established for the cooperating companies in the sample, is 7,7 %. Given that the level of the overall cooperation for India was high (95 %), the residual subsidy margin for all other companies was set at the level for the company with the highest individual margin, i.e. 9,7 %.

(149)

In line with the provisions of Article 19 of the basic Regulation and the grounds of this partial interim review stated under point 3 of the notice of initiation, it is established that the level of subsidisation with regard to the cooperating producers has changed and, therefore, the rate of countervailing duty, imposed by Regulation (EC) No 74/2004 has to be amended accordingly.

(150)

The definitive duty currently in force was established on the basis of the countervailing margins, as the injury elimination level was higher. As the subsidy margins established in this review also did not exceed the injury elimination level, in accordance with Article 15(1) of the basic Regulation the duties are determined on the basis of the subsidy margins.

(151)

The subsidy margin for company Pasupati Fabrics, which did not form part of this review, was maintained at the level established in the original investigation, as they were found to benefit from a subsidy scheme which was not reviewed in this investigation.

(152)

The companies that were found to be related have been regarded as a single legal entity (group) for duty collection purposes and hence submitted to the same countervailing duty. The export quantities of the product concerned during the RIP of those groups were used in order to ensure a proper weighting.

(153)

The sampled company Prem Textiles submitted information during the review investigation showing that it had changed its name to ‘Prem Textiles (International) Pvt Ltd’. After examining this information and concluding that the change of name in no way affects the findings of the present review, it was decided to grant this request and refer to them as ‘Prem Textiles (International) Pvt Ltd’ in this Regulation.

(154)

Given that the level of the overall cooperation for India was high (95 %), the residual countervailing duty for all other companies was set at the level for the company with the highest individual margin, i.e. 9,7 %.

(155)

The following duties therefore apply:

(156)

The individual company countervailing duty rates specified in this Regulation were established on the basis of the findings of the present investigation. Therefore, they reflect the situation found during that investigation with respect to these companies. These duty rates (as opposed to the average duty applicable to Annex I companies and the countrywide duty applicable to ‘all other companies’) are thus exclusively applicable to imports of products originating in India and produced by the companies and thus by the specific legal entities mentioned. Imported products produced by any other company not specifically mentioned in the operative part of this Regulation with its name and address, including entities related to those specifically mentioned, cannot benefit from these rates and shall be subject to the duty rate applicable to ‘all other companies’.

(157)

Any claim requesting the application of these individual company countervailing duty rates (e.g. following a change in the name of the entity or following the setting up of new production or sales entities) should be addressed to the Commission forthwith with all relevant information, in particular any modification in the company’s activities linked to production and export sales associated with e.g. that name change or that change in the production and sales entities. The Commission, if appropriate, will, after consultation of the Advisory Committee, amend the Regulation accordingly by updating the list of companies benefiting from individual duty rates,

(1)

The Council, by Regulation (EC) No 1628/2004 (2), imposed a definitive countervailing duty on imports of graphite electrodes of a kind used for electric furnaces, with an apparent density of 1,65 g/cm3 or more and an electrical resistance of 6,0 μΩ.m or less, falling within CN code ex 8545 11 00 and nipples used for such electrodes, falling within CN code ex 8545 90 90 whether imported together or separately, originating in India. The rate of the duty ranges between 7,0 % and 15,7 % for individually named exporters with a residual duty rate of 15,7 % imposed on imports from other exporters.

(2)

At the same time, by Regulation (EC) No 1629/2004 (3), the Council imposed a definitive anti-dumping duty on imports of the same product originating in India.

(3)

Following the imposition of the definitive countervailing duty the Government of India (GOI) made submissions that the circumstances with regard to two subsidy schemes (the Duty Entitlement Passbook Scheme and the Income Tax Exemption under Section 80 HHC of the Income Tax Act) have changed and that these changes are of a lasting nature. Consequently, it was argued that the level of subsidisation is likely to have decreased and thus measures that have been established partly on these schemes should be revised.

(4)

The Commission examined the evidence submitted by the GOI and considered it sufficient to justify the initiation of a review in accordance with the provisions of Article 19 of the basic anti-subsidy Regulation. After consultation of the Advisory Committee, the Commission initiated an ex officio partial interim review of the measures in force by a notice published in the Official Journal of the European Union (4).

(5)

The purpose of this partial interim review investigation is to assess the need for the continuation, removal or amendment of the existing measures in respect of those companies having benefited from one or both the changed subsidy schemes including, for those companies, in respect of other schemes where sufficient evidence is provided in line with the relevant provisions of the notice of initiation.

(6)

The investigation covered the period from 1 October 2006 to 30 September 2007 (the review investigation period or RIP).

(7)

The Commission officially informed the GOI, the two Indian exporting producers listed in the notice of initiation of the partial interim review, as well as the Community producers, of the initiation of the partial interim review investigation. Interested parties had the opportunity to make their views known in writing and to request a hearing. The written and oral comments submitted by the parties were considered and, where appropriate, taken into account.

(8)

The Commission sent questionnaires to two cooperating exporting producers and to the GOI. Replies were received from both the cooperating exporting producers and the GOI.

(9)

The Commission sought and verified all information it deemed necessary for the determination of subsidisation. Verification visits were carried out at the premises of the following interested parties:

(10)

The GOI and the other interested parties were informed of the essential facts and considerations upon which it was intended to propose the amendment of the duty rate applicable to the two cooperating Indian producers and maintain the existing measures for all other companies which did not cooperate with this partial interim review. They were also given a reasonable time to comment. All submissions and comments were taken duly into consideration as set out below.

(11)

The product covered by this review is the same product as the one concerned by Council Regulation (EC) No 1628/2004, namely graphite electrodes of a kind used for electric furnaces, with an apparent density of 1,65 g/cm3 or more and an electrical resistance of 6,0 μΩ.m or less, falling within CN code ex 8545 11 00 and nipples used for such electrodes, falling within CN code ex 8545 90 90 whether imported together or separately, originating in India.

(12)

On the basis of the information submitted by the GOI and the cooperating exporting producers and the replies to the Commission's questionnaire, the following schemes, which allegedly involve the granting of subsidies, were investigated:

(13)

The schemes (a) to (c) specified above are based on the Foreign Trade (Development and Regulation) Act 1992 (No 22 of 1992) which entered into force on 7 August 1992 (Foreign Trade Act). The Foreign Trade Act authorises the GOI to issue notifications regarding the export and import policy. These are summarised in Export and Import Policy documents, which are issued by the Ministry of Commerce every five years and updated regularly. One Export and Import Policy document is relevant to the RIP of this case, namely the one covering the period 1 September 2004 to 31 March 2009 (EXIM-policy 04-09). In addition, the GOI also sets out the procedures governing the EXIM-policy 04-09 in a ‘Handbook of Procedures — 1 September 2004 to 31 March 2009, Volume I’ (HOP I 04-09). The Handbook of Procedure is also updated on a regular basis.

(14)

The Income Tax Scheme specified above under (d) is based on the Income Tax Act of 1961, which is amended yearly by the Finance Act.

(15)

The Electricity Duty Exemption scheme specified in recital 12(e) is based on Section 3-B of the Madhya Pradesh Electricity Duty Act of 1949.

(16)

In accordance with Article 11(10) of the basic anti-subsidy Regulation, the Commission invited the GOI for additional consultations with respect to both changed and unchanged schemes with the aim of clarifying the factual situation as regards the alleged schemes and arriving at a mutually agreed solution. Following these consultations, and in the absence of a mutually agreed solution in relation to these schemes, the Commission included all these schemes in the investigation of subsidisation.

(17)

The detailed description of the scheme is contained in paragraphs 4.1.1 to 4.1.14 of the EXIM-policy 04-09 and Chapters 4.1 to 4.30 of the HOP I 04-09. This scheme was called Advance Licence Scheme during the previous review investigation that led to the imposition by Regulation (EC) No 1628/2004 of the definitive countervailing duty currently in force.

(18)

The AAS consists of six sub-schemes, as described below in more detail. Those sub-schemes, inter alia, differ 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. 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 EXIM-policy 04-09, such as suppliers of an export oriented unit (EOU), are eligible for AAS deemed export. 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.

(19)

Advance authorisations can be issued for:

(20)

It was established that during the RIP one of the cooperating exporters obtained concessions under the first sub-scheme, i.e. AAS physical exports. It is therefore not necessary to establish the countervailability of the remaining sub-schemes.

(21)

Following the imposition by Regulation (EC) No 1628/2004 of the definitive countervailing duty currently in force, the GOI has modified the verification system applicable to AAS. In concrete terms, 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 04-09), 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. Nevertheless, the aforesaid provisions apply only to Advance Authorisations issued on or after 13 May 2005. For all Advance Authorisations or Advance Licences issued before that date, holders are requested to follow the previously applicable verification provisions, i.e. to keep a true and proper account of licence-wise consumption and utilisation of imported goods in the specified format of Appendix 18 (Chapter 4.30 and Appendix 18 HOP I 02-07).

(22)

With regard to the sub-scheme used during the RIP by the cooperating exporting producer, i.e. physical exports, both 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 this scheme is determined by the GOI on the basis of standard input-output norms (SIONs). SIONs exist for most products, including the product concerned, and are published in the HOP II 04-09.

(23)

Imported input materials are not transferable and have to be used to produce the resulting 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 six months each).

(24)

The review investigation established that the Advanced Licences used for importing raw materials during the RIP had been issued before 13 May 2005. Therefore, the new verification requirements stipulated by the Indian authorities in HOP I 04-09, as described in recital 21, had not yet been tested in practice. Furthermore, the company could not show that the necessary actual consumption and stock registers had been kept in the format required by Chapter 4.30 and Appendix 18 of HOP I 02-07, as applicable to Advanced Licences issued before 13 May 2005. Account taken of this situation, it is considered that the investigated exporter was not able to demonstrate that the relevant EXIM provisions at the time were met.

(25)

The cooperating exporter who had made use of AAS during the RIP argued that it had voluntarily submitted the advance licenses used, although they were issued before 13 May 2005, to verification by a certified accountant according to the requisites of the HOP I 04-09, and that this demonstrates that a proper verification system now exists under the new provisions of the HOP.

(26)

A certificate in the form of Appendix 23 of the HOP, signed by a certified accountant and dated 1 February 2008, was indeed submitted to the Commission services during the verification at the company's premises. However, given that the advance licences were dated as of 2004, and the new HOP provisions did not apply to them, it must be concluded that this was a voluntary exercise by the company, which does not demonstrate that an effective verification system was actually implemented by the GOI. Furthermore, it was not shown that the excess duty remission, as calculated by the certified accountant, was actually repaid to the government.

(27)

The exemption from import duties is a subsidy within the meaning of Article 2(1)(a)(ii) and Article 2(2) of the basic Regulation, i.e. a financial contribution of the GOI which conferred a benefit upon the investigated exporters.

(28)

In addition, AAS for physical exports is clearly contingent in law upon export performance, and therefore deemed to be specific and countervailable under Article 3(4)(a) of the basic Regulation. Without an export commitment a company cannot obtain benefits under these schemes.

(29)

The sub-scheme used in the present case cannot be considered as permissible duty drawback system or substitution drawback system within the meaning of Article 2(1)(a)(ii) of the basic Regulation. It does not conform to the strict 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 any verification system or 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 SIONs themselves cannot be considered a verification system of actual consumption, since they do not enable the GOI to verify with sufficient precision what amounts of inputs were consumed in the export production. Furthermore, an effective control done by the GOI based on a correctly kept actual consumption register did not take place during the RIP. 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).

(30)

This sub-scheme is therefore countervailable.

(31)

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 2(1)(a)(ii) and Annex I(i) of the basic Regulation only an excess remission of duties can be countervailed, provided the conditions of Annexes II and III of the basic Regulation are met. However, these conditions were not fulfilled in the present case. Thus, if an absence of an adequate monitoring process is established, the above exception for drawback schemes is not applicable and the normal rule of the countervailing of the amount of (revenue forgone) unpaid duties, rather than any purported excess remission, applies. 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 2(1)(a)(ii) of the basic Regulation it only has to establish sufficient evidence to refute the appropriateness of an alleged verification system.

(32)

The subsidy amount for the exporter 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 used for the product concerned during the RIP (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 has been allocated over the export turnover generated by the product concerned during the RIP 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.

(33)

The subsidy rate established in respect of this scheme during the RIP for the cooperating producer concerned amounts to 0,3 %.

(34)

The detailed description of the DEPBS is contained in paragraph 4.3 of the EXIM-policy 04-09 and in Chapter 4 of the HOP I 04-09.

(35)

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

(36)

An eligible exporter can apply for DEPBS credits which are calculated as a 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 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.

(37)

To be eligible for benefits under this scheme, a company must export. At the point in time of the export transaction, a declaration must be made by the exporter to the authorities in India indicating that the export is taking place under the DEPBS. In order for the goods to be exported, the Indian customs authorities issue, during the dispatch procedure, an export shipping bill. 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. The relevant DEPBS rate to calculate the benefit is that which applied at the time the export declaration is made.

(38)

DEPBS credits are freely transferable and valid for a period of 12 months from the date of issue. They can be used for payment of customs duties on subsequent imports of any goods unrestrictedly importable, except capital goods. Goods imported against such credits can be sold on the domestic market (subject to sales tax) or used otherwise.

(39)

Applications for DEPBS credits are electronically filed and can cover an unlimited amount of export transactions. De facto no strict deadlines exist to apply for DEPBS credits. The electronic system used to manage DEPBS does not automatically exclude export transactions outside the deadline submission periods mentioned in chapter 4.47 HOP I 04-09. Furthermore, as clearly provided in Chapter 9.3 HOP I 04-09 applications received after the expiry of submission deadlines can always be considered with the imposition of a penalty fee (i.e. 10 % on the entitlement).

(40)

One cooperating exporter argued that all the DEPBS credits obtained by the company had been used to import materials used in the production of the product concerned, despite being in principle allowed to use them for other purposes, as stated above. This exporter claimed that therefore their actual use of DEPBS was, in that respect, in line with a normal duty drawback system, and that therefore only the excess remission, if any should be countervailed. However, according to Article 2(1)(a)(ii) and Annex I(i) of the basic Regulation only if the conditions of Annexes II and III of the basic Regulation are met can an excess remission of duties can be countervailed. These conditions, as explained in recital 43 were not fulfilled in the present case. Thus, the normal rule of the countervailing of the amount of unpaid duties (revenue forgone), rather than any purported excess remission, applies.

(41)

The DEPBS provides subsidies within the meaning of Article 2(1)(a)(ii) and Article 2(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 be otherwise due. In addition, the DEPBS credit confers a benefit upon the exporter, because it improves its liquidity.

(42)

The DEPBS is contingent in law upon export performance, and therefore deemed to be specific and countervailable under Article 3(4)(a) of the basic Regulation.

(43)

This scheme cannot be considered a permissible duty drawback system or substitution drawback system within the meaning of Article 2(1)(a)(ii) of the basic Regulation. It does not conform to the strict 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. 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.

(44)

In accordance with Articles 2(2) and 5 of the basic Regulation, the amount of countervailable subsidies was calculated in terms of the benefit conferred on the recipient, which is found to exist during the RIP. 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 this moment, the GOI is liable to forgo the customs duties, which constitutes a financial contribution within the meaning of Article 2(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 and it has no discretion as to the amount of the subsidy. Furthermore, the cooperating exporting producers booked the DEPBS credits on an accrual basis as income at the stage of export transaction.

(45)

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 review investigation period 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.

(46)

The subsidy rates established in respect of this scheme during the RIP for the cooperating exporting producers amount to 6,2 % and 5,7 %.

(47)

The detailed description of the EPCGS is contained in Chapter 5 of the EXIM-policy 04-09 and in Chapter 5 of the HOP I 04-09.

(48)

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

(49)

Under the condition of an export obligation, a company is allowed to import capital goods (new and — since April 2003 — second-hand capital goods up to 10 years old) at a reduced rate of duty. To this end, the GOI issues, upon application and payment of a fee, an EPCGS licence. Until 31 March 2000, an effective duty rate of 11 % (including a 10 % surcharge) and, in case of high value imports, a zero duty rate was applicable. Since April 2000, the scheme provides for a reduced import duty rate of 5 % applicable to all capital goods imported under the 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.

(50)

The EPCGS licence holder can also source the capital goods indigenously. In such case, the indigenous manufacturer of capital goods may avail 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.

(51)

The EPCGS provides subsidies within the meaning of Article 2(1)(a)(ii) and Article 2(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 be otherwise due. In addition, the duty reduction confers a benefit upon the exporters, because the duties saved upon importation improve its liquidity.

(52)

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 3(4)(a) of the basic Regulation.

(53)

Eventually, this scheme cannot be considered a permissible duty drawback system or substitution drawback system within the meaning of Article 2(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), of the basic Regulation, because they are not consumed in the production of the exported products.

(54)

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 accordance with the established practice, the amount so calculated, which is attributable to the RIP, has been adjusted by adding interest during this period in order to reflect the full value of the benefit over time. The commercial long-term interest rate during the review 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 from this sum to arrive at the subsidy amount as numerator. In accordance with Article 7(2) and 7(3) of the basic Regulation, this subsidy amount has been allocated over the export turnover during the RIP 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.

(55)

The subsidy rates established in respect of this scheme during the RIP for the cooperating producers amount to 0,7 % and 0,3 %.

(56)

One cooperating exporter pointed out a mistake in the methodology initially used for calculating the benefits of EPCG, in particular with regard to the amount of interest applied. This mistake, which affected both cooperating exporters, was corrected.

(57)

Under this scheme exporters could avail the benefit of a partial income tax exemption on profits derived from export sales. The legal basis for this exemption was set by Section 80HHC of the ITA.

(58)

This provision was abolished for the assessment year 2005-06 (i.e. for the financial year from 1 April 2004 to 31 March 2005) onwards and thus 80HHC of the ITA does not confer any benefits after 31 March 2004. The cooperating exporting producers did not avail of any benefits under this scheme during the RIP. Consequently, since the scheme has been withdrawn, it shall therefore not be countervailed, in accordance with Article 15(1) of the Regulation.

(59)

The scheme is based on Section 80 I A of the ITA. This provision was brought into the ITA through the Finance Act of 2001.

(60)

Section 80 I A of the ITA applies to companies engaged in the setting up of infrastructure facilities, including the generation and distribution of power, in any part of India.

(61)

According to the provisions of the ITA Section 80 I A, an amount corresponding to the profit generated by the power generating activities is exempted from profit tax, for 10 consecutive years within the first 15 years of operation of the generating unit. The unit in question must be new and have started operation on or after the 1 April 2003 and up to 31 March 2010.

(62)

The calculation of the income tax deduction forms part of the company's annual tax return, and is audited together with the company's profit and loss and other financial statement. It must comply with the rules stipulated in the ITA, namely that the accounting valuation of the electricity generated must reflect its market value. It is the role of the Income Tax authorities to verify if the calculation of the income tax deduction is according to ITA rules and the companies' audited accounts. The investigation has shown evidence that the authorities have in practice verified the calculation and made adjustments to the calculations when justified.

(63)

The investigation has shown that both investigated exporting producers have set up captive power plants as part of their graphite production units. They have therefore requested the corresponding deduction in income tax, according to the provisions of the ITA.

(64)

The exemption from income tax is a subsidy within the meaning of Article 2(1)(a)(ii) and Article 2(2) of the basic Regulation, i.e. a financial contribution of the GOI which conferred a benefit upon the investigated exporters.

(65)

However, the investigation has shown that access to the ITES under Section 80 I A of the ITA is not limited to certain enterprises in the sense of Article 3(2)(a) of the basic Regulation. This scheme appears to be available to all companies on the basis of objective criteria. Neither has any other evidence been found in this case that the scheme is specific.

(66)

Furthermore, it is tied to a product (electricity) other than the product concerned and benefits under the scheme therefore occur on the basis of an activity which is not the production of sales of the product concerned. In these circumstances, it is considered that any benefits accruing to the exporters concerned under this scheme should not be countervailed.

(67)

Under the Industrial Promotion Policy of 2004, the State of Madhya Pradesh (MP) offers exemption of electricity duty to industrial companies investing in electricity generation for captive consumption.

(68)

The description of the electricity duty exemption scheme applied by the MP Government is set out in Section 3-B of the Electricity Duty Act of 1949.

(69)

Any industries located in the jurisdiction of the MP Government, investing in new captive power plants.

(70)

According to a 29 September 2004 notification of the MP Government, companies or persons investing in new captive power plants of more than 10 KW capacity can obtain from the MP Electrical Inspectorate a certificate of exemption from electricity duty. The exemption is only given for electricity generated for self-consumption, and only if the new captive power plant is not a replacement of an older one. The exemption is granted for a period of five years.

(71)

A notification from the MP Government dated of 5 April 2005 exempted the new power plant established by one of the cooperating exporting producers in this investigation from electricity duty for a period of 10 years.

(72)

The cooperating exporter who was granted an exemption from electricity duty claimed that the EDE scheme is not specific, and is applied without discrimination to all eligible companies. According to that exporter, the initial policy of granting an exemption for five years was subsequently revised by the Government of Madhya Pradesh to confer an exemption for ten years. However, no published notification of such a policy change was submitted either by the cooperating exporter or by the GOI in their replies.

(73)

This scheme is a subsidy within the meaning of Articles 2(1)(a)(ii) and 2(2) of the basic Regulation. It constitutes a financial contribution by the MP Government, since this incentive decreases the state revenues which would be otherwise due. In addition, it confers a benefit upon the recipient company.

(74)

Although the Industrial Promotion Policy of 2004 and the 29 September 2004 notification of the MP Government foresee a period of exemption of five years, the exporting producer in question was granted an exemption of ten years. Therefore, this incentive does not appear to be granted according to criteria and conditions clearly set out by law, regulation, or other official document.

(75)

The benefit to the exporting producer has been calculated on the basis of the amount of electricity duty normally due during the review investigation period but which remained unpaid under this scheme. In accordance with Article 7(2) of the basic Regulation, the amount of subsidy (numerator) has then been allocated over total sales during the review investigation period (denominator), because it relates to all sales, domestic and export, and it was not granted by reference to the quantities manufactured, produced, exported or transported.

(76)

A subsidy margin of 0,7 % was thus established for one company which received benefits under the EDE.

(77)

It is recalled that in Regulation (EC) No 1628/2004 the amount of countervailable subsidies, expressed ad valorem, was found to be 15,7 % and 7 % respectively for the two exporting producers cooperating with the present partial interim review.

(78)

During the present partial interim review the amounts of countervailing subsidies, expressed ad valorem, were found to be as listed hereunder:

(79)

In line with the provisions of Article 19 of the basic anti-subsidy Regulation and the grounds of this partial interim review stated under point 3 of the notice of initiation, it is established that the level of subsidisation with regard to the cooperating producers has changed and, therefore, the rate of countervailing duty imposed by Regulation (EC) No 1628/2004 has to be amended accordingly.

(80)

The countervailing duty under review resulted from parallel anti-subsidy and anti-dumping investigations (the original investigations). According to Article 24(1) of the basic Regulation and Article 14(1) of Council Regulation (EC) No 384/96 of 22 December 1995 on protection against dumped imports from countries not members of the European Communities (5) the anti-dumping duties imposed by Regulation (EC) No 1629/2004, were adjusted to the extent that the subsidy amounts and the dumping margins arose from the same situation.

(81)

The subsidy schemes investigated and found to be countervailable in the current review proceeding, with the exception of EDE, constituted export subsidies within the meaning of Article 3(4)(a) of the basic Regulation.

(82)

It is therefore appropriate that the anti-dumping duty be readjusted to reflect the new levels of subsidisation found in the present review, as far as export subsidies are concerned. Moreover, in accordance with Article 15(1) of the basic Regulation, the level of countervailing duties should not be higher than the injury elimination margin found in the original investigation. As in the original investigation, given that the level of cooperation was high (100 %) the residual subsidy margin was set at the level of the company with the highest individual margin.

(83)

Accordingly, the levels of countervailing and anti-dumping duties should be adjusted as follows:

(84)

One cooperating exporter claimed that since the present partial interim review was limited to the level of subsidisation, the anti-dumping duties should not be modified.

(85)

In this respect, it is recalled that the notice of initiation of the present review stated that ‘for those companies which are subject to both anti-dumping and countervailing measures, the anti-dumping measure may be adjusted accordingly should there be a change in the countervailing measure.’ The change in the anti-dumping duties is not the result of any new findings concerning the level of dumping, but an automatic consequence of the fact that the original dumping margins had been adjusted to reflect the level of export subsidies found, and that the latter have now been revised.

(86)

The individual company countervailing duty rates specified in this Regulation reflect the situation found during the partial interim review. Thus, they are solely applicable to imports of the product concerned produced by these companies. Imports of the product concerned manufactured by any other company not specifically mentioned in the operative part of this Regulation, including entities related to those specifically mentioned, cannot benefit from these rates and shall be subject to the duty rate applicable to ‘all other companies’.

(87)

Any claim requesting the application of these individual countervailing duty rates (e.g. following a change in the name of the entity or following the setting up of new production or sales entities) should be addressed to the Commission (6) forthwith with all relevant information, in particular any modification in the company's activities linked to production, domestic and export sales associated with, for instance, that name change or that change in the production and sales entities. If appropriate, and after consultation of the Advisory Committee, the Commission is hereby empowered to amend the Regulation accordingly by updating the list of companies benefiting from individual duty rates,

(1)

On 20 October 2007 the Commission announced by a notice published in the Official Journal of the European Union the initiation of an anti-dumping proceeding concerning imports into the Community of certain prepared or preserved citrus fruits (namely mandarins, etc.) originating in the People’s Republic of China (PRC) (2). On 4 July 2008, the Commission, by Regulation (EC) No 642/2008 (3) (the ‘provisional Regulation’) imposed a provisional anti-dumping duty on imports of certain prepared or preserved citrus fruits originating in the PRC.

(2)

The proceeding was initiated as a result of a complaint lodged on 6 September 2007 by the Spanish National Federation of Associations of Processed Fruit and Vegetables (FNACV) (the complainant) on behalf of producers representing 100 % of the total Community production of certain prepared or preserved citrus fruits (namely mandarins etc.). The complaint contained evidence of dumping of the product concerned and of material injury resulting there from, which was considered sufficient to justify the initiation of a proceeding.

(3)

As set out in recital 12 of the provisional Regulation, the investigation of dumping and injury covered the period from 1 October 2006 to 30 September 2007 (IP). The examination of trends relevant for the assessment of injury covered the period from 1 October 2002 to the end of the investigation period (period considered).

(4)

On 9 November 2007, the Commission made imports of the same product originating in the PRC subject to registration by Regulation (EC) No 1295/2007 (4).

(5)

It is recalled that safeguard measures were in force against the same product until 8 November 2007. The Commission imposed provisional safeguard measures against imports of certain prepared or preserved citrus fruits (namely mandarins, etc.) by Regulation (EC) No 1964/2003 (5). Definitive safeguard measures followed by Regulation (EC) No 658/2004 (the ‘safeguard Regulation’) (6). Both the provisional and definitive safeguard measures consisted of a tariff rate quota i.e. a duty was only due once the volume of duty free imports had been exhausted.

(6)

Following the imposition of provisional anti-dumping duties on imports of the product concerned originating in the PRC; several interested parties submitted comments in writing. The parties who so requested were also granted the opportunity to be heard.

(7)

The Commission continued to seek and verify all information it deemed necessary for its definitive findings. In particular, the Commission completed the investigation with regard to Community interest aspects. In this respect, verification visits were carried out at the premises of the following unrelated importers in the Community:

(8)

All parties were informed of the essential facts and considerations on the basis of which it was intended to recommend the imposition of a definitive anti-dumping duty on imports of the product concerned originating in the PRC and the definitive collection of the amounts secured by way of the provisional duty. They were also granted a period of time within which they could make representations subsequent to this disclosure.

(9)

Some importers proposed a joint meeting of all interested parties, pursuant to Article 6(6) of the basic Regulation; however the request was refused by one of them.

(10)

The oral and written comments submitted by the interested parties were considered and taken into account where appropriate.

(11)

Two unrelated EC importers argued that certain types of mandarins should be excluded from the definition of the product concerned either because of their sweetness level or because of their packing when exported. In this respect, it is noted that these claims were not accompanied with any type of verifiable information and data proving that these types have characteristics that differentiate them from the product concerned. It is also noted that differences in packing cannot be considered as a critical element when defining product concerned, especially when formats of packing were already taken into account when defining the product concerned as set out in recital 16 of the provisional Regulation. These arguments are therefore rejected.

(12)

Two unrelated EC importers disputed that the Chinese exporting producers selected for the sample represented 60 % of the total exports to the Community. Nevertheless, they were not able to provide any verifiable information that could undermine the accuracy of the sampling information submitted by the cooperating Chinese exporting producers and largely confirmed in the course of the further investigation. This argument is therefore rejected.

(13)

Three Chinese cooperating exporting producers submitted representations claimed that their related companies were exporting producers of the product concerned and should therefore be included in the Annex of cooperating exporting producers. These claims were considered warranted and it was decided to revise the relevant Annex accordingly. One unrelated EC importer argued that exports made to the EC through traders should automatically be allowed to benefit from the measures applicable to the Chinese exporting producers. In this respect, it is noted that anti-dumping measures are imposed on products manufactured by exporting producers in the country under investigation that are exported to the EC (irrespective of which company trades them) and not to business entities engaged only in trading activities. The claim was therefore rejected.

(14)

Following the imposition of provisional measures, no comments were submitted by the Chinese cooperating exporting producer with respect to the MET findings. In the absence of any relevant comments, recitals 29 to 33 of the provisional Regulation are hereby confirmed.

(15)

In the absence of any relevant comments, recitals 34 to 37 of the provisional Regulation concerning individual treatment are hereby confirmed.

(16)

It is recalled that the normal value determination was based on the data provided by the Community Industry. This data was verified at the premises of the cooperating Community producers.

(17)

Following the imposition of provisional measures, all three Chinese sampled cooperating exporting producers and two unrelated EC importers questioned the use of Community Industry prices for the calculation of normal value. It was submitted that normal value should have been calculated on the basis of the PRC production costs account taken of any appropriate adjustments relating to the differences between the EC and the PRC markets. In this respect it is noted that the use of information from a non-market economy country and in particular from companies which have not been granted MET would be contrary to the provisions of Article 2(7)(a) of the basic Regulation. This argument is therefore rejected. It was also argued that data on prices from all other importing countries or relevant published information could have been used as a reasonable solution account taken of the lack of analogue country cooperation. However, such general information, in contrast to the data used by the Commission, could not have been verified and cross checked with regard to their accuracy in line with the provisions of Article 6(8) of the basic Regulation. This argument is therefore rejected. No other argument was submitted that could cast doubt on the fact that the methodology used by the Commission is in line with the provisions of Article 2(7)(a) of the basic Regulation and, in particular, the fact that it constitutes in this particular case the only remaining reasonable basis for calculation of normal value.

(18)

In the absence of any other comments, recitals 38 to 45 of the provisional Regulation are hereby confirmed.

(19)

Following the imposition of provisional measures, one Chinese sampled cooperating exporting producer submitted that its export price should be adjusted in order to take into account certain cost elements (in particular ocean freight). In this respect it is noted that this issue was dealt with during the on-the-spot verification both with regard to this company as well with regard to the other companies in the sample. On that occasion, each company submitted information with regard to the costs in question. The amount claimed now by the company is considerably higher than the amount originally reported. It is noted that this new claim is based simply on a declaration by a freight forwarder and does not reflect data relating to a real transaction. None of the other sampled exporting producers questioned the figures used with respect to ocean freight. Moreover, given the late submission, this claim can not be verified. In particular, the adjustment requested does not relate to any data already on the file. Following this claim the Commission has nevertheless reviewed the amount of the cost in question account taken of the importance of this particular cost to the EC export transactions reported by the company. As a consequence, the Commission came to the conclusion that it is more appropriate to use the average ocean freight cost verified on-the-spot for all the sampled Chinese companies. Consequently, the company’s export price was adjusted accordingly.

(20)

One other Chinese sampled cooperating exporting producer highlighted two computation errors on the calculation of its export price related to its submitted export listings. The claim was considered warranted and the producer’s relevant export price was revised accordingly.

(21)

In the absence of any other comments in this respect, recital 46 of the provisional Regulation is hereby confirmed.

(22)

In the absence of any comments in this respect, recitals 47 and 48 of the provisional Regulation are hereby confirmed.

(23)

In light of the above, the definitive dumping margins, expressed as a percentage of the CIF Community frontier price duty unpaid, are the following:

All other companies 139,4 %.

(24)

In the absence of substantiated comments, the findings set out in recitals 52 to 54 of the provisional Regulation are confirmed.

(25)

One of the exporting parties argued that there is a discrepancy between the level of the consumption set out in the safeguard Regulation No 658/2004 and the level set in the provisional Regulation. It is underlined that the difference in the level of consumption was basically due to the different product scope in the current investigation and to the different number of Member States in those two investigations. No further and substantiated information was received in this respect. The findings set out in recitals 55 to 57 of the provisional Regulation are therefore confirmed. As a corollary, the subsequent parts of the analysis which draw on consumption are also confirmed in this respect.

(26)

In respect of the market share some interested parties opposed the Commission statement set out in recital 58 that indicated an increase of the market share of the dumped imports. They argued that contrary to the Commission findings the market share of imports from China decreased. The evaluation of imports from the PRC in volume and market share was verified. As set out in recital 58 of the provisional Regulation there was only one year where the market share of the Chinese imports decreased. For the rest of the period examined the market share of imports from China remained consistently high. Therefore the findings presented at the provisional stage are confirmed.

(27)

Some parties argued that post-IP volumes should also be examined to assess whether Chinese imports are increasing. It is to be noted that trends on imports from China were evaluated for the period 2002/2003 to 2006/2007 and a clear increase was observed. In accordance with the provisions of the basic Regulation, post-IP events are not taken into account, except in exceptional circumstances. In any event, as stated below in recital 48 the level of imports post-IP was examined and was found to be significant.

(28)

Three cooperating exporting producers contested the Commission’s findings on undercutting. One contested the methodology used to calculate undercutting and requested an adjustment to reflect costs borne by traders for their indirect sales. Where justified, calculations were adapted. The revised comparison showed that, during the IP, imports of the product concerned were sold in the Community at prices which undercut the Community industry’s prices by a range of 18,4 % to 35,2 % based on the data submitted by the sampled cooperating exporting producers.

(29)

Two importers and the importers’ association contested the duration of the packing season indicated in recital 79 of the provisional Regulation. They argued that the packing season in Spain lasts only three months instead of four to five as indicated in the provisional Regulation. However this allegation is linked to the crop (variable by nature) and to the quantity produced and in any case has no impact on the injury factors as analysed by the Commission services.

(30)

In the absence of any other substantiated information or argument concerning the situation of the Community industry, recitals 63 to 86 of the provisional Regulation are hereby confirmed.

(31)

Following disclosure of the provisional Regulation, some importers and some exporting producers claimed, with reference to recitals 83 to 86 of the provisional Regulation, that data used by the Commission to establish the injury level was neither correct nor objectively evaluated. They argued that almost all injury-related indicators showed positive trends and that therefore no evidence of injury can be found.

(32)

In this regard, it is noted that even if some indicators show small improvements, the situation of the Community industry has to be evaluated as a whole and in consideration of the fact that safeguard measures were in place until the end of the investigation period. This matter was explored at length in recitals 51 to 86 of the provisional Regulation. The deep restructuring process which these measures allowed for, resulting in a large reduction in production and capacity, would have under normal circumstances led to a significant improvement in the Community producers’ overall situation, including production, capacity utilisation, sales, and price/cost differentials. Instead, volume indicators have remained weak, stocks have increased substantially and financial indicators have continued to be in the red – some even worsening.

(33)

On this basis, it is considered that the conclusions regarding the material injury suffered by the Community industry as set out in the provisional Regulation are not altered. In the absence of any other substantiated information or arguments, they are therefore definitively confirmed.

(34)

Some parties argued that the volume of the Chinese imports had been stable since 1982 and that therefore they could not have caused injury as explained in the provisional Regulation (see recital 58). Indeed, as explained above in recital 26, imports from China during the period examined have increased significantly to the detriment of the EU industry market share. Moreover, the argument refers to the trend in imports that exceed well above the period in question therefore the argument is rejected.

(35)

As mentioned in recital 28 above, it is definitively concluded that during the IP, the prices of imports from the sampled Chinese exporting producers undercut the average Community industry prices by percentages ranging from 18,4 % to 35,2 %. The revision of the undercutting margin leaves unaffected the conclusions on the effect of the dumped imports set out in recitals 100 and 101 of the provisional Regulation.

(36)

After the imposition of the provisional duties some importers further argued the negative influence of the exchange rate on the price level. They argued that the exchange rate level is the main factor that caused injury. Nevertheless, the Commission’s assessment refers merely to a difference between price levels with no requirement to analyse the factors affecting the level of those prices. As a consequence a clear causal link between the high dumping level and the injury suffered by the Community industry was found and therefore recital 95 of the provisional Regulation can be confirmed.

(37)

Some interested parties argued that injury is not caused by dumped imports but rather by the scarce supply of fresh fruit i.e. the raw material for canned mandarins.

(38)

However, official data from the Spanish Ministry for Agriculture confirm that the quantity available for the canning industry is more than sufficient to cover all the production capacity of the Spanish producers.

(39)

Producers compete to a certain extent for fresh fruit with the direct fresh produce consumer market. However, this competition does not break the causal link. A clear, significant reason for the Community industry’s relatively low production, sales and market share is rather to the pressure of the massive imports from China at very low prices. In this situation, and considering that the market price is dictated by the imports covering more than 70 % of the market, which engage in price undercutting, suppression and depression, it would be uneconomic to produce more without reasonable expectations for selling the product at prices allowing for a normal profit. Therefore the Spanish industry could reasonably provide significantly higher quantities under the condition that the market price would not penalise their economic results.

(40)

Another fact confirming this analysis is the consistent existence of a significant amount of stocks by Community producers, underlining that the Community industry’s injurious situation occurred not because of insufficient production, but due to production that cannot be sold due to the pressure of Chinese imports.

(41)

As an agricultural product, the price of the raw material is subject to seasonal fluctuations due to its agricultural nature. Nevertheless, in the five-year period analysed, which included harvests with lower and higher prices, the Commission observes that injury (e.g. in the form of financial losses) occurs irrespectively of these fluctuations and therefore the economic results of the Community industry are not directly correlated to such seasonal fluctuations.

(42)

Some parties claimed that the Chinese product was of a higher quality than the Community production. However, any price differences resulting therefrom were not sufficiently substantiated, and there is no evidence that the alleged consumer preference for Chinese products would be so intense as to be the cause of the deteriorated situation for the Community industry. In any case such alleged price differences would favour the Chinese product, increasing the undercutting/underselling level. In the absence of any further new and substantiated information or argument, recital 99 of the provisional Regulation is hereby confirmed.

(43)

Some parties argued that extraordinary cost increases by some producers were at the root of the injury. These allegations were not sufficiently substantiated. The Commission analysis did not detect any such events which could reverse the assessment of causation or affect the calculation of the injury elimination level.

(44)

Some parties submitted comments on the increased costs of production and inability of the Community industry to reduce them. Certain cost items (such as energy) have increased, but their impact is not such as to break the causal link in a context where a very significant amount of dumped Chinese exports are depressing sales and production (thereby increasing the Community industry’s unit costs) and suppressing and depressing Community industry prices.

(45)

It was alleged that the EC aid schemes caused artificial growth of processing in the EC and then encouraged reduced levels of raw material supply for the product concerned. This allegation was of a general nature and was not sufficiently substantiated. In any event, the schemes in question were modified in 1996 when the aid was allowed to the farmers instead than to the processors of the product concerned. The Commission’s analysis has not detected any residual effects during the investigation period which could break the causal link. Regarding supply, reference is made to recitals 40 and 41 above.

(46)

In the absence of any further new and substantiated information or arguments, recitals 87 to 101 of the provisional Regulation are hereby confirmed.

(47)

In the light of the above, the provisional finding of the existence of a causal link between the material injury suffered by the Community industry and the dumped Chinese imports is confirmed.

(48)

As from 9 November 2007 imports from the PRC were subject to registration pursuant to the Commission Regulation (EC) No 1295/2007 of 5 November 2007 making imports of certain prepared or preserved citrus fruits (namely mandarins, etc.) originating in the People’s Republic of China subject to registration (‘Registration Regulation’) (7). This was done with a view to the possible retroactive imposition of anti-dumping duties. Consequently and exceptionally, developments after the IP have also been analysed. Eurostat data confirms that imports from China remain significant and this has been corroborated by certain importers. The volume for the last 10 months after the IP reached a level of 74 000 tonnes at stable low prices.

(49)

A number of parties commented on the low level of the Spanish production, which they claimed is unable to fully supply the community market. While it is correct to state that in the present situation the Community industry does not supply the overall EU market, it should be noted that this fact is linked to the effect of injurious imports, as explained above. In any event, the intended effect of the measures is not to close the Community market to Chinese imports, but to remove the effects of injurious dumping. Given, inter alia, the existence of only two sources of supply of these products, it is considered that in the event definitive measures are imposed, Chinese products would continue to enjoy a significant demand in the Community.

(50)

One importers’ association alleged that any anti-dumping measures without any limitation of quantities would not help protect the Spanish industry but would automatically trigger illegal trading activities. This is an argument which rather points to the need for the institutions to ensure proper monitoring of the enforcement of measures, rather than against the benefit measures could have for Community producers.

(51)

Another importer argued that imposition of anti-dumping measures would not improve the situation of the Spanish producers, due to the existence of large stocks built by the importers in the EU, which would be able to satisfy the market demand in the nearest future. The size of the stocks and the phenomenon of stockpiling were supported by another importer. These comments confirm the Commission analysis in the provisional Regulation and elsewhere in this Regulation. However, it is recalled that measures are intended to provide relief from injurious dumping over a period of five years — not only one.

(52)

In the absence of any other new and substantiated information or argument in this respect, the conclusion made in recitals 103 to 106 and 115 of the provisional Regulation regarding the interest of the Community industry are hereby confirmed.

(53)

Cooperating importers expressed a general interest in maintaining two sources of supply of the product concerned, namely Spain and China, in order to maintain the security of supply at competitive prices.

(54)

Nevertheless the majority of the importers, should definitive measures be imposed, would prefer a measure which contains also quantitative elements. This is not considered adequate, as explained below in recital 68.

(55)

Data from the sampled cooperating importers were verified and confirmed that the canned mandarins sector represents less than 6 % of their total turnover and that they achieved, on average, a level of profitability exceeding 10 % during both the investigation period and the period of 2004-2008.

(56)

The foregoing underlines that, on balance, the potential impact of measures on importers/traders would not be disproportional to the positive effects emanating therefrom.

(57)

One user, representing less than 1 % of consumption, submitted generic comments on the reduced availability of mandarins in the EU and on the superior quality of the Chinese product. He was invited to further cooperate providing individual data but declined and did not substantiate his allegations. Another retailer, a member of the main importer’s association, generally opposed a price increase. No other submission concerning the interest of users/retailers was received in the course of the investigation. In this situation and in absence of any substantiated comments from users/retailers, the conclusions made in recitals 109 to 112 of the provisional Regulation are hereby confirmed.

(58)

Contrary to what was claimed by one importer, the interest of consumers was taken into consideration at the provisional stage. The Commission’s findings were outlined in recitals 113 and 114 of the provisional Regulation. Other parties suggested that the impact on consumers would be significant. However, no information was provided that could cast doubt on the findings in the aforementioned recitals. Even if duties were to lead to an increase in consumer prices, no party has disputed the fact that this product is a very small part of household food expenditure. Therefore in the absence of any comments from consumers and of any further new and substantiated information these recitals are confirmed.

(59)

The additional analysis above concerning the interests at stake has not altered the provisional conclusions in this respect. Data of the sampled cooperating importers were verified and confirmed that the canned mandarins sector represents for them less than 6 % of their total turnover and that they achieved, in average terms a comfortable result during both the investigation period and the period of 2004-2008 examined, so the impact of the measures on importers will be minimal. It has been also ascertained that the financial impact on the final consumer would be negligible, considering that marginal quantities per capita are bought in the consumer countries. It is considered that the conclusions regarding the Community interest as set out in the provisional Regulation have not changed. In the absence of any other comments, these conclusions set out in the provisional Regulation are therefore definitively confirmed.

(60)

One importer claimed that the profit margin at the level 6,8 % used as reference at the provisional stage is overestimated. In this respect it should be noted that the same level was used and accepted for safeguard measures as the actual profit achieved by the Community industry in the period 1998/99 to 2001/02. It refers to profits of the Community producers in a normal trading situation before the increase in imports which led to injury in the industry. The argument is therefore rejected.

(61)

Community producers claimed that provisional duties did not take into account the peculiar situation of the canned mandarins market, where the production is concentrated in only one country and the vast majority of sales and of imports are concentrated in another European country. For that it was requested that final calculations take into account the transport cost from the producer country to the consumer country. The claim was justified and warranted and calculations were adapted accordingly to reflect the concentration of sales in the relevant areas of the Community.

(62)

One party made comments on the undercutting and underselling calculation. Where warranted adjustments were made at definitive stage.

(63)

The resulting injury margins, taking into account, when warranted, the requests from interested parties, expressed as a percentage of the total cif import value of each sampled Chinese exporter were less than dumping margins found, as follows:

All other companies 100,1 %.

(64)

As specified in recital 4, on 9 November 2007 the Commission made imports of the product concerned originating in the PRC subject to registration on the basis of a request by the Community industry. This request has been withdrawn and therefore the matter has not been further examined.

(65)

In view of the conclusions reached with regard to dumping, injury, causation and Community interest, and in accordance with Article 9(4) of the basic Regulation, a definitive anti-dumping duty should be imposed at the level of the lowest of the dumping and injury margins found, in accordance with the lesser duty rule. In this case, the duty rate should accordingly be set at the level of the injury found.

(66)

On the basis of the above and in line with the corrigendum published in the Official Journal L 258 (8) the definitive duty should amount as follows:

All other companies 531,2 EUR/tonne.

(67)

A number of parties requested measures which combined price and quantity elements, whereby for an initial import volume no duty or a reduced duty would be paid. In certain cases, this was linked to a license system.

(68)

This option was considered but rejected for, in particular, the following reasons. Anti-dumping duties are imposed because the export price is lower than the normal value. The amounts exported to the Community are relevant for the analysis whether dumped imports cause injury. However, these amounts are, normally, irrelevant for the level of the duty that should be imposed. In other words, if it is found that dumped imports cause injury, the dumping may be offset by a duty which applies as of the first shipment imported after the entry into force of the duty. Finally, to the extent that it would be found that it is in the Community’s interest that during a certain period, products may be imported without imposing anti-dumping duties, Article 11(4) of the basic Regulation allows for suspension under certain conditions.

(69)

Some parties have alleged that any form of measures without a quantitative limitation will lead to duty avoidance. Parties made reference again to the stockpiling which occurred in the wake of the enlargement of the European Union on 1 May 2004. The Commission services’ analysis has confirmed that this was a clear attempt to avoid the duties. Given these statements and the facts described in the provisional Regulation in recitals 123 and 125, the Commission will monitor developments in order to take the necessary actions to ensure proper enforcement of measures.

(70)

Other parties have argued that measures should exclude volumes already subject to existing sales contracts. This would in practice amount to an exemption of duties which would undermine the remedial effect of measures, and is therefore rejected. Reference is also made to recitals 51 and 52 above.

(71)

The provisional Regulation imposed an anti-dumping duty in the form of a specific duty for each company resulting from the application of the injury elimination margin to the export prices used in the calculation of the dumping during the IP. This methodology is confirmed at the level of definitive measures.

(72)

At a late stage in the investigation several exporting producers in the PRC offered price undertakings. These were not considered to be acceptable given the significant price volatility of this product, the risk of duty avoidance and circumvention for this product (see recitals 124 and 125 of the provisional Regulation), and the fact that, no guarantees were contained in the offers on the part of the Chinese authorities to allow for adequate monitoring in a context of companies not having been granted market economy treatment.

(73)

In view of the magnitude of the dumping margin found and given the level of the injury caused to the Community industry, it is considered necessary that the amounts secured by way of provisional anti-dumping duty imposed by the provisional Regulation should be definitively collected to the extent of the amount of provisional duties imposed. As for the exporting producers for whom the definitive duty is slightly higher than the provisional duty, amounts provisionally secured should be collected at the level determined in the provisional Regulation, in accordance with Article 10(3) of the basic Regulation,