Isopropyl Alcohol – India’s First Safeguard Investigation for Quantitative Restrictions

Author: Aastha Gupta, Joint Partner

Safeguard measure can be invoked when the imports of a product increases, due to unforeseen developments, and causes injury to the domestic industry. The key ingredients required to invoke safeguard measure are (a) there must be increased imports of a product, (b) the increase in imports must be a result of unforeseen developments, and as an effect of obligations incurred under the GATT, (c) the imports must have caused serious injury to the domestic industry, (d) no other factors must be causing injury to the domestic industry, (e) the domestic industry must undertake that it would take action to positively adjust to the increased imports, and (f) the measure should be in public interest. A safeguard measure can take the form of a duty, quantitative restrictions or tariff quota.

India initiated its first Safeguard (Quantitative Restrictions) Investigation  on 4th November 2019 concerning imports of Isopropyl Alcohol (IPA). The investigation involved participation of producers and exporters from a number of countries, associations of exporters, importers and users in India. After conducting a detailed investigation, the Directorate General of Trade Remedies (DGTR) on 30th September 2021 concluded that there is a need for invoking quantitative restrictions. With respect to the various essential ingredients of a safeguard investigation, the DGTR concluded as under.

(a) Increase in imports

In its application, the industry had shown that the imports of IPA had increased between April 2016 and June 2019. The DGTR noted that the increase in imports amounted to sudden, sharp, significant and recent increase in imports warranting initiation of the safeguard investigation.

Since a safeguard investigation is based on most recent data, the DGTR called for data for subsequent period as well. However, the Authority noted that the data for the period subsequent to December 2019 was impacted by Covid-19 and therefore, is abnormal in nature.

(b) Existence of unforeseen developments and effect of obligations

As per the GATT, safeguard measures may be imposed only when the imports have increased as a result of unforeseen developments, and as an effect of obligations incurred under the GATT. In this regard, the Authority noted that the imports increased as a result of incompetitiveness of propylene-based IPA produced by the domestic industry, as compared to acetone-based IPA produced and sold by foreign producers.

The Authority noted that the demand for phenol increased, which led to increase in the capacity and production of phenol. Since acetone is generated as a co-product in production of phenol, the supply for acetone increased, without a commensurate increase in its demand. Further, it resulted in cost of production through acetone route. As a result, the prices of acetone declined steeply. Since the domestic industry was producing IPA only through propylene route, it was severely impacted. Therefore, the Authority concluded that the imports have increased as a result of unforeseen developments.

With regard to the requirement that the imports must have increased as an “effect of obligations incurred” under the GATT, the Authority noted that the product had attracted a base customs duty rate of 115%, while the bound rate for the product was 40%. At present, the rate of duty applicable on the product was 7.5%. Therefore, India had incurred obligations under the GATT, and accordingly, the increased imports was an effect of obligations incurred under the GATT.

(c) Imports must have caused serious injury to the domestic industry

The information on record established that the imports had increased, while the market share of the domestic industry declined. The production, sales and capacity utilization of the domestic industry declined, due to which it was suffering from underutilized capacities. Further, the profitability of the domestic industry had deteriorated significantly, and it was incurring losses.

While the industry had earlier provided information till June 2019, the Authority considered more recent data. The Authority noted that the volume of imports continued to remain at increased levels, while the production and capacity utilization of the domestic industry remained low. The Authority also took note of the fact that while the performance of the domestic industry improved during 2020, it has declined again from July 2021 onwards.

(d) Causal link between increased imports and injury to the domestic industry

Before recommending safeguard measures, the Authority is required to satisfy itself that the injury to the domestic industry is caused by the subject imports, and not by any other factor. In this regard, the interested parties contended that the domestic industry had suffered injury due to its own imports. The Authority noted that if the imports made by the domestic industry are excluded, the imports rather show a higher increase. Further, the price at which the domestic industry had imported was higher than the price of other imports. Therefore, the injury to the domestic industry could not have been self-inflicted.

(e) Adjustment plan of the domestic industry

The domestic industry submitted that since acetone-based IPA has become more competitive vis-à-vis propylene-based IPA, it would set up an acetone based plant for IPA in order to make themselves competitive enough to face imports after expiry of safeguard measure.. The Authority accepted the submissions of the domestic industry.

(f) Public interest

The Authority noted that the imposition of measures was necessary to ensure viability of the domestic industry. Further, the measures would not impact the availability of sanitizers as the demand for sanitizers had declined and restrictions on trade thereof had been removed. Moreover, sanitizers were no longer classified as an essential commodity by the Government of India.

In view of the foregoing, the Authority concluded that IPA is being imported into India in such increased quantities, as to cause serious injury to the domestic industry and recommended quantitative restrictions as per following

  1. The DGTR has recommended imposition of quantitative restrictions on the imports of the subject goods for a period of two years
  2. The quantitative restrictions have been recommended based on average import volumes from each country in three representative years, during the investigated period.
  3. The imports from developing countries, barring China PR, are excluded from the scope of recommended measures since the imports from the developing countries other than China PR do not exceed 3% individually and 9% collectively.
  4. The imports would be permitted through the EDI ports only to facilitate electronic/ real-time monitoring of Quota.
  5. The quota would be monitored on quarterly basis. The total imports allowed in any quarter shall not exceed the total of that quarter and the next quarter. Any unutilised quota for a quarter shall be added to next quarter. Further, any excessively utilised quota for a quarter shall be deducted from the quota for the next quarter.
  6. The DGTR has also recommended progressive liberalization of the Quantitative Restrictions in the next year to adequately facilitate positive adjustment