. /.WORLD TRADE
ORGANIZATIONG/SG/29/Suppl.1
12 March 2001
(01-1196)
Committee on Safeguards Original:  English
IMPOSITION OF A SAFEGUARD MEASURE
BY INDIA ON IMPORTS OF METHYLENE CHLORIDE
Request for Consultations from the European Communities
under Article 12.3 of the Agreement on Safeguards
Supplement
The following communication, dated 6 March 2000, has been received from the Permanent
Delegation of the European Commission.
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Please find attached a list of written questi ons posed by the EC on the Indian Safeguard
Investigation concerning imports of Methylene Chloride (notification of final findings Doc.
G/SG/N/8/IND/10), following consultations under Art. 12.3 SA held on 22.2.2001.
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Questions posed by the EC
1. India argues that the use of methylene chloride as a paint stripper is submitted to stringent
environmental requirements in the EU, and that this  has caused substantial trade diversion from the
Community to India.  However, it appears that European users have been able to meet these
requirements, and there has been no major reduction in consumption, a fact that contradicts the
diversion theory.  In addition, it should be noted that methylene chloride's main applications are in the
pharmaceutical industry, and that there are no environmental restrictions applying in that area.  More
generally it appears that consumption in Europe has remained stable over the past years and that thereis definitely no surplus material that was sold to As ia or diverted to India.  Has India considered any
quantitative evidence concerning the decrease in consumption and any alleged surplus production of
methylene chloride in the EU, and if yes, could this evidence be provided?
2. According to our information, approximately 20 per cent of the methylene chloride imported
into India were shipped in drums.   Price of this material is higher than price of bulk material andcannot be the cause of injury to the domestic industry.  Did India consider this aspect when it was
determined that import prices were substantially undercutting domestic production?  If so, what was
the conclusion on this issue?  Does the recommended measure apply also to material shipped in drums
and if so, why was this material not excluded?
3. The evolution of the world prices of methylene chloride within the investigation period
appears to reflect the normal business cycle for this product, rather than an emergency situation.  Did
India consider or analyze this aspect and what conclusions were reached?G/SG/29/Suppl.1
Page 2
4.  India's findings about profitability of domestic producers are very succinct and do not appear
to allow a conclusive assessment of this very delicate issue.  Could India provide more detailed
revenue and cost data of the methylene chloride operations of the Indian producers?  If this data is
confidential, could non-confidential versions of this information be provided?
5. SRF commissioned a plant to produce methylene chloride and started production in 1997/98.
The plant was finally "debottlenecked" in 1998-99.  Although SRF was running the production
facility at over 100 per cent productivity, the production of methylene chloride was only 18 per cent
of its designed production capacity in 1999-2000, far from the 55 per cent that SRF claims to be the
optimum lay out design of the plant production capabi lity.  In this regard, could India provide a reply
to the following questions:  How much time is needed until a new production facility completes the
start-up, and operates at regular capacity and efficiency?  How much time is needed for a new
methylene chloride producer for commercial penetration, i.e. until it reaches break-even?  Were thesequestions examined within the investigati on, and if yes, could details be provided?
6. Methylene chloride can be produced by two methods, the "methanol route" and the "methane
route". The final findings do not contain any e xplanations on the differences between the two
methods.  Was this issue investigated, and if yes, could India provide evidence on differences between
the two routes as regards capital investment, fixed and variable costs, manufacturing costs (rawmaterials, energy, etc.) and related costs?
7. Methylene chloride is only one output resulting from the production of chloromethanes.
Other by or co-products such as carbon tetrachloride and chloroform can be produced at the same
time, and the output ratio for each product can be modified by adapting molar ratios.  The allocation
of costs to the different products and their respectiv e market situation are key factors for analyzing the
existence of injury to producers.  However, the fi nal findings do not appear to consider this issue.
Could India explain the methodology it used for allocating production costs to the different products
in the two production methods (methanol route and methane route)?  How did India determine the
level of profit relating to the methylene chloride operations of the various producers?  Did India
examine the market conditions for other by or co-products produced together with methylenechloride, and if yes, could evidence be provided?
8. It appears that the Indian producers GACL an d CSL have made significant investment in
captive power generation.  Have these investments b een subsidized by State or Regional Government
programmes?  Did India examine whether these investments and subsidies had an impact on
profitability within or after the investigation period, and if yes, could details be provided?  Can India
explain whether and how this fact was taken into account when determining the recommended
remedy?
9. What are the sources and systems by which SRF ensures its energy requirements?
10. The recommended measure was determined by considering the weighted average cost of
production (bulk) for GACL and CSL for the entire period 1999-2000.  We understand that the
"newcomer" SRF accounted for 30 per cent of the installed production capacity of the product under
investigation in the same period.  Can India explain why the two "traditional" companies alone weretaken into account?  What would be the recommended measure if the production costs for SRF were
included in the calculation?
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