VZCZCXRO4336
PP RUEHAST RUEHBI RUEHCI RUEHDBU RUEHLH RUEHNEH RUEHPW
DE RUEHNE #2274/01 3141354
ZNR UUUUU ZZH
P 101354Z NOV 09
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC PRIORITY 8519
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHGV/USMISSION GENEVA 8617
RUEHBS/AMEMBASSY BRUSSELS 0388
RUEHBJ/AMEMBASSY BEIJING 8059
RUEHKO/AMEMBASSY TOKYO 6562
RUEHUL/AMEMBASSY SEOUL 1537
RUEHAK/AMEMBASSY ANKARA 1622

UNCLAS SECTION 01 OF 03 NEW DELHI 002274 
 
SIPDIS 
 
STATE FOR SCA/INSB AND EEB/TPP 
USDOC FOR ITA/MAC/OSA/LDROKER/ASTERN/KRUDD 
DEPT PASS TO USTR MDELANEY/CLILIENFELD/AADLER/KEMP 
 
E.O. 12958: N/A 
TAGS: ETRD ECON EIND IN
SUBJECT: INDIA: STEEL SAFEGUARD DUTY CONSIDERED AGAIN 
 
REF: New Delhi 991 
 
¶1. Summary:  At an October 28 Directorate-General of Safeguards 
(DGS) public hearing, Indian steel companies argued for a 25-percent 
preliminary safeguard duty on imports of hot-rolled steel 
coils/sheets/strips, claiming that they had suffered serious injury 
due to a flood of low-priced imports.  Chinese, European, Japanese, 
South Korean, and Turkish officials countered, arguing that 
depressed demand was due to the global recession and that there was 
insufficient evidence of serious injury to domestic producers.  The 
foreign government officials also raised serious concerns about the 
DGS procedures in carrying out the safeguard investigation, but no 
party appeared to plan on challenging this in the WTO.  After 
considering all the arguments and written submissions, DGS will make 
a final determination by December 9, which will be reviewed by 
Commerce Secretary Khullar, in his capacity as Chair of the GOI 
Standing Board on Safeguards, and then forwarded to Finance Minister 
Mukherjee for his approval.  End summary. 
 
Background 
---------- 
 
¶2.  After complaints from Indian private sector steel producers 
Ispat and Essar Steel, India's Directorate-General of Safeguards 
(DGS) in April 2009 recommended a 25-percent preliminary safeguard 
duty on imported hot-rolled steel coils/sheets/strips (reftel).  The 
public sector Steel Authority of India (SAIL) and JSW Steel 
supported the applicants/complainants.  In the April preliminary 
finding, the DGS concluded that there was "sufficient prima facie 
evidence regarding increased imports, serious injury or threat of 
serious injury and a causal link between increased imports and 
alleged injury or threat of serious Injury to justify initiation of 
investigations" (see http://dgsafeguards.gov.in/ 
PF%20notification%20HR%20COIL.html). (Note: WTO rules state that the 
conditions for applying a safeguard measure are increased imports 
and serious injury or threat thereof caused by such increased 
imports.)  However, in May 2009, the Government of India (GOI) at a 
meeting of the Standing Board on Safeguards turned down the proposal 
and directed the DGS to review the submissions by all stakeholders 
once again before making a final decision.  The DGS in the past few 
months has reportedly held consultations with industry on the issue. 
 
 
GOI Public Hearing on Safeguard Investigation 
--------------------------- 
 
¶3.  The public hearing was chaired by DGS Director General Praveen 
Mahajan, accompanied by Additional Commissioner Q Safeguards Ranjit 
Kumar.  Interested parties including government representatives and 
exporters from China, the EU, South Korea, Japan and Turkey and 
representatives of the petitioners presented their viewpoints at the 
hearing.  (Note:  There was no representation from the United 
States.)  All of the non-Indian countries represented at the hearing 
opposed the DGS recommendation to impose a 25-percent safeguard 
duty, deeming the action protectionist and lacking adequate evidence 
of injury to the domestic steel industry.  Foreign interested 
parties pointed to the positive growth in India's steel industry 
during the investigation period. 
 
Chinese Position 
---------------- 
 
¶4.  The Chinese government representative highlighted the importance 
of good bilateral trade relations between India and China, saying 
the proposed duty is a serious concern among the Chinese steel 
exporters since India is a big market for them, especially 
considering the economic slowdown.  He stated that there was no 
clear injury to the Indian domestic steel makers due to increased 
imports.  Presenting trade figures for the period covered under the 
investigation, the Chinese representative appealed to the GOI 
authorities to strictly observe safeguard rules and terminate the 
investigation as soon as possible to bring certainty in 
international trade. 
 
¶5.  A China Iron and Steel Association (CISA) official argued at 
length that there is no case for a safeguard duty in view of the 
following facts: 
 
--There has been no increase in imports of subject products; rather, 
imports fell 7.8 percent in fiscal year (FY) 2008-09, and imports as 
 
NEW DELHI 00002274  002 OF 003 
 
 
a share of production declined 3.1 percent in the same period. 
 
--The market share of the applicants is only 33 percent, which 
actually increased by two percent in FY 2008-09.  Sales volume and 
production in absolute terms declined because of lower demand, but 
no causal link can be established according to the Q4 FY 2008-09 
results of the local industry. 
 
--The scope of the investigation is not very clear (while the 
industry asked for protection on certain products, the authorities 
also recommended duties on additional steel items). 
 
--There has been no justification provided for the recommended rate 
of duty. 
 
--The levy of this duty may lead to a significant increase in steel 
prices that would be detrimental to infrastructure development in 
India. 
 
Japan, Turkey, EU and Korea Supported the Chinese Position 
---------------------------- 
 
¶6.  Interested parties from Japan, Turkey, EU and Korea also opposed 
the proposed levy by the DGS and supported the Chinese position. 
The Japanese representative voiced concern regarding the safeguard 
procedures followed by the DGS in arriving at the preliminary 
recommendations.  The Turkish representative emphasized that there 
has been no relative increase in imports compared with the increase 
in consumption; in fact, imports from Turkey declined in 2008 by one 
million metric tons.  EU officials indicated that there is not 
sufficient injury related to imports and the GOI should terminate 
the investigation.  They also pointed out that the sales, 
production, and financial performance of the applicants had improved 
until October 2008 and started deteriorating only due to 
recessionary conditions worldwide.  Referring to the latest 
financial position of SAIL as the most profitable steel company in 
the world, and Tata Steel as the third most profitable steel 
company, Korean representatives observed that a sharp revival in 
steel is expected to continue in 2010 according to many studies done 
by industry associations. 
 
Indian Industry Continues to Ask for Protection 
------------------------------ 
 
¶7.  Indian company representatives claimed that the increased 
imports have caused injury to the industry as a whole and that 
Indian domestic steel companies had lost market share, leading to a 
decline in their sales volumes and capacity utilization of their 
plants.  The applicants and supporting companies argued that they 
together accounted for nearly 80 percent of India's total steel 
production during the investigation period--April 2008 through 
February 2009.  (Note: In India, there are currently five producers 
who have the capacity to produce hot rolled coils/sheets/strips 
Ispat Industries, Essar Steel, JSW Steel, SAIL, and Tata Steel.) 
Their representatives also pointed out that the products under 
investigation are mainly used in the automobile and infrastructure 
sectors, and an influx of cheap imports would indirectly impact 
these sectors also.  (Note: inexpensive inputs could actually 
benefit these sectors.)  According to the domestic steel companies, 
India has allowed imports at very low prices; the advantage of 
whatever demand was generated from the stimulus package was going to 
foreign companies.  This has impacted the domestic industry prices, 
which fell from Rs 40,000 (approximately $800)/ton in 
April-September 2008 to Rs 26,296 (approximately $526) in February 
2009, which affected their profitability. 
 
Next Steps 
---------- 
 
¶8.  All interested parties who presented their views at the public 
hearing orally were to submit the written version of their comments 
to the DGS within a week.  The DGS will then respond to the views 
with respect to the matters being investigated, and prepare final 
findings on the basis of merits by December 9, 2009 (i.e., within 
eight months from the date of initiation of the investigation).  The 
DGS will send a copy of the public notice regarding its final 
findings to the GOI Ministry of Commerce and Industry and the 
Ministry of Finance.  The Standing Board on Safeguards, chaired by 
the Commerce Secretary, considers the DGS final findings and then 
requests the Finance Minister's approval. 
 
NEW DELHI 00002274  003 OF 003 
 
 
 
Comment 
------- 
 
¶9.  The hearing was conducted in an open transparent manner, and 
observers were welcome to attend.  Although several foreign 
government officials raised serious concerns about the DGS 
procedures in carrying out the safeguard investigation, no party 
appeared to plan to challenge this in the WTO.  The last time this 
case was investigated in May 2009 (reftel), the Steel Secretary 
noted that the interim findings of the DGS were "insufficient," and 
the then Commerce Secretary, Mr. G.K. Pillai, who chaired the Board, 
was also quoted in the media as saying that "from the evidence we do 
not see any threat to the industry."  The Board, now chaired by 
Commerce Secretary Rahul Khullar, will tentatively meet in early 
December.  From Econ LES's observation, this hearing did not provide 
any new, compelling evidence of injury that should cause a reversal 
of this finding, but Post will monitor and report on the Board's 
forthcoming decision. 
 
Roemer