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Two outlooks on the safeguard duty

The domestic paper producers may have cause for cheer, whereas the printers, publishers and paper buyers are at distress. The Government intends to impose safeguard duty of 20% on paper in order to protect domestic manufacturers from a surge in paper imports.

A Positive Approach for Manufacturers

Keeping in view the growing pressure on margins, and adverse impact on companies’ expansion plans, the paper industry had asked the government to levy a safeguard duty on import of paper and paper boards. Further, the surge in imports of uncoated paper and copy paper has impacted their sales, production and profitability. They alleged that the producers in other countries are exporting at low prices as their domestic market has contracted sharply due to the current economic crisis.

In its findings, the Director General (Safeguard) has concluded that increased imports of these products have caused threat of serious injury to domestic producers of these papers. The Government has therefore intended to impose safeguard duty of 20% on paper in order to protect domestic manufacturers.

R Narayan MoorthyMr. R. Narayan Moorthy,

Secretary General, Indian Paper Manufacturers Association

In alignment with an evolved WTO multi-trade agreement structure, India steeply slashed Basic Customs Duty from 20% in 2004-05 to 10% in 2008-09 while its paper industry continued to suffer due to un-competitiveness in comparison with global players, on account of factors such as inadequate /expensive quality raw material, energy and economies of scale.

Contextually, examples are coated paper and paperboard being imported into India from China, Indonesia, Finland, Austria, Australia and many other countries.

In Apr-Dec 2008, Imports in absolute terms as well as Share of Imports has gone up when compared to2007-08.

A recent surge in import resulting in a serious injury to domestic industry, has established a causal link between surge in imports and serious injury to domestic industry.

The weighted average CIF has reduced from 940 USD per MT in September 2008 to 680 USD per MT in March 2009.

Critical Circumstances

The market share of domestic industries has fallen from 70% in 2006-07 to 61% in 2008-09.

• The first nine months of 2008-09 have seen an increase in monthly imports from 11057 MT per month in 2007-08 to 16872 MT per month (more than 50%).

• The domestic industry already having taken capacity expansion, their capacity utilization shall be down to 51% from a high figure of 74%.

• The plants have seen drastic reduction in profitability and Return on capital employed. The ROCE of 4.27% is when domestic selling price is approximately 25% higher compared to landed price of imports which is impossible to maintain.

• If safeguard measures are not taken immediately the plants will go in loss and will be forced to close.

• Accordingly, the preliminary determination shows that critical circumstances exist in which delay in imposing provisional safeguard duty would cause damage which will be difficult to repair.

Under the prevailing extraordinary situation, domestic players have sought safeguard measures for an interim period, which is neither incongruous nor outside the purview of mechanism of the Directorate of Safeguards.

Losing Margins in a Sheltered Trade Approach

Imposed after the DGS’s preliminary findings, the safeguard duty is being opposed by upset printers, paper traders and publishers, due to the possibility of further squeezing margins in a recessionary economy.

The Federation of Paper Traders Associations of India (FPTA), protesting against the safeguard duty on paper which has exceedingly affected the paper importers, publishers, printers and paper users, stated that this move is merely to seek indirect price protection for domestic manufacturers, and protect their market shares by resorting to monopolistic practices. The FPTA fears that if this 20% safeguard duty is imposed, the print industry would suffer as this duty would lead to a further hike in the price of wood-free coated papers used in magazines. This retrograde step will severely affect the printing industry tremendously. Also affected will be the government’s flagship primary education programme, the Sarva Siksha Abhiyan, due to increased expenditure on books.

suresh kilamMr. Suresh Kilam,

Vice Chairman, Asian Pulp and Paper

“All the notifications are one sided. The notification says that there has been surge in imports in this country. Most of the paper and paper board has either come from China or Indonesia. No considerations have been taken for overseas manufacturer or the local traders. It seems that the government is in a hurry.”

He affirms that “We want some time. Why are they listening to just 3 mills? They should take note from the entire paper community.”

“Prices in the international market have dropped to $ 750 per ton from the height of $ 1000 a ton. This is because the price of the raw material has fallen. It is for the first time in the history of pulp and paper, that in a span of 6 months paper prices have reduced which has not happened in the last 30 years.

subhash chanderMr. Subhash Chander,

President, All Indis Federation of Master Printers

An additional 20% duty recommendation on paper, added to the already imposed 19% duty will clog the printing industry. The publishers will move to countries like Sri Lanka, Singapore, Hong Kong and China to print at an economical cost.

Our industry is labor oriented, which at the same time involves huge capital investments for which we have taken many loans. A price hike will makes it impossible for us to retain our customers due to unprofitable rate contracts. Moreover, due to the global recession, the printing and packaging business has shrunk tremendously. The Election Commission has even restricted the posters for party promotion.

The government has no time to eavesdrop on our problems, and there is no logic in imposing duty on paper, especially when election are in the offing.

R C GovilMr. R. C. Govil,

President, Federation of Indian Publishers

As publishers, we were completely taken aback when we got to know that the government is planning to introduce safeguard duty on paper and increase the import duty to 40%. We have made representations in the past to the government to reduce the import duty to 0% so that we can convert the competitively-priced paper available in the international market and bring about rationality in the pricing of paper.

Paper plays a vital role in educating the country as books are printed on paper. Therefore, paper should be available at the most reasonable prices. The price of the paper has been rising since last year, registering a 40% increase. Because of the high price of paper (and the consequent effect on the the cost of books) it has adversely affected the student community. Even printing is becoming noncompetitive in the international market. Readers are finding it difficult to cope with the high prices of books , and this will obstruct the nation ‘s progress.

Further, the government is spending crores of rupees on Sarv Shiksha Abhiyans, but due to high paper prices, it is hampering these very efforts. In 1995- 96, when the paper prices were soaring, we approached the then Finance Minister Sh. Manmohan Singh, who understanding our problems immediately reduced the duty on paper.Consequently, paper pices were establised for about 10 years.

Lastly, I feel that there is a cartel in the paper industry, and paper manufacturers always try to make it a sellers market.

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