Recommendation of restriction on import of IPA used by Pharma Industry

Read; The ministry recommended quantities which shall be allowed to be imported from these countries

166
Govt of India

Last Updated on October 9, 2021 by The Health Master

The Union commerce ministry has recommended imposition of quantitative restrictions on the imports of isopropyl alcohol (IPA) for a period of two years under Foreign Trade (Development and Regulation) Act, 1992 to protect the domestic industry from cheap inbound shipments.

80 per cent of IPA in India is used by the pharmaceutical industry largely for producing generic drugs. IPA contributes around 7-10 per cent of the cost of producing such drugs.  IPA constitutes a key ingredient in the production of hand sanitizers.

As a result of the C-19 pandemic, Indian demand for IPA for use in hand sanitizer is expected to grow anywhere between 40,000-60,000 metric tons (MT) per year in addition to existing demand of IPA at approximately 2 lakh MT per year.

The ministry recommended that a total of 30,294 metric tons (MT) of IPA shall be allowed from the following countries:

China (9356 MT),
Germany (1995 MT),
Japan (1411 MT),
Korea (5929 MT),
Netherland (2283 MT),
Singapore (2515 MT),
Taiwan (4050 MT),
USA (2087 MT) and
other countries (669 MT) in each of four quarters.

The ministry recommended progressive liberalization of the quantitative restrictions in the next year to adequately facilitate positive adjustment.

Accordingly, it recommended import of 32134 MT of IPA from these countries in fifth and six quarter respectively. This includes:

China (9,924 MT),
Germany (2,116 MT),
Japan (1,496 MT),
Korea (6,290 MT),
Netherland (2,421 MT),
Singapore (2,668 MT),
Taiwan (4,296 MT),
USA (2,214 MT) and
other countries (710 MT).

The ministry further suggested import of 34,085 MT of IPA from these countries in seventh and eighth quarter respectively. This comprises:

China (10,526MT),
Germany (2,244 MT),
Japan (1,587MT),
Korea (6,672 MT),
Netherland (2,568 MT),
Singapore (2,830 MT),
Taiwan (4,557MT),
USA (2,348MT) and
other countries (753 MT).

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“The imports would be permitted through the EDI ports only to facilitate electronic/real-time monitoring of quota. The quota would be monitored on quarterly basis,” stated Directorate General of Trade Remedies (DGTR), the investigation arm of commerce ministry in a statement.

Deepak Fertilisers and Petrochemicals Corporation Limited filed application before DGTR on August 28, 2019 seeking imposition of safeguard measures in the form of quantitative restrictions on imports of IPA into India to protect the domestic industry from cheap imports.

The application was supported by another producer Deepak Phenolics Limited.

The applicant claimed that on account of the surge in imports of IPA the domestic industry has lost its market share and its production quantities and capacity utilisation have declined leading to consequent losses which have crippled the domestic industry.

IPA can be produced through two routes – acetone and propylene. The domestic industry produces IPA using propylene as a raw material. Foreign producers are producing IPA using acetone route. The prices of acetone started declining from 2017 whereas the prices of propylene increased in 2018 and 2019 vis-a-vis 2017.

As production of phenol increased, the production of acetone also increased, as acetone is a co-product of phenol. This created an oversupply of acetone in the market and led to significant decline in the prices of acetone. The decline in prices of the acetone led to significant decline in the prices of IPA leading to surge in imports over the period,” stated the applicant.

However, since propylene prices were increasing when acetone prices were declining, cost of production of acetone-based IPA (imported product) declined, whereas cost of production of propylene-based IPA (like product) increased. It is seen that IPA import prices declined sharply, leading to surge in imports over the period. This forced the producers manufacturing propylene-based IPA to reduce their prices, even when their costs were not declining. Thus, the domestic industry contended that the influx in imports of acetone-based IPA has made its product (propylene-based IPA) commercially unviable to compete with the imported products.

The product is being imported into India from various countries, with major quantities being imported from China, Korea, Singapore and Taiwan. It is noted that the total volume of imports of the product have increased from 85,348 MT in 2016-17 to 1,58,736 MT in January-June 2019, implying an increase of 86% over the period, while the demand for the product increased by 35%.

The volume of imports of the product have increased from 31,529 MT in 2016-17 to 89,875 MT in January-June 2019, implying an increase of 185% over the period. Further, the imports have also increased at an increasing rate, when compared on a year-on-year basis.

On the basis of the aforesaid written application and having satisfied itself, relying on the prima facie evidence submitted by the applicant regarding increased imports causing serious injury to the domestic industry, a safeguard investigation against imports of the product into India was initiated by DGTR on November 4, 2019.

The period of investigation spans over three year and three months period from April 2016 to June 2019.

DGTR observed that the imports are undercutting the prices of the domestic industry and are priced significantly below the cost of sales of the domestic industry. The imports are entering the market at prices equivalent to the raw material cost of the domestic industry.

The increased imports have adversely impacted the production and capacity utilization of the domestic industry. The profits, cash profits and return on capital employed of the domestic industry have declined, and become negative due to cheap import of the product into India, said the directorate.

In order to prevent material injury to the domestic industry, DGTR recommended quota allocation on a country specific basis.

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