NEW DELHI: Saddled with complaints from domestic manufacturers of a surge in import of caustic soda, a chemical used as a base for making products such as paper, textiles, soap and detergents, India has initiated investigations for imposing a safeguard duty on it.

Safeguard duties, which are additional import duties, can be imposed in case of a sharp increase in imports causing losses to domestic industry.

India has already informed the World Trade Organisations (WTO) committee on safeguards about the investigation and has said prima facie examination of data has shown that imports of the product have increased in absolute terms as well as compared to the domestic market size. Imports have also increased relative to production.

The caustic soda industry in India includes about 13 big players that account for more than 65% of the production. These include Punjab Alkalies and Chemicals, RIL, Dahej, Aditya Birla Chemicals, Kannoria Chemicals and Industries, DCM Shriram and Gujarat Alkali and chemicals, among others.

According to a government official, the investigation has been initiated by the directorate general of safeguards (DGS)the body under the department of revenue that carries out such investigations and suggests dutiesfollowing a complaint made by Punjab Alkalies and Chemicals.

The company has used data pertaining to the 13 big caustic soda manufacturing units to show that there has been a sharp increase in imports recently, leading to losses to the industry, the official said. The imports have come mostly from China, Qatar, Thailand and Saudi Arabia.

During the investigation, the DGS will also have to take into account views of the user industry, which includes paper and soap & detergent manufacturing companies. In its notification submitted to the WTO, India pointed out that the market share of domestically manufactured caustic soda has fallen during 2008-09 and also in the first quarter of 2009-10, the lowest since 2005-06.

The capacity utilisation has gone down during the first quarter of 2009-10 and fall in import prices has led to losses to the domestic industry, the submission added.

Caustic soda makers have asked the government to impose a 20% safeguard duty on imports, which, they claim, have increased by over 80% in the first quarter. Imports, which had slumped to 6,000 tonnes per month in October-November 2008, have now surged to an average of about 25,000 tonnes every month in the first four months of the current fiscal. This is against an average monthly import of 11,000 tonnes.

Figures supplied by the industry to the government also reveal a fall in prices of the product over the past few months. Price of caustic soda, which was as high as Rs 21 per kg in July 2008, has fallen to Rs 12 per kg in July 2009.

The DG safeguards needs to go through these figures carefully before deciding whether there is enough ground for imposition of safeguard duty. It will also have to take a call on the level of duty to be imposed, the official said.