[Federal Register Volume 63, Number 222 (Wednesday, November 18, 1998)]
[Notices]
[Pages 64050-64061]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-30856]
[[Page 64050]]
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DEPARTMENT OF COMMERCE
International Trade Administration
[C-533-063]
Certain Iron-Metal Castings From India; Final Results and Partial
Rescission of Countervailing Duty Administrative Review
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
ACTION: Notice of final results of countervailing duty administrative
review.
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SUMMARY: On July 13, 1998, the Department of Commerce published in the
Federal Register its preliminary results of administrative review of
the countervailing duty order on certain iron-metal castings from India
for the period January 1, 1996 through December 31, 1996 (63 FR 37534).
The Department has now completed this administrative review in
accordance with section 751(a) of the Tariff Act of 1930, as amended.
For information on the net subsidy for each reviewed company, and for
all non-reviewed companies, see the Final Results of Review section of
this notice. We will instruct the U.S. Customs Service to assess
countervailing duties as detailed in the Final Results of Review
section of this notice.
EFFECTIVE DATE: November 18, 1998.
FOR FURTHER INFORMATION CONTACT: Kristen Johnson or Christopher Cassel,
Office of CVD/AD Enforcement VI, Import Administration, International
Trade Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, NW, Room 4012, Washington, D.C. 20230; telephone:
(202) 482-2786.
SUPPLEMENTARY INFORMATION:
Background
Pursuant to 19 CFR 351.213(b), this review covers only those
producers/exporters of the subject merchandise for which a review was
specifically requested. The producers/exporters of the subject
merchandise for which this review was requested are:
Calcutta Ferrous Ltd.,
Carnation Industries Ltd.,
Commex Corporation,
Crescent Foundry Co. Pvt. Ltd.,
Delta Enterprises,
Dinesh Brothers (P) Ltd.,
Kajaria Iron Castings Pvt. Ltd.,
Kejriwal Iron & Steel Works Pvt. Ltd.,
Metflow Corporation,
Nandikeshwari Iron Foundry Pvt. Ltd.,
Orissa Metal Industries,
Overseas Iron Foundry,
R.B. Agarwalla & Company,
R.B. Agarwalla & Co. Pvt. Ltd.,
RSI Limited,
Seramapore Industries Pvt. Ltd.,
Shree Rama Enterprise,
Shree Uma Foundries,
Siko Exports,
SSL Exports,
Super Iron Foundry,
Uma Iron & Steel, and
Victory Castings Ltd.
Delta Enterprises, Metflow Corporation, Orissa Metal Industries,
R.B. Agarwalla & Co. Pvt. Ltd., Shree Uma Foundries, Siko Exports, and
SSL Exports reported, through company certifications submitted on the
record, that they did not export the subject merchandise to the United
States during the period of review. Therefore, in accordance with
section 351.213(d)(3) of the Department's regulations, we are
rescinding the review with respect to these companies. This review also
covers 19 programs.
In the notice of preliminary results, we invited interested parties
to comment on the preliminary results (63 FR 37534, July 13, 1998). On
August 12, 1998, case briefs were submitted by the Engineering Export
Promotion Council of India and the exporters of certain iron-metal
castings from India (respondents), and the Municipal Castings Fair
Trade Council and its members (petitioners). On August 19, 1998,
rebuttal briefs were submitted by the respondents and petitioners.
Applicable Statute
Unless otherwise indicated, all citations to the statute are
references to the provisions of the Tariff Act of 1930, as amended by
the Uruguay Round Agreements Act (URAA) effective January 1, 1995 (the
Act). The Department of Commerce (Department) is conducting this
administrative review in accordance with section 751(a) of the Act. All
citations to the Department's regulations reference 19 CFR part 351
(1998).
Scope of the Review
Imports covered by this administrative review are shipments of
Indian manhole covers and frames, clean-out covers and frames, and
catch basin grates and frames. These articles are commonly called
municipal or public works castings and are used for access or drainage
for public utility, water, and sanitary systems. During the review
period, such merchandise was classifiable under the Harmonized Tariff
Schedule (HTS) item numbers 7325.10.0010 and 7325.10.0050. The HTS item
numbers are provided for convenience and Customs purposes. The written
description remains dispositive.
Verification
As provided in section 782(i) of the Act, we verified information
submitted by the Government of India (GOI) and certain producers/
exporters of the subject merchandise. We followed standard verification
procedures, including meeting with government and company officials and
examining relevant accounting and financial records and other original
source documents. Our verification results are outlined in the public
versions of the verification reports, which are on file in the Central
Records Unit, Room B-099 of the Main Commerce Building.
Analysis of Programs
Based upon the responses to our questionnaires, the results of
verification, and written comments from the interested parties, we
determine the following:
I. Programs Conferring Subsidies
A. Pre-Shipment Export Financing
In the preliminary results, we found that this program conferred
countervailable subsidies on the subject merchandise. Our review of the
record and our analysis of the comments submitted by the interested
parties, summarized below, has led us to modify our findings from the
preliminary results for Dinesh Brothers (Dinesh). See Comment 1 below.
Our findings for the other companies have not changed as a result of
our review of the record and our analysis of the comments submitted by
the interested parties. Accordingly, the net subsidies for this program
are as follows:
------------------------------------------------------------------------
Net subsidy
Net subsidies--producer/exporter rate--percent
------------------------------------------------------------------------
Calcutta Ferrous Ltd..................................... 0.20
Commex Corporation....................................... 0.13
Crescent Foundry Co. Pvt. Ltd............................ 0.08
Dinesh Brothers Pvt. Ltd................................. 1.04
Kajaria Iron Castings Pvt. Ltd........................... 0.33
Nandikeshwari Iron Foundry Pvt. Ltd...................... 0.22
R.B. Agarwalla & Company................................. 0.34
RSI Limited.............................................. 0.37
Seramapore Industries Pvt. Ltd........................... 0.53
Super Iron Foundry....................................... 1.11
Uma Iron & Steel......................................... 0.34
Victory Castings Ltd..................................... 0.30
------------------------------------------------------------------------
B. Post-Shipment Export Financing
In the preliminary results, we found that this program conferred
countervailable subsidies on the subject
[[Page 64051]]
merchandise. Our review of the record and our analysis of the comments
submitted by the interested parties, summarized below, has led us to
modify our findings from the preliminary results for Calcutta Ferrous
(Calcutta) and Dinesh. See Comment 1 below for Dinesh and the Memo to
the File regarding the Calculations for the Final Results of the Review
dated November 10, 1998 (public version) on file in the Central Records
Unit of the Department of Commerce (Room B-099) (Calculation Memo) for
Calcutta. Our findings for the other companies have not changed as a
result of our review of the record and our analysis of the comments
submitted by the interested parties. Accordingly, the net subsidies for
this program are as follows:
------------------------------------------------------------------------
Net subsidy
Net subsidies--producer/exporter rate--percent
------------------------------------------------------------------------
Calcutta Ferrous Ltd..................................... 0.29
Carnation Industries Ltd................................ 0.03
Commex Corporation....................................... 0.35
Crescent Foundry Co. Pvt. Ltd............................ 0.31
Dinesh Brothers Pvt. Ltd................................. 0.23
Kajaria Iron Castings Pvt. Ltd........................... 0.42
Nandikeshwari Iron Foundry Pvt. Ltd...................... 0.27
R.B. Agarwalla & Company................................. 0.35
RSI Limited.............................................. 0.20
Seramapore Industries Pvt. Ltd........................... 0.05
Super Iron Foundry....................................... 0.12
Uma Iron & Steel......................................... 0.53
Victory Castings Ltd..................................... 0.40
------------------------------------------------------------------------
C. Post-Shipment Export Credit in Foreign Currency (PSCFC)
In the preliminary results, we found that this program conferred
countervailable subsidies on the subject merchandise. Our review of the
record and our analysis of the comments submitted by the interested
parties, summarized below, has led us to modify our findings from the
preliminary results for Calcutta and Dinesh. See Comment 1 below for
Dinesh and the Calculation Memo for Calcutta. Our findings for the
other companies have not changed as a result of our review of the
record and our analysis of the comments submitted by the interested
parties. Accordingly, the net subsidies for this program are as
follows:
------------------------------------------------------------------------
Net subsidy
Net subsidies--producer/exporter rate--percent
------------------------------------------------------------------------
Calcutta Ferrous Ltd..................................... 0.02
Dinesh Brothers Pvt. Ltd................................. 0.05
Nandikeshwari Iron Foundry Pvt. Ltd...................... 0.08
R.B. Agarwalla & Company................................. 0.11
RSI Limited.............................................. 0.08
------------------------------------------------------------------------
D. Income Tax Deduction Under Sec. 80 HHC
In the preliminary results, we found that this program conferred
countervailable subsidies on the subject merchandise. Our review of the
record and our analysis of the comments submitted by the interested
parties, summarized below, has led us to modify our findings from the
preliminary results for Dinesh. See Comment 1 below. Our findings for
the other companies have not changed as as result of our review of the
record and our analysis of the comments submitted by the interested
parties. Accordingly, the net subsidies for this program are as
follows:
------------------------------------------------------------------------
Net subsidy
Net subsidies--producer/exporter rate--percent
------------------------------------------------------------------------
Calcutta Ferrous Ltd..................................... 2.91
Carnation Industries Ltd................................. 2.92
Commex Corporation....................................... 4.79
Crescent Foundry Co. Pvt. Ltd............................ 4.53
Dinesh Brothers Pvt. Ltd................................. 1.82
Kejriwal Iron & Steel Works Pvt. Ltd..................... 11.76
Nandikeshwari Iron Foundry Pvt. Ltd...................... 3.71
Overseas Iron Foundry.................................... 3.74
R.B. Agarwalla & Company................................. 2.73
RSI Limited.............................................. 2.73
Seramapore Industries Pvt. Ltd........................... 4.16
Shree Rama Enterprise.................................... 10.85
Super Iron Foundry....................................... 1.93
Uma Iron & Steel......................................... 0.40
Victory Castings Ltd..................................... 2.17
------------------------------------------------------------------------
E. Import Mechanisms (Sale of Licenses)
In the preliminary results, we found that this program conferred
countervailable subsidies on the subject merchandise. Our review of the
record and our analysis of the comments submitted by the interested
parties, summarized below, have not led us to change our preliminary
findings. Accordingly, the net subsidies for this program are as
follows:
------------------------------------------------------------------------
Net subsidy
Net subsidies--producer/exporter rate--percent
------------------------------------------------------------------------
Carnation Industries Ltd................................. 0.24
Kajaria Iron Castings Pvt. Ltd........................... 0.68
Kejriwal Iron & Steel Works.............................. 1.00
RSI Limited.............................................. 0.03
Seramapore Industries Pvt. Ltd........................... 0.73
------------------------------------------------------------------------
F. Exemption of Export Credit From Interest Taxes
In the preliminary results, we found that this program conferred
countervailable subsidies on the subject merchandise. Our review of the
record and our analysis of the comments submitted by the interested
parties, summarized below, has led us to modify our findings from the
preliminary results for Calcutta and Dinesh. See Comment 1 below for
Dinesh and the Calculation Memo for Calcutta. Our findings for the
other companies have not changed as a result of our review of the
record and our analysis of the comments submitted by the interested
parties. Accordingly, the net subsidies for this program are as
follows:
------------------------------------------------------------------------
Net subsidy
Net subsidies--producer/exporter rate--percent
------------------------------------------------------------------------
Calcutta Ferrous Ltd..................................... 0.06
Carnation Industries Ltd................................. 0.13
Commex Corporation....................................... 0.06
Crescent Foundry Co. Pvt. Ltd............................ 0.06
Dinesh Brothers Pvt. Ltd................................. 0.13
Kajaria Iron Castings Pvt. Ltd........................... 0.26
Nandikeshwari Iron Foundry Pvt. Ltd...................... 0.13
R.B. Agarwalla & Company................................. 0.11
RSI Limited.............................................. 0.22
Seramapore Industries Pvt. Ltd........................... 0.07
Super Iron Foundry....................................... 0.16
Uma Iron & Steel......................................... 0.11
Victory Castings Ltd..................................... 0.18
------------------------------------------------------------------------
II. Programs Found To Be Not Used
In the preliminary results, we found that the producers/exporters
of the subject merchandise did not apply for or receive benefits under
the following programs:
1. Market Development Assistance (MDA)
2. Rediscounting of Export Bills Abroad (EBR)
3. International Price Reimbursement Scheme (IPRS)
4. Cash Compensatory Support Program (CCS)
5. Programs Operated by the Small Industries Development Bank of
India (SIDBI)
6. Export Promotion Replenishment Scheme (EPRS) (IPRS Replacement)
7. Export Promotion Capital Goods Scheme
8. Benefits for Export Oriented Units and Export Processing Zones
9. Special Imprest Licenses
10. Special Benefits
11. Duty Drawback on Excise Taxes
12. Payment of Premium Against Advance Licenses
13. Pre-Shipment Export Financing in Foreign Currency (PCFC)
We did not receive any comments on these programs from the
interested parties, and our review of the record has not led us to
change our findings from the preliminary results.
[[Page 64052]]
Analysis of Comments
Comment 1: Use of Denominator for Dinesh
Respondents state that the Department misread Dinesh Brothers'
(Dinesh) sales information and consequently used the wrong 1996 f.o.b.
values to calculate the company's ad valorem subsidy rates. As a result
of this error, the Department's calculations overstate the
countervailing duty applicable to the company for the period of review.
Petitioners counter stating that the sales values used in the
Department's calculations are consistent with the information provided
in the company's response. They argue that the burden is on respondents
to provide clear, complete responses to the Department's inquires.
Petitioners state that even if the Department has erred and used
the wrong values, this issue highlights a continuing problem with
respect to this order. That is, respondents often supply vague
information in their questionnaire responses and then clarify the
information only if the Department requests a further explanation or
the respondents explain the information at verification. In this case,
petitioners argue the Department did not feel it was necessary for
Dinesh to explain the reporting of its sales values and the company was
not verified. For these reasons, petitioners urge the Department to
affirm its use of the sales values used in determining Dinesh's program
benefits in the preliminary calculations.
Department's Position
Though we agree with petitioners that Dinesh's sales values were
not clearly presented in the company's questionnaire response, after a
further examination of the record, we agree with respondents that we
did not use the correct f.o.b. values to calculate Dinesh's program
benefits. In conducting our preliminary calculations, we incorrectly
read Dinesh's sales chart and thus used the wrong 1996 f.o.b. values to
calculate the company's ad valorem subsidy rates. Therefore, we have
recalculated the ad valorem subsidies under each program using the
correct f.o.b. values as our denominators. The program rates reported
above and the final subsidy rate and cash deposit rate for Dinesh
listed below reflect the use of the correct sales values.
Comment 2: Sale of Import License by Carnation
When calculating the benefit which Carnation Industries Ltd.
(Carnation) received from the sale of an import license, respondents
state that the Department mistakenly used an overstated revenue figure
as the numerator in its calculation. They argue that the Department
incorrectly used the amount of revenue Carnation earned on the sale as
reported in the company's financial statements. Respondents state that
this amount is inclusive of the sales price plus the tax which
Carnation paid to the State of West Bengal. They state that Carnation
did not receive the tax, and therefore, the correct amount of the
benefit to Carnation is the sales price minus the tax.
Petitioners state that the respondents' argument must be rejected
because the Department's regulations clearly state that: ``{i}n
calculating the amount of a benefit, the Secretary will not consider
the secondary tax consequences of the benefit.'' See Countervailing
Duties: Proposed Rule, 62 FR 8818, 8856 (February 26, 1997).
Petitioners further state that the Department's policy is clear from
previous cases and has been upheld by the courts. See, e.g., Certain
Steel Products from Belgium; Final Affirmative Countervailing Duty
Determinations, 58 FR 37273, 37275 (July 9, 1993); Geneva Steel v.
United States, 914 F. Supp. 563, 609-610 (CIT 1996); Ipsco, Inc. v.
United States, 687 F. Supp. 614, 621-22 (CIT 1988); and Michelin Tire
Corp. v. United States, 6 CIT 320, 328 (1983), vacated on other
grounds, 9 CIT 38 (1985) (Michelin Tire).
In this review, petitioners state that the record clearly
establishes that the benefit received from the sale of the license was
the amount reported in the company's financial statements. Carnation's
claim that it initially received something less than that amount is not
supported by record evidence. Moreover, whether Carnation was obligated
to pay taxes on the revenue earned is inconsequential to the
Department's analysis. Therefore, the Department should affirm its
preliminary results in this matter.
Department's Position
We agree with petitioners. Not only is the Department's long-
standing policy to disregard secondary tax consequences of
countervailable benefits, but also the statute is clear in regard to
permissible offsets to subsidies. Section 771(6) of the Act provides an
exclusive list of offsets which may be deducted from the amount of a
gross subsidy, and an offset for income tax payments is not included in
that list. For purposes of determining the net subsidy, the Department,
pursuant to section 771(6), may subtract from the gross countervailable
subsidy the amount of:
(A) Any application fee, deposit, or similar payment paid in
order to qualify for, or to receive, the benefit of the
countervailable subsidy,
(B) Any loss in the value of the countervailable subsidy
resulting from its deferred receipt, if the deferral is mandated by
Government order, and
(C) Export taxes, duties, or other charges levied on the export
of merchandise to the United States specifically intended to offset
the countervailable subsidy received.
In Michelin Tire, the court upheld the Department's policy of
disregarding secondary tax consequences, rejecting a claim that after-
tax considerations should be included in the calculation of a subsidy.
In its decision the court stated that: ``[T]hese effects [secondary tax
effects] are too uncertain to be considered a necessary part of a
subsidy calculation in these circumstances.'' See 6 CIT 320, 328
(1983), vacated on other grounds, 9 CIT 38 (1985). Therefore, based on
the statute, case precedent, and the Department's policy to disregard
secondary tax effects on subsidies, we have not altered our calculation
of the subsidy which Carnation received from the sale of an import
license during the review period.
Comment 3: Use of a Rupee-Loan Interest Rate Benchmark
Respondents contest the Department's use of a rupee-loan interest
rate, rather than a dollar-denominated interest rate, to calculate the
benefit on PSCFC loans. Respondents note that the Department has
determined that PSCFC loans are denominated in dollars and that the
discount rate is based on a dollar interest rate. Therefore, the
Department should have used as its benchmark to determine the benefit
conferred by PSCFC loans, a dollar-related interest rate. Respondents
assert that since the Indian banks offering PSCFC financing could
themselves borrow dollars at a rate linked to the London Interbank
Offering Interest Rate ( LIBOR), the appropriate benchmark to determine
the subsidy element of the loans, if any, would be a LIBOR-linked rate.
Respondents contend that the Department's use of a benchmark, other
than a LIBOR-linked rate, is inconsistent with item (k) of the
``Illustrative List of Export Subsidies,'' Annex I to the Agreement on
Subsidies and Countervailing Measures (Illustrative List). Item (k)
provides that an ``export credit'' is a subsidy only if governments or
government-controlled banks provide ``export credits at rates below
those which they actually have to pay for the funds so employed.''
Respondents assert
[[Page 64053]]
that PSCFC loans should not be viewed as subsidies so long as they are
not provided at rates that are below the rates at which the banks
themselves could borrow U.S. dollars. Accordingly, PSCFC loans should
not be considered beneficial to the extent that they are provided at
rates above the appropriate benchmark--a LIBOR-linked rate.
Petitioners argue that respondents are erroneously confusing the
terms ``export credit'' and ``packing credit,'' the type of financing
provided to castings exporters, when discussing item (k). Petitioners
note that the Department has consistently interpreted the term ``export
credit'' to refer to medium- and long-term loans and therefore, item
(k) does not apply to the short-term export loans which are under
review.
Additionally, petitioners assert that the Department has
consistently rejected the cost-to-government'' methodology of item (k).
In support of their argument, petitioners cite to the Department's
determinations in Extruded Rubber Thread from Malaysia; Final Results
of Countervailing Duty Administrative Review, 60 FR 17515, 17517 (April
6, 1995) and Certain Textile Mill Products from Mexico; Final Results
of Countervailing Duty Administrative Review, 56 FR 12175, 12177 (March
22, 1991). Petitioners also cite to the 1989 final results of Certain
Textile Mill Products from Mexico, in which the Department stated:
When we have cited the Illustrative List as a source for
benchmarks to identify and measure export subsidies, those
benchmarks have been consistent with our long-standing practice of
using commercial benchmarks to measure the benefit to a recipient of
a subsidy program. The cost-to-government standard in item (k) of
the Illustrative List does not fully capture the benefits provided
to recipients of FOMEX financing. Therefore, we must [sic] use a
commercial benchmark to calculate the benefit from a subsidy,
consistent with the full definition of ``subsidy'' in the statute.
54 FR 36841, 36843 (September 5, 1989). Petitioners further point
out that the Department upheld its repudiation of the ``cost-to-
government'' standard contemplated in item (k) in the Statement of
Administrative Action: Agreement on Subsidies and Countervailing
Measures (SAA). The SAA states that ``* * * the Illustrative List has
no direct application to the CVD portion of the Subsidies Agreement,
and items (k) and (l) of the Illustrative List use a cost-to-the-
government standard which is inappropriate for CVD purposes.'' See H.R.
Doc. No. 103-316, Vol. 1, 927-928 (1994). The petitioners assert that
this language restates the Department's long-standing practice that the
``cost-to-government'' approach contemplated in item (k) does not
adequately capture the benefits provided under short-term export
financing programs. Therefore, the Department should reject
respondents' argument and continue using a non-preferential interest
rate based on comparable, rupee-based financing as a benchmark.
Department's Position
We disagree with respondents that the Department should use a
LIBOR-linked interest rate as the benchmark in measuring the benefits
conferred by the PSCFC program. In examining whether a short-term
export loan confers countervailable benefits, the Department must
determine whether ``there is a difference between the amount the
recipient of the loan pays on the loan and the amount the recipient
would pay on a comparable commercial loan that the recipient could
actually obtain on the market.'' See Section 771(5)(E)(ii) of the Act.
In determining whether there is a difference between the amount the
companies paid on the PSCFC loans and the amount they would have paid
on a comparable commercial loan, we used, as our benchmark, where
available, a company-specific interest rate for rupee-denominated
short-term working capital loans obtained on the market during the
review period. In the absence of a company-specific rate, we used the
``cash credit'' interest rate which is for domestic working capital
finance and is comparable to pre- and post-shipment export finance. See
Certain Iron-Metal Castings From India; Preliminary Results of
Countervailing Duty Administrative Review, 61 FR 64669, 64671 (December
6, 1996) (1994 Castings Prelim). In accordance with section
771(5)(E)(ii) of the Act, because the interest rate on PSCFC loans is
less than what a company would have to pay on a comparable short-term
commercial loan, we determined that PSCFC loans confer countervailable
benefits.
We have also determined that PSCFC loans are limited to exporters,
and only exporters have access to LIBOR-linked interest rates. Because
we found that PSCFC loans are limited to exporters and that non-
exporters do not have access to these low-cost financing rates, loans
with interest rates linked to LIBOR clearly do not represent the
``comparable commercial loan that the recipient could actually obtain
on the market.'' The fact that commercial banks may borrow at LIBOR-
linked rates is, therefore, irrelevant to our finding.
Petitioners correctly note that the Department has consistently
rejected the ``cost-to-government'' standard of item (k) of the
Illustrative List. The SAA specifically states that ``* * * the
Illustrative List has no direct application to the CVD portion of the
Subsidies Agreement, and items (k) and (l) of the Illustrative List use
a cost-to-the-government standard which is inappropriate for CVD
purposes.'' See0 H.R. Doc. No. 103-316, Vol. 1, 927-928 (1994). For
these reasons, we maintain that the correct benchmark to use in
determining whether PSCFC loans confer countervailable benefits upon
exports of the subject merchandise to the United States, is the
``comparable'' commercial loan rate that the Indian exporters would
actually obtain on the market.
Comment 4: Double-Counting of Subsidies
Respondents state that, for purposes of the section 80 HHC tax
program (80 HHC), earnings from the sale of import licenses may be
deducted from taxable income to determine the tax payable by the
exporter. Therefore, because revenue from the sale of licenses is also
part of the deductions under 80 HHC, to countervail this revenue once
as a direct subsidy, and then to countervail the tax deduction, which
is made up of the same revenue, is to double count the subsidy from the
import license sales.
Respondents also contend that the Department is double-counting the
subsidy from the export financing programs. The financing programs
reduce a company's expenses in financing exports, which in turn
increases the company's profits on export sales. Because the 80 HHC
deduction increases as export profits increase, the financing programs
increase the 80 HHC deduction. Therefore, according to respondents, to
countervail the export financing as a separate program from the 80 HHC,
is to double-count the subsidies conferred by the export financing
programs.
Respondents note that they appealed this issue of double-counting
to the Court of Appeals for the Federal Circuit (CAFC) and in Kajaria
Iron Castings Pvt. Ltd. v. United States, No. 97-1490 (Fed. Cir.
September 8, 1988) (Kajaria), the CAFC ruled in favor of the
respondents. Accordingly, respondents assert that the Department should
revise its position on the issue double-counting for the final results
of this review.
Petitioners respond that the Department has analyzed this issue of
double-counting extensively in prior proceedings. See, e.g., Certain
Iron-Metal Castings from India; Final Results of Countervailing Duty
Administrative Review, 62 FR 32299-301 (June 13,
[[Page 64054]]
1997) (1994 Castings Final). Petitioners contend that the Department's
prior findings on this issue should be upheld in this administrative
review on the basis of (1) The facts on the record; (2) because the
subsidies being countervailed are separate and distinct; (3) because
the Department has a consistent policy of not examining the tax
consequences of tax exemptions related to loans and grants; and (4)
there is no reasonable way for the Department to isolate the alleged
effects on respondents' export tax liability. In addition, petitioners
argue that the Department has explained in earlier reviews that the 80
HHC income tax exemption for export earnings is a countervailable
subsidy that is separate and distinct from the subsidies received from
export financing programs and the sale of import licenses, and
therefore, each subsidy program should be separately countervailed.
Also, petitioners contend that it is not the Department's policy to
examine the secondary tax effects of subsidies. Petitioners indicate
that the Department's determination to separately countervail these
different subsidies is supported by the courts' affirmance of the
agency's policy to disregard any secondary effect of a direct subsidy
on a company's financial performance. In support of this, petitioners
cite Saarstahl AG v. United States, 78 F.3d 1539, 1543 (Fed. Cir.
1996). Petitioners assert that this approach is proper and reasonable
given the difficulties inherent in an effort to calculate secondary
effects. Petitioners cite to Michelin Tire Corp. v. United States, in
which the court stated, ``These {secondary} effects are too uncertain
to be considered a necessary part of a subsidy calculation.'' See 6 CIT
320, 328 (1983), vacated on other grounds, 9 CIT 38 (1985).
Petitioners further note that the legislative history of the URAA
also makes clear that in determining whether a countervailable subsidy
exists, the Department is not required to consider the effect of the
subsidy. SAA at 246, 926 (codified at 19 U.S.C. 1677(5)(C)). The SAA
explains that:
[T]he Administration wants to make clear its view that the new
definition of subsidy does not require that Commerce consider or
analyze the effect (including whether there is any effect at all) of
a government action on the price or output of the class or kind of
merchandise under investigation or review.
Id. at 926. Petitioners state that when applied to the alleged
double-counting issue, this means that the Department does not have to
consider whether subsidies in the form of grants or loans have any
effect on the 80 HHC tax program when determining whether subsidies
under 80 HHC are countervailable.
Petitioners further indicate that though respondents argue that the
Department should correct for the alleged double-counting issue by
making adjustments to the 80 HHC subsidy percentage, they do not
provide any comment on how the Department should do this. According to
petitioners, the Department has acknowledged in earlier reviews that
the adjustments requested by the respondents cannot be accomplished due
to the multiple variables, which affect a company's costs, that would
have to be isolated.
Department's Position
Respondents' argument that the subsidies provided under the export
financing and import licensing programs have been countervailed twice,
by also countervailing the full amount of the 80 HHC tax deduction, is
incorrect. In Kajaria, the CAFC reviewed the Department's decision to
countervail that portion of the Cash Compensatory Support (CCS) rebates
found to be excessive, and to also countervail those over-rebates under
the 80 HHC program. Under the CCS program, the GOI rebated indirect
taxes on inputs consumed in the production an exported product. The CCS
rebates were considered by the GOI to be export income. Under the GOI's
80 HHC program only profit from export income is exempt from tax
liability. With respect to these particular facts, the CAFC in its
decision concluded that by first countervailing the CCS over-rebates,
as a distinct program, and then countervailing the same over-rebates
again as tax exempt export income under the 80 HHC program, the
Department had improperly double-counted the over-rebates.
In its decision, the court stated:
* * * Commerce must avoid double-counting subsidies, i.e.,
countervailing both the full amount of a subsidy and the non-
taxation of that subsidy, when the party under investigation
provides documentation that allows Commerce to separate the tax
deduction based on the fully countervailed subsidy from the
otherwise countervailable portion of the tax deduction.
Kajaria, No. 97-1490 at 24-25. In the present review, neither the
interest saved under the export financing programs nor the proceeds
earned on the sales of import licenses are deemed to be export income.
There is no evidence on the record which demonstrates a direct link
between these separate and distinct program subsidies and a specific
tax exemption subsidy program, i.e., the 80 HHC tax deduction. The
respondents in this review did not provide either income and tax
statements, or government descriptions of the subsidy programs which
demonstrate that the export financing and import license subsidies are
considered by the GOI to be export income and that the profit derived
from such income is specifically exempt from tax liability under 80
HHC.
With respect to the export financing programs, the respondents
stated that under these schemes, the GOI provides exporters with short-
term export lending to finance their working capital requirements. The
respondents' contention that as a result of such financing, an exporter
realizes a reduction of interest expenses which in turn increases
profits on export sales, is speculative. It is incorrect for
respondents to assume that every rupee saved on interest costs
increases the profits of the company by one rupee and therefore, the
concessional financing programs increase the 80 HHC deduction since the
deduction increases as profits from exports increase. Thus, we find no
basis for the respondents' argument that, by countervailing the export
financing programs and the 80 HHC deduction in full, the benefit to the
exporter from the financing programs is being countervailed twice.
In regard to the sale of import licenses, the record is void of any
indication that the profit a company realizes from the sale of an
import license is exempt from tax liability. What evidence respondents
did put on the record shows, for example, that Carnation Industries
reported and documented on the record that the revenue it earned from
the sale of an import licence during the review period was taxed by the
State of West Bengal. Therefore, we find no basis for the respondents'
argument that revenue earned from the sale of an import license
constitutes export income, the profits from which may be deducted from
taxable income under 80 HHC. Accordingly, we determine that the subsidy
from the import license sale is not being double-counted by also
countervailing in full the 80 HHC tax deduction.
Comment 5: Exclusion of Income Earned on Non-Subject Merchandise
According to respondents, where a company was able to break down
revenues relating to subject castings versus revenues relating to non-
subject merchandise, the Department should have calculated the 80 HHC
subsidy based on revenues and profits relating to subject castings
only. Respondents assert that by not factoring out
[[Page 64055]]
incentives received on sales of merchandise other than subject
castings, the subsidies found to be conferred by the 80 HHC program are
greater than they ought to be. The respondents submit that it is ultra
vires to countervail income earned on merchandise other than subject
castings because only subject castings are covered by the order.
Respondents claim that two companies, Kejriwal Iron & Steel
(Kejriwal) and R.B. Agarwalla & Co. (R.B. Agarwalla) were able to break
down revenues relating to subject castings versus revenues relating to
non-subject merchandise. Kejriwal submitted a calculation showing
export incentives received on sales of non-subject merchandise. The
company factored out these incentives when calculating the benefit the
80 HHC program provided to subject castings. R.B. Agarwalla submitted
an 80 HHC calculation demonstrating that a portion of its income was
directly related to non-subject merchandise, and subtracted out this
income in determining the benefit to subject castings provided by the
tax program. Respondents assert, for these companies, the Department
should revise its 80 HHC calculations countervailing only the income
earned on subject castings.
Respondents note that the CAFC in Kajaria, stated that the
Department improperly included revenue received on non-subject castings
in determining the countervailing duty to be imposed on subject
castings. See Kajaria, No. 97-1490 at 25-27. Respondents state that
though the court's decision related to IPRS rebates received on non-
subject castings, the court's ruling on the non-countervailability of
tax deductions relating to non-subject castings applies to this review
since the exporters received revenue on non-subject castings during the
period of review. Therefore, in keeping with the decision in Kajaria,
the Department should recalculate the 80 HHC benefit by deducting all
revenues received on non-subject castings for those companies which
were able to break down revenues relating to subject castings versus
non-subject merchandise.
Petitioners note the respondents' argument has been rejected in
prior reviews. Since the facts of this review are no different from the
prior reviews, the Department should continue its policy of allocating
the benefit from the 80 HHC program over total exports. The 80 HHC
program is an export subsidy and the benefits provided under this
program are not tied to the production or sale of a particular product
or products. Petitioners assert that it does not matter whether an
exporter is able to separate its revenues between subject and non-
subject castings, because the 80 HHC program is an ``untied'' subsidy
program.
Department's Position
We disagree with respondents that for the final results the
Department should revise its benefit calculations for the 80 HHC tax
exemption program in light of Kajaria. The circumstances and the record
developed in this review are different from those in the case of
Kajaria. In Kajaria, the Court ruled that the record showed that the
IPRS rebates for non-subject merchandise were deemed by the GOI to be
export income. Further, the Court found that profits derived from that
export income were specifically exempt from income tax liability under
the 80 HHC program. In short, rebates specifically identified as export
income under one program were directly linked to the exemption from tax
liability of profits derived from such export income under another
subsidy program. It is clear from the CAFC's opinion that its holding
was limited to the particular circumstances in Kajaria. The facts and
record in this review are not the same as those in Kajaria. Thus, no
revision to the 80 HHC benefit calculation is warranted.
During this administrative review, no exporter submitted
information for the record which demonstrated that IPRS rebates were
received for the sale of non-subject merchandise to the United States.
In fact, no exporter submitted information that demonstrated that any
alleged benefits received for non-subject merchandise were expressly
denominated as export income, and that the profits derived from such
export income were expressly exempt from tax liability under the 80 HHC
program.
As mentioned above, respondents claim that the export incentives
which Kejriwal received on the sale of non-subject merchandise should
be factored out of the Department's calculation of the benefit to
subject castings from the 80 HHC tax deduction. We disagree with the
respondents. Kejriwal provided no documentation on the record to
support its claim that the export incentives received were in fact
export income earned on the sale of non-subject merchandise. Further,
nowhere on the record does Kejriwal or the GOI indicate that export
incentives are export income and that the section 80 HHC specifically
exempts profits derived from that export income. Because the record is
void of such information, we have not modified the 80 HHC benefit
calculation for Kejriwal to exclude, from the computation, these export
incentives.
In like manner, R.B. Agarwalla did not provide any documentation to
support its claim that a portion of its income listed as duty drawback
received on non-subject merchandise is specifically denominated as
export income by the GOI. There is no information on the record which
indicates that duty drawback is considered to be export income and that
the section 80 HHC specifically exempts the profits derived from that
income. Therefore, we have not made any adjustments to the 80 HHC
benefit calculation for R.B. Agarwalla to take into account the duty
drawback the company received on non-subject merchandise.
The burden of creating an adequate record lies with respondents and
not with the Department. NTN Bearing Corp. of America v. United States,
997 F.2d 1453, 1458 (Fed. Cir. 1993), quoting Tianjin Mach. Import &
Export Corp. v. United States, 806 F. Supp. 1008, 1015 (CIT 1992). In
this review, neither Kejriwal nor R.B. Agarwalla developed such a
record with respect to the Kajaria-type adjustment they are requesting.
Moreover, the Department need not engage in any kind of subsidy tracing
exercise. On this point, the CAFC was very clear:
[W]e are mindful of the government's argument that Commerce does
not engage in subsidy tracing because of the burden involved in
sorting the tax treatment of subsidies. Again, our decision does not
mean that in every review or investigation Commerce must trace the
tax treatment of subsidies on non-subject merchandise when a tax
deduction results in a countervailable subsidy to determine if the
deduction is partially based on the subsidy on non-subject
merchandise.
Kajaria, No. 97-1490 at 27. Accordingly, the Department has not
made any adjustment to the 80 HHC calculations in the final results of
this review to determine the subsidy bestowed on exports of the subject
merchandise. Because respondents did not provide to the Department
documentation with respect to export profits derived from export income
earned on non-subject merchandise which is specifically exempt under
the 80 HHC, we have continued to employ our ``untied'' benefit
methodology to calculate the net subsidy attributable to exports of the
subject merchandise for those exporters which claimed the 80 HHC tax
deduction during the period of review. It is the Department's
consistent and long-standing practice to attribute a benefit from an
export subsidy that is not tied to a particular product or
[[Page 64056]]
market to all products exported by a firm. See, e.g., Final Affirmative
Countervailing Duty Determination: Certain Pasta from Turkey, 61 FR
30366, 30370, (June 14, 1996) (Pasta from Turkey), and the 1994
Castings Final, 62 FR 32303.
When an exporter cannot demonstrate to the Department that a
subsidy is tied to specific merchandise, then the benefit is not tied
to any specific product manufactured or exported by a firm, and
therefore, the benefit is ``firm-wide.'' If a subsidy is firm-wide and
not ``tied'' to specific merchandise, then the benefit from that
subsidy is allocated over the firm's total exports, in the case of an
export subsidy. By allocating the ``untied'' benefit provided under the
80 HHC over a company's total exports, we are making an ``apples-to-
apples'' comparison. This ``untied'' benefit methodology accurately
produces the net subsidy attributable to exports of the subject
merchandise and provides for fair results. For these reasons, our
calculation of the subsidy under section 80 HHC remains unchanged from
the preliminary results.
Even if Kejriwal and R.B. Agarwalla demonstrated to the Department
that their respective export incentives and duty drawback were in fact
export income earned on non-subject merchandise (with respect to duty
drawback, documentation would also have to indicate that imported pig
iron was not incorporated into the subject merchandise) and that the 80
HHC specifically exempts profits derived from that export income, each
company's net program subsidy rate would remain essentially unchanged.
By factoring out export income attributable to non-subject merchandise
from the 80 HHC deduction, we would adjust the benefit (the numerator)
to reflect the 80 HHC tax deduction attributable to subject merchandise
only. Because adjusting the benefit in this manner is contrary to the
Department's long-standing practice with regard to the attribution of
subsidies and our tying principles, we would then have to adjust the
denominator. Since the numerator would reflect only subject
merchandise, we would follow our long-standing principles for
attribution, and divide the recalculated benefit only by exports of
subject merchandise to determine the net subsidy rate for each company.
Once all income attributable to non-subject merchandise is factored out
of the calculation of the benefit, the amount that remains would be
attributable solely to subject merchandise. As noted, the adjustments
made would affect both the numerator and denominator and would result,
in this proceeding, in net subsidy rates identical to the rates
obtained by the Department's current methodology of considering the
benefit of the 80 HHC program as ``untied.''
Comment 6: Penalty Interest Paid
According to respondents, in calculating the benefits received by
castings exporters from post-shipment export loans, the Department
failed to take into account penalty interest paid at interest rates
higher than the benchmark. Respondents argue that where a company paid
interest on loans at rates both less than and greater than the
benchmark rate, all interest--including the overdue penalty interest
paid at rates greater than the benchmark rate--needs to be taken into
account when determining the actual benefit to the company from the
loans. The respondents assert that the methodology employed by the
Department virtually eliminates the overdue penalty interest paid from
the calculation of the benefit from the post-shipment export loans.
The preliminary calculations demonstrate that where an export loan
was initially taken at a preferential rate, the Department calculated
the interest paid at the preferential interest rate and compared it to
interest that would have been paid at the benchmark rate. Respondents
argue that this methodology does not take into account all the interest
paid by the exporter on the loan since it ignores overdue interest that
the exporter may also have paid on the loan.
Respondents assert that the Department should have adjusted the
benefit on the post-shipment export loans by the excess overdue
interest paid by the company at the penalty interest rate, because that
rate is greater than the benchmark rate. Rather than account for the
excess interest paid on the loans, the Department calculated a zero
benefit where the interest rate on the portion of the loan overdue was
higher than the benchmark rate. The respondents argue that the
Department should correct its methodology so as to take into account
the overdue penalty interest paid on the loans, because the benefit
received by an exporter on any particular loan is a function of both
the interest paid at a rate lower than the benchmark and the additional
interest paid at a rate higher than the benchmark.
Petitioners state that the Department should reject the
respondents' methodology for calculating the countervailable benefit
under the export financing programs, because it would permit a non-
allowable offset to the countervailable benefit under the programs. In
addition, petitioners argue that respondents fail to explain why an
offset for penalty interest should be allowed when payment of that
interest does not fall within the statute's list of allowable offsets
under section 771(6) of the Act.
The penalty interest, petitioners assert, merely assures that the
terms of the program are met. The costs associated with such penalty
interest charges are, therefore, due to the recipient's failure to
comply with the terms of the loan. The penalty which is based on the
company's non-compliance with the terms of the program, represents
nothing more than a secondary economic effect. Petitioners note that
the Department has previously determined that a secondary economic
effect should not be used as an offset to a program's benefit. See,
e.g., Oil Country Tubular Goods from Canada; Final Affirmative
Countervailing Duty Determination, 51 FR 15037 (April 22, 1986),
Fabricas El Carmen, S.A. v. United States, 672 F. Supp. 1465 (CIT
1987), vacated in part (on other grounds), Fabricas El Carmen, S.A. v.
United States, 680 F. Supp. 1577 (CIT 1988).
Petitioners further note that the Department has, in a comparable
situation, refused to offset preferential with non-preferential loans.
See Oil Country Tubular Goods from Argentina; Final Results of
Countervailing Duty Administrative Reviews, 56 FR 38116, 38117 (August
12, 1991) (OCTG from Argentina). In that case, respondents claimed that
a loan-by-loan analysis overstated the benefit received and that, taken
together, the loans received by the company provided no preferential
benefit. In rejecting this argument, the Department asserted:
[I]t only examines loans received under programs that may
potentially be counteravailable [sic] if the interest rate is
preferential when compared with the benchmark interest rate. We do
not consolidate these preferential loans with non-countervailable
commercial loans to examine whether the aggregate interest rate paid
on a series of loans is preferential. It is not the Department's
practice to offset the less favorable terms of one loan as an offset
to another, preferential loan.
Id. Petitioners argue that, by extension, the Department cannot,
under the terms of the statute, offset the less favorable interest
period of a loan (the period during which the loan was overdue) with
the period in which the loan was provided on preferential terms. This
is particularly the case, petitioners state, when the higher penalty
interest was a result of the company's failure to comply with the terms
of the program.
[[Page 64057]]
Therefore, the Department is correct in calculating a zero benefit
during the period in which the penalty rate exceeded the benchmark
rate.
Department's Position
An adjustment to the benefit under the export financing programs in
the form advocated by respondents would be an impermissible offset to
the benefit. In accordance with section 771(6) of the Act, the
Department may subtract from the gross countervailable subsidy the
amount of:
(A) Any application fee, deposit, or similar payment paid in
order to qualify for, or to receive, the benefit of the
countervailable subsidy,
(B) Any loss in the value of the countervailable subsidy
resulting from its deferred receipt, if the deferral is mandated by
Government order, and
(C) Export taxes, duties, or other charges levied on the export
of merchandise to the United States specifically intended to offset
the countervailable subsidy received.
As petitioners correctly note, penalty interest under the export
financing programs does not fall within this list of allowable offsets.
Additionally, in light of how the post-shipment export financing
programs operate, respondents' approach is inaccurate. As we explained
in the preliminary results, exporters discount their export bills with
Indian commercial banks to finance their operations. See Certain Iron
Metal Castings from India; Preliminary Results of Administrative
Review, 63 FR 37536 (July 13, 1998) (1996 Castings Prelim). By
discounting an export bill, the company receives payment from the bank
in the amount of the export bill, net of interest charges. The loan is
considered ``paid'' once the foreign currency proceeds from an export
sale are received by the bank. If those proceeds are not paid within
the negotiated period, then the loan is considered ``overdue.'' In
essence, however, this overdue period is a new loan, because the
original ``discounted loan period'' is fully accounted for, that is,
the company has received payment from the bank and the interest on that
payment has already been deducted. For the overdue loan, the bank will
charge the company interest on the original amount of the loan at a
higher interest rate. The overdue interest rate varies depending on the
period for which the loan is overdue. To determine whether interest
charged on the ``overdue'' loan confers a countervailable benefit, we
compared the overdue interest rate with the benchmark rate. If the
overdue interest rate was higher than the benchmark rate, we found no
benefit. Therefore, the adjustment suggested by respondents is
inappropriate given the way in which the export financing programs
operate.
Comment 7: Company-Specific Benchmarks
Respondents disagree with the Department's use of a company-
specific benchmark interest rate for determining the benefits which
Calcutta Ferrous and Crescent Foundry respectively received under the
pre- and post-shipment export financing programs. Respondents note
that, for companies which did not have commercial short-term loans
during the review period, the Department used as its benchmark the
``cash credit'' short-term interest rate which was provided by the GOI.
Respondents argue that since commercial loans were available to
borrowers at the cash credit rate during the review period, it was
inappropriate to use a higher rate as a benchmark for Calcutta Ferrous
and Crescent Foundry merely because these companies borrowed at rates
higher than the cash credit rate on certain commercial loans. It is the
respondents' contention that, where a company borrows at a rate which
is lower than the common benchmark, it is appropriate to use the lower,
company-specific rate. However, where a company borrows at a rate
higher than the common commercial rate, then the higher rate should not
be the benchmark used for that company. Respondents argue that there is
no reason to assume that a company, which happened to borrow at a
higher rate, could not have taken loans at the lower rate during the
period of review, and therefore, the Department should use the lower
commercial rate. Thus, the Department should cap Calcutta Ferrous' and
Crescent Foundry's benchmark rate at the level of the cash credit
short-term interest rate which was found available to borrowers in
India during the period of review.
Petitioners state that the respondents' argument should be rejected
as it is inconsistent with the Department's preferred benchmark
methodology. As directed by the Act, the Department is to measure the
benefit obtained through a loan program by finding the ``difference
between the amount the recipient of the loan pays on the loan and the
amount the recipient would pay on a comparable commercial loan that the
recipient could actually obtain on the market.'' See section
771(5)(E)(ii) of the Act. In measuring the benefit, it is the
Department's preference to use company-specific rates where available
and to use national averages (such as the cash credit rate) only in the
event that the investigated firm did not take out any comparable
commercial loans during the period. See Preamble to the Proposed
Regulations, 62 FR 8829, 8830 (February 26, 1997). By using a company-
specific benchmark rate for those companies which received, and paid
interest on, short-term working capital loans obtained on the market
during the period of review, the Department appropriately followed
statutory and regulatory policy. For the remaining companies which did
not receive, and pay interest on, comparable commercial loans, the
Department used, as a benchmark, the next best rate, the national-
average cash credit rate.
Petitioners further state that the respondents' argument is not in
accordance with the Department's statutory guidelines, since, in
certain cases, respondents' methodology would substitute the second
best (i.e., a national average rate) when the first best alternative
(i.e., a company-specific rate) is available. The respondents' proposed
approach is simply a results-oriented argument designed to lower the
countervailing duty rate applied to short-term, preferential loan
programs. Moreover, it is mere speculation on the part of respondents
to claim that companies which borrow at rates above the national-
average rate could also borrow at the lower rate. Petitioners contend
that it is this type of ambiguity that the statute and regulations
address and therefore, the Department must reject respondents' proposed
approach.
Department's Position
We disagree with the respondents' argument that the Department used
inappropriately high benchmarks to calculate the benefits from the pre-
and post-shipment export financing programs for Calcutta Ferrous and
Crescent Foundry. As stated in section 771(5)(E)(ii) of the Act, in the
case of a loan, a benefit is conferred ``if there is a difference
between the amount the recipient of the loan pays on the loan and the
amount the recipient would pay on a comparable commercial loan that the
recipient could actually obtain on the market'' (emphasis added).
During the review period, four of the twelve respondent companies
received, and paid interest on, domestic working capital loans which
were obtained in a commercial banking market. Accordingly, for these
four companies, we used as our benchmark in determining the benefits
each company received under the export financing programs, a company-
specific rate; this benchmark was a weight-averaged rate based on the
interest rates each company paid on its respective
[[Page 64058]]
commercial working capital loans. It is the Department's policy to use
a company-specific benchmark rate in determining the benefit conferred
by a government program. See, e.g., Industrial Phosphoric Acid from
Israel; Final Results of Countervailing Duty Administrative Review, 63
FR 13626, 13634 (comment 9) (March 9, 1998).
For all other respondent companies which did not receive, and pay
interest on, comparable commercial loans during the period of review,
we used as our benchmark the next best alternative--the national-
average ``cash credit'' rate. In the 1994 administrative review of this
order, the Department determined that, in the absence of a company-
specific benchmark, the most ``comparable'' short-term benchmark to
measure the benefit under the export financing programs, is the cash
credit interest rate. The cash credit interest rate is for domestic
working capital finance and thus, comparable to pre- and post-shipment
export financing.
Respondents argue that since commercial loans were available at the
cash credit rate during the review period, it was inappropriate for the
Department to use higher benchmark rates for Calcutta Ferrous and
Crescent Foundry simply because these companies borrowed at higher
rates on certain loans. As noted above, it is the Department's policy
to use, when determining the benefit conferred by a loan provided under
a government program, the interest rate a company would have paid on a
comparable loan obtained on the market. During the review period, both
Calcutta Ferrous and Crescent Foundry obtained commercial loans on the
market. The market determined the interest rates at which these
companies could borrow, and those rates were higher than the national-
average cash credit rate. Respondents state that the Department should
not assume that a company which happened to borrow at a rate higher
than the national-average could not have taken loans at the lower rate
during the period, and therefore, the Department should use the lower
commercial rate. We find no basis for this argument. If Calcutta
Ferrous and Crescent Foundry actually could have borrowed at the
national-average rate, then the interest rates charged by the banks on
the commercial loans would have reflected that. The fact that they did
not is an indication that they could not. It would be unreasonable to
expect a company to incur higher than necessary costs. Therefore, we
disagree with respondents' argument that the Department should cap
Calcutta Ferrous' and Crescent Foundry's company-specific benchmark
rates at the level of the cash credit rate.
Comment 8: Countervailability of Advance Licenses
Petitioners argue that the Department improperly failed to
countervail Advance Licenses which, they contend, are export subsidies.
According to petitioners, Advance Licenses constitute a countervailable
subsidy within the meaning of Item (a) of the Illustrative List, which
defines one type of export subsidy as ``[t]he provision by governments
of direct subsidies to any firm or any industry contingent upon export
performance.'' Because Advance Licenses are issued to companies based
on their status as exporters, and because products imported under such
licenses are duty-free, petitioners state these licenses provide a
subsidy based on the requirement that an export obligation be met.
Petitioners claim that the Department has in this, as in prior
reviews, mistakenly confused the nature of the Advance License program
with a duty drawback program. For a duty drawback program not to be
countervailed, it must meet certain conditions as outlined in Item (i)
of the Illustrative List. Item (i) provides that ``[t]he remission or
drawback of import charges [must not be] in excess of those levied on
imported goods that are consumed in the production of the exported
products (making normal allowance for waste).'' This condition,
according to petitioners, has not been met with respect to the Advance
License program because the GOI makes no attempt to determine the
amount of the imported duty-free material that is consumed in the
production of the exported product.
According to petitioners, there is no evidence on which to base a
conclusion that the amount of raw materials imported was not excessive
vis-a-vis the products exported. The GOI's concern that a sufficient
amount of value has been added to the exported products does not
regulate the amount of raw materials incorporated to the exports.
Petitioners argue that the yardstick used by the GOI for measuring
compliance with the Advance License program falls short of any
determination of whether the amount of raw materials imported was
excessive in relation to the amount of raw materials found in the
exported castings.
Petitioners further argue that no evidence on the record
demonstrates that the GOI attempts to determine the grade of pig iron
being imported or exported, and without knowing this information, the
amount of pig iron consumed in the production of exported subject
castings cannot be ascertained. Additionally, the GOI's system of
fixing ``input/output norms'' is hampered because exporters, who
experience delays in the delivery of raw material inputs imported under
an Advance License, may purchase the inputs on the domestic market.
Thus, there is no way to ensure that the amount of raw materials
imported was not excessive in relation to the amount of raw materials
found in the exported castings.
Moreover, petitioners argue that an exporter's ability to transfer
Advance Licenses to other companies is further evidence that this
program is not equivalent to a drawback program because the licenses
are not solely limited to the importation of duty-free materials. The
GOI permits Advance Licenses to be transferred between companies under
certain conditions and when transferring a license, an exporter would
receive in return a monetary payment. For this and the above-indicated
reasons, petitioners state that the Department should countervail in
full the value of Advance Licenses received by the respondents during
the period of review.
Respondents explain that the purpose of the Advance License scheme
is to allow for the importation of raw materials duty free for the
production of exported products. They state that if Indian exporters
did not have Advance Licenses, the exporters would simply import the
raw materials, pay duty, and then receive drawback upon export.
Respondents argue that just because Advance Licenses are slightly
different from a duty drawback system, in that they allow duty free
imports rather than provide for remittance of duty upon exportation,
does not make them countervailable.
In response to the petitioners' claim that the GOI makes no attempt
to determine the amount of imported material that is consumed in the
production of exported products, respondents counter that the GOI does
maintain such checks which have been verified by the Department in
prior reviews. Respondents note that in prior reviews the Department
has never found excessive imports, and this is one of the reasons why
Advance Licenses have not been found to be countervailable. See 1994
Castings Final.
Respondents refute petitioners' claim that the GOI is concerned
only with ensuring that a sufficient amount of value is added to
exported products. According to respondents, the question of value of
exports arises only in determining whether an exporter is eligible to
receive an Advance License. Respondents also rebut petitioners'
[[Page 64059]]
claim that the GOI does not attempt to determine the grade of pig iron
imported or exported. They state if more expensive grades of pig iron
were imported than exported, and the pig iron was sold for a premium in
the domestic market instead of producing exported castings, then the
premium might be a subsidy. However, the respondent companies did not
sell domestically any imported pig iron, rather they used it to produce
castings for export. Additionally, respondents state that if a license
was transferred for a fee during the review period, this might be a
subsidy. However, in this review, all the licenses were used to import
pig iron duty free for exported finished castings. Therefore, for these
reasons, the Department should reject the petitioners' arguments
regarding the Advance License scheme, and once again find the program
to be a non-countervailable equivalent to duty drawback.
Department's Position
As we have discussed in prior reviews, petitioners have only
pointed out the administrative differences between a duty drawback
system and the Advance License scheme used by Indian exporters. See
1994 Castings Final. Such administrative differences can also be found
between a duty drawback system and a bonded warehouse. Each of these
systems has the same function: each exists so that exporters may import
raw materials to be consumed in the production of an exported product
without the assessment of import duties.
The purpose of the Advance License program is to allow a company to
import raw materials used in the production of an exported product
without first having to pay duty. Companies importing under Advance
Licenses are obligated to export the products made using the duty-free
imports. Item (i) of the Illustrative List specifies that the remission
or drawback of import duties levied on imported goods that are consumed
in the production of an exported product is not a countervailable
subsidy, if the remission or drawback is not excessive.
In prior reviews, we have determined that Advance Licenses are
equivalent to duty drawback. The licenses allow companies to import,
net of duty, raw materials which are physically incorporated into the
exported products. Further, we have found no evidence in this review,
or in a prior review, that imports under Advance Licenses have been
excessive, or that castings exporters have transferred such licenses.
Accordingly, our determination that the provision of Advance Licenses
is not countervailable remains unchanged for this review. However, if
in a future review of this order, new information becomes available to
the Department in regard to the manner in which the Advance License
program operates, we will reevaluate at that time our determination of
the program's non-countervailability.
Comment 9: Countervailability of the Duty Entitlement Passbook Scheme
Petitioners state the GOI has established during this review period
the Duty Entitlement Passbook Scheme (Passbook Scheme) which is related
to the Advance Licence scheme. Petitioners contend that this new scheme
extends the export subsidies provided under the Advance License program
and therefore is similarly countervailable. The purpose of the Passbook
Scheme, which commenced in April 1996, is to widen the Advance License
program, giving exporters greater flexibility in paying import duties.
See Memo to Barbara Tillman: Verification of the Government of India's
Questionnaire Response in the 1996 Administrative Review at 9, dated
June 29, 1998, (public version) on file in the Central Records Unit of
the Department of Commerce (Room B-099) (GOI VR). Upon the exportation
of goods by a Passbook holder, the GOI ``calculates, on the basis of
standard input/output norms, the deemed import content of the exports
and determines the basic customs duty payable on those imports.'' Id.
at 8. The Passbook holder, upon receiving credit for the equivalent
amount of the customs duty from the GOI, can ``pay the customs duties
on any imported goods,'' not just the duties on the imported goods from
which the credits were originally determined. Id. at 8.
Consequently, petitioners argue, just as with the Advance License
program, the Passbook Scheme lacks an adequate monitoring system to
ensure that the credits provided to Passbook holders are not excessive.
No evidence on the record demonstrates that the GOI attempts to
determine the grade of pig iron either imported or exported in the
finished goods to ensure that the amount of input material exported
equals the amount imported. Moreover, the flexibility exporters have in
using the Passbook credits to pay duties on any imports highlights that
the Passbook Scheme is very much unlike a traditional duty drawback
program. Therefore, petitioners assert that the Department should find
the Passbook Scheme countervailable.
Respondents state the Passbook Scheme, like the Advance License
program, operates in a manner equivalent to a duty drawback program
allowing for imports of pig iron which is consumed in the production of
exported castings. Therefore, the Passbook Scheme, for the same reasons
as the Advance License program, is not a countervailable subsidy.
Respondents argue that simply because the Passbook Scheme has been
referred to as an ``export incentive'' does not make it a
countervailable subsidy. Duty Drawback of Excise Duty, the Advance
License program, and the Passbook Scheme are all ``export incentives''
because they are for exports; however, they are not, as the Department
has previously determined, countervailable subsidies unless they
provide excessive rebates.
Respondents further state that if the castings exporters did, in
fact, use their Passbook credits to import products other than pig
iron, a subsidy might exist; however, there is no evidence on the
record that this was done by any of the castings exporters. Therefore,
based on the reasons presented, the Department should find the Passbook
Scheme, like the Advance License program, to be a non-countervailable
equivalent to the duty drawback program.
Department's Position
Petitioners first alleged that the Passbook Scheme might be an
export subsidy in their May 27, 1998 letter to the Department. See
Letter in regard to Pre-verification Comments at 12, dated May 27,
1998, public version of the letter is on file in the Central Records
Unit of the Department of Commerce (Room B-099). In accordance with
section 351.301(d)(4)(B) of the Department's regulations, we found the
petitioners' allegation of a new export subsidy to be untimely. See
Memo to the File: Untimely Allegations of New Subsidies, dated June 5,
1998 on file in the Central Records Unit of the Department of Commerce
(Room B-099). Because the allegation was untimely, we rejected
petitioners' subsidy allegation with respect to the Passbook Scheme in
this review. During the June 1, 1998 verification meeting with the GOI,
the Passbook Scheme was discussed as an extension of the Department's
inquiry of the Advance License program. However, because the Passbook
Scheme was not a program under examination in this review, the
Department did not obtain enough information to analyze whether the
scheme is, or is not, a countervailable subsidy. If a future review of
this order is requested by petitioners, we will
[[Page 64060]]
examine whether to initiate on the Passbook Scheme provided that
petitioners file their allegation on a timely basis.
Comment 10: Kajaria's Long-Term Loans From the IDBI
Petitioners assert that the Department erred in the preliminary
results of this review by not addressing the long-term loan assistance
which Kajaria Iron Castings (Kajaria) received from the Industrial
Development Bank of India (IDBI). Petitioners argue that the loan
assistance is countervailable because (1) it is provided by the
government; (2) it is export-oriented; (3) it allows a principal
repayment holiday; and (4) it is likely provided on preferential terms.
To begin with, petitioners state, according to the agency's
substantive regulations, the Department will investigate a loan
provided by a government-owned bank only when the ``government-owned
bank provided the loan at the direction of the government or with funds
provided by the government.'' See proposed 19 CFR 355.44(b)(9)(ii), 54
FR 23366, 23381 (May 31, 1989). Since the GOI owes 74 percent of the
IDBI's shares and 10 out of the 16 IDBI board members are government
employees, petitioners contend this criterion is satisfied. See GOI VR
at 10.
Petitioners further assert that evidence on the record demonstrates
that the long-term loan was export-oriented. Petitioners note that
during verification Kajaria officials stated that the company exports
all of its merchandise. See Memo to Barbara Tillman: Verification of
Kajaria Iron Castings Ltd.'s Questionnaire Response in the 1996
Administrative Review at 2, dated June 29, 1998, (public version) on
file in the Central Records Unit of the Department of Commerce (Room B-
099) (Kajaria VR).
Petitioners also argue that there is no evidence on the record to
demonstrate that Kajaria's principal repayment schedule is normal with
respect to commercial, long-term lending. In addition, petitioners
state that both Kajaria and the GOI failed to demonstrate at
verification that the loan was provided on commercial terms. The GOI
simply stated at verification that ``[t]here is no consistency in
regard to the interest rates or terms and conditions offered by banks
on long-term financing.'' See GOI VR at 12. According to petitioners,
it is likely that alternative long-term rates were significantly higher
than the rate Kajaria received, as most of the short-term financing
reported by the responding companies ranged as high as 22 percent. For
these reasons, petitioners urge the Department to countervail the long-
term loan assistance which Kajaria received from the IDBI.
Respondents contend that the loans received by Kajaria were not
provided on terms ``inconsistent with commercial considerations,''
which is the criterion for finding such loans countervailable. See
proposed regulations 19 CFR 355.44(b)(9)(ii), 54 FR at 23381.
Respondents assert that a grace period before paying principal is
consistent with commercial, long-term loans. Many commercial loans
permit a grace period for repayment of principal until the facility,
for which the loan was taken, is operational. This was, in fact, the
reason for the delayed payment of principal on Kajaria's loan.
With respect to petitioners' argument that there was an
``additional benefit'' owing to the interest rate Kajaria paid on the
loan, respondents state that short-term loans are more often than not
provided at rates higher than those on long-term loans. Long-term
construction loans are often secured by the facility being built, and
this generally results in lower, not higher rates. Respondents also
note that the Reserve Bank of India stated at verification that
commercial long-term rates are ``usually lower than both the prime
lending rate and the cash credit rate.'' See GOI VR at 12.
Further, respondents argue that petitioners' statement that
Kajaria's export-orientation had any bearing on the approval of the
loan is pure speculation. Respondents argue that there is nothing in
the loan documents provided by Kajaria or in the company's verification
report to suggest that the loan was contingent upon exports or that
Kajaria's ``export-orientation'' was taken into account by the lenders.
In fact, the IDBI specifically stated at verification that ``the
project financing given to Kajaria was not tied to any expectation of
exports.'' Id. at 11. Therefore, the Department should reject
petitioners' arguments relating to Kajaria's long-term loans provided
by the IDBI.
Department's Position
At our verification meeting with Kajaria officials, we inquired
about the long-term loans which the company received from the IDBI. The
officials explained that these long-term loans were received for the
construction of a pig iron plant, which commenced production in
February 1998. However there was insufficient time remaining before the
scheduled date of the final results of this review to fully examine
Kajaria's long-term financing. Therefore, in accordance with section
351.311(c)(2) of the Department's regulations, we are deferring an
examination of Kajaria's long-term loans from the IDBI until a future
administrative review of the company is requested.
Final Results of Review
In accordance with 19 CFR 351.221(b)(4)(i), we calculated an
individual subsidy rate for each producer/exporter subject to this
administrative review. For the period January 1, 1996 through December
31, 1996, we determine the net subsidy for the reviewed companies to be
as follows:
------------------------------------------------------------------------
Net subsidy
Net subsidies--producer/exporter rate--percent
------------------------------------------------------------------------
Calcutta Ferrous Ltd..................................... 3.48
Carnation Industries Ltd................................. 3.32
Commex Corporation....................................... 5.33
Crescent Foundry Co. Pvt. Ltd............................ 4.98
Dinesh Brothers Pvt. Ltd................................. 3.27
Kajaria Iron Castings Pvt. Ltd........................... 1.69
Kejriwal Iron & Steel Works Pvt. Ltd..................... 12.76
Nandikeshwari Iron Foundry Pvt. Ltd...................... 4.41
Overseas Iron Foundry.................................... 3.74
R.B. Agarwalla & Company Pvt. Ltd........................ 3.64
RSI Limited.............................................. 3.63
Seramapore Industries Pvt. Ltd........................... 5.54
Shree Rama Enterprise.................................... 10.85
Super Iron Foundry....................................... 3.32
Uma Iron & Steel......................................... 1.38
Victory Castings Ltd..................................... 3.05
------------------------------------------------------------------------
We will instruct the U.S. Customs Service (Customs) to assess
countervailing duties as indicated above. The Department will also
instruct Customs to collect cash deposits of estimated countervailing
duties in the percentages detailed below of the f.o.b. invoice price on
all shipments of the subject merchandise from reviewed companies,
entered or withdrawn from warehouse, for consumption on or after the
date of publication of the final results of this review. As discussed
in the 1996 Castings Prelim, the GOI terminated the PSCFC scheme
effective February 8, 1996. All PSCFC loans received by respondents
were repaid in their entirety (principal and interest) during the
period of review. We verified that no residual benefits have been
provided or received, and there is no evidence that a substitute
program has been established. Therefore, in determining the cash
deposit rates for the five castings producers/exporters which used the
PSCFC program, we have not included the subsidy conferred by this
program during the review period. We
[[Page 64061]]
determine that the cash deposit rates for the reviewed companies are as
follows:
------------------------------------------------------------------------
Net subsidy
Net subsidies--producer/exporter rate--percent
------------------------------------------------------------------------
Calcutta Ferrous Ltd..................................... 3.46
Carnation Industries Ltd................................. 3.32
Commex Corporation....................................... 5.33
Crescent Foundry Co. Pvt. Ltd............................ 4.98
Dinesh Brothers Pvt. Ltd................................. 3.22
Kajaria Iron Castings Pvt. Ltd........................... 1.69
Kejriwal Iron & Steel Works Pvt. Ltd..................... 12.76
Nandikeshwari Iron Foundry Pvt. Ltd...................... 4.33
Overseas Iron Foundry.................................... 3.74
R.B. Agarwalla & Company Pvt. Ltd........................ 3.53
RSI Limited.............................................. 3.55
Seramapore Industries Pvt. Ltd........................... 5.54
Shree Rama Enterprise.................................... 10.85
Super Iron Foundry....................................... 3.32
Uma Iron & Steel......................................... 1.38
Victory Castings Ltd..................................... 3.05
------------------------------------------------------------------------
Because the URAA replaced the general rule in favor of a country-
wide rate with a general rule in favor of individual rates for
investigated and reviewed companies, the procedures for establishing
countervailing duty rates, including those for non-reviewed companies,
are now essentially the same as those in antidumping cases, except as
provided for in section 777A(e)(2)(B) of the Act. The requested review
will normally cover only those companies specifically named. See 19 CFR
351.213(b). Pursuant to 19 CFR 351.212(c), for all companies for which
a review was not requested, duties must be assessed at the cash deposit
rate, and cash deposits must continue to be collected, at the rate
previously ordered. As such, the countervailing duty cash deposit rate
applicable to a company can no longer change, except pursuant to a
request for a review of that company. See Federal-Mogul Corporation and
the Torrington Company v. United States, 822 F. Supp. 782 (CIT 1993)
and Floral Trade Council v. United States, 822 F. Supp. 766 (CIT 1993)
(interpreting 19 CFR 353.22(e) (now 19 CFR 351.212(c)), the antidumping
regulation on automatic assessment, which is identical to 19 CFR
355.22(g)). Therefore, the cash deposit rates for all companies, except
those covered by this review, will be unchanged by the results of this
review.
We will instruct Customs to continue to collect cash deposits for
non-reviewed companies at the most recent company-specific or country-
wide rate applicable to the company. Accordingly, the cash deposit
rates that will be applied to non-reviewed companies covered by this
order will be the rate for that company established in the most
recently completed administrative proceeding conducted under the URAA.
See 1994 Castings Final. If such a review has not been conducted, the
rate established in the most recently completed administrative
proceeding pursuant to the statutory provisions that were in effect
prior to the URAA amendments is applicable. See Final Results of
Countervailing Duty Administrative Review: Certain Iron-Metal Castings
From India, 61 FR 64676 (December 6, 1996) (1993 Castings Final). These
rates shall apply to all non-reviewed companies, including those
companies for which the review is being rescinded, until a review of a
company assigned these rates is requested and completed. In addition,
for the period January 1, 1996 through December 31, 1996, the
assessment rates applicable to all non-reviewed companies covered by
this order are the cash deposit rates in effect at the time of entry.
This notice serves as a reminder to parties subject to
administrative protective order (APO) of their responsibility
concerning the disposition of proprietary information disclosed under
APO in accordance with 19 CFR 355.34(d). Timely written notification of
return/destruction of APO materials or conversion to judicial
protective order is hereby requested. Failure to comply with the
regulations and the terms of an APO is a sanctionable violation.
This administrative review and notice are in accordance with
section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)).
Dated: November 10, 1998.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 98-30856 Filed 11-17-98; 8:45 am]
BILLING CODE 3510-DS-P
