[Federal Register Volume 64, Number 249 (Wednesday, December 29, 1999)]
[Notices]
[Pages 73131-73143]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-33229]
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DEPARTMENT OF COMMERCE
International Trade Administration
[C-533-818]
Final Affirmative Countervailing Duty Determination: Certain Cut-
to-Length Carbon-Quality Steel Plate From India
AGENCY: Import Administration, International Trade Administration,
Department of Commerce
EFFECTIVE DATE: December 29, 1999.
FOR FURTHER INFORMATION CONTACT: Robert Copyak or Eric B. Greynolds,
Office of AD/CVD Enforcement VI, Import Administration, U.S. Department
of Commerce, Room 4012, 14th Street and Constitution Avenue, NW,
Washington, DC 20230; telephone: 202-482-2786.
Final Determination: The U.S. Department of Commerce (the
Department) determines that countervailable subsidies are being
provided to certain producers and exporters of certain cut-to-length
carbon-quality steel plate from India. For information on the estimated
countervailing duty rate, please see the ``Suspension of Liquidation''
section of this notice.
SUPPLEMENTARY INFORMATION:
Petitioners
The petition for this investigation was filed by Bethlehem Steel
Corporation; U.S. Steel Group, a unit of USX Corporation; Gulf States
Steel, Inc.; IPSCO Steel Inc.; Tuscaloosa Steel Corporation; and the
United Steelworkers of America (the petitioners).
Case History
Since the publication of the Preliminary Affirmative Countervailing
Duty Determination and Alignment of Final Countervailing Duty
Determination with Final Antidumping Duty Determination: Certain Cut-
to-Length Carbon-Quality Steel Plate from India, 64 FR 40438 (July 26,
1999) (Preliminary Determination), the following events have occurred.
We issued a supplemental questionnaire on July 29, 1999, and we
received a response to that supplemental questionnaire on August 6,
1999. From August 8 through August 20, 1999, we conducted a
verification of the information submitted by the respondents. See
Memoranda to David Mueller, Director, Office of AD/CVD Enforcement VI,
dated September 20, 1999, ``Verification of the Questionnaire Responses
of the Government of India (GOI)'' and ``Verification of the
[[Page 73132]]
Questionnaire Responses Submitted by the Steel Authority of India
(SAIL)'' (GOI Verification Report and SAIL Verification Report,
respectively), which are on file in public version form in our Central
Records Unit (Room B-099 of the main Commerce building).
Petitioners, the GOI, and SAIL filed case briefs on September 29,
1999, and rebuttal briefs on October 4, 1999. On November 20, 1999, a
public hearing was conducted.
Scope of Investigation
The products covered by this scope are certain hot-rolled carbon-
quality steel: (1) universal mill plates (i.e., flat-rolled products
rolled on four faces or in a closed box pass, of a width exceeding 150
mm but not exceeding 1250 mm, and of a nominal or actual thickness of
not less than 4 mm, which are cut-to-length (not in coils) and without
patterns in relief), of iron or non-alloy-quality steel; and (2) flat-
rolled products, hot-rolled, of a nominal or actual thickness of 4.75
mm or more and of a width which exceeds 150 mm and measures at least
twice the thickness, and which are cut-to-length (not in coils).
Steel products to be included in this scope are of rectangular,
square, circular or other shape and of rectangular or non-rectangular
cross-section where such non-rectangular cross-section is achieved
subsequent to the rolling process (i.e., products which have been
``worked after rolling'')--for example, products which have been
beveled or rounded at the edges. Steel products that meet the noted
physical characteristics that are painted, varnished or coated with
plastic or other non-metallic substances are included within this
scope. Also, specifically included in this scope are high strength, low
alloy (HSLA) steels. HSLA steels are recognized as steels with micro-
alloying levels of elements such as chromium, copper, niobium,
titanium, vanadium, and molybdenum.
Steel products to be included in this scope, regardless of
Harmonized Tariff Schedule of the United States (HTSUS) definitions,
are products in which: (1) iron predominates, by weight, over each of
the other contained elements, (2) the carbon content is two percent or
less, by weight, and (3) none of the elements listed below is equal to
or exceeds the quantity, by weight, respectively indicated:
1.80 percent of manganese, or
1.50 percent of silicon, or
1.00 percent of copper, or
0.50 percent of aluminum, or
1.25 percent of chromium, or
0.30 percent of cobalt, or
0.40 percent of lead, or
1.25 percent of nickel, or
0.30 percent of tungsten, or
0.10 percent of molybdenum, or
0.10 percent of niobium, or
0.41 percent of titanium, or
0.15 percent of vanadium, or
0.15 percent zirconium.
All products that meet the written physical description, and in
which the chemistry quantities do not equal or exceed any one of the
levels listed above, are within the scope of this investigation unless
otherwise specifically excluded. The following products are
specifically excluded from these investigations: (1) products clad,
plated, or coated with metal, whether or not painted, varnished or
coated with plastic or other non-metallic substances; (2) SAE grades
(formerly AISI grades) of series 2300 and above; (3) products made to
ASTM A710 and A736 or their proprietary equivalents; (4) abrasion-
resistant steels (i.e., USS AR 400, USS AR 500); (5) products made to
ASTM A202, A225, A514 grade S, A517 grade S, or their proprietary
equivalents; (6) ball bearing steels; (7) tool steels; and (8) silicon
manganese steel or silicon electric steel.
The merchandise subject to this investigation is classified in the
HTSUS under subheadings: 7208.40.3030, 7208.40.3060, 7208.51.0030,
7208.51.0045, 7208.51.0060, 7208.52.0000, 7208.53.0000, 7208.90.0000,
7210.70.3000, 7210.90.9000, 7211.13.0000, 7211.14.0030, 7211.14.0045,
7211.90.0000, 7212.40.1000, 7212.40.5000, 7212.50.0000, 7225.40.3050,
7225.40.7000, 7225.50.6000, 7225.99.0090, 7226.91.5000, 7226.91.7000,
7226.91.8000, 7226.99.0000.
Although the HTSUS subheadings are provided for convenience and
Customs purposes, the Department's written description of the
merchandise under investigation is dispositive.
The Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute are
references to the provisions of the Tariff Act of 1930 (the Act), as
amended by the Uruguay Round Agreements Act (URAA) effective January 1,
1995. In addition, unless otherwise indicated, all citations to the
Department's regulations are to the regulations codified at 19 C.F.R.
part 351 (1998) and to the current substantive countervailing duty
regulations published in the Federal Register on November 25, 1998, 63
FR 65348 (CVD Regulations).
Injury Test
Because India is a ``Subsidies Agreement country'' within the
meaning of section 701(b) of the Act, the International Trade
Commission (ITC) is required to determine whether imports of the
subject merchandise from India materially injure, or threaten material
injury to, a U.S. industry. On April 5, 1999, the ITC announced its
preliminary determination that there is a reasonable indication that an
industry in the United States is being materially injured, or
threatened with material injury, by reason of imports from India of the
subject merchandise. See Certain Cut-to-Length Carbon-Quality Steel
Plate from the Czech Republic, France, India, Indonesia, Italy, Japan,
Korea, and Macedonia, 64 FR 17198 (April 8, 1999).
Alignment With Final Antidumping Duty Determination
On July 2, 1999, petitioners submitted a letter requesting
alignment of the final determination in this investigation with the
final determination in the companion antidumping duty investigation
(see Initiation of Antidumping Duty Investigations: Certain Cut-to-
length Carbon-Quality Steel Plate from the Czech Republic, France,
India, Indonesia, Italy, Japan, the Republic of Korea, and the Former
Yugoslav Republic of Macedonia, 64 FR 12959 (March 16, 1999)). In
accordance with section 705(a)(1) of the Act, we aligned the final
determination in this investigation with the final determinations in
the antidumping duty investigations of cut-to-length plate. See
Preliminary Determination, 64 FR 40438 (July 26, 1999). Because the
final determination of this countervailing duty investigation was
aligned with the final antidumping duty determination and the final
antidumping duty determination was postponed, the Department extended
the final determination of the countervailing duty investigation until
no later than December 13, 1999. See Postponement of Final Antidumping
Duty Determinations: Certain Cut-to-Length Carbon-Quality Steel Plate
Products from France, India, Indonesia, Italy, Japan, and Korea;
Postponement of Final Countervailing Duty Determinations: Certain Cut-
to-Length Carbon-Quality Steel Plate Products from France, India,
Indonesia, Italy, and Korea: and Amendment of the Preliminary
Determination of Sales at Less Than Fair Value: Certain Cut-to-Length
Carbon-Quality Steel Plate Product from Indonesia, 64 FR 46341, 46342,
(August 25, 1999).
[[Page 73133]]
Period of Investigation (POI)
Because SAIL is the only exporter/producer of the subject
merchandise, the POI for which we are measuring subsidies is the period
for SAIL's most recently completed fiscal year, April 1, 1997 through
March 31, 1998.
Subsidies Valuation Information
Allocation Period: Under section 351.524 of the CVD Regulations,
non-recurring benefits are allocated over time, while recurring
benefits are expensed in the year of receipt. Section 351.524(d)(2) of
the CVD Regulations states that we will presume the allocation period
for non-recurring subsidies to be the average useful life (AUL) of
renewable physical assets for the industry concerned, as listed in the
Internal Revenue Service's (IRS) 1977 Class Life Asset Depreciation
Range System and updated by the U.S. Department of Treasury. The
presumption will apply unless a party claims and establishes that these
tables do not reasonably reflect the AUL of the renewable physical
assets for the company or industry under investigation and establishes
that the difference between the company-specific or country-wide AUL
for the industry under investigation is significant. In this
investigation, no party to the proceeding has claimed that the IRS
tables do not reasonably reflect the AUL of the renewable physical
assets for the firm or industry under investigation. Therefore,
according to section 351.524(d)(2) of the CVD Regulations, we have
allocated non-recurring benefits over 15 years, the AUL listed in the
IRS tables for the steel industry.
Under section 351.524 of the CVD Regulations, non-recurring
benefits which equal less than 0.5 percent of a company's relevant
sales are expensed in the year of receipt. SAIL realized non-recurring
benefits under a program during two separate years. In the first year,
SAIL realized a non-recurring benefit which was less than 0.5 percent
of the total value of its export sales during that year. We did not
allocate that benefit but rather expensed it in the year it was
realized. In the second year, which was the POI, SAIL realized a
benefit under the same program which was greater than 0.5 percent of
the total value of its export sales during that year. Therefore, we
allocated that benefit over 15 years.
Benchmarks for Loans and Discount Rate: SAIL did not report long-
term company-specific fixed rate loans denominated in rupees.
Therefore, for programs requiring a discount rate or the application of
a rupee-denominated long-term benchmark interest rate, we relied upon
the long-term rupee-denominated ``lending rates'' of private creditors
reported in the International Monetary Fund's International Financial
Statistics.
SAIL also reported several long-term foreign currency loans
obtained from commercial sources for use as a benchmark where
necessary. However, we are unable to rely upon those loans for
benchmark purposes because the agreement dates and currencies are not
consistent with the agreement dates and currencies of the loans under
investigation and because SAIL reported its payments in rupees and
reported weighted-average interest rates derived from those payments.
We attempted (both during and after verification) but were unable to
obtain any information regarding long-term foreign currency lending
rates for companies in India. Therefore, we have used the curreny-
specific ``Lending Rates'' from private creditors as published in
International Financial Statistics as the benchmark for foreign
currency loans.
For those programs requiring the application of a short-term
interest rate benchmark, we used for benchmark purposes company-
specific, short-term commercial interest rates reported by SAIL in
accordance with section 351.505(3)(i) of the CVD Regulations.
I. Programs Determined To Be Countervailable
A. Duty Entitlement Passbook Scheme (DEPS)
In its May 10, 1999, response to the Department's original
questionnaire, the GOI submitted copies of two publically available
Ministry of Commerce publications--''Export and Import Policy'' and
``Handbook of Procedures'' (see Exhibits P and Q of the public version
on file in the Central Records Unit, Room B-099 of the main Commerce
building). These publications set forth the rules and regulations for
the several programs which allow duty exemptions on imports. Chapter 7
of the ``Export and Import Policy'' contains the details of India's
Duty Exemption Scheme, which consists of the DEPS and ``Duty Free
Licenses'' (Advance Licenses, Advance Intermediate Licenses, and
Special Imprest Licenses).
On April 1, 1995, the GOI enacted the Passbook Scheme (PBS).
Administered under auspices of the Directorate General of Foreign Trade
(DGFT), the PBS enabled GOI-designated manufacturers/exporters, upon
export of finished goods, to earn import duty exemptions in the form of
credits which could be used to pay customs duties on subsequent
imports. The amount of PBS credit granted was determined according to
the GOI's ``Standard Input/Output Norms Schedule'' (SIO Norms), which
contains GOI-determined breakdowns of inputs needed to produce finished
products. Rather than receiving cash, companies record their PBS
credits in ``passbooks'' and then offset import duties on subsequent
GOI-approved imports by making debit entries in their passbooks.
The PBS was discontinued on April 1, 1997. However, exporters are
allowed to use their PBS credits for up to three years and, thus,
exporters could use PBS credits as late as March 31, 2000. We
established at verification that SAIL did not earn or use PBS credits
during the POI.
India's DEPS was enacted on April 1, 1997, as a successor to the
PBS. As with PBS, the DEPS enables exporting companies to earn import
duty exemptions in the form of passbook credits rather than cash.
Exporting companies may obtain DEPS credits on a pre-export basis or on
a post-export basis. Eligibility for pre-export DEPS credits is limited
to manufacturer/exporters that have exported for a three-year period
prior to applying for the program. The amount of pre-export DEPS
credits that can be earned is capped at five percent of the average
export performance of the applicant during the preceding three years.
Pre-export DEPS credits are not transferable. At verification, we
established that SAIL has not participated in the DEPS on a pre-export
basis.
All exporters are eligible to earn DEPS credits on a post-export
basis, provided that the exported product is listed in the GOI's SIO
Norms. Post-export DEPS credits can be used for any subsequent imports,
regardless of whether they are consumed in the production of an export
product. Post-export DEPS credits are valid for 12 months and are
transferable. With respect to subject merchandise, exporters are
eligible to earn credits equal to 13 percent of the f.o.b. value of
their export shipment. During the POI, SAIL earned post-export DEPS
credits. SAIL used such credits during the POI, and did not transfer
post-export DEPS credits during the POI.
Section 351.519 of the CVD Regulations sets forth the criteria
regarding the remission, exemption or drawback of import duties. Under
section 351.519(a)(4), the entire amount of an import duty exemption is
countervailable if the government does not have in place and apply a
system or procedure to confirm which imports are
[[Page 73134]]
consumed in the production of the exported product and in what amounts,
or if the government has not carried out an examination of actual
imports involved to confirm which imports are consumed in the
production of the exported product.
The DEPS does not meet either of these standards. Upon exportation,
the exporter submits a listing of inputs used to produce the export
shipment. While some of these inputs may be imported items, the GOI has
no way of knowing whether the inputted items were imported or purchased
domestically. Therefore, the GOI has no system in place for determining
whether the value of credits issued is equal to the amount of import
duties that was payable on any imported items which were consumed in
the production of the export shipment. In addition, the GOI does not
carry out, nor has it carried out, examinations of actual inputs
involved. Consequently, under section 351.519 (a)(4) of the CVD
Regulations, the entire amount of import duty exemption earned by SAIL
during the POI constitutes a benefit. A financial contribution, as
defined under section 771(5)(D)(ii) of the Act, is provided under the
program because the GOI has provided SAIL with credits for the future
payment of import duties. This program can only be used by exporters
and therefore is specific under section 771(5)(A) of the Act. On this
basis, we determine that the DEPS is a countervailable program.
In our Preliminary Determination, we calculated the total benefit
to SAIL from the DEPS as the total amount of import duty exemptions
claimed by SAIL during the POI, against the DEPS credits the company
earned on its export shipments of subject merchandise to the United
States. Upon further review of the operation of this program, in
accordance with section 351.519(b)(2) of the CVD Regulations, we
determine that benefits from the DEPS are conferred as of the date of
exportation of the shipment for which the pertinent DEPS credits are
earned rather than the date DEPS credits are used. At that time, the
amount of the benefit is known by the exporter. The benefit to SAIL
under this program is the total value of DEPS import duty exemptions
that SAIL earned on its export shipments of subject merchandise to the
United States during the POI. We also determine that the application
fees paid by SAIL qualify as an ``...application fee, deposit, or
similar payment paid in order to qualify for, or to receive, the
benefit of the countervailable subsidy.'' See section 771(6)(A) of the
Act.
Under section 351.524(c) of the CVD Regulations, this program
provides a recurring benefit because DEPS credits all for the exemption
of import duties. To derive the DEPS program rate, we first calculated
the value of the credits that SAIL earned for its export shipments of
subject merchandise to the United States during the POI by multiplying
the f.o.b. value of each export shipment by 13 percent, the percentage
of DEPS credit allowed under the program for exports of subject
merchandise. We then subtracted as an allowable offset the actual
amount of application fees paid for each license in accordance with
section 771(6) of the Act. Finally, we took this sum (the total value
of the licenses net of application fees paid) and divided it by SAIL's
total exports of subject merchandise to the United States during the
POI.
On this basis, we determine the net countervailable subsidy from
this program to be 7.28 percent ad valorem. See, also, Comment 3 and
Comment 4 of the ``Interested Party Comments'' section.
B. Advance Licenses
Under India's Duty Exemption Scheme, companies may also import
inputs duty-free through the use of import licenses. Using advance
licenses, companies are able to import inputs ``required for the
manufacture of goods'' without paying India's customs duties (see
chapter 7 of ``Export and Import Policy''). Advance intermediate
licenses and special imprest licenses are also used to import inputs
duty-free. During the POI, SAIL used advance licences and also sold
some advance licenses. SAIL did not use or sell any advance
intermediate licenses or special imprest licenses during the POI.
The Department has previously determined that the sale of import
licenses confers a countervailable export subsidy. See, e.g., Certain
Iron-Metal Castings from India: Final Results of Countervailing Duty
Administrative Review, 63 FR 64050 (Nov. 18, 1998) (1996 Castings) and
Certain Iron-Metal Castings from India: Final Results of Countervailing
Duty Administrative Review, 62 FR 32297 (June 13, 1997) (1994
Castings). No new or substantive evidence of changed circumstances has
been submitted in this proceeding to warrant reconsideration of this
determination. During the POI, SAIL sold advance licenses or portions
of advance licenses. Therefore, in accordance with section 771(5)(B) of
the Act, we determine that SAIL's sale of advance licenses is an export
subsidy and that the financial contribution in the form of the revenue
received from the license sales constitutes the benefit to SAIL.
With respect to the use of advance licenses, the Department found,
in 1994 Castings (62 FR 32297 (June 13, 1997)), that the advance
license system accomplished, in essence, what a drawback system is
intended to accomplish, i.e., finished products produced with imported
inputs are allowed to be exported free of the import duties assessed on
the imported inputs. The Department concluded that, because the
imported inputs were consumed in the production of castings which were
subsequently exported, the duty-free importation of these inputs under
the advance license program did not constitute a countervailable
subsidy. Subsequently, in 1996 Castings (63 FR 64050 (Nov. 18, 1998)),
we stated that we would reevaluate the program in light of new
information as to how the program operates. In the petition for this
investigation, petitioners provided new substantive information which
indicated that the GOI does not value the licenses according to the
inputs actually consumed in the production of the exported good. Based
on this information, we initiated a reexamination of the advance
license program.
SAIL used advance licenses during the POI. As explained above,
section 351.519 of the CVD Regulations contains the criteria used to
determine whether programs which provide for the remission, exemption,
or drawback of import duties are countervailable. Under section
351.519(a)(4), the entire amount of an import duty exemption is
countervailable if the government does not have in place and apply a
system or procedure to confirm which imports are consumed in the
production of the exported product and in what amounts, or if it has
not carried out an examination of actual imports involved to confirm
which imports are consumed in the production of the exported product.
The GOI reported in its questionnaire response and GOI officials
explained at verification that products imported under an advance
license need not be consumed in the production of the exported product.
Upon exportation, in order to obtain an advance license, the exporter
submits a listing of inputs used to produce the export shipment. While
some of these inputs may be imported items, the GOI has no way of
knowing whether the inputted items were imported or purchased
domestically. Because the GOI then issues the advance license based on
this list of inputted items, we find that the GOI does not base the
licenses it issues on
[[Page 73135]]
the amount of import duties that were payable on the imported items
that were consumed in the production of the export shipment, i.e., the
exported merchandise. In addition, because the licenses specify ranges
of quantities to be imported rather than an actual amount of duty
exemption that can be claimed, the actual value of the advance licenses
is not known at the time the license is issued. Therefore, we determine
that the GOI has no system in place to confirm that the inputs are
consumed in the production of the exported product. In addition, the
GOI does not carry out, nor has it carried out, examinations of actual
inputs involved. Consequently, under section 351.519 (a)(4) of the CVD
Regulations, the entire amount of import duty exemption earned by SAIL
during the POI constitutes a benefit. Because only exporters can
receive advance licenses, this program constitutes an export subsidy
under section 771(5A)(B) of the Act. A financial contribution is
provided by the program under section 771(5)(D)(ii) of the Act because
the GOI foregoes the collection of import duties.
Under section 351.524(c) of the CVD Regulations, this program
provides a recurring benefit because advance licenses are issued on a
shipment-by-shipment basis. SAIL reported the advance licenses it used
and sold during the POI which it received for exports of subject
merchandise to the United States and the application fees it paid in
order to obtain those licenses. Because SAIL was able to segregate its
advance licenses according to specific export shipments, we included in
these calculations exemptions claimed and proceeds realized during the
POI which stemmed from exports of subject merchandise to the United
States only. As in the Preliminary Determination, we continue to
determine that benefits from advance licenses are conferred as of the
date they are used, not the date of exportation of the export shipment
for which the pertinent advance license is earned. See Department's
Position of Comment 1 and Comment 2 below. We also determine that the
application fees paid by SAIL qualify as an ``* * * application fee,
deposit, or similar payment paid in order to qualify for, or to
receive, the benefit of the countervailable subsidy.'' See section
771(6)(A) of the Act.
To calculate the program rate for the countervailable benefits
conferred to SAIL from its use and sale of advance licenses, we first
added the values of import duty exemptions realized by SAIL from the
use of advance licenses during the POI (net of application fees) and
the proceeds SAIL realized from sales of advance licenses during the
POI (net of application fees). We then divided the total benefit by
SAIL's total value of export of subject merchandise to the United
States during the POI. On this basis, we determine the net
countervailable subsidy from this program to be 3.33 percent ad
valorem.
C. Special Import Licenses (SILs)
During the POI, SAIL sold through public auction two other types of
import licenses--SILs for Quality and SILs for Star Trading Houses.
SILs for Quality are licenses granted to exporters which meet
internationally-accepted quality standards for their products, such as
IS0 9000 (series) and IS0 14000 (series). SILs for Star Trading Houses
are licenses granted to exporters that meet certain export targets.
Both types of SILs permit the holder to import products listed on a
``Restricted List of Imports'' in amounts up to the face value of the
SIL, but they do not relieve the importer of import duties.
The Department's practice is that the sale of special import
licenses constitutes an export subsidy because companies received these
licenses based on their status as exporters. See, e.g., 1996 Castings
and 1994 Castings. No new substantive information or evidence of
changed circumstances has been submitted in this proceeding to warrant
reconsideration of this determination. Therefore, in accordance with
section 771(5)(B) of the Act, we continue to determine that this
program constitutes a countervailable export subsidy and that the
financial contribution in the form of the revenue received on the sale
of licenses constitutes the benefit.
Because the receipt of SILs cannot be segregated by type or
destination of export, we calculated the program rate by dividing the
total amount of proceeds SAIL realized during the POI from the sales of
these licenses by the value of SAIL's total exports. On this basis, we
determine the net countervailable subsidy from this program be 0.15
percent ad valorem. See, also, Comment 5 of the ``Interested Party
Comments'' section.
D. Export Promotion Capital Goods Scheme (EPCGS)
The EPCGS provides for a reduction or exemption of customs duties
and an exemption from excise taxes on imports of capital goods. Under
this program, producers may import capital equipment at reduced rates
of duty by undertaking to earn convertible foreign exchange equal to
four to six times the value of the capital goods within a period of
five to eight years. For failure to meet the export obligation, a
company is subject to payment of all or part of the duty reduction,
depending on the extent of the export shortfall, plus penalty interest.
In the Final Negative Countervailing Duty Determination: Elastic
Rubber Tape From India, 64 FR 19125 (April 19, 1999) (Elastic Rubber
Tape), we determined that the import duty reduction provided under the
EPCGS was a countervailable export subsidy. See Elastic Rubber Tape, 64
FR at 19129-30. We also determined that the exemption from the excise
tax provided under this program was not countervailable. See Elastic
Rubber Tape, 64 FR at 19130. No new information or evidence of changed
circumstances has been provided to warrant a reconsideration of these
determinations. Therefore, we continue to find that import duty
reductions provided under the EPCGS to be countervailable export
subsidies.
SAIL reported that it imported machinery under the EPCGS in the
years prior to the POI and during the POI. For some of its imported
machinery, SAIL met its export requirements. Subsequently, the amount
of import duties on those imports for which SAIL claimed exemption was
completely waived by the GOI. However, SAIL has not completed its
export requirements for other imports of capital machinery. Therefore,
although SAIL received a reduction in import duties when the capital
machinery was imported, the final waiver on the potential obligation to
repay the duties has not yet been made by the GOI.
We determine that SAIL benefitted in two ways by participating in
this program. The first benefit to SAIL is the benefit from the waiver
of import duty on imports of capital equipment. SAIL met its export
requirement with respect to certain imports of capital equipment.
Because the GOI has formally waived the unpaid duties on those imports,
we have treated the full amount of the waived duty exemptions as a
grant received in the year the waiver of unpaid duties occurred. For
other imports of capital machinery, SAIL has not completed its export
commitments and the final waiver of the potential obligation to repay
the duties on those imports has not yet been made by the GOI.
Section 351.524 of the CVD Regulations specifies the criteria to be
used by the Department in determining whether to allocate the benefits
from a countervailable subsidy program. Under the CVD Regulations,
recurring benefits are not to be allocated but are to be expensed to
the year of receipt, while
[[Page 73136]]
non-recurring benefits are to be allocated over time. In this
investigation, non-recurring benefits will be allocated over 15 years,
the AUL of assets used by the steel industry as reported in the IRS
tables.
Normally, tax benefits are considered to be recurring benefits and
are expensed in the year of receipt. Since import duties are a type of
tax, the benefit provided under this program is a tax benefit, and,
thus, normally would be considered a recurring benefit. However, the
CVD Regulations recognize that, under certain circumstances, it is more
appropriate to allocate over time the benefits of a program
traditionally considered a recurring subsidy, rather than to expense
the benefits in the year of receipt. Section 351.524(c)(2) of the CVD
Regulations allows a party to claim that a recurring subsidy should be
treated as a non-recurring subsidy and enumerates the criteria to be
used by the Department in evaluating such a claim. In the ``Explanation
of the Final Rules'' (the Preamble) to the CVD Regulations, the
Department provides an example of when it may be more appropriate to
consider the benefits of a tax program to be non-recurring benefits,
and, thus, allocate those benefits over time. We also stated in the
Preamble to the CVD Regulations that, if a government provides an
import duty exemption tied to major capital equipment purchases, it may
be reasonable to conclude that, because these duty exemptions are tied
to capital assets, the benefits from such duty exemptions should be
considered non-recurring, even though import duty exemptions are on the
list of recurring subsidies. See CVD Regulations, 63 FR at 65393.
Because the benefit received from the waiver of import duties under the
EPCGS is tied to the capital assets of SAIL, and therefore, is just
such a benefit, we determine that it is appropriate to treat the
benefit conferred to SAIL as non-recurring.
In its questionnaire response, SAIL reported all of the capital
equipment imports it made using EPCGS licenses and the application fees
it paid to obtain its EPCGS licenses. At verification, we confirmed the
accuracy of the information submitted and obtained clarifications
regarding certain amounts of duty waived, the timing of the waivers,
and the application fees paid. We determine that the application fees
paid by SAIL qualify as an ``* * * application fee, deposit, or similar
payment paid in order to qualify for, or to receive, the benefit of the
countervailable subsidy.'' See section 771(6)(A) of the Act.
In order to calculate the benefit received from the waiver of
SAIL's import duties on its capital equipment imports, we allocated the
amount of duty waived (less application fees paid) beginning with the
year amount of import duty outstanding was formally waived (not at the
time the export requirements were met). As explained above in the
``Subsidies Valuation Information'' section, SAIL realized its non-
recurring benefits under this program in two separate years. For each
of those years, we performed the ``0.5 percent test'' prescribed under
section 351.524(b)(2) of the CVD Regulations. Based on our test result,
the amount of non-recurring benefit realized by SAIL in the first year
must be expensed but the amount of non-recurring benefit realized in
the second year is to be allocated. Accordingly, we determine that it
is appropriate to allocate this benefit over the average useful life of
assets in the industry, as set forth in the ``Subsidies Valuation
Information'' section, above.
A second type of benefit received under this program was conferred
on SAIL involve the import duty reductions received on the imports of
capital equipment for which SAIL has not yet met its export
requirements. For those capital equipment imports, SAIL has unpaid
duties that may have to be paid to the GOI if the export requirements
are not met. Therefore, we determine that the company had outstanding
contingent liabilities during the POI. When a company has an
outstanding liability and repayment of that liability is contingent
upon subsequent events, our practice is to treat any balance on that
unpaid liability as an interest-free loan. See section 351.505(d)(1) of
the CVD Regulations.
We determine that the amount of contingent liability to be treated
as an interest-free loan is the amount of the import duty reduction or
exemption for which SAIL applied but, as of the end of the POI, was not
finally waived by the GOI. We calculated this benefit to be the
interest that SAIL would have paid during the POI had it borrowed the
full amount of the duty reduction at the time of import. Pursuant to
section 351.505(d)(1) of the CVD Regulations, the benchmark for
measuring the benefit is a long-term interest rate because the event
upon which repayment of the duties depends (i.e., the date of
expiration of the time period for SAIL to fulfill its export
commitments) occurs at a point in time more than one year after the
date the capital goods were imported.
To calculate the program rate, we combined the sum of the allocated
benefits attributable to the POI and the benefit conferred on SAIL in
the form of a contingent liability loan. We then divided that combined
total benefit by the total value of SAIL's exports to all destinations
during the POI. On this basis, we determine the net countervailable
subsidy from this program to be 0.25 percent ad valorem. See, also,
Comment 6 of the ``Interested Party Comments'' section.
E. Pre-Shipment and Post-Shipment Export Financing
The Reserve Bank of India (RBI), through commercial banks, provides
short-term pre-shipment financing, or ``packing credits,'' to
exporters. Upon presentation of a confirmed export order or letter of
credit to a bank, companies may receive pre-shipment loans for working
capital purposes, i.e., for the purchase of raw materials, warehousing,
packing, and transporting of export merchandise. Exporters may also
establish pre-shipment credit lines against which they may draw as
needed. Credit line limits are established by commercial banks, based
upon a company's creditworthiness and past export performance, and may
be denominated in either Indian rupees or in foreign currency.
Companies that have pre-shipment credit lines typically pay interest on
a quarterly basis on the outstanding balance of the account at the end
of each period.
Commercial banks extending export credit to Indian companies must,
by law, charge interest on this credit at rates determined by the RBI.
During the POI, the rate of interest charged on pre-shipment, rupee-
denominated export loans up to 180 days was 12.0 and 13.0 percent. For
those loans over 180 days and up to 270 days, banks charged interest at
15.0 percent. The interest charged on foreign currency denominated
export loans up to 180 days during the POI was a 6-month LIBOR rate
plus 2.0 percent for banks with foreign branches, or plus 2.5 percent
for banks without foreign branches. For those foreign currency
denominated loans exceeding 180 days and up to 270 days, the interest
charged was 6-month LIBOR plus 4.0 percent for banks with foreign
branches, or plus 4.5 percent for banks without foreign branches.
Exporters did not receive the concessional interest rate if the loan
was beyond 270 days.
Post-shipment export financing consists of loans in the form of
discounted trade bills or advances by commercial banks. Exporters
qualify for this program by presenting their export
[[Page 73137]]
documents to their lending bank. The credit covers the period from the
date of shipment of the goods, to the date of realization of export
proceeds from the overseas customer. Post-shipment financing is,
therefore, a working capital program. This financing is normally
denominated in either rupees or in foreign currency, except when an
exporter used foreign currency pre-shipment financing, then the
exporter is restricted to post-shipment export financing denominated in
the same foreign currency.
In general, post-shipment loans are granted for a period of no more
than 180 days. The interest rate charged on these foreign currency
denominated loans during the POI was LIBOR plus 2.0 percent for banks
with overseas branches or LIBOR plus 2.5 percent for banks without
overseas branches. For loans not repaid within the due date, exporters
lose the concessional interest rate on this financing.
The Department has previously found both pre-shipment export
financing and post-shipment export financing to be countervailable,
because receipt of export financing under these programs was contingent
upon export performance and the interest rates were lower than the
rates the exporters would have paid on comparable commercial loans.
See, e.g., 1994 Castings, 62 FR at 32998. No new substantive
information or evidence of changed circumstances has been submitted in
this investigation to warrant reconsideration of this finding.
Therefore, in accordance with section 771(A)(B) of the Act, we continue
to find that pre-shipment and post-shipment export financing constitute
countervailable export subsidies.
To determine the benefit conferred on SAIL through the its rupee-
denominated pre-shipment export financing, we compared the interest
rate charged on these loans to a benchmark interest rate. SAIL reported
that, during the POI, it received and paid interest on commercial,
short-term, rupee-denominated cash credit loans which were not provided
under a GOI program. Cash credit loans are the most comparable type of
short-term loans to use as a benchmark because, like the pre-export
loans received under this program, cash credit loans are denominated in
rupees and take the form of a line of credit which can be drawn down by
the recipient. Thus, we used these loans to calculate a company-
specific, weighted-average, rupee-denominated benchmark interest rate.
We compared this company-specific benchmark rate to the interest rates
charged on SAIL's pre-shipment rupee-denominated loans and found that
the interest rates charged were lower than the benchmark rates.
Therefore, in accordance with section 771(5)(E)(ii) of the Act, this
program conferred countervailable benefits during the POI because the
interest rates charged on these loans were less than what a company
otherwise would have had to pay on a comparable short-term commercial
loan.
To calculate the benefit from these pre-shipment loans, we compared
the actual interest paid on the loans with the amount of interest that
would have been paid at the benchmark interest rate. Where the
calculated amount of benchmark interest exceeded the actual interest
paid, the difference is the benefit. We then divided the total amount
of the benefit by SAIL's total exports. SAIL did not have any post-
shipment rupee-denominated loans outstanding during the POI.
During the POI, SAIL also utilized pre-shipment and post-shipment
export financing denominated in U.S. dollars. To determine the benefit
conferred from this dollar pre-shipment and post-shipment export
financing, we again compared the program interest rates to a benchmark
interest rate. We used the company-specific interest rates from SAIL's
``bankers acceptance facility'' loans to derive the benchmark. SAIL's
bankers acceptance facility loans were the only commercial short-term
dollar lending received by the company during the POI. Because the
effective rates paid by the exporters are discounted rates, we derived
from the bankers acceptance facility rates a discounted weighted-
average, dollar-denominated benchmark interest rate. We compared this
company-specific benchmark interest rate to the interest rates charged
on pre-shipment and post-shipment dollar-denominated loans and
determined that the program interest rates were higher than the
benchmark interest rate. Therefore, we determine that SAIL did not
benefit from pre-shipment and post-shipment dollar-denominated export
financing during the POI.
We determine the net countervailable subsidy from rupee-denominated
pre-shipment export financing to be 0.10 percent ad valorem. See, also,
Comment 7 of the ``Interested Party Comments'' section.
F. Loan Guarantees From the GOI
In its questionnaire response, the GOI reported that it has not
extended loan guarantees pursuant to any program per se. Rather, the
Ministry of Finance extends loan guarantees to selected Indian
companies on an ad hoc basis, normally to public sector companies in
particular industries. The GOI also reported that GOI loan guarantees
are not contingent on export performance nor are they contingent on the
use of domestic over imported goods. The GOI stated that, while it has
not extended loan guarantees to the steel sector since 1992, it
continues to extend loan guarantees to other industrial sectors on an
ad hoc basis.
During the POI, SAIL had several long-term, foreign currency loans
outstanding on which it had received loan guarantees from the GOI and
the State Bank of India (SBI). According to SAIL, the loan guarantees
were earmarked for certain activities related to the company's steel
production (i.e., worker training, modernization activities, etc.). In
contradiction to the GOI's questionnaire response, SAIL finalized a
loan agreement and, thus, received a GOI loan guarantee as late as
1994.
Section 351.506 of the CVD Regulations states that, in the case of
a loan guarantee, a benefit exists to the extent that the total amount
a firm pays for the loan with a government-provided guarantee is less
than the total amount the firm would pay for a comparable commercial
loan that the firm could actually obtain on the market absent the
government-provided guarantee, including any differences in guarantee
fees. Thus, to determine whether a government loan guarantee confers a
benefit, we compare the total amount paid by the company (i.e., the
effective interest and guarantee fees) for the loan with the total
amount it would have paid for a comparable commercial loan.
Using the benchmark rates discussed in the ``Subsidies Valuation
Information'' section above for comparison purposes, we found that the
total amounts SAIL paid for its GOI-guaranteed loans were less than
total amounts SAIL would have otherwise paid for comparable commercial
loans. Thus, the loan guarantees from the GOI conferred a benefit on
SAIL equal to the difference between these two amounts. The GOI's
provision of loan guarantees is specific under section
771(5A)(D)(iii)(II) of the Act because it is limited to certain
companies selected by the GOI on an ad hoc basis. In addition, a
financial contribution is provided under the program as defined under
section 771(5)(D)(i) of the Act. To calculate the rate of subsidy
during the POI, we divided the benefit by SAIL's total sales during the
POI. Consistent with our practice regarding transnational subsidies, we
did not include in our calculations SAIL's World Bank, KFW, and Finnish
Export Credit loans.
[[Page 73138]]
On this basis, we determine the net countervailable subsidy to be
0.14 percent ad valorem. See, also, Comment 8 and Comment 9 of the
``Interested Party Comments'' section.
II. Program Determined To Be Not Countervailable
GOI Loans Through the Steel Development Fund (SDF)
The SDF was established in 1978 at a time when the steel sector was
subject to price and distribution controls. From 1978 through 1994, an
SDF levy was imposed on all sales made by India's integrated producers.
The proceeds from this levy were then remitted to the Joint Plant
Committee (JPC), the administrating authority consisting of four major
integrated steel producers in India that have contributed to the fund
over the years. These levies, interest earned on loans, and repayments
of loans due are the sources of funds for the SDF.
Under the SDF program, companies that have contributed to the fund
are eligible to take out long-term loans from the fund at favorable
rates. All loan requests are subject to review by the JPC along with
the Development Commission for Iron and Steel. At verification, we
confirmed the GOI's claim that it has not contributed any funds to the
SDF. Because the SDF was funded by producer levies and other non-GOI
monies and there is no evidence of direct or indirect funding by the
GOI, SDF loans do not confer a financial contribution as defined under
section 771(5)(D)(ii) of the Act. Therefore, consistent with our
practice regarding such producer funds, SAIL's SDF loans do not confer
a financial contribution from the GOI to SAIL.
On this basis, we determine that the SAIL's SDF loans are not
countervailable. See, also, Comment 10 of the ``Interested Party
Comments'' section.
III. Programs Determined To Be Not Used
Based upon the information provided in the responses and the
results of verification, we determine that SAIL did not apply for or
receive benefits under the following programs during the POI:
A. Passbook Scheme (PBS)
B. Advanced Intermediate Licenses
C. Special Imprest Licenses
D. Tax Exemption for Export Profits (Section 80 HHC of the India Tax
Act)
Interested Party Comments
Comment 1: The Use of Advance Licenses and Duty Drawback Equivalency
The GOI and SAIL argue that the use of advance licenses is the
equivalent to the use of a non-excessive duty drawback program. They
contend that, while the structure of India's advance license program
may differ from traditional duty drawback programs, the use of advance
licenses is not countervailable. Rather, through the use of advance
license, exporters obtain duty exemptions that do not exceed the duties
payable on the imported inputs used to produce the exported product.
They argue that the GOI has a reasonable and effective procedure for
confirming which inputs are consumed in the production of the exported
products, and in what amounts, and that the GOI uses the SIO norms to
ensure against excess drawback.
The GOI and SAIL contend that the mere fact that duty-free imports
under a particular advance license need not be physically incorporated
into the product exported under the same advance license does not
automatically render the advance license program a subsidy. They argue
that the regulations only require that the duty-free inputs be used to
produce the type of product that is being exported. The regulations do
not require that the actual exported product be physically incorporated
with the duty-free imports made under the same advance license. They
also state that the use of post-export advance licenses is similar to
the use of the U.S. substitution drawback regime in that the applicant
need only correlate or link the imported items with exported products.
Petitioners contend that the advance license program is not a
permissible duty drawback program. First, they argue that there is no
requirement that imported inputs be used in the production of the
exported merchandise. They argue that the GOI's reliance on the SIO
norms and the value-added requirement does not ensure that the amount
of benefits granted are not excessive. They argue that the relevant SIO
norm is neither a producer-specific nor product-specific norm'' but
encompasses a broad range of carbon, alloy and stainless steel products
made by all producers of such products in India. Therefore, the SIO
norm does not limit the amount of benefits granted to SAIL to those
imported inputs that SAIL actually consumes in the production of
exported cut-to-length plate.
In addition, Petitioners contend that the advance license program
does not meet the substitution drawback criteria because the GOI has no
mechanism for tracking items imported under advance license and that,
in the absence of such a mechanism, there can be no means for ensuring
that any domestic inputs used as substitutes are used in the same
quantities, and are of the same quality and characteristics as the
imported inputs.
Department's Position: We disagree with respondents. The first step
in our analysis is to examine whether the GOI has in place and applies
an effective system for confirming that imported inputs are consumed in
the production of the exported product and in what quantities. Although
section 351.519 of the regulations recognizes a longstanding principle
that governments may remit or drawback import charges levied on
imported inputs, the caveat to that provision is that such recognition
will be accorded when the finished product is exported. 19 CFR 351.519
(1999). Section 351.519 incorporates the rule set forth in Annexes II
and III of the Agreement on Subsidies and Countervailing Measures
(``SCM Agreement''). These annexes provide the analytical framework for
addressing the issue. The preamble to the CVD Regulations makes clear
that we first determine whether the government has a sufficient system
in place to confirm the consumption of the imported inputs and the
quantity of the imported inputs consumed in the production of the
exported product.
[u]nder the modified [linkage] test, we will first examine
whether the exporting government has a system in place that confirms
which inputs are consumed in the production of the exported product,
and in what amounts, and which taxes are imposed on the inputs
consumed in production. Where we find that such a system is in
operation, we will examine the system to determine whether it is
reasonable, effective, and based on generally accepted commercial
practices in the exporting country.
CVD Regulations, 63 FR at 65348, 65413 (Nov. 25, 1998) (emphasis
added). Thus, only if a government has a legitimate and effective
monitoring system will we then attempt to determine whether that system
prevents excessive drawback. Of course, qualification as a substitution
drawback system also requires that a government has in place and
applies a monitoring system to confirm consumption, quantity, and,
[[Page 73139]]
additionally, equality in characteristics of domestic inputs used in
place of imported ones. 19 CFR 351.519(a)(ii).
At verification, GOI officials stated that the GOI had no way of
confirming whether imported inputs were actually consumed in the
production of steel. They also stated that the GOI had no way of
knowing whether home market inputs were used in the production of the
exported product or whether imported inputs are used to produce
products destined for export or the domestic market. They explained the
GOI uses its SIO Norms to establish the quantities and maximum import
values to be imported under an advance license.
We determine that the use of advance licenses is not equivalent to
the use of a permissible duty drawback program. Upon review of the
application procedures and the process for issuing a licenses, we found
that GOI issues an advance license based on a list of inputs submitted
by the exporter and the quantities prescribed in the SIO norms. In this
application and approval process, however, there is no way to ascertain
whether the items listed for an export shipment were imported inputs or
domestic inputs. For a given input listed in an application, the GOI
does not know how much was imported and how much was purchased
domestically. Therefore, the GOI issued advance licenses without
confirming whether the items, upon which it based those licenses, were
indeed imported inputs consumed in the production of the export
shipment of domestic inputs.
We also determine that the use of advance licenses is not
equivalent to the use of a permissible substitution drawback program.
The GOI does not have a system in place for confirming that inputs
imported under that advance license are used to produce the exported
product. The GOI merely presumes that the imported inputs were consumed
in the production of the exported product because these inputs are
needed for production of cut-to-length plate. Under Annex III to the
SCM agreement and section 351.519 of the CVD Regulations, the drawback
substitution scheme must accomplish substitution on a one-to-one ratio
between the imported input and the home market input. The GOI has also
failed to provide evidence that such an objective is accomplished under
the advance license system.
In summary, the GOI has no way to know whether imported inputs are
consumed in subsequently exported products as required under Annex III
to the SCM agreement or whether an amount imported was equal to the
home market substitutes consumed in the exported product. Consequently,
the entire amount of the benefit conferred is countervailable, as
directed under section 351.519 of the CVD Regulations and reflected in
Annexes II and III to the SCM Agreement. Because the GOI does not have
a sufficient monitoring system, there is no need to further address
whether the system prevents excess drawback or is a viable substitution
drawback system.
Finally, at the hearing, the GOI argued that the type of advance
licenses used by SAIL is no longer available. This argument was not
made in the GOI's case brief and the record contains no factual
evidence on which to base this statement. Section 351.310 states that
arguments presented at the hearing are limited to those arguments
raised in the case briefs. Because the Government of India failed to
make this argument in its case brief, we will not address this
argument.
Comment 2: Timing and Calculation of Advance License Benefits
SAIL states that it is the Department's practice to measure the
benefit from an export subsidy according to the time of export. SAIL
then argues that the Department should measure any benefit to SAIL from
its advance licenses on an ``as earned basis'' because SAIL knew the
exact amount of duty exemption that it earned under each license at the
time of export. SAIL concludes that, because it did not earn any
benefits under the advance license program during the POI, the
Department may not allocate any benefits to SAIL for its use of advance
licenses during the POI. SAIL also argues that, whenever a license is
tied to a particular market and a particular product, the Department
should attribute the benefit only to that market and product.
Petitioners state that the Department's practice is to measure the
benefit of an export subsidy on an ``as earned'' basis when the benefit
is calculated as a percentage of the FOB value of the exported
merchandise on a shipment-by-shipment basis and the exporter knows the
amount of benefit it will receive at the time of export. They argue
that advance licenses are not valued according to these criteria and,
thus, the benefits should be calculated at the time they were used or
sold. They argue that the SIO norm is used to determine the quantities
of specified articles the license holder will be eligible to import
free of duty. They state that an advance license holder may know the
quantities of the specified articles that it will be eligible to import
but, until such merchandise is actually imported and the dutiable value
of the merchandise is established, it does not know the value of the
customs duties that will be forgiven.
Petitioners also argue that the Department's advance license
calculations for the Preliminary Determination contain two ministerial
errors. They argue that the value of one of the customs duty exemptions
and the value of one of the applications fees were incorrectly brought
forward from one spreadsheet to another. In addition, they voice a
concern that SAIL's submissions regarding advance licenses may not be
accurate. They also point out that the information in the advance
license documentation submitted by SAIL in Exhibit 27 to its June 25,
1999 supplemental questionnaire response does not reconcile with the
data listed for that license in SAIL verification exhibit VE-19.
Department Position: Upon making an export shipment, an exporter
can apply for and obtain an advance license. The advance license will
list the specific items which can be imported under the license,
including the total quantity of goods which can be imported and the
maximum value of those future imports that can be made using that
license. The GOI establishes those quantities and maximum import values
using its SIO Norms. Although an exporter knows the quantities and
maximum value of imports it could make under the advance license, the
actual value of duty exemptions cannot be determined until the license
is actually used by the exporter. Because the actual benefit derived
from the use of advance licenses, i.e., the amount of duty exemptions
received by the exporter, can only be determined when the license is
used, respondents are incorrect when they state that the benefit from
this program should be determined on an ``as earned basis.'' Therefore,
we calculated SAIL's benefit from this program based on the date the
company used advance licenses. This methodology is consistent with
prior Department practice. See e.g., Final Negative Countervailing Duty
Determination; Fresh Atlantic Salmon from Chile, 63 FR 31347, 31440-41
(June 9, 1998) (exports were not associated with particular export
transactions so amount could not be calculated); Certain Pasta from
Italy, 63 FR 17372, 17378 (April 9, 1998) (Preliminary Results of First
Countervailing Duty Administrative Review) (uncertainty in restitution
benefits because amount granted did not always equal the amount
declared by the company); Final Results of Countervailing
Administrative Review: Certain Iron Metal Castings from India,
[[Page 73140]]
56 FR 41658, 41661-62 (Aug. 22, 1991) (lag time between export and
identification of the price chosen to calculate IPRS payment).
We do not however agree with Petitioners' comments about the
accuracy of SAIL's advance licenses data. The materials provided in
Exhibit 27 include a sample application, sample shipping bills, and a
sample advance license. These documents do not represent a complete set
of supporting documentation for one particular license but are merely
examples from different transactions. Thus, it is not surprising that
the destination information on these sample shipping bills does not
match the destination data listed for the advance license also provided
in Exhibit 27. Most importantly, we verified the accuracy of all the
information used in the calculation of the benefit for this program.
Comment 3: The Use of DEPS Licenses and Duty Drawback Equivalency
The GOI and SAIL argue that the use of DEPS licenses is equivalent
to the use of a non-excessive duty drawback program. They contend that,
for the reasons discussed in the above section regarding advance
licenses, the SIO Norms and the program's value-added requirement
constitute an effective monitoring system. They also argue that the
fact that the DEPS provides the exporter duty drawback in the form of
credits rather than cash does not make the program a subsidy. In
addition, SAIL notes that, during the POI, it used all of its DEPS
credits to import a single major input used in the production of the
subject merchandise.
Petitioners argue that the DEPS does not qualify as a permissible
drawback program and therefore SAIL's DEPS credits are countervailable.
They argue DEPS credits may be used to import any article, not just
inputs used in the production of the exported merchandise. They further
state that SAIL is not required to import or consume any imported
inputs in the production of the exported goods in order to obtain post-
export DEPS credits. They also argue that, because post-export DEPS
credits can be used to offset duties on any imports and are
transferable, exemptions are not limited to inputs consumed in the
production of the exported goods. Petitioner state that the fact that
SAIL may have imported a single major input is irrelevant because the
Department's regulations are clear that the government in question (not
the importer) must maintain an effective system for guarding against
excessive drawback or the entire amount of the benefits will be
countervailable.
Department Position: We disagree with respondents for the reasons
outlined in response to Comment 1, above. The GOI issues DEPS licenses
without confirming whether and in what amounts imported inputs were
used to produce the export shipment against which the license is to be
based. Consequently, the GOI has no system for monitoring that DEPS
licenses are valued according to the import duties that were payable
for inputs imported for the production of the exported product.
Comment 4: Timing and Calculation of DEPS Benefits
SAIL argues that, if the DEPS is determined to be countervailable,
the Department should measure the benefit from its post-export DEPS
credits on an ``as used'' basis. SAIL explains that, due to
administrative irregularities and confusion with regard to how the
program operated, it did not know how much credit it earned at the time
of export.
Petitioners argue the Department should measure the benefit to SAIL
under the DEPS using all of the DEPS credits ``earned'' by SAIL on its
exports of the subject merchandise to the United States during the POI.
They state that this is the appropriate methodology because (1) post-
export DEPS credits are provided on a shipment-by-shipment basis, and
(2) SAIL knew the exact amount of DEPS credits it would earn on its
shipments because the credit rates are published by the GOI.
Department's Position: We agree with petitioners. Under the new CVD
regulations, the benefit is measured on an ``as earned'' basis under
the following conditions. If the program permits exemption of import
duties upon export, the Department normally will consider the benefit
as having been received upon exportation. 19 CFR 351.519(b)(2) (1999).
We calculate the benefit on an ``earned'' basis (that is upon export)
where it is provided as a percentage of the value of the exported
merchandise on a shipment-by-shipment basis and the exact amount of the
exemption is known. Certain Welded Carbon Steel Pipe and Tube and
Welded Carbon Steel Line Pipe From Turkey; Final Results and Partial
Recission of Countervailing Duty Administrative Reviews, 63 FR 18885,
18888 (April 16, 1998). Accord Cotton Shop Towels from Pakistan;
Preliminary Results of Countervailing Duty Administrative Reviews, 61
FR 50273, 50275 (Sept. 25, 1996); Certain Iron-Metal Castings From
India; Final Results of Countervailing Duty Administrative Review, 60
FR 44843, 44844 (Aug. 29, 1995).
DEPS credits are based upon the f.o.b. value of the shipment. Thus,
the amount of the benefit is known to the recipient upon export. Unlike
advance licenses, which are issued according to the quantities and
maximum values of the items to be imported, DEPS credits are equal to
the amount of import duty exemptions that the credit-holder is eligible
to claim. Despite some initial uncertainty on the part of SAIL as to
how the program operated and the amount of duty exemption that would be
granted, SAIL was able to confirm the rates applicable and know the
value of its credits by June 1997, which was not long after the program
was implemented and at the beginning of the POI.
Comment 5: Calculation of the Benefit from Selling SILs
Petitioners point out that, at verification, SAIL officials
explained that SAIL reported its revenues from its sales of SILs net of
tax. They argue that, because sales tax does not qualify as an
application fee, deposit or other payment pursuant to 771(6)(A) of the
Act, the Department should include in its calculations the sales taxes
reported in SAIL verification exhibit VE-13.
SAIL argues that the Department should not include the sales taxes
in its calculations pertaining to sales of SILs. They argue that SAIL
does not realize any benefit when the buyer of a SIL incurs a sales tax
liability and pays it through the seller (SAIL).
Department's Position: The only adjustments which can be made to a
subsidy benefit are those enumerated under section 771(6) of the Act.
Under section 771(6)(A), the Department is only authorized to adjust
the benefit from a subsidy by ``any application fee, deposit, or
similar payment paid in order to qualify for, or to receive, the
benefit of the countervailable subsidy.'' No other adjustments to the
benefit received under this program are applicable under section
771(6)(A) of the Act. Therefore the revenue earned by respondent on its
special import licenses is the countervailable benefit received by SAIL
under this program. No other offsets or adjustments to that benefit,
such as taxes, are authorized under the Act.
Comment 6: Timing and Calculation of EPCGS Benefits
SAIL argues the Department should treat SAIL's EPCGS import duty
exemptions as non-recurring grants and allocate the benefits during the
POI pursuant to section 351.524 of the CVD
[[Page 73141]]
Regulations. SAIL explains that, for its imports of capital equipment
under the EPCGS, SAIL received partial duty exemptions at the time of
importation. SAIL further explains that the exemptions were subject to
certain export performance commitments and that SAIL has always met its
export commitments under the program.
Petitioners argue the Department should not treat SAIL's EPCGS
benefits as being received at the time the capital goods were imported.
They argue that the Department has previously considered and rejected
this argument in Elastic Rubber Tape, 64 FR 19125, 19129 (April 19,
1999). They argue that the Department should allocate the benefits
according to the dates that the export obligations were fulfilled. For
the instances in which SAIL had export obligations outstanding during
the POI, they argue that the Department should regard the amount of
duty exemption as an interest-free loan and calculate the benefit by
applying its contingent liability methodology.
They also note that, at verification, SAIL officials indicated that
SAIL paid a single application fee for the three licenses utilized
during the POI. Accordingly, they argue that the Department should
exclude from its calculations only the single application fee paid by
SAIL. In addition, they note that, at verification, the Department
discovered a slight error in the duty rate reported for one of SAIL's
capital equipment imports under the EPCGS.
Department's Position: As explained above, we treated the benefits
provided under the EPCGS as non-recurring benefits and allocated them
according to when the pertinent export requirement was lifted and not
the date of importation. Although SAIL claims it has always met its
export requirements, there is no evidence on the record that the GOI
waived SAIL's export requirements. The benefit from this program, which
is the waiver of the import duties, is not confirmed until the
pertinent export requirements are met by the exporter. Therefore, the
methodology proposed by SAIL, which is based on the date the capital
equipment was imported, is not appropriate because that is not the
point at which the waiver of duty is made.
In our final calculations, we subtracted the application fees
discussed by petitioners only once and corrected for the error
regarding the duty rate as well.
Comment 7: Benchmarks for Pre-shipment Export Financing
SAIL argues that the Department should use SAIL's commercial paper
issuances rather than it's cash credit loans to determine whether a
benefit is provided for rupee-dominated pre-shipment export financing.
SAIL argues that the commercial paper issuances are preferable because
they represent the most market-based arms-length interest rate for
rupee-denominated short-term borrowing.
Petitioners argue that the Department should use SAIL's cash credit
loans for benchmark purposes because they are the most comparable to
SAIL pre-shipment export financing loans. They state that both types of
credit are secured by the corporate assets of SAIL, but SAIL's
commercial paper issuances are not secured.
Department's Position: Section 771(5)(E)(ii) of the Act states that
the benefit from a loan program is based upon the difference the
recipient pays for the program loan and the amount the recipient would
pay on a comparable commercial loan. SAIL's rupee-denominated pre-
shipment loan export loans and its cash credit loans operate in the
same way, as running lines of credit which can be drawn against as
needed. Therefore, we determine that the cash credit loan is a
comparable commercial loan with respect to the pre-shipment loan
provided under this program. The cash credit loan is also a ``market-
based arms-length'' rupee-dominated short-term loan.
Comment 8: Treatment of SAIL's Long-Term Foreign Currency Loans
Citing section 351.527 of the CVD Regulations, SAIL argues that the
Department should exclude from its calculations SAIL's foreign currency
loan from the World Bank. SAIL then argues that the Department should
also exclude SAIL's foreign currency supplier credit loans. SAIL
explains that the financing structure for supplier credits--which is
fixed by the suppliers, not SAIL--requires SAIL to pay a higher
purchase price for all non-cash purchases of capital equipment from the
supplier (as opposed to a lower purchase price if SAIL were to pay cash
up-front). SAIL then argues SAIL derived no benefit from its supplier
credits because they carry an ``implicit interest rate'' which exceeds
the interest rate that was otherwise available on the comparable
commercial market. In addition, SAIL argues that the Department should
exclude from its calculations its Kreditanstalt fur Weideraufbau (KFW)
loans and its Finnish Export Credit (FEC) supplier credit loans. SAIL
argues that these loans are not countervailable because they were
disbursed by government-owned banks in compliance to the Agreement on
Guidelines for Officially Supported Export Credit (``OECD Consensus'').
The GOI and SAIL argue that SAIL's loans from the State Bank of
India (SBI) should also not be included in the calculations. The GOI
argues that the SBI's foreign currency loan guarantees are purely
commercial in character and bear no relationship to the GOI's loan
guarantee policies or practices. SAIL also argues that, in the
Preliminary Determination, the Department erroneously treated SAIL's
foreign currency loans from the SBI as GOI-guaranteed loans. SAIL
argues that these loans were not guaranteed by the GOI but rather were
guaranteed by the largest and most important commercial bank in India.
Petitioners argue that the SAIL's GOI loan guarantees were provided
in limited numbers and therefore are specific. They then argue that the
Department should include in its calculations all of the long-term
guaranteed foreign currency loans reported by SAIL. Based on
information obtained at verification that commercial bankers would have
been unwilling to provide loan guarantees to SAIL, they argue the GOI's
provision of loan guarantees on SAIL's loans from international lending
or development institutions was not consistent with commercial
considerations. With regard to SAIL's supplier credit loans, they argue
that SAIL was unable to provide documentation that interest is factored
into the amount of the loan. They argue that the GOI guarantees clearly
played the decisive role in the lenders' decisions to grant SAIL these
loans. Finally, they argue the loan guarantees provided by the GOI-
owned SBI are countervailable. They maintain that, at the time SAIL
received loan guarantees from the SBI, it could not have obtained
guarantees from private sector banks because it was viewed as too great
a financial risk. They also argue that the references to documents
regarding the lending policies of the KFW and the FEC in SAIL's
September 29, 1999 case brief constitute the submission of factual
information after the deadline prescribed under 19 CFR 351.301(b)(1).
Department's Position: At verification, we discussed with SAIL
officials the foreign currency loans SAIL received from the World Bank
and the KFW, two well-known international lending/development
institutions. We learned that SAIL also received supplier credit loans
through FEC, which is a Finnish government bank. See SAIL Verification
Report at 15. Consistent with our practice of not countervailing
transnational subsidies, we excluded
[[Page 73142]]
from our calculations all of SAIL's transnational loans. In addition,
we excluded from the calculations any loans which were not guaranteed
by the GOI. We do not agree with Petitioners' argument that SAIL could
not have obtained commercial loan guarantees and therefore none of the
guarantees provided to SAIL were commercial in nature. We are not
examining the creditworthiness of SAIL in this investigation. See
Notice of Initiation of Countervailing Duty Investigations: Certain
Cut-to-Length Carbon-Quality Steel Plate from France, India, Indonesia,
Italy, and the Republic of Korea, 64 FR 12996 (March 16, 1999)
(Initiation). Therefore, information or argument regarding SAIL's
financial health at the time it obtained its loans cannot be a basis
for including or excluding from the calculations loans that were not
guaranteed by the GOI.
Comment 9: Benchmarks for SAIL's GOI-Guaranteed Loans
SAIL argues that SAIL's SBI-guaranteed long-term foreign currency
loans should be used for benchmark purposes in calculating the benefit
conferred by the GOI guarantees that SAIL received. SAIL argues that
the guarantee fee charged to SAIL by the SBI was a reasonable
commercial guarantee fee, considering SAIL's status as a large public
sector company in reasonable financial health. SAIL states that
commercial foreign currency lenders in general regarded loan guarantees
by the SBI as providing comparable security to GOI loan guarantees.
Accordingly, SAIL argues that the Department should not use a
methodology of comparing the total cost of borrowing, i.e., the
combination of interest and guarantee costs. Rather, SAIL argues that
Department need only account for any difference in guarantee fees and
should simply compare the GOI guarantee fee (1.20%) with the guarantee
fee charged by SBI. Then the Department should multiply the difference
by the outstanding balance during the POI for each GOI-guaranteed loan
and divide the total by SAIL's total sales during the POI.
Petitioners argue that, in absence of a company-specific benchmark
interest rate for SAIL, the Department should not use for benchmark
purposes the ``lending rates'' published in International Financial
Statistics. They argue that, pursuant to section 351.505(a)(3)(ii) of
the CVD Regulations, the use of a national average interest rate is
intended to be representative of a loan that ``could have been taken
out'' by SAIL. They then argue that, during the period in which SAIL
obtained GOI-guaranteed loans, SAIL could not have obtained loan
guarantees from commercial banks. They state that a company viewed by
commercial bankers as posing too great a risk to be eligible for loan
guarantees could not have obtained loans at the same interest rates
charged to SBI's best customers. Accordingly, they propose that the
Department should adopt an approach which is analogous to applying a
risk premium when a company is uncreditworthy. They argue that such an
approach should be used with respect to the loans SAIL received from
international lending or development institutions as well.
In its rebuttal brief, SAIL takes issue with Petitioners' argument
that the Department should select benchmark interest rates which
reflect an inability on the part of SAIL to obtain long-term long
guarantees from commercial banks. SAIL argues that there is substantial
evidence on the record that commercial banks were willing to make long-
term foreign currency loans to SAIL, including evidence that
independent credit rating agencies gave SAIL high ratings.
Department Position: We disagree with SAIL that SAIL's SBI-
guaranteed long-term foreign currency loans can be used for benchmark
purposes. The loans for which SAIL received guarantees from the SBI are
not denominated in the same currency as any of SAIL's GOI-guaranteed
long-term foreign currency loans and, in all but one instance, were
agreed upon in different years. Therefore, the SBI-guaranteed loans
cannot be used for benchmark purposes. We also disagree with SAIL that
the Department should only consider differences in guarantee fees.
Section 771(5)(E)(iii) of the Act makes clear the basis for calculating
the benefit from a guaranteed loan is a comparison of what the
recipient paid for the guaranteed loan (including any guarantee fees)
with what the recipient would pay to obtain comparable commercial
financing. This standard, which is repeated in section 351.506 of the
CVD Regulations, replaced the pre-URAA practice, under which we
followed the methodology proposed by SAIL. Given the change in
standard, we have followed the methodology outlined in our regulations
and compared the costs of the GOI-guaranteed loans with the appropriate
benchmark as discussed in the ``Subsidies Valuation Information''
section above.
With respect to Petitioners'' concerns about using national average
interest rates for benchmark purposes, we acknowledge that the
``lending rates'' published by the IMF are not ideal. However, there is
no information on the record containing interest rates that can be
regarded as preferable. As explained above, we attempted to obtain
other information regarding long-term foreign currency interest rates.
At verification, we were unable to obtain any information regarding the
foreign currency or other long-term interest rates available during the
years in which the GOI provided guaranteed loans to SAIL. The ``lending
rates'' published in International Financial Statistics are the only
interest rates on the record of this investigation which can reasonably
be used for benchmark purposes. In addition, we did not initiate an
examination of SAIL's creditworthiness. See Initiation, 64 FR 12996
(March 16, 1999). Consequently, we did not include a risk premium in
the calculation of our benchmark.
Comment 10: SAIL's SDF Loans
Petitioners argue that SAIL's long-term SDF loans are
countervailable under section 771(5)(B) of the Act. In short, they
argue that (1) the levies used to fund the SDF are, in essence, taxes
and thus constitute GOI contributions to the SDF, (2) the GOI controls
the SDF funds, and (3) SAIL received a financial contribution from the
GOI in the form of soft SDF loans. Throughout their initial and
rebuttal comments regarding the SDF, petitioners refer to information
contained in an article that was attached to their September 29, 1999,
case brief.
Petitioners argue that the statute does not make an exception for
governments that direct tax levies into special government-directed
``funds'' as opposed to placing such funds in the general treasury.
They argue that section 771(5)(B)(iii) of the Act defines as
countervailable the types of loans made by the GOI under the SDF
because, under this statute, a government need not make a financial
contribution itself to give rise to a subsidy. They then argue that, by
making soft loans through the SDF, the GOI has foregone revenue to
which it is entitled and has therefore made a financial contribution
under section 771(5)(D)(ii). They also argue that, because the SDF was
created through levies on sales to consumers, SAIL's SDF loans are
transfers of funds from the GOI and therefore constitute financial
contributions under section 771(5)(D)(i) of the Act.
The GOI and SAIL contend that SAIL's SDF loans are not
countervailable. They argue that the SDF was funded from levies on
steel producers and other non-GOI sources and that the Department's
practice is to not countervail benefits received by producers from such
``producer'' funds.
[[Page 73143]]
They argue that, because the GOI did not contribute any funds to the
SDF, SAIL has not received a financial contribution from the GOI as a
result of its SDF loans.
In addition, SAIL notes that the article and related arguments
contained in Petitioners case brief constitutes factual information.
SAIL points out that this information was submitted after the time
limit prescribed in section 351.301(b)(1) of the CVD Regulations,
should not be made a made a part of the record, and should be ignored
by the Department.
Department's Position: We agree with respondents. At verification,
we confirmed that the SDF was funded by producer levies and other non-
GOI sources. See, SAIL Verification Report at 10. Therefore, there is
no basis for concluding that the SDF loans received by SAIL confer a
financial contribution to SAIL from the GOI. In addition, there is no
information on the record indicating that the GOI contributed tax
revenues to the SDF either directly or indirectly. There is no
information on the record indicating that the GOI controls the SDF.
Accordingly, there is no basis on the record of this investigation for
determining that SAIL's SDF loans are countervailable.
We agree with SAIL that Petitioners' case brief contains new
factual information. We also agree that the information was submitted
in violation of section 351.301(b)(1) of the CVD Regulations. We
returned the brief and article to the Petitioners and requested that
they submit a redacted brief, which contains no references or argument
regarding the article or any new factual information. See Memorandum to
file Re: Removal of Untimely Factual Information from the Record, dated
December 13, 1999, which is on file in the public file of our Central
Records Unit (Room B-0990 of the main Commerce Building). Therefore,
all arguments relating to information in the article cannot be
addressed.
Comment 11: Treatment of SAIL's Stockyard Sales
Petitioners argue that the figure reported for the total value of
SAIL's sales it too large because the figure includes the
f.o.b.(stockyard) value of SAIL's stockyard sales rather than the
f.o.b.(factory) value of those sales. They argue that, in calculating
the ad valorem program rates for SAIL, the Department should use an
adjusted figure.
Department's Position: We agree with Petitioners. The original
figure reported by SAIL includes the f.o.b. (stockyard) value of SAIL's
stockyard sales rather than the f.o.b. (factory) value of those sales.
At verification, we requested SAIL to derive the f.o.b. (factory) value
of its stockyard sales. See SAIL Verification Report at 5 and 6. We
adjusted the figure for SAIL's total value of sales during the POI so
that the value of SAIL's stockyard sales is included on an f.o.b.
(factory) basis. We used this adjusted sales figure for the final
determination.
Verification
In accordance with section 782(i) of the Act, we verified the
information used in making our final determination. We followed
standard verification procedures, including meeting with government and
company officials and examining relevant accounting records and
original source documents. Our verification results are outlined in
detail in the public versions of the GOI Verification Report and the
SAIL Verification Report, which are on file in our Central Records Unit
(Room B-099 of the main Commerce building).
Suspension of Liquidation
In accordance with section 705(c)(1)(B)(i) of the Act, we have
calculated an individual countervailable subsidy rate for the company
under investigation--SAIL. This rate will also be used for purposes of
the ``all others'' rate. We determine that the total estimated net
countervailable subsidy rates are as follows:
------------------------------------------------------------------------
Producer/exporter Net subsidy rate
------------------------------------------------------------------------
Steel Authority of India (SAIL)........... 11.25% ad valorem.
All others................................ 11.25% ad valorem.
------------------------------------------------------------------------
In accordance with our Preliminary Determination, we instructed the
U.S. Customs Service (Customs) to suspend liquidation of all entries of
certain cut-to-length carbon-quality steel plate from India which were
entered, or withdrawn from warehouse, for consumption on or after July
26, 1999, the date of the publication of our Preliminary Determination
in the Federal Register. In accordance with section 703(d) of the Act,
we instructed the U.S. Customs Service to discontinue the suspension of
liquidation for merchandise entered on or after November 23, 1999, but
to continue the suspension of liquidation of entries made between July
26, 1999, and November 22, 1999.
If the ITC determines that material injury or threat of material
injury does not exist, this investigation will be terminated, and all
estimated duties deposited or securities posted as a result of the
suspension of liquidation will be refunded or canceled. If the ITC
determines that such injury does exist and issues a final affirmative
determination, we will issue a countervailing duty order, reinstate
suspension of liquidation under section 706(a) of the Act, and require
a cash deposit of estimated countervailing duties for such entries of
merchandise in the amounts indicated above.
ITC Notification
In accordance with section 705(d) of the Act, we will notify the
ITC of our determination. In addition, we are making available to the
ITC all non-privileged and non-proprietary information related to this
investigation. We will allow the ITC access to all privileged and
business proprietary information in our files provided the ITC confirms
that it will not disclose such information, either publicly or under an
administrative protective order, without the written consent of the
Assistant Secretary for Import Administration.
Return or Destruction of Proprietary Information
In the event that the ITC issues a final negative injury
determination, this notice will serve as the only reminder to parties
subject to Administrative Protective Order (APO) of their
responsibility concerning the destruction of proprietary information
disclosed under APO in accordance with 19 CFR 351.305(a)(3). Failure to
comply is a violation of the APO.
This determination is published pursuant to sections 705(d) and
777(i) of the Act.
Dated: December 13, 1999.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 99-33229 Filed 12-28-99; 8:45 am]
BILLING CODE 3510-DS-P
