[Federal Register Volume 61, Number 236 (Friday, December 6, 1996)]
[Notices]
[Pages 64687-64693]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-31106]
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DEPARTMENT OF COMMERCE
[C-533-063]
Certain Iron-Metal Castings From India: Final Results of
Countervailing Duty Administrative Review
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
ACTION: Notice of final results of countervailing duty administrative
review.
SUMMARY: On August 29, 1995, the Department of Commerce (the
Department) 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, 1992 to
December 31, 1992. We have completed this review and determine the net
subsidies to be 0.00 percent ad valorem for Dinesh Brothers, Pvt. Ltd.,
13.99 percent for Kajaria Iron Castings Pvt. Ltd., and 6.02 percent ad
valorem for all other companies. We will instruct the U.S. Customs
Service to assess countervailing duties as indicated above.
EFFECTIVE DATE: December 6, 1996.
FOR FURTHER INFORMATION CONTACT: Elizabeth Graham or Marian Wells,
Import Administration, International Trade Administration, U.S.
Department of Commerce, 14th Street and Constitution Avenue, N.W.,
Washington, D.C. 20230; telephone: (202) 482-4105 or 482-6309,
respectively.
SUPPLEMENTARY INFORMATION:
Background
On August 29, 1995, the Department published in the Federal
Register (60 FR 44839) the preliminary results of its administrative
review of the countervailing duty order on Certain Iron-Metal Castings
From India. The Department has now completed this administrative review
in accordance with section 751 of the Tariff Act of 1930, as amended
(the Act).
We invited interested parties to comment on the preliminary
results. On September 28, 1995, case briefs were submitted by the
Municipal Castings Fair Trade Council (MCFTC) (petitioners), and the
Engineering Export Promotion Council of India (EEPC) and individually-
named producers of the subject merchandise that exported iron-metal
castings to the United States during the review period (respondents).
On October 5, 1995, rebuttal briefs were submitted by the MCFTC and the
EEPC. The comments addressed in this notice were presented in the case
and rebuttal briefs.
The review covers the period January 1, 1992 through December 31,
1992. The review involves 14 companies (11 exporters and three
producers of the subject merchandise) and the following programs:
(1) Pre-Shipment Export Financing
(2) Post-Shipment Export Financing
[[Page 64688]]
(3) Income Tax Deductions under Section 80HHC
(4) Import Mechanisms
(5) Advance Licenses
(6) Market Development Assistance
(7) International Price Reimbursement Scheme (IPRS)
(8) Falta Free Trade Zones and Other Free Trade Zones Program
(9) Preferential Freight Rates
(10) Preferential Diesel Fuel Program
(11) 100 Percent Export-Oriented Units Program
(12) Cash Compensatory Support Program (CCS)
Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute and to the
Department's regulations are in reference to the provisions as they
existed on December 31, 1994. However, references to the Department's
Countervailing Duties; Notice of Proposed Rulemaking and Request for
Public Comments, 54 FR 23366 (May 31, 1989) (Proposed Rules), are
provided solely for further explanation of the Department's
countervailing duty practice. Although the Department has withdrawn the
particular rulemaking proceeding pursuant to which the Proposed Rules
were issued, the subject matter of these regulations is being
considered in connection with an ongoing rulemaking proceeding which,
among other things, is intended to conform the Department's regulations
to the Uruguay Round Agreements Act. See 60 FR 80 (Jan. 3, 1995).
Scope of the Review
Imports covered by the 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.
Calculation Methodology for Assessment and Cash Deposit Purposes
Pursuant to Ceramica Regiomontana, S.A. v. United States, 853 F.
Supp. 431, 439 (CIT 1994), Commerce is required to calculate a country-
wide CVD rate, i.e., the all-others rate, by ``weight averaging the
benefits received by all companies by their proportion of exports to
the United States, inclusive of zero rate firms and de minimis firms.''
Therefore, we first calculated a subsidy rate for each company subject
to the administrative review. We then weighted the rate received by
each company using its share of U.S. exports to total Indian exports to
the United States of subject merchandise. We then summed the individual
companies' weighted rates to determine the weighted-average country-
wide subsidy rate from all programs benefitting exports of subject
merchandise to the United States.
Because the country-wide rate calculated using this methodology was
above de minimis, as defined by 19 CFR 355.7 (1994), we proceeded to
the next step and examined the net subsidy rate calculated for each
company to determine whether individual company rates differed
significantly from the weighted-average country-wide rate, pursuant to
19 CFR 355.22(d)(3). Two companies (Kajaria and Dinesh) received
significantly different net subsidy rates during the review period.
These companies would be treated separately for assessment and cash
deposit purposes, while all other companies would be assigned the
weighted-average country-wide rate. However, because this notice is
being published concurrently with the final results of the 1993
administrative review, the 1993 administrative review will serve as the
basis for setting the cash deposit rate.
Analysis of Comments
Comment 1
Petitioners argue that the Department must calculate a benefit for
the Reserve Bank of India (RBI) refinancing practices that it
preliminarily determined to be countervailable. Petitioners assert that
the Government of India (GOI) has, by encouraging private banks to lend
to the export sector, provided exporters with access to preferential
funds that they otherwise would not have had available to them.
Domestic firms did not have access to these preferential funds, and the
interest rates charged were more preferential than they might have been
because the GOI's involvement created a greater differential between
rates of interest available on the market to all Indian firms and rates
available to the export sector.
Petitioners cite Certain Steel Products from Korea (Steel), 58 FR
37,338 (July 9, 1993) and Oil Country Tubular Goods from Korea (OCTG),
49 FR 46,776, 46,777, 46,784 (November 28, 1994) as support for their
contention. Petitioners state that, as the Department recognized in
Steel and OCTG, when a government encourages private banks to target a
greater proportion of the finite amount of capital that is available to
a certain industry (or export sector), this leaves fewer funds for the
non-export sector to borrow. Thus, the GOI's provision of refinancing
to banks, which encourages banks to make more funds available to the
export sector than they otherwise would have provided, in turn making
fewer funds available to the non-export sector, has the effect of
driving up the cost of financing for non-exporters.
Petitioners assert that even if potential benchmark rates are
inflated due to the refinancing program, a substantial gap still exists
between the benchmark rates and the refinancing rates. They cite the
benchmark used in the preliminary results (15 percent) as well as a
lending rate listed in the International Financial Statistics Yearbook
(18.92 percent) which are both much higher than the refinance rates (11
and 5.5 percent). They assert that the Department should use the 18.92
percent rate because the RBI rate used in the preliminary results (15
percent) underestimates the benchmark rate.
Respondents contend that the RBI refinancing is not a separate
subsidy from the Post-Shipment Export Financing, and hence should not
be countervailed. They argue that the refinancing is what allows the
banks to give the preferential post-shipment credit and if the
Department were to countervail the refinancing, it would be
countervailing the same subsidy twice. They add that petitioners'
concern over the fact that the refinancing rates are lower than other
rates in India is without merit. Respondents state that refinancing
rates between central banks and commercial banks are always lower than
rates charged by commercial banks to non-bank customers.
Department's Position
Petitioners are correct when they assert that higher rediscount or
refinancing ratios provided for export loans may encourage commercial
banks to provide export loans over domestic loans and drive up the cost
of financing for non-exporters. See section 771(5)(A)(ii) of the Act.
In such cases, when we determine that a program provides a preference
for lending to exporters rather than non-exporters, we must determine
an appropriate way to measure that preference. Normally, we measure the
preference by the difference between the interest rates charged on the
export loans and the higher interest rates charged on domestic loans.
(See e.g., OCTG.) In this case, we consider the higher refinancing
ratios provided
[[Page 64689]]
on export loans to be the mechanism that allows the banks to provide
the Preferential Post-Shipment Financing. We agree with respondents'
assertion that countervailing the refinancing would result in double-
counting the benefit from the program. Therefore, we have measured the
preference as the differential between the program interest rate and
the benchmark interest rate.
We believe petitioners' cites to OCTG and Steel are misplaced. In
OCTG, the Government of Korea (GOK) set the interest rates for both
export and domestic loans at a uniform rate of 10 percent. We stated
that if all the other terms and conditions were the same for export and
domestic loans then we would find no export subsidy to exist. However,
we found that the GOK set different rediscount ratios for export and
domestic loans to encourage banks to provide export financing. Because
there was no difference in the interest rates which were set for export
and domestic loans, we had to devise another method to measure this
preference. As such, we measured the preference for export over
domestic loans by comparing the 10 percent rate with a weighted average
of short-term domestic credit. We considered this measure the best
approximation of what firms would pay for export financing if there
were not a preference within the banking system for providing loans for
export transactions.
In Steel, we found that the GOK provided the steel industry with
preferential access to medium- and long-term credit from government and
commercial banking institutions. We determined that absent the GOK's
targeting of specific industries, all industries would compete on an
equal footing for the scarce credit available on the favorable markets.
However, because the GOK controlled long-term lending in Korea and
placed ceilings on long-term interest rates, there was a limited amount
of capital available, which would force companies to resort to less
favorable markets. Therefore, we determined that the three-year
corporate bond yield on the secondary market was the best approximation
of the true market interest rate in Korea.
In this case, we can measure the preference created by the export
refinancing using the difference between the interest rates charged on
export loans and the interest rates charged on domestic loans. This
approach is consistent with our treatment of export loans provided by
the Privileged Circuit Exporter Credits Program in Carbon Steel Wire
Rod from Spain: Final Affirmative Countervailing Duty Determination (49
FR 19557, May 8, 1984). The use of an alternative method for measuring
the preference is not warranted in this case because the interest rates
charged on export and domestic loans are not uniform within India.
Therefore, we have used our standard short-term loan methodology (see
19 CFR 355.44(3)(b) (1994)) and have not calculated any additional
benefit for the higher refinancing ratio provided for export loans.
Comment 2
Petitioners state that the Department improperly failed to
countervail the value of advance licenses, because advance licenses are
simply export subsidies and not the equivalent of a duty drawback
program. First, petitioners contend that the advance licenses are
export subsidies as defined by item (a) of the Illustrative List of
Export Subsidies (Illustrative List), annexed to the General Agreement
on Tariffs and Trade (GATT) Subsidies Code, as they are contingent upon
export performance. Petitioners also claim that the advance license
program does not meet the criteria of a duty drawback system that would
be permissible in light of item (i) of the Illustrative List. They base
this claim on the fact that (1) the advance licenses were not limited
to use just for importing duty-free input materials because the
licenses could be sold to other companies; (2) eligibility for drawback
is always contingent upon the claimant demonstrating that the amount of
input material contained in an export is equal to the amount of such
material imported, which the respondents failed to do; and (3) the GOI
made no attempt to determine the amount of material that was physically
incorporated (making normal allowances for waste) in the exported
product as required under Item (i). For these reasons, petitioners
state that the Department should countervail in full the value of
advance licenses received by respondents during the period of review.
Respondents state that advance licenses allow importation of raw
materials duty free for the purposes of producing export products. They
state that if Indian exporters did not have advance licenses, the
exporters would import the raw materials, pay the duty, and then
receive drawback upon export. Respondents argue that, although advance
licenses are slightly different from a duty drawback system because
they allow imports duty free rather than provide for remittance of duty
upon exportation, this does not make them countervailable. Respondents
also rebut petitioners' contention that the GOI has no way of knowing
how much imported pig iron is in the exported product. Respondents
contend that the Department has verified in prior reviews that the
Indian government carefully checks the amount imported under advance
licenses and the amount physically incorporated into the exported
merchandise. Respondents also state that no advance licenses were sold
during the POR.
Department's Position
Petitioners have only pointed out the administrative differences
between a duty drawback system and the advance license scheme used by
Indian exporters. Such differences do not render the advance license
scheme different from a duty drawback system. Similar administrative
differences can also be found between a duty drawback system and an
export trade zone or a bonded warehouse. Each of these systems has the
same function: To allow a producer to import raw materials used in the
production of an exported product without having to pay duties.
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 physically incorporated into
an exported product is not a countervailable subsidy, if the remission
or drawback is not excessive. We determined that respondents used
advance licenses in a way that is equivalent to how a duty drawback
scheme would work. That is, they used the licenses in order to import,
net of duty, raw materials which were physically incorporated into the
exported products. We have determined in previous reviews of this order
(see, e.g., Certain Iron-Metal Castings from India: Final Results of
Countervailing Duty Administrative Review (Castings 91) (60 FR 44843,
August 29, 1995)), based on verified information, that the amount of
raw materials imported and reported in the context of this
administrative review was not excessive vis-a-vis the products
exported. On this basis, we determine that use of the advance licenses
was not countervailable.
Comment 3
Petitioners argue that, to the extent that any respondent received
CCS or IPRS payments on non-subject castings or sold Replenishment and
Exim Scrip Licenses related to non-subject castings, the Department
should calculate and countervail the value of CCS and IPRS payments and
the sale of licenses
[[Page 64690]]
related to non-subject castings in this administrative review. They
state that the Department's failure to countervail subsidies on non-
subject castings exports is at odds with the language and intent of the
countervailing duty law, which applies to any subsidy whether bestowed
``directly or indirectly.'' To support their contention, petitioners
cite Armco, Inc. versus United States, 733 F. Supp. 514 (1990). They
also assert that the URAA makes clear that U.S. law continues to
countervail benefits that are conferred, regardless of ``whether the
subsidy is provided directly or indirectly on the manufacture,
production, or export of merchandise.' They argue that subsidies
conferred on non-subject castings should be countervailed because these
subsidies provide indirect benefits on exports of the subject castings.
Respondents state that petitioners have misapplied the term
``indirectly.'' They state that the CCS, IPRS payments, and proceeds
from the sales of licenses relating to other merchandise are not
``indirectly'' paid on subject castings merely because they are paid to
the same producer. Respondents argue that there is no benefit--either
direct or indirect--to the subject merchandise when benefits are paid
on other products. Respondents state that petitioners are making the
``money is fungible'' argument which has never been accepted by the
Department. They state the Department should not accept this argument
now.
Respondents also object to petitioners' contention that respondents
are circumventing the law by claiming more CCS or IPRS on non-subject
castings. They claim that there is no basis for petitioners'
assertions. In fact, the GOI and the respondent companies have been
verified numerous times, and not once has the Department determined
that claims for CCS, IPRS or licenses were paid on non-subject castings
in a way that circumvents the law.
Department's Position
Section 771(5)(A)(ii) of the Act is concerned with subsidies that
are ``paid or bestowed directly or indirectly on the manufacture,
production, or export of any class or kind of merchandise''.
Petitioners have misinterpreted the term ``indirect subsidy.'' They
argue that a subsidy tied to the export of product B may provide an
indirect subsidy to product A, or that a reimbursement of costs
incurred in the manufacture of product B may provide an indirect
subsidy upon the manufacture of product A. As such, they argue that
grants that are tied to the production or export of product B, should
also be countervailed as a benefit upon the production or export of
product A. As explained below, this is at odds with established
Department practice with respect to the treatment of subsidies,
including indirect subsidies. The term ``indirect subsidies'' as used
by the Department refers to the manner of delivery of the benefit which
is conferred upon the merchandise subject to an investigation or
review. The term, as used by the Department, does not imply that a
benefit tied to one type of product also provides an indirect subsidy
to another product. The kind of interpretation proposed by petitioners
is clearly not within the purview or intent of the statutory language
under section 771(5)(A)(ii).
In our Proposed Rules, we have clearly spelled out the Department's
practice with respect to this issue. ``Where the Secretary determines
that a countervailable benefit is tied to the production or sale of a
particular product or products, the Secretary will allocate the benefit
solely to that product or products. If the Secretary determines that a
countervailable benefit is tied to a product other than the
merchandise, the Secretary will not find a countervailable subsidy on
the merchandise.'' Section 355.47(a). This practice of tying benefits
to specific products is an established tenet of the Department's
administration of the countervailing duty law. See, e.g., Industrial
Nitrocellulose from France; Final Results of Countervailing Duty
Administrative Review 52 FR 833, 834-35 (January 9, 1987); Final
Affirmative Countervailing Duty Determination and Countervailing Duty
Order: Certain Apparel from Thailand, 50 FR 9818, 9823 (March 12,
1985); and Extruded Rubber Thread from Malaysia: Final Results of
Countervailing Duty Administrative Review, 60 FR 17515, 17517 (April 6,
1995).
Comment 4
Importers argue that the Department incorrectly calculated the
country-wide rate. They state that the Department assigned Kajaria an
individual company rate based on the fact that it was significantly
different from the weighted-average country-wide rate. However, the
Department also included the amount of subsidies found to have been
received by Kajaria in calculating the weighted-average country-wide
rate. Importers argue this is contrary to the countervailing duty
statute because it results in the collection of countervailing duties
in excess of the subsidy amounts found by the Department. This is
because the inclusion of this high rate in the weighted-average
country-wide rate increases the all others' rate and, hence, the amount
collected from all other shippers would include a portion of the
subsidies received by Kajaria, which are already offset by the
collection of the individual rate on Kajaria's shipments. Importers
assert that the Department must exclude Kajaria's rate from the all
others rate calculations to ensure that the amount collected is equal
to, and does not exceed, the actual amount of subsidies that were
found.
Respondents agree with importers that the inclusion in the country-
wide rate of companies' rates that are ``significantly'' higher than
the country-wide rate is improper when those companies are also given
their own separate company-specific rates. They argue that this
methodology overstates and, in part, double counts the overall benefit
from the subsidies received by respondents. Respondents argue that
Ceramica Regiomontana, S.A. v. United States, 853 F. Supp. 431 (CIT
1994) does not require the Department to include ``significantly''
higher rates in calculation of the country-wide rate. They state that a
careful reading of that case, as well as Ipsco Inc. v. United States,
899 F. 2d 1192 (Fed. Cir. 1990), demonstrates that the courts in both
cases were only concerned about the over-statement of rates owing to
elimination of de minimis or zero margins from the country-wide rate
calculation. Respondents claim that every company's rate is being
pulled up to a percentage greater than it should be because the
Department has included in the weighted-average country-wide rate the
rates of companies that received their own ``significantly'' higher
company-specific rates. Thus, they state that the country-wide rate is
excessive for every company to which it applies. Respondents state
that, not only is it unfair to charge this excessive countervailing
duty, it is also contrary to law, in conflict with the international
obligations of the United States, and violative of due process.
Petitioners state that respondents have misread Ceramica and Ipsco.
They state that the plain language of Ceramica requires the Department
to calculate a country-wide rate by weight averaging the benefits
received by all companies by their proportion of exports to the United
States inclusive of zero rate firms and de minimis firms. Petitioners
state that while Ceramica and Ipsco dealt factually with the
circumstances in which respondent companies had lower-than-average
rates, the principle on which these cases is based applies equally to
instances in which some companies have higher-than-average
[[Page 64691]]
rates. They state that the courts have determined that the benefits
received by all companies under review are to be weight-averaged in the
calculation of the country-wide rate. Therefore, petitioners conclude
that the Department followed the clear directives from the court.
Department's Position
We disagree with respondents that ``significantly different''
higher rates (including BIA rates) should not be included in the
calculation of the CVD country-wide rate. We further disagree with
respondents' reading of Ceramica and Ipsco. In those cases, the
Department excluded the zero and de minimis company-specific rates that
were calculated before calculating the country-wide rate. The court in
Ceramica, however, rejected this calculation methodology. Based upon
the Federal Circuit's opinion in Ipsco, the court held that Commerce is
required to calculate a country-wide CVD rate applicable to non-de
minimis firms by ``weight averaging the benefits received by all
companies by their proportion of exports to the United States,
inclusive of zero rate firms and de minimis firms.'' Ceramica, 853 F.
Supp. at 439 (emphasis on ``all'' added).
Thus, the court held that the rates of all firms must be taken into
account in determining the country-wide rate. As a result of Ceramica,
Commerce no longer calculates, as it formerly did, an ``all others''
country-wide rate. Instead, it now calculates a single country-wide
rate at the outset, and then determines, based on that rate, which of
the company-specific rates are ``significantly'' different.
Given that the courts in both Ipsco and Ceramica state that the
Department should include all company rates, both de minimis and non de
minimis, there is no legal basis for excluding ``significantly
different'' higher rates, including BIA rates. To exclude these higher
rates, while at the same time including zero and de minimis rates,
would result in a similar type of country-wide rates bias of which the
courts were critical when the Department excluded zero and de minimis
rates under its former calculation methodology.
Comment 5
Respondents claim that the Department used the incorrect
denominator, total exports of subject castings, to calculate the
benefit to RSI Ltd. from the Section 80 HHC income tax program.
Department's Position
Upon a review of our calculations, we have determined that we did
use the incorrect denominator, exports of subject merchandise, in
calculating the benefit to RSI Ltd. from the Section 80 HHC program.
For purposes of these final results, we have corrected our calculations
by using total export sales of all merchandise as the denominator for
this calculation.
Comment 6
Respondents argue that the Department has incorrectly calculated
preshipment interest for two of RB Agarwalla's loans. First,
respondents claim that the Department assumed that RB Agarwalla Pre-
Shipment Export Financing loans taken on October 30, 1991 and November
16, 1991 ran for 17 days plus 53 days, for a total of 70 days.
Respondents state that only 19 days of interest should be considered
for the 1992 calculation, since much of the interest was not paid in
the period of review. In the second case, regarding loans from the
Hongkong & Shanghai Banking Corporation to RB Agarwalla, respondents
claim that the Department failed to take into account an interest
payment made in 1992. According to respondents, the Department assumed
incorrectly that the interest was paid in 1991. This interest accrued
during 1991 but was actually paid during 1992 and should, therefore, be
included in the calculation of preshipment interest for 1992.
Department's Position
Upon a review of our calculations, we have determined that we did
use the incorrect number of days to calculate the benefit to RB
Agarwalla from certain of its preshipment loans. We have corrected our
calculations by using 19 days rather than 70, as we determined that
interest was calculated for those days in the 1991 review.
Additionally, we have included RB Agarwalla's interest payment in our
calculation of the interest paid by RB Agarwalla during 1992.
Comment 7
Respondents claim that the Department used the incorrect
denominator, RB Agarwalla's sales of subject castings, in its
calculation of the benefit to RB Agarwalla from the Pre-Shipment Export
Financing Program. According to respondents, the correct denominator
for calculating the benefit is total exports of all products during the
POI.
Department's Position
Upon a review of our calculations, we have determined that we did
use the incorrect denominator, exports of subject merchandise, in
calculating the benefit to RB Agarwalla from the Pre-Shipment Export
Financing program. For purposes of these final results, we have
corrected our calculations by using total exports of all merchandise to
all markets as the denominator.
Comment 8
Respondents claim that the Department's calculation of Pre-shipment
Export Financing loans includes loans that are not included in
Kejriwal's list of loans. Therefore, these loans should not be included
in the Department's calculation.
Petitioners disagree with respondents' claim. They assert, based on
proprietary information, that the Department has actually
underestimated the benefit provided to Kerjriwal by the Pre-Shipment
Export financing program because there is no evidence that these loans
were paid off during the review period.
Department's Position
We disagree with respondents. The loans to which respondents refer
are not new loans but rather unpaid balances on existing loans.
Kejriwal did not report its remaining payments on these loans in its
1992 questionnaire responses. Additionally, we have checked the public
record of the 1993 administrative review and discovered that Kejriwal
reported not having used this program during 1993. Based on these
facts, in our preliminary results of review, we calculated a benefit
based on the assumption that Kejriwal paid the loan off in 180 days.
However, as petitioners have argued, we may have underestimated the
benefit as we have no evidence on the record to indicate that Kejriwal
paid off this loan during the review period. Therefore, for purposes of
this review period, we have calculated interest on the unpaid balance
through the end of 1992 for both of these loans.
Comment 9
Respondents state that the Department has incorrectly countervailed
the sale of an additional license by Kejriwal during the period of
review. Respondents state that all licenses listed in the company's
response were earned on sales of industrial castings or on sales of
subject castings to markets other than the United States. Therefore,
the Department should not consider the sale
[[Page 64692]]
of the license as a subsidy when it calculates Kejriwal's benefits.
Petitioners state that the Department was correct in finding that
the sale of an additional license by Kejriwal is a subsidy on subject
castings.
Department's Position
Upon a review of our calculations and Appendix J of Kejriwal's May
9, 1994, response, we have determined that Kejriwal did receive its
additional license for non-subject merchandise. Therefore, we are not
calculating a benefit from Kejriwal's sale of this additional license
for purposes of these final results of review.
Comment 10
Respondents state that countervailing the Pre- and Post-Shipment
Export Financing programs, the sale of import licences and the income
tax deductions under Section 80 HHC of the Income Tax Act double counts
the subsidy from the financing programs and import license sales. They
argue that, under Section 80 HHC, earnings from the sale of licenses
are considered export income which may be deducted from taxable income
to determine the tax payable by the exporter. Therefore, respondents
argue that, because proceeds from the sale of licenses are also part of
the deductions under Section 80 HHC, to countervail the payments and
the deduction results in double counting the subsidy from the sale of
licenses. Additionally, the Department is double counting the subsidy
by countervailing both the financing programs and the 80 HHC tax
deduction. Respondents assert that the financing programs reduce the
companies' expenses in financing exports, which in turn, increases
profits on export sales. Because the 80 HHC deduction increases as
export profits increase, the financing programs increase the 80 HHC
deduction. Thus, countervailing the financing programs and the 80 HHC
deduction means the benefit to the export is countervailed twice.
Respondents argue that adjusting the tax deduction in order to
avoid double counting should not be considered offsetting the subsidy
as provided by section 771(6) of the Act. Under that section,
deductions are allowed because they represent actual costs to the
exporter which lessen the benefit on the subsidy to the exporter.
Respondents also assert that the Department's treatment of secondary
tax effects is also not relevant in this case. The issue in this case
is whether the same subsidy is being countervailed twice, not whether
the ``after tax benefit'' is somehow less than the nominal benefit.
Petitioners assert that respondents benefit from both the
preferential financing programs and sale of import licenses as the
programs ultimately increase their profits and their total income.
Respondents further benefit because they are able to use the 80 HHC
program to eliminate or reduce the taxes owed on these increased
profits and income. Therefore, the Department should use the same
methodology for calculating the benefit from these programs as it used
in its analysis for the preliminary results of review.
Department's Position
Contrary to respondents' arguments, the same subsidy is not being
countervailed twice. The 80 HHC income tax exemption is a separate and
distinct subsidy from the pre- and post-shipment export financing
subsidy and the sale of import licenses subsidy. The pre- and post-
shipment financing programs permit exporters to obtain short-term loans
at preferential rates. The benefit from that program is the difference
between the amount of interest the respondents actually pay and the
amount of interest they would have to pay on the market. The interest
enters the accounts as an expense or cost, just like hundreds of other
expenses. There is no way to determine what effect a reduced interest
expense has on a company's profits because there are so many variables
(not just countervailable subsidies) that enter into, and affect, a
company's costs. In order to consider the effect that such reduced
interest expense would have on profits, all of the other variables that
affect profits (all other revenues and expenses) would have to be
isolated. Similarly, the revenue from the sale of import licenses is
considered to be a grant to the company, and that grant constitutes the
benefit. The revenue a company receives from the sale of the licenses
may enter the accounts as income, or it may enter the accounts as a
reduction in costs. Because all the income and expenses from all
sources enters into the calculation of a company's profit (or loss),
there is no way to determine what effect the countervailable grant has
on a company's profit.
Respondents suggest that the Department attempt to isolate the
effect of the countervailable grants and loans on the company's profits
and, once that effect is determined, alter the measurement of the
benefit of the 80 HHC program to reflect the effect of the
countervailable grants and loans. As stated in the Proposed Regulations
under section 355.46(b), this is something the Department does not do;
``In calculating the amount of countervailable benefit, the Secretary
will ignore the secondary tax consequences of the benefit.'' To factor
in the effect of other subsidies on the calculation of the benefit from
a separate subsidy undermines the principle that we do not, and are not
required to, consider the effects of subsidies on a company's profits
or financial performance.
In all of the cases where we have actually examined both grant and
loan programs, as well as income tax programs (either exemptions or
reductions), this principle has been applied even though it has not
been expressly discussed. For example, in the Final Affirmative
Countervailing Duty Determinations: Certain Steel Products From
Belgium, 58 FR 37273 (July 29, 1993), the Department found cash grants
and interest subsidies under the Economic Expansion Law of 1970 to
constitute countervailable subsidies. 58 FR at 37275-37276. At the same
time, the Belgian government exempted from corporate income tax grants
received under the same 1970 Law. 58 FR at 37283. The Department found
the exemption of those grants from income tax liability to be a
countervailable subsidy. Id. Significantly, it did not examine the tax
consequences of the tax exemption of the grants. See also Final
Affirmative Countervailing Duty Determination: Certain Pasta From
Turkey, 61 FR 30366 (June 14, 1996), and Final Affirmative
Countervailing Duty Determination and Countervailing Duty Order;
Extruded Rubber Thread From Malaysia, 57 FR 38472 (Aug. 25, 1992).
In this case, because all companies' profits are taxable at the
corporate tax rate, an exemption of payment of the corporate tax for
specific enterprises or industries constitutes a countervailable
subsidy. The amount of the benefit is equal to the amount of the
exemption. The countervailable grant may or may not have contributed to
the taxable profits, but the grant does not change the amount of the
exemption that the government provided, and countervailing the tax
exemption does not overcountervail the grant.
Respondents claim that they are not asking us to consider the
secondary tax consequences of subsidies--yet they are asking us to
consider the effect of the grant and loan subsidies in the valuation of
the tax subsidy. As stated above, we do not adjust the calculation of
the subsidy to take into consideration the effect of another subsidy.
This would be akin to an offset, and the only
[[Page 64693]]
permissible offsets to a countervailable subsidy are those provided
under section 771(6) of the Act. Such offsets include application fees
paid to attain the subsidy, losses in the value of the subsidy
resulting from deferred receipt imposed by the government, and export
taxes specifically intended to offset the subsidy received. Adjustments
which do not strictly fit the descriptions under section 771(6) are
disallowed. (See, e.g., Final Affirmative Countervailing Duty
Determination and Countervailing Duty Order: Extruded Rubber Thread
from Malaysia 57 FR 38472 (August 25, 1992).)
It is clear that the 80 HHC program is an export subsidy; it
provides a tax exemption to exporters that other companies in the
economy do not receive. This is not a secondary consequence of a grant
or loan program. Rather it is the primary consequence of a particular
government program designed to benefit exporters. Just as we do not
consider the effect of the standard tax regime on the amount of the
grant to be countervailed, we do not consider the effect of other
subsidy programs on the amount of tax exemption to be countervailed.
Accordingly, we continue to find these programs to be separate and
distinct subsidies and to find that no adjustment to the calculation of
the subsidy for any of the programs is necessary.
Comment 11
Respondents state that the Department preliminarily found that
several programs, including IPRS, CCS, the sales of licenses, and
another program involving duty drawback, did not benefit sales of
subject castings to the United States. Respondents argue that,
regardless of the fact that none of the income earned through these
programs benefitted subject castings exported to the United States, the
Department still countervailed the deduction of this income.
Respondents suggest that income from the CCS, IPRS, duty drawback, and
sales of licenses should not be included in the calculation of 80 HHC
benefits. Respondents are not suggesting that the Department offset the
subsidy or disregard secondary tax effects. They are stating that
because the income does not relate to subject castings, the unpaid tax
on this income cannot be a subsidy benefitting the subject merchandise.
Respondents also argue that the Department overstated Kajaria's
benefits from the Section 80 HHC Income Tax Deduction program by not
factoring out its greater profits made on exports of non-subject
castings. They assert that the Department should not include the profit
earned on non-subject castings in its 80 HHC calculation.
Petitioners state that the Department has correctly countervailed
the benefits received under the 80 HHC program. They argue that
respondents have failed to recognize that the Department has
countervailed this program because it provides a subsidy associated
with the export of all goods and merchandise. Petitioners add that no
new information has been provided in this review to suggest that the
Department should change its calculations. They assert that the
Department should reject Kajaria's claim that its 80 HHC benefits are
overstated.
Department's Position
We disagree with respondents' assertion that we incorrectly
calculated the benefit provided by the 80 HHC program. Again,
respondents are, in effect, requesting the Department to trace specific
revenues in order to determine the tax consequences on such revenues.
As we explained above in Comment 10, this is something the Department
does not do and is not required to do.
Further, it is our practice, in the case of programs where benefits
are not tied to the production or sale of a particular product or
products, to allocate the benefit to all products produced by the firm.
(See e.g., Final Affirmative Countervailing Duty Determination: Certain
Pasta (``Pasta'') from Turkey 61 FR 30366, 30370 (June 14, 1996).) In
this case, because the 80 HHC program is an export subsidy not tied to
specific products, we appropriately allocated the benefit over total
exports. We have used this methodology to calculate benefits from the
80 HHC program in previous reviews of this order.
Final Results of Review
For the period January 1, 1992 through December 31, 1992, we
determine the net subsidies to be 0.00 percent ad valorem for Dinesh
Brothers, Pvt. Ltd., 13.99 percent for Kajaria Iron Castings Pvt. Ltd.,
and 6.02 percent ad valorem for all other companies. Because this
notice is being published concurrently with the final results of the
1993 administrative review, the 1993 administrative review will serve
as the basis for setting the cash deposit rate.
This notice serves as the only reminder to parties subject to APO
of their responsibilities concerning the return or destruction of
proprietary information disclosed under APO in accordance with section
355.34(d) of the Proposed Regulations. Failure to comply is a violation
of the APO.
This administrative review and notice are in accordance with
section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)) and 19 CFR 355.22.
Dated: November 27, 1996.
Robert S. LaRussa,
Acting Assistant Secretary for Import Administration.
[FR Doc. 96-31106 Filed 12-5-96; 8:45 am]
BILLING CODE 3510-DS-P
