[Federal Register Volume 62, Number 114 (Friday, June 13, 1997)]
[Notices]
[Pages 32297-32307]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-15606]
-----------------------------------------------------------------------
DEPARTMENT OF COMMERCE
International Trade Administration
[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 December 6, 1996, 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, 1994 through
December 31, 1994 (61 FR 64669). The Department has now completed this
administrative review in accordance with section 751(a) of the Tariff
Act of 1930, as amended. For information on the net subsidy for each
reviewed company, and for all non-reviewed companies, see the Final
Results of Review section of this notice. We will instruct the U.S.
Customs Service to assess countervailing duties as detailed in the
Final Results of Review section of this notice.
EFFECTIVE DATE: June 13, 1997.
FOR FURTHER INFORMATION CONTACT: Christopher Cassel or Lorenza Olivas,
Office of CVD/AD Enforcement VI, Import Administration, International
Trade Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, N.W., Washington, D.C. 20230; telephone: (202)
482-2786.
SUPPLEMENTARY INFORMATION:
Background
Pursuant to 19 C.F.R. 355.22(a), this review covers only those
producers or exporters of the subject merchandise for which a review
was specifically requested. The producers/exporters of the subject
merchandise for which this review was requested are:
Calcutta Ferrous.................... Kajaria Iron Castings RSI Limited.
Pvt. Ltd.
Carnation Enterprise Pvt. Ltd....... Kejriwal Iron & Steel Seramapore Industries Pvt. Ltd.
Works.
Commex Corporation.................. Nandikeshwari Iron Shree Rama Enterprise.
Foundry Pvt. Ltd.
Crescent Foundry Co. Pvt. Ltd....... Orissa Metal Industries Shree Uma Foundries.
Delta Enterprises................... R.B. Agarwalla & Siko Exports.
Company Pvt. Ltd.
Dinesh Brothers..................... R.B. Agarwalla & Co.... Super Iron Foundry.
Uma Iron & Steel.................... Victory Castings Ltd .................................................
Delta Enterprises, Orissa Metal Industries, R.B. Agarwalla & Co. Pvt.
Ltd., Shree Uma Foundries and Uma Iron & Steel did not export the
subject merchandise during the period of review (``POR''). Therefore,
these companies have not been assigned an individual company rate for
this administrative review. This review covers the period January 1,
1994 through December 31, 1994, and nineteen programs.
Since the publication of the preliminary results on December 6,
1996, we invited interested parties to comment on the preliminary
results. On January 6, 1997, case briefs were submitted by the
Engineering Export Promotion Council of India (EEPC) and the exporters
of certain iron-metal castings to the United States (respondents)
during the review period and the Municipal Castings Fair Trade Council
and its members (petitioners). On January 13, 1997, rebuttal briefs
were submitted by the EEPC, respondents and petitioners.
Applicable Statute
Unless otherwise indicated, all citations to the statute are
references to the provisions of the Tariff Act of 1930, as amended by
the Uruguay Round Agreements Act (``URAA'') effective January 1, 1995
(``the Act''). The Department is conducting this administrative review
in accordance with Sec. 751(a) of the Act.
Scope of the Review
Imports covered by the administrative review are shipments of
Indian manhole covers and frames, clean-out covers and frames, and
catch basin grates and frames. These articles are commonly called
municipal or public works castings and are used for access or drainage
for public utility, water, and sanitary systems. During the review
period, such merchandise was classifiable under the Harmonized Tariff
Schedule (``HTS'') item numbers 7325.10.0010 and 7325.10.0050. The HTS
item numbers are provided for convenience and Customs purposes. The
written description remains dispositive.
Verification
As provided in Sec. 782(i) of the Act, we verified information
submitted by the Government of India and certain producers/exporters of
the subject merchandise. We followed standard verification procedures,
including meeting with government and company officials and examination
of relevant accounting and financial records and other original source
documents. Our verification results are outlined in the public versions
of the verification reports, which are on file in the Central Records
Unit (Room B-099 of the Main Commerce Building).
Analysis of Programs
Based upon the responses to our questionnaire, the results of
verification, and written comments from the interested parties we
determine the following:
[[Page 32298]]
I. Programs Conferring Subsidies
A. Programs Previously Determined to Confer Subsidies
1. Pre-Shipment Export Financing
In the preliminary results, we found that this program conferred
countervailable subsidies on the subject merchandise. Our review of the
record and our analysis of the comments submitted by the interested
parties, summarized below, have not led us to change our preliminary
findings. Accordingly, the net subsidies for this program remain
unchanged from the preliminary results and are as follows:
------------------------------------------------------------------------
Rate
Manufacturer/exporter (percent)
------------------------------------------------------------------------
Calcutta Ferrous........................................... 0.12
Carnation Enterprise Pvt. Ltd.............................. 0.24
Commex Corporation......................................... 0.03
Crescent Foundry Co. Pvt. Ltd.............................. 0.04
Dinesh Brothers............................................ 0.57
Kajaria Iron Castings Pvt. Ltd............................. 0.40
Kejriwal Iron & Steel Works................................ 0.00
Nandikeshwari Iron Foundry Pvt. Ltd........................ 0.24
R.B. Agarwalla & Company................................... 0.03
RSI Limited................................................ 0.59
Seramapore Industries Pvt. Ltd............................. 0.04
Shree Rama Enterprise...................................... 0.00
Siko Exports............................................... 0.00
Super Iron Foundry......................................... 0.25
Victory Castings Ltd....................................... 0.25
------------------------------------------------------------------------
2. Pre-Shipment Export Credit in Foreign Currency (``PCFC'')
In the preliminary results, we found that this program conferred
countervailable subsidies on the subject merchandise. Our review of the
record and our analysis of the comments submitted by the interested
parties, summarized below, have not led us to change our preliminary
findings. Accordingly, the net subsidies for this program remain
unchanged from the preliminary results and are 0.45 percent for
Calcutta Ferrous and 0.00 percent for all other producers/exporters of
the subject merchandise.
3. Post-Shipment Export Financing
In the preliminary results, we found that this program conferred
countervailable subsidies on the subject merchandise. Our review of the
record and our analysis of the comments submitted by the interested
parties, summarized below, have not led us to change our preliminary
findings. Accordingly, the net subsidies for this program remain
unchanged from the preliminary results and are 0.03 percent for Dinesh
Brothers Pvt. Ltd., 0.02 percent for Super Iron Foundry and 0.00
percent for all other producers/exporters of the subject merchandise.
4. Post-Shipment Export Credit in Foreign Currency (``PSCFC'')
In the preliminary results, we found that this program conferred
countervailable subsidies on the subject merchandise. Our review of the
record and our analysis of the comments submitted by the interested
parties, summarized below, have not led us to change our preliminary
findings. Accordingly, the net subsidies for this program remain
unchanged from the preliminary results and are as follows:
------------------------------------------------------------------------
Rate
Manufacturer/exporter (percent)
------------------------------------------------------------------------
Calcutta Ferrous........................................... 1.91
Carnation Enterprise Pvt. Ltd.............................. 0.14
Commex Corporation......................................... 0.91
Crescent Foundry Co. Pvt. Ltd.............................. 0.59
Dinesh Brothers............................................ 1.45
Kajaria Iron Castings Pvt. Ltd............................. 3.54
Kejriwal Iron & Steel Works................................ 0.10
Nandikeshwari Iron Foundry Pvt. Ltd........................ 2.74
R.B. Agarwalla & Company................................... 0.67
RSI Limited................................................ 2.21
Seramapore Industries Pvt. Ltd............................. 2.15
Shree Rama Enterprise...................................... 0.00
Siko Exports............................................... 2.23
Super Iron Foundry......................................... 0.00
Victory Castings Ltd.1.91%................................. 1.77
------------------------------------------------------------------------
5. Income Tax Deductions Under Section 80 HHC
In the preliminary results we found that this program conferred
countervailable subsidies on the subject merchandise under section
771(5A)(B) (Note: The preliminary results mistakenly indicated the
section as 772(5A)(B)). Our review of the record and our analysis of
the comments submitted by the interested parties, summarized below,
have not led us to change our preliminary findings. Accordingly, the
net subsidies for this program remain unchanged from the preliminary
results and are as follows:
------------------------------------------------------------------------
Rate
Manufacturer/exporter (percent)
------------------------------------------------------------------------
Calcutta Ferrous........................................... 3.19
Carnation Enterprise Pvt. Ltd.............................. 2.15
Commex Corporation......................................... 0.45
Crescent Foundry Co. Pvt. Ltd.............................. 7.52
Dinesh Brothers............................................ 0.00
Kajaria Iron Castings Pvt. Ltd............................. 11.64
Kejriwal Iron & Steel Works................................ 15.04
Nandikeshwari Iron Foundry Pvt. Ltd........................ 0.28
R.B. Agarwalla & Company................................... 3.86
RSI Limited................................................ 4.89
Seramapore Industries Pvt. Ltd............................. 7.02
Shree Rama Enterprise...................................... 13.09
Siko Exports............................................... 2.28
Super Iron Foundry......................................... 0.05
Victory Castings Ltd....................................... 0.00
------------------------------------------------------------------------
6. Import Mechanisms (Sale of Licenses)
In the preliminary results, we found that this program conferred
countervailable subsidies on the subject merchandise. Our review of the
record and our analysis of the comments submitted by the interested
parties, summarized below, have not led us to change our preliminary
findings. Accordingly, the net subsidies for this program remain
unchanged from the preliminary results and are 0.24 percent for Kajaria
Iron Castings Pvt. Ltd, 0.06 percent for Kejriwal Iron & Steel Works,
0.15 percent for Seramapore Industries Pvt. Ltd, and 0.00 percent for
all other producers/exporters of the subject merchandise.
7. Exemption of Export Credit From Interest Taxes
In the preliminary results, we found that this program conferred
countervailable subsidies on the subject merchandise. Our review of the
record and our analysis of the comments submitted by the interested
parties, summarized below, have not led us to change our preliminary
findings. Accordingly, the net subsidies for this program remain
unchanged from the preliminary results and are as follows:
------------------------------------------------------------------------
Rate
Manufacturer/exporter (percent)
------------------------------------------------------------------------
Calcutta Ferrous........................................... 0.09
Carnation Enterprise Pvt. Ltd.............................. 0.03
Commex Corporation......................................... 0.03
Crescent Foundry Co. Pvt. Ltd.............................. 0.02
Dinesh Brothers............................................ 0.16
Kajaria Iron Castings Pvt. Ltd............................. 0.24
Kejriwal Iron & Steel Works................................ 0.00
Nandikeshwari Iron Foundry Pvt. Ltd........................ 0.15
R.B. Agarwalla & Company................................... 0.02
RSI Limited................................................ 0.12
Seramapore Industries Pvt. Ltd............................. 0.06
Shree Rama Enterprise...................................... 0.00
Siko Exports............................................... 0.13
Super Iron Foundry......................................... 0.07
Victory Castings Ltd....................................... 0.08
------------------------------------------------------------------------
B. Other Program Determined to Confer Subsidies
In the preliminary results we found that the following new program
conferred countervailable benefits on the subject merchandise:
Payment of Premium Against Advance License
Our analysis of the comments submitted by the interested parties,
summarized below, have not led us to change our findings from the
preliminary results. Accordingly, the net subsidies for this program
are 3.65 percent ad valorem for Dinesh Brothers Pvt. Ltd. and 0.00
percent for all other
[[Page 32299]]
producers/exporters of the subject merchandise.
II. Programs Found To Be Not Used
In the preliminary results we found that the producers and/or
exporters of the subject merchandise did not apply for or receive
benefits under the following programs:
1. Market Development Assistance (MDA)
2. Rediscounting of Export Bills Abroad
3. International Price Reimbursement Scheme (IPRS)
4. Cash Compensatory Support Program (CCS)
5. Programs Operated by the Small Industries Development Bank of India
(SIDBI)
6. Export Promotion Replenishment Scheme (EPRS) (IPRS Replacement)
7. Export Promotion Capital Goods Scheme
8. Benefits for Export Oriented Units and Export Processing Zones
9. Special Imprest Licenses
10. Special Benefits
11. Duty Drawback on Excise Taxes
We did not receive any comments on these programs from the
interested parties, and our review of the record have not led us to
change our findings from the preliminary results.
Analysis of Comments
Comment 1
Respondents contest the Department's use of a rupee-loan interest
rate, adjusted for exchange rate changes, as the benchmark to calculate
the benefit on PSCFC loans. According to respondents, this is
inconsistent with item (k) of the ``Illustrative List of Export
Subsidies,'' annexed to the Agreement on Subsidies and Countervailing
Measures. Item (k) provides that an ``export credit'' is a subsidy only
if those credits are granted by governments at interest rates below the
cost of funds to the government. Because the Indian commercial banks
providing PSCFC loans could themselves borrow at LIBOR-linked rates,
the appropriate benchmark, respondents claim, is a LIBOR-linked
interest rate. Accordingly, PSCFC loans should not be considered
beneficial to the extent that they are provided at rates above the
appropriate benchmark, i.e., the rate at which Indian commercial banks
could borrow U.S. dollars.
According to petitioners, the Department has consistently rejected
the ``cost-to-government'' methodology of item (k), because that
approach does not adequately capture the benefits provided under short-
term financing programs. In support of their argument, petitioners cite
the Department's determinations in Extruded Rubber Thread from
Malaysia; Final Results of Countervailing Duty Administrative Review,
60 FR 17515, 17517 (April 6, 1995) and Certain Textile Mill Products
from Mexico; Final Results of Countervailing Duty Administrative
Review, 56 FR 12175, 12177 (March 22, 1991). Petitioners also cite the
1989 final results of Certain Textile Mill Products from Mexico, in
which the Department stated:
When we have cited the Illustrative List as a source for
benchmarks to identify and measure export subsidies, those
benchmarks have been consistent with our long-standing practice of
using commercial benchmarks to measure the benefit to recipient of a
subsidy program. The cost-to-government standard in item (k) of the
Illustrative List does not fully capture the benefits provided to
recipients of FOMEX financing. Therefore, we must [sic] use a
commercial benchmark to calculate the benefit from a subsidy,
consistent with the full definition of ``subsidy'' in the statute.
54 FR 36841, 36843 (1989). According to petitioners, the Department's
repudiation of the ``cost-to-government'' standard contemplated in item
(k) was upheld and restated in the Statement of Administrative Action:
Agreement on Subsidies and Countervailing Measures, H. Doc. No. 316,
103d Cong., 2d Sess. 927-928 (1994). For these reasons, the Department
should reject respondents' argument and adopt as a benchmark a non-
preferential interest rate based on the ``predominant'' form of short-
term financing in India.
Department's Position
We disagree with respondents that the Department should use a
LIBOR-linked interest rate as an appropriate benchmark for the PSCFC
program. In examining whether a short-term export loan confers
countervailable benefits, the Department must determine whether ``there
is a difference between the amount the recipient of the loan pays on
the loan and the amount the recipient would pay on a comparable
commercial loan that the recipient could actually obtain on the
market.'' See Sec. 771(5)(E)(ii) of the Act. See also S. Rep. No. 412,
103d Cong., 2d Sess. 91 (1994).
In this case, we have determined that commercial financing
comparable to PSCFC is the ``cash credit'' interest rate. As we
explained in Certain Iron-Metal Castings From India: Preliminary
Results of Countervailing Duty Administrative Review, 61 FR 64669,
64671 (December 6, 1996) (1994 Castings Prelim), the ``cash credit''
interest rate is for domestic working capital finance, comparable to
pre- and post-shipment export working capital finance. We also found
that PSCFC loans are limited only to exporters, and only exporters have
access to LIBOR-linked interest. Therefore, in accordance with
Sec. 771(5)(E)(ii) of the Act, because the interest rate on PSCFC loans
is less that what a company would have to pay on a comparable ``cash
credit'' short-term loan, we determined that PSCFC loans confer
countervailable benefits. Because we found that PSCFC loans are limited
to exporters and that non-exporters do not have access to these low-
cost financing rates, loans with interest rates linked to LIBOR clearly
do not represent the ``comparable commercial loan that the recipient
could actually obtain on the market.'' The fact that commercial banks
may borrow at LIBOR-linked rates is, therefore, irrelevant to our
finding.
Petitioners correctly note that the Department has consistently
rejected the ``cost-to-government'' standard of item (k) of the
Illustrative List, which respondents cite in support of their argument
that the appropriate benchmark for PSCFC loans should be a LIBOR linked
interest rate. The cost-to-government standard contemplated in item (k)
does not limit the United States in applying its own national
countervailing duty law to determine the countervailability of benefits
on goods exported from India. See, e.g., Porcelain-on-Steel Cookingware
From Mexico; Final Results of Countervailing Duty Administrative
Review, 57 FR 562 (January 7, 1992). Therefore, in accordance with the
U.S. countervailing duty law and the Department's past practice, we
will continue to use as a benchmark the ``comparable'' cash credit
commercial loan rate that Indian exporters would actually obtain on the
market to determine whether PSCFC loans confer countervailable benefits
upon exports of the subject merchandise to the United States.
Comment 2
According to respondents, for purposes of the Sec. 80 HHC tax
program, 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, because revenue from the sale of
licenses are also part of the deductions under Sec. 80 HHC, to
countervail this revenue and the deduction results in double counting
the subsidy from the sale of licenses. Respondents also contend that
the Department is double counting the subsidy from the export financing
programs. The financing programs reduce the companies' expenses in
[[Page 32300]]
financing exports, which in turn increases profits on export sales.
Because the Sec. 80 HHC deduction increases as export profits increase,
the financing programs increase the Sec. 80 HHC deduction. Therefore,
respondents argue, countervailing the financing programs and the
Sec. 80 HHC deduction means the benefit to the exporter is
countervailed twice.
According to respondents, the Department rejected similar arguments
in the 1990 administrative review of this case, stating that an
adjustment to the Sec. 80 HHC benefit to account for other subsidies is
contrary to our practice of disregarding secondary tax effects of
subsidies. See Certain Iron-Metal Castings from India: Final Results of
Countervailing Duty Administrative Review, 60 FR 44849, 44854 (August
29, 1995). However, the 1990 final results were appealed to the Court
of International Trade (CIT), and on December 26, 1996, the CIT ruled
in that appeal. See Crescent Foundry Co., et al. v. United States, 951
F.Supp. 252 (CIT 1996) (Crescent). In that ruling, the CIT addressed
the issue of double-counting, stating:
Commerce cited this policy of disregarding secondary tax
consequences as the reason for refusing to eliminate countervailed
CCS payments from its calculation of the Sec. 80 HHC subsidy.
[citation omitted] However, the logic of that policy would seem to
dictate the opposite result: that when companies pay lower taxes as
a result of receiving a subsidy, Commerce should not add the
additional tax benefit to the amount of the subsidy when calculating
the benefit conferred. That is, it should not countervail the tax
exemption for that subsidy. * * *
Id. at 261. The issue was then remanded by the CIT for ``a
reexamination of whether countervailing the portion of the Sec. 80 HHC
subsidy attributable to CCS over-rebates double-counts the CCS
subsidy.'' Id.
Respondents argue that the Department should reexamine its
preliminary results in this review in light of the CIT's ruling in
Crescent, and find that the subsidy from export financing and import
license sales was double counted when the unpaid tax on those subsidies
was also countervailed under Sec. 80 HHC.
Petitioners contend that the Department's prior findings on this
issue should be upheld in this administrative review on the basis of
(1) the facts on the record; (2) because the subsidies being
countervailed are separate and distinct; (3) because the Department has
a consistent policy of not examining the tax consequences of tax
exemptions related to loans and grants; and (4) there is no reasonable
way for the Department to isolate the alleged effects on respondents'
export tax liability. For these reasons, the Department should reject
respondents' double-counting allegations.
Petitioners indicate that the Department's policy of not examining
secondary tax effects of subsidies has been upheld in the courts. In
support of this, petitioners cite Geneva Steel v. United States, 914 F.
Supp. 563, 609-610 (CIT 1996) (Geneva Steel); Ipsco, Inc. v. United
States, 687 F. Supp. 614, 621-22 (Ct. Int'l Trade 1988); and Michelin
Tire v. United States, 6 CIT 320, 328 (1983), vacated on other grounds,
9 CIT 38 (1985). According to petitioners, the legislative history of
the URAA also makes clear that in determining whether a countervailable
subsidy exists, the Department is not required to consider the effect
of the subsidy. SAA, H.R. Doc. No. 103-316 at 926 (1994). When applied
to the alleged double-counting issue, this means that the Department
does not have to consider whether subsidies in the form of grants or
loans have any effect on the Sec. 80 HHC tax program when determining
whether subsidies under Sec. 80 HHC are countervailable. Petitioners
assert that this is the only reasonable policy given the difficulties
in calculating such secondary effects. Furthermore, petitioners argue
that even if the Department could consider the secondary effect of a
subsidy program in determining its countervailability, the Department's
ability to correct for unfair subsidization would be impaired, as
governments would structure subsidy programs to appear to have
overlapping effects.
Petitioners state that the Department has applied this policy in
all cases involving grant and loan programs as well as income tax
programs. Only in two previous cases did the Department make different
findings. See Carbon Steel Wire From Argentina; Suspension of
Investigation, 47 FR 42393 (September 17, 1982), and Final Affirmative
Countervailing Duty Determinations and Countervailing Duty Orders;
Certain Welded Steel Pipe and Tube Products From Argentina, 53 FR 37619
(September 27, 1988). In the Argentine cases, the Department found that
excessive rebates of indirect taxes were countervailable. The
petitioners at the time claimed that there was an additional subsidy
due to the fact that the rebates were not subject to income taxes. The
Department determined in those cases that it had captured the full
benefit by countervailing the overrebate.
Petitioners point out, however, that factual circumstances in these
cases were different from those in the Indian castings reviews. In the
Argentine cases, the Department did not examine whether there was a
benefit as a result of the tax exemption because the overrebates were
provided through a non-income tax program. Indian castings exporters,
in contrast, were found to have benefitted from both non-income tax
programs (grants and loans), in addition to the Sec. 80 HHC income tax
program. According to petitioners, in such cases, it is the
Department's policy to countervail both types of programs as separate
and distinct subsidies.
Petitioners claim that the recent CIT ruling in Crescent does not
upset the Department's policy with respect to this issue, or the prior
CIT cases upholding that policy. Rather, the CIT has merely requested
that the Department on remand (1) reexamine whether countervailing the
portion of the Sec. 80 HHC subsidy attributable of the CCS overrebate
results in a double-counting of the CCS subsidy and (2) explain whether
the Department's determination in Argentine Wire Rod continues to
reflect current agency policy.
Petitioners indicate that respondents do not provide any comment on
how the Department should correct for alleged double-counting under
Sec. 80 HHC. According to petitioners, even if the Department had the
necessary data in this review to isolate all of the revenues and
expenses, doing so would be too difficult and burdensome for the agency
to accomplish. Accordingly, the Department should conclude that any
attempt to trace the tax consequences of other subsidies would be
overly complicated and administratively burdensome.
Department's Position
Respondents' argument that the subsidy under the export financing
and import licensing programs has been countervailed twice, by also
countervailing the full amount of the Sec. 80 HHC deduction, is
incorrect. With respect to the CIT's ruling in Crescent, the Department
responded to the court's instructions on February 24, 1997, in the
Final Results of Redetermination on Remand Pursuant to Crescent Foundry
Co. Pvt. Ltd., et al. v. United States (Crescent Remand).
As we explained in the Crescent Remand, adjusting the Sec. 80 HHC
subsidy to take into account the CCS grants (in this review revenue
from the export financing programs and earnings from the sale of
licences) would be in conflict with the countervailing duty law,
Department regulations, and longstanding Department policy. This type
of adjustment is inappropriate because, if made, it would: (1) require
[[Page 32301]]
the Department to examine the secondary effects and uses of a subsidy;
(2) expand the statutory definition of a permissible offset to a
subsidy; and (3) require the Department to no longer countervail the
full amount of the benefit provided by a government subsidy program.
The Department explained fully its reasoning with respect to this
issue in the 1991 final results of this case, and in the recently
completed 1992 and 1993 final results. See Certain Iron-Metal Castings
From India: Final Results of Countervailing Duty Administrative Review,
60 FR 44843, 44848 (August 29, 1995) (1991 Castings Final), Certain
Iron-Metal Castings From India: Final Results of Countervailing Duty
Administrative Review, 61 FR 64687, 64692 (December 6, 1996) (1992
Castings Final), and Certain Iron-Metal Castings From India: Final
Results of Countervailing Duty Administrative Review, 61 FR 64676,
64685 (December 6, 1996) (1993 Castings Final). It has been and
continues to be our policy to ignore any secondary effect of a direct
subsidy on a company's financial performance. This policy has been
upheld by the court. See, e.g., Saarstahl AG v. United States, 78 F.3d
1539, 1543 (Fed. Cir. 1996).
With respect to the Argentine Wire Rod case, we stated in the
Crescent Remand that there was not sufficient information to determine
whether or not the Department should have investigated the allegation
of an income tax benefit. However, we also stated that under our
current approach, and under the approach adopted in the overwhelming
majority of cases, we would not take into account the secondary effect
of an income tax deduction on the calculation of the benefit conferred
under the rebate of indirect taxes (reembolso) program in Argentina.
Likewise, the Department would not take into account the secondary
effects of that rebate program on the calculation of the benefit
conferred by an income tax deduction program. If Argentine Wire Rod is
interpreted as suggesting that the Department would not investigate and
calculate separate benefits for a rebate program and a tax deduction
program, then Argentine Wire Rod must be considered an anomaly and not
reflective of current Department policy or of Department policy in
other case precedents. Crescent Remand at 4.
In all of the cases where we have actually examined both grant and
tax programs, this principle has been applied, even though it has not
always been expressly discussed. See, e.g., Final Affirmative
Countervailing Duty Determination: Certain Pasta From Turkey, 61 FR
30366 (June 14, 1996) (Pasta from Turkey); Final Affirmative
Countervailing Duty Determination: Certain Pasta (``Pasta'') From
Italy, 61 FR 30288 (June 14, 1996) (Pasta From Italy); Final
Affirmative Countervailing Duty Determination and Countervailing Duty
Order; Extruded Rubber Thread From Malaysia, 57 FR 38472 (Aug. 25,
1992) (Malaysian Rubber Thread); Final Affirmative Countervailing Duty
Determinations: Certain Steel Products From Belgium, 58 FR 37273 (July
29, 1993) (Belgian Steel); and Final Affirmative Countervailing Duty
Determination; Certain Fresh Atlantic Groundfish From Canada, 51 FR
10041 (March 24, 1986) (Groundfish from Canada). For example, in
Belgian Steel the Department found cash grants and interest subsidies
under the Economic Expansion Law of 1970 to constitute countervailable
subsidies. At the same time, the Belgian government exempted from
corporate income tax, grants received under the same 1970 Law. The
Department found the exemption of those grants from income tax
liability to be a separate countervailable subsidy. We determined that
a benefit had been provided under the grant program and an additional
benefit was provided by the tax exemption. In calculating the benefit
from the grant program, the Department did not take into account the
secondary effects of income taxation on those grants. Likewise, the
Department did not adjust the benefit from the tax exemption to take
into account the secondary effects of non-tax programs on the tax
exemption program. The pertinent fact here is that the Department, in
examining whether a subsidy was conferred under the tax exemption
provided by the Belgian Government, did not take into account the
secondary effect of other government subsidy programs in deciding
whether a countervailable benefit was conferred under the tax exemption
program. We did not factor in the grant in determining whether a
benefit was received from the tax exemption, and our decision would
have been the same regardless of the fact that the subsidy from the tax
exemption for the period of review in question was 0.00 percent.
It is our view that the export financing and import license
subsidies are not being double-counted and that the Sec. 80 HHC income
tax exemption is a separate and distinct subsidy from those subsidies.
For example, pre-and post-shipment export financing permits exporters
to obtain short-term loans at preferential interest rates. The
countervailable benefit from that program is the difference between the
amount of interest respondents actually pay and the amount of interest
they would have to pay at comparable interest rates on the market. In
an analogous manner, the revenue from the sale of licenses is
considered to be a grant to the company, and that grant constitutes the
benefit. On the other hand, the countervailable portion of the Sec. 80
HHC program is the amount of taxes on all export income (both of
subject and non-subject merchandise) that is exempted and that
otherwise would have been paid absent the tax deduction. Just as the
Department does not consider the income tax effect on the amount of a
grant to be countervailed (i.e., by deducting from the grant the amount
of taxes that may have been due on the grant), it does not consider the
secondary effect of other direct subsidy programs on the amount of the
tax deduction because both programs provide separate and distinct
countervailable benefits. If companies knew we would reduce their tax
liability by the amount of other subsidies received, the Department
would be, in essence, encouraging companies that receive
countervailable income tax exemptions to use as many non-tax subsidy
programs as possible because these companies would end up with the same
countervailing duty rate as those companies that had no countervailable
income tax deductions.
Finally, we also have not followed the Court's decision in
Crescent, because that case does not represent a final and conclusive
decision and may yet be appealed. For these reasons, our determination
and calculation of the countervailable benefit conferred on the
castings exporters from the Sec. 80 HHC program is in accordance with
record evidence, Department policy, and is otherwise in accordance with
law.
Comment 3
According to respondents, each type of payment received under the
IPRS, CCS, the sales of licenses, and duty drawback program, is
considered export income and is, therefore, deducted from taxable
income under Sec. 80 HHC. Accordingly, because revenues from the CCS,
IPRS, duty drawback, and sales of certain licenses are not related to,
and were not earned on exports of subject castings to the United
States, they should not be included in the calculation of Sec. 80 HHC
benefits. Respondents claim they are not suggesting that the Department
offset the Sec. 80 HHC subsidy, which would be impermissible under
Sec. 771(6) of the Act; nor are they asking the Department to
[[Page 32302]]
disregard secondary tax effects. Rather, respondents maintain that
because the income does not relate to subject castings at all, the
unpaid tax on this income cannot be a subsidy benefiting the subject
merchandise.
Respondents further note that they had raised this issue in the
1990 administrative review, and that the Department rejected the
argument. According to respondents, the CIT has ruled on their appeal
on this issue, stating:
When Commerce specifically finds that a rebate program did not
benefit merchandise subject to the countervailing duty order under
review, Commerce cannot then countervail any of the benefit received
through that program.
Crescent, 951 F. Supp. at 262. The CIT then remanded the issue to the
Department, requiring ``recalculation of the benefit received through
Sec. 80 HHC after subtracting the value of IPRS payments received from
each company's taxable income.'' Id. Accordingly, respondents argue
that the Department should recalculate the Sec. 80 HHC benefit in
accordance with the court's ruling in the final results of this
administrative review.
Petitioners assert that the Department should sustain its practice
of allocating the benefit from the Sec. 80 HHC program over total
exports, because the program provides a subsidy associated with the
export of all goods and merchandise. According to petitioners, this
practice is consistent with Sec. 355.47(c)(1) of the 1989 Proposed
Rule. Furthermore, contrary to respondents' claim that this policy
elevates substance over form, it recognizes that a subsidy that is not
tied to the export of particular products is different from a subsidy
that is tied directly to one or more specific products.
Petitioners argue that if the Department were to adopt respondents'
approach, it would trace specific revenues to determine the tax
consequences of those revenues. While petitioners recognize that the
Department must conform to the Court's order in Crescent for the 1990
review period, they also state that the Court's determination is
subject to appeal. Accordingly, no final determination of this issue
has yet been reached. Absent any binding judicial precedent that
affects Department policy on this issue, petitioners urge the
Department to continue to apply its consistent practice for purposes of
the final results.
Department's Position
We disagree with respondents. It is our view that the Department's
rationale set forth above in Comment 2 for not adjusting the Sec. 80
HHC subsidy calculations for revenue earned on the sale of export
licenses and savings from pre- and post-shipment export financing
applies equally to not adjusting the Sec. 80 HHC subsidy calculations
for revenues from the CCS, IPRS, duty drawback, and sales of certain
licenses not related to exports of subject castings to the United
States. Further, the Department's approach is consistent with
longstanding and judicially upheld allocation principles that underlie
our countervailing duty methodology.
Under the Department's past practice, where we determined that a
subsidy is ``tied'' only to non-subject merchandise, that subsidy, of
course, will not be attributed to the merchandise under investigation.
To do so would violate the countervailing duty law which authorizes the
Department to countervail only those subsidies that benefit subject
merchandise.
In this case, however, the benefit is not ``tied'' to either
subject or non-subject merchandise, but applies across the board to all
of the firm's export revenue, i.e., it is applicable to exports of both
subject and non-subject merchandise. Under this type of situation, it
is the Department's longstanding practice to allocate the benefit to
the merchandise to which the benefit applies in order to produce an
``apples-to-apples'' comparison. If a benefit is ``tied'' to subject
merchandise, then the subsidy is determined by allocating the total
benefit over the sales of subject merchandise only. However, if a
benefit is firm-wide and not ``tied'' to specific merchandise, then the
benefit is allocated over the firm's total sales, if it is a domestic
subsidy, or over total exports, if it is an export subsidy. Either
method provides for fair and accurate results.
Under this longstanding practice, it is imperative that both the
numerator (the benefit) and denominator (the universe of sales to which
the benefit applies) used in our calculation of a subsidy reflect the
same universe of goods. Otherwise the rate calculated will either over-
or understate the subsidy attributable to the subject merchandise. If
the numerator reflects a benefit ``tied'' to one particular product,
then the denominator must reflect total sales or exports of only that
product. Likewise, if the numerator reflects a benefit that is
``untied'' and applies to all products, then the denominator must
consist of total sales (if a domestic subsidy) or total exports (if an
export subsidy) of all products.
This is precisely the situation concerning the Sec. 80 HHC program,
where a company can claim a tax deduction against taxable income (i.e.,
the company's profit prior to deductions) equal in amount to the profit
it earned on all exports, both of subject and of non-subject
merchandise. Indeed, this is a classic type of ``untied'' subsidy
program--where the benefit is broad-based and not ``tied'' to a
specific product or market. When calculating the benefit from an export
subsidy such as the Sec. 80 HHC program, the Department does not deduct
from the subsidy amount (the numerator) any benefits attributable to
non-subject merchandise because the benefit is not ``tied'' to a
specific product or market. Indeed, such an endeavor would be
impossible. Rather, in order to determine the correct benefit for this
type of export subsidy program, the Department divides the ``untied''
benefit by the company's total exports, which include both subject and
non-subject merchandise. This calculation, dividing the ``untied''
Sec. 80 HHC tax deduction claimed on all exports by each firm's total
exports, is consistent with longstanding Department practice. See,
e.g., Malaysian Rubber Thread; Pasta From Turkey; Lamb Meat from New
Zealand; Final Affirmative Countervailing Duty Determination; Standard
Carnations From Chile, 52 FR 3313 (February 3, 1987); Final Affirmative
Countervailing Duty Determination: Miniature Carnations From Colombia,
52 FR 32033 (August 25, 1987); Final Affirmative Countervailing Duty
Determinations: Certain Steel Products From Mexico, 58 FR 37352 (July
9, 1993); and the Final Affirmative Countervailing Duty Determination;
Certain Stainless Steel Cooking Ware From the Republic of Korea, 51 FR
42867 (November 26, 1986). By allocating this ``untied'' benefit over
both the company's subject and non-subject exports, we made an
``apples-to-apples'' comparison which accurately reflected the net
subsidy attributable to exports of subject merchandise.
As petitioners noted, the Court's ruling in Crescent was not a
final and conclusive court decision and is still subject to appeal.
Accordingly, absent such a binding judicial precedent that affects the
Department policy on this issue, we do not intend to not change our
methodology for calculating the benefit conferred to castings exporters
from the Sec. 80 HHC program. Also, for the reasons outlined above, it
is our view that our current approach is in accordance with record
evidence and Department policy, and is otherwise in accordance with
law.
[[Page 32303]]
Comment 4
According to respondents, certain castings exporters segregated
profits relating to subject merchandise sales from profits relating to
sales of non-subject merchandise. For these companies, respondents
claim, the Department should calculate the Sec. 80 HHC subsidy based on
profits relating to the subject merchandise only. For example, a
calculation submitted by Kajaria Iron Castings shows the percentage of
the company's total sales during the POR that were related to sales of
the subject merchandise. Kajaria then applied that percentage to the
company's total profits to derive the profit relating to sales of the
subject merchandise. With respect to this company, respondents argue
that the Department should have calculated the Sec. 80 HHC benefit
based only on profits relating to subject merchandise sales.
Petitioners first urge the Department to reject Kajaria's
calculation, because they claim it is factual information submitted
after the Department's deadline. Petitioners further contend that the
company's calculation does not demonstrate how Kajaria derived the
profit on sales of the subject merchandise. Rather, the company merely
determined what percentage of its total sales were comprised of subject
castings and applied that percentage to its profit. According to
petitioners, the Department did not verify Kajaria's calculation, and,
in any case, it would not allow the Department to determine accurately
what portion of Kajaria's export profit was attributable to subject
exports.
Petitioners argue that Kajaria's calculation does not provide a
reasonable basis to disaggregate the benefit attributable to various
exported products under the Sec. 80 HHC program. The calculation
presumes that in all cases there is a one-to-one correspondence between
sales revenue, cost of production and profits. Petitioners assert,
however, that the profit attributable to sales of different items will
vary according to several factors, including time period, destination,
customer, etc. In any case, petitioners state, it would be difficult to
perform a consistent analysis across different companies, because each
company may calculate end-of-year profit differently, depending on
accounting decisions made in any given year. Therefore, any attempt to
conduct such an analysis would be complicated and too administratively
burdensome for the Department.
Petitioners further argue that even if the profit attributable to
the subject merchandise could be traced, the results could be
anomalous, depending on the amount of the profit that is attributable
to subject castings. For example, if the profit margin on subject
castings in a given year is less than usual, the company's
countervailable benefit would be relatively less for sales of that
product. Conversely, if during a given period subject castings
contributed more than usual to profits, the company would receive a
larger countervailable benefit. Petitioners point out, however, that
respondents are not suggesting that the countervailing duty margins
should be increased because the operations of subject castings have
become more profitable. For these reasons, petitioners argue that the
Department should reject respondents proposal.
Department's Position
At the outset, we must note that petitioners incorrectly claim that
Kajaria's calculation, resubmitted by respondents in their January 6,
1997, case brief, is factual information submitted after the
Department's deadline. This calculation was originally provided by the
company in its March 13, 1996, original questionnaire response, at
Annexure B.
With respect to respondents' argument that the Department should
have calculated the Sec. 80 HHC subsidy based on profits relating to
subject castings only, we disagree. Where a benefit is not tied to a
particular product, the Department's consistent and longstanding
practice is to attribute the benefit to all products exported by a firm
where the benefit is received pursuant to an export subsidy program.
See, e.g., Pasta From Turkey, 61 FR at 30370; and the 1993 Castings
Final, 61 FR at 64683.
As explained above in the Department's position on Comment 3, the
benefit under Sec. 80 HHC applies, in this case, to exports of both
subject and non-subject merchandise. The benefit, therefore, is not
tied to any specific products manufactured or exported by a firm. If a
benefit is firm-wide and not ``tied'' to specific merchandise, then
that benefit is allocated over the firm's total exports, in the case of
an export subsidy. By allocating the ``untied'' benefit under Sec. 80
HHC over a company's total exports, we are making an ``apples-to-
apples'' comparison. This methodology accurately produces the net
subsidy attributable to exports of the subject merchandise and provides
for fair and accurate results.
We also note that respondents have not, under their methodology,
requested that the Department adjust the denominator in calculating the
Sec. 80 HHC benefit. Accordingly, the net benefit to the company under
this approach would be grossly understated because the ``apples-to-
apples'' comparison would be lost. In fact, the numerator (the benefit
adjusted according to respondents' methodology) would reflect a benefit
tied to the subject merchandise, while the denominator would still
cover total exports. This result is not only inconsistent with
Department practice, but is contrary to countervailing duty law. For
these reasons, our calculation of the subsidy under Sec. 80 HHC remains
unchanged from the preliminary results.
Comment 5
In prior administrative reviews of this case, the Department used
the small-scale industry (SSI) short-term interest rate as published by
the Reserve Bank of India (RBI) to measure the benefit under the pre-
and post-shipment export financing schemes. In this review, however,
the Department changed its benchmark, adopting the ``cash credit''
short-term interest rate, as reported by the Government of India (GOI)
in its March 13, 1997, original questionnaire response. According to
respondents, the Department's justification for changing the benchmark
was based on a statement by Small Industries Development Bank of India
(SIDBI) officials at verification that castings exporters are not
eligible for SIDBI financing at the small scale industry (SSI) interest
rates. On December 2, 1996, following release of the Department's GOI
verification report, respondents submitted a comment on that report,
clarifying that ``all SSI castings exporters were eligible for non-
export credit as SSI rates during the [POR].'' Accordingly, respondents
argue that the Department should use the SSI interest rate as a
benchmark to calculate the benefit from the export financing programs.
Respondents made similar arguments in their rebuttal brief which will
not be repeated in a separate comment.
Petitioners first argue that respondents December 2, 1996, letter
constitutes new, unsolicited information and should be rejected.
Petitioners further assert that record evidence does not support a
finding that castings exporters in fact obtained non-export credit at
SSI interest rates during the POR, notwithstanding respondents' claim
that they were eligible for such credit. According to petitioners,
Sec. 771(5)(E)(ii) of the Act directs the Department to select a
benchmark based on financing that could actually be received by the
recipient, and not one
[[Page 32304]]
for which respondents merely claim they are eligible to receive.
The Department has, petitioners claim, complied with
Sec. 771(5)(E)(ii) of the Act, by selecting a benchmark from a
``comparable'' form of financing. According to GOI officials at
verification, cash credit finance is comparable to financing received
by exporters under the pre-and post-shipment export financing programs.
Petitioners note that the same officials did not make such a claim with
respect to SSI interest rates. With respect to the statute's direction
to use a benchmark based on financing available ``on the market,''
petitioners assert that respondents failed to explain why market
sourced cash credit financing is inferior to government directed SSI
financing. Petitioners made similar arguments in their case brief which
will not be repeated in a separate comment.
Department's Position
We disagree with respondents. During the POR, the producers/
exporters of the subject merchandise obtained short-term financing
under the pre- and post-shipment export financing programs. The
companies are eligible for these loans based solely on their status as
exporters. In determining whether a benefit has been conferred in the
case of a loan, the statute very clearly directs the Department to
examine ``if there is a difference between the amount the recipient of
the loan pays on the loan and the amount the recipient would pay on a
comparable commercial loan that the recipient could actually obtain on
the market''. Section 771(5)(E)(ii) of the Act (emphasis added). While
it is true that in prior proceedings of this case, we determined that
the SSI interest rate was an appropriate benchmark to use in the
calculation of the benefit under the export financing programs,
information obtained at verification in this review has led us to
change that finding.
In this administrative review, the Department reexamined its use of
the SSI interest rate, in part because of new allegations that
respondents benefitted from programs administered by the Small
Industries Development Bank of India (SIDBI). In our meetings with
SIDBI and other GOI officials at verification, we learned that castings
producers would not finance their domestic operations at SSI rates,
but, rather, that such financing would most likely be linked to the
prime lending rate (PLR). It is also our understanding from SIDBI
officials that castings exporters were not eligible for financing at
SSI rates during the POR. See the November 19, 1996, Memorandum for
Barbara E. Tillman Re: Verification of the Government of India
Questionnaire Responses for the 1994 Administrative Review of the
Countervailing Duty Order on Certain Iron Metal Castings from India, at
5 (GOI VR) (Public Version, on file in the Central Records Unit, Room
B-099 of the Main Commerce Building).
Respondents now argue that Department officials misunderstood what
was stated at verification and that all castings exporters were
eligible for SSI-linked financing. However, we disagree. The
Department's findings with respect to interest rates are accurately
reflected in the verification report. During verification, State Bank
of India (SBI) officials stated that the domestic financing
``comparable'' to the pre- and post-shipment export financing during
the POR was financing at the ``cash credit'' interest rate, as reported
by the GOI in its March 13, 1996, questionnaire response. See GOI VR at
5. Furthermore, while respondents now claim that castings exporters
were ``eligible'' to obtain SSI-linked financing, they do not dispute
statements made by SIDBI officials that for non-export loans, castings
exporters ``would most likely borrow at interest rates linked to the
PLR.'' GOI VR at 8. The same officials, therefore, who claim that
castings exporters are eligible for SSI programs, also believe that
these companies would not, in fact, finance their non-export operations
at SSI interest rates. This fact was further corroborated by Indian
commercial bankers, who stated that an exporters' alternative source of
financing during the POR was the PLR plus a spread. See the November
19, 1996, Memorandum for Barbara E. Tillman Re: Meeting with Citibank
Officials for the 1994 Administrative Review of the Countervailing Duty
Order on Certain Iron Metal Castings from India, at 1 (Citibank VR)
(Public Document, on file in the Central Records Unit, Room B-099 of
the Main Commerce Building). Our discussions with bankers from the RBI
also revealed that under the export financing programs, if exporters
were unable to meet their obligations within a certain time period,
``banks were free to charge commercial interest rates.'' GOI VR at 2
(emphasis added). According to the RBI bankers, these rates ranged from
16 percent to 21 percent in 1994. Therefore, even if castings exporters
were eligible for SSI rates, the rates paid by these companies on
overdue export loans were not SSI rates, but, rather, commercial
interest rates comparable to those charged to non-exporting companies.
Finally, evidence collected at Calcutta Ferrous, exporter of the
subject merchandise, clearly indicates that non-export related
financing by these companies was, in fact, not equivalent to the SSI
interest rate during the POR. See the November 21, 1996, Memorandum for
Barbara E. Tillman Re: Verification of the Calcutta Ferrous Limited's
Questionnaire Responses for the 1994 Administrative Review of the
Countervailing Duty Order on Certain Iron Metal Castings from India, at
3-4 (CF VR) (Public Version, on file in the Central Records Unit, Room
B-099 of the Main Commerce Building). Calcutta Ferrous officials
explained the company maintains a ``cash credit'' account for domestic
financing purposes. The documents we examined at verification showed
that the company paid 16 percent on this financing through June 1994
and 19.5 percent after that date. See CF VR at 4. Record evidence,
therefore, supports the Department's preliminary finding. Accordingly,
for these final results, we will continue to use the cash credit
interest rate in calculating the benefit from the pre- and post-
shipment export financing programs.
Comment 6
According to respondents, in calculating the actual benefit to
castings exporters under the PSCFC program, the Department failed to
take into account penalty interest paid at interest rates higher than
the benchmark. Respondents argue that the Department should have
adjusted the benefit on those loans by the excess overdue interest paid
by the company at the penalty interest rate because that rate is
greater than the benchmark rate. Rather than account for this excess
interest paid on the loans, the Department calculated a zero benefit
where the interest rate on the portion of the loan that was overdue was
higher than the benchmark rate. According to respondents, the
Department should have calculated a negative figure and adjusted the
actual benefit on the loan.
Petitioners argue that the Department should reject this
methodology because it would permit a non-allowable offset to the
countervailable benefit under the PSCFC program. According to
petitioners, respondents fail to explain why an offset for penalty
interest should be allowed when payment of that interest does not fall
within the statute's list of allowable offsets under Sec. 771(6). The
penalty interest, petitioners assert, does not fall within that list,
but, rather, merely assures that the terms of the program are met. The
costs associated with such interest charges are, therefore, due to the
recipient's failure to comply with the terms of the loan. As such,
[[Page 32305]]
petitioners state, this is merely a secondary economic effect which the
Department has previously determined should not be used as an offset to
a program's benefit. See, e.g., Oil Country Tubular Goods from Canada;
Final Affirmative Countervailing Duty Determination, 51 FR 15037 (April
22, 1986), and Fabricas el Carmen, S.A. v. United States, 672 F. Supp.
1465 (CIT 1987).
Petitioners further claim that the Department has, in a comparable
situation, refused to offset preferential with non-preferential loans
in Oil Country Tubular Goods from Argentina: Final Results of
Countervailing Duty Administrative Reviews, 56 FR 38116, 38117 (August
12, 1991) (OCTG from Argentina). In that case, petitioners note,
respondents claimed that a loan-by-loan analysis overstated the benefit
received and that, taken together, the loans received by the company
provided no preferential benefit. In rejecting this argument, the
Department asserted that it
only examines loans received under programs that may potentially be
countervailable [sic] if the interest rate is preferential when
compared with the benchmark interest rate. We do not consolidate
these preferential loans with non-countervailable commercial loans
to examine whether the aggregate interest rate paid on a series of
loans is preferential. It is not the Department's practice to offset
the less favorable terms of one loan as an offset to another,
preferential loan.
Id. According to petitioners, the statue by extension also does not
allow the Department to offset the less favorable interest period of a
loan (the period during which the loan was overdue) with the period in
which the loan was provided on preferential terms. This is particularly
the case, petitioners state, when the higher penalty interest was a
result of the company's failure to comply with the terms of the
program.
Department's Position
We disagree with respondents. An adjustment to the benefit under
the PSCFC program in the form advocated by respondents would be an
impermissible offset to the benefit. Section 771(6) of the Act
authorized the Department to subtract from the countervailable subsidy:
(A) any application fee, deposit, or similar payment paid in
order to qualify for, or to receive, the benefit of the
countervailable subsidy,
(B) any loss in the value of the countervailable subsidy
resulting from its deferred receipt, if the deferral is mandated by
Government order, and
(C) export taxes, duties, or other charges levied on the export
of merchandise to the United States specifically intended to offset
the countervailable subsidy received.
As petitioners correctly note, penalty interest under the PSCFC program
does not fall within this list of allowable offsets.
Respondents cite no administrative or court precedent in support of
their argument, and provide no clear indication how the suggested
adjustment would be calculated. Apparently, respondents would have the
Department determine the amount of overdue interest that would have
been paid by the company at the benchmark interest rate. Overdue
interest above this amount would be considered ``excess interest'' and
deducted from the benefit calculated for the negotiated part of the
loan.
In light of how the PSCFC program operates, respondents' approach
is inaccurate. As we explained in the preliminary results, under the
PSCFC program, exporters discount their export bills with Indian
commercial banks to finance their operations. By discounting an export
bill, the company receives payment from the bank in the amount of the
export bill, net of interest charges. The loan is considered ``paid''
once the foreign currency proceeds from an export sale are received by
the bank. If those proceeds are not paid within the negotiated period,
then the loan is considered ``overdue.'' In essence, however, this
overdue period is like a new loan, because the original ``discounted
loan period'' is fully accounted for, that is, the company has received
payment from the bank and the interest on that payment has already been
deducted. For the overdue loan, the bank will charge the company
interest on the original amount of the loan at higher interest rates.
The overdue interest rate varies, depending on the period for which the
loan is overdue. Therefore, to determine whether interest charged on
the ``overdue'' loan confers a countervailable benefit, we
appropriately compared the overdue interest rate with the benchmark
rate. If the benchmark rate was higher than the overdue interest rate,
we found no benefit. Therefore, the adjustment suggested by respondents
is inappropriate given the way in which the PSCFC program is
structured.
Further, because respondents characterize interest paid on overdue
loans for which the interest rate exceeded the benchmark as ``excess
interest,'' respondents'' argument assumes that the overdue interest
rate for certain PSCFC loans does not reflect comparable commercial
rates. This is incorrect. In fact, statements by Indian government and
commercial bankers at verification indicate that the interest rates
charged on the overdue portion of PSCFC loans are ``commercial rates.''
See Citibank VR at 2 and GOI VR at 3-4. The GOI requires banks to
charge even higher penalty, rates for some of these loans so that
exporters comply with the terms of this preferential financing. Under
comparable domestic financing, companies that negotiated short-term
working capital loans, but which failed to meet the terms of the loan,
would also be subject to penalties if the terms of the loan were not
met. For these reasons, the benefit calculations for PSCFC loans have
not been changed.
Comment 7
Petitioners state that the Department improperly failed to
countervail the value of Advance Licenses because Advance Licenses are
export subsidies and not equivalent to duty drawback. According to
petitioners, Advance Licenses constitute a countervailable subsidy
within the meaning of Item (a) of the Illustrative List of Export
Subsidies (Illustrative List), which defines one type of export subsidy
as ``[t]he provision by governments of direct subsidies to any firm or
any industry contingent upon export performance.'' Because Advance
Licenses are issued to companies based on their status as exporters,
and because products imported under such a license are duty-free,
petitioners state that such licenses provide a subsidy based on the
requirement that an export commitment be met.
Petitioners further claim that the Department has in this and
previous reviews mistakenly confused the nature of the Advance License
program with duty drawback programs. According to petitioners, for a
duty drawback program not to be countervailed, it must meet certain
conditions outlined in Item (i) of the Illustrative List. Item (i)
provides that ``[t]he remission or drawback of import charges [must not
be] in excess of those levied on imported goods that are consumed in
the production of the exported products (making normal allowance for
waste).'' This condition, according to petitioners, has not been met
with respect to the Advance License program because the Indian
government apparently has made no attempt to determine whether the
amount of material that is imported duty-free under Advance Licenses is
at least equal to the amount of pig iron contained in exported subject
castings, i.e., ``physically incorporated in the exported products.''
[[Page 32306]]
Moreover, petitioners argue that respondents' ability to transfer
Advance Licenses to other companies under certain conditions is further
evidence that this program is not the equivalent of a drawback program
because the licenses are not limited to use solely for the purpose of
importing duty-free materials. For these reasons, petitioners state
that the Department should countervail in full the value of Advance
Licenses received by respondents during the POR.
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 duty, and then receive
drawback upon export. Respondents argue that although Advance Licenses
are slightly different from a duty drawback system, because they allow
duty free imports rather than provide for remittance of duty upon
exportation, this does not make them countervailable. Respondents also
indicate that if an Advance License had been transferred during the
POR, then it might have been a subsidy; this did not occur, however.
Department's Position
As we explained in the 1993 Castings Final, petitioners have only
pointed out the administrative differences between a duty drawback
system and the Advance License scheme used by Indian exporters. Such
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: each exists so that exporters may import
raw materials to be consumed in the production of an exported product
without the assessment of import duties.
The purpose of the Advance License is to allow an importer to
import raw materials used in the production of an exported product
without first having to pay duty. Companies importing under Advance
Licenses are obligated to export the products made using the duty-free
imports. Item (i) of the Illustrative List specifies that the remission
or drawback of import duties levied on imported goods that are consumed
in the production of an exported product is not a countervailable
subsidy, if the remission or drawback is not excessive. We determined
that Advance Licenses are equivalent to a duty remission drawback. That
is, the licenses allow companies to import, net of duty, raw materials
which are physically incorporated into the exported products. Further,
we have never found that castings exporters have transferred an Advance
License. Accordingly, our determination that the provision of Advance
Licenses is not countervailable remains unchanged.
Final Results of Review
In accordance with 19 CFR 355.22(c)(4)(ii), we calculated an
individual subsidy rate for each producer/exporter subject to this
administrative review. For the period January 1, 1994 through December
31, 1994, we determine the net subsidy for the reviewed companies to be
as follows:
------------------------------------------------------------------------
Net subsidy
Net subsidies--Producer/ Exporter rate
(percent)
------------------------------------------------------------------------
Calcutta Ferrous........................................... 5.77
Carnation Enterprise Pvt. Ltd.............................. 2.56
Commex Corporation......................................... 1.42
Crescent Foundry Co. Pvt. Ltd.............................. 8.16
Dinesh Brothers............................................ 5.85
Kajaria Iron Castings Pvt. Ltd............................. 16.06
Kejriwal Iron & Steel Works................................ 15.21
Nandikeshwari Iron Foundry Pvt. Ltd........................ 3.40
R.B. Agarwalla & Company Pvt. Ltd.......................... 4.59
RSI Limited................................................ 7.82
Seramapore Industries Pvt. Ltd............................. 9.43
Shree Rama Enterprise...................................... 13.90
Siko Exports............................................... 4.65
Super Iron Foundry......................................... 0.39
Victory Castings Ltd....................................... 2.10
------------------------------------------------------------------------
We will instruct the U.S. Customs Service (``Customs'') to assess
countervailing duties as indicated above. The Department will also
instruct Customs to collect cash deposits of estimated countervailing
duties in the percentages detailed above of the f.o.b. invoice price on
all shipments of the subject merchandise from reviewed companies,
entered or withdrawn from warehouse, for consumption on or after the
date of publication of the final results of this review. As provided
for in 19 CFR Sec. 355.7, any rate less than 0.5 percent ad valorem in
an administrative review is de minimis. Accordingly, for those
producers/exporters no countervailing duties will be assessed or cash
deposits required.
Because the URAA replaced the general rule in favor of a country-
wide rate with a general rule in favor of individual rates for
investigated and reviewed companies, the procedures for establishing
countervailing duty rates, including those for non-reviewed companies,
are now essentially the same as those in antidumping cases, except as
provided for in Sec. 777A(e)(2)(B) of the Act. The requested review
will normally cover only those companies specifically named. See 19 CFR
355.22(a). Pursuant to 19 CFR Sec. 355.22(g), for all companies for
which a review was not requested, duties must be assessed at the cash
deposit rate, and cash deposits must continue to be collected, at the
rate previously ordered. As such, the countervailing duty cash deposit
rate applicable to a company can no longer change, except pursuant to a
request for a review of that company. See Federal-Mogul Corporation and
The Torrington Company v. United States, 822 F.Supp. 782 (CIT 1993) and
Floral Trade Council v. United States, 822 F.Supp. 766 (CIT 1993)
(interpreting 19 CFR Sec. 353.22(e), the antidumping regulation on
automatic assessment, which is identical to 19 CFR Sec. 355.22(g)).
Therefore, the cash deposit rates for all companies except those
covered by this review will be unchanged by the results of this review.
We will instruct Customs to continue to collect cash deposits for
non-reviewed companies (including companies listed on page 2, above,
that did not export the subject merchandise during the POR) at the most
recent company-specific or country-wide rate applicable to the company.
Accordingly, the cash deposit rates that will be applied to non-
reviewed companies covered by this order are those established in the
most recently completed administrative proceeding, completed under the
pre-URAA statutory provisions. See Certain Iron-Metal Castings From
India: Final Results of Countervailing Administrative Review, 61 FR
64676 (December 6, 1996). These rates shall apply to all non-reviewed
companies until a review of a company assigned these rates is
requested. In addition, for the period January 1, 1994 through December
31, 1994, the assessment rates applicable to all non-reviewed companies
covered by this order are the cash deposit rates in effect at the time
of entry.
This notice serves as a reminder to parties subject to
administrative protective order (APO) of their responsibility
concerning the disposition of proprietary information disclosed under
APO in accordance with 19 CFR Sec. 355.34(d). Timely written
notification of return/destruction of APO materials or conversion to
judicial protective order is hereby requested. Failure to comply with
the regulations and the terms of an APO is a sanctionable violation.
This administrative review and notice are in accordance with
Sec. 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)).
[[Page 32307]]
Dated: June 4, 1997.
Robert S. LaRussa,
Acting Assistant Secretary for Import Administration.
[FR Doc. 97-15606 Filed 6-12-97; 8:45 am]
BILLING CODE 3510-DS-P
