[Federal Register Volume 60, Number 167 (Tuesday, August 29, 1995)]
[Notices]
[Pages 44843-44849]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21436]
-----------------------------------------------------------------------
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 January 24, 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, 1991 to
December 31, 1991. We have completed this review and determine the net
subsidies to be 0.00 percent ad valorem for Dinesh Brothers, Pvt. Ltd.,
41.75 percent for Super Castings (India) Pvt. Ltd., 16.14 percent for
Kajaria Iron Castings Pvt. Ltd., and 5.53 percent ad valorem for all
other companies. We will instruct the U.S. Customs Service to assess
countervailing duties as indicated above.
EFFECTIVE DATE: August 29, 1995.
FOR FURTHER INFORMATION CONTACT: Robert Copyak and Alexander Braier,
Office of Countervailing Compliance, 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
On January 24, 1995 the Department published in the Federal
Register (60 FR 4596) 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 February 23, 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 which exported iron-metal
castings to the United States during the review period (respondents).
On March 2, 1995, rebuttal briefs were submitted by the MCFTC and the
EEPC. The comments addressed in this notice were presented in the case
briefs.
The review covers the period January 1, 1991 through December 31,
1991. The review involves 14 companies and the following programs:
(1) Pre-shipment export financing
(2) Post-shipment export financing
(3) Income tax deductions under Section 80HHC
(4) Cash Compensatory Support (CCS) Program
(5) Sale of Import Licenses
(6) Advance Licenses
(7) Market Development Assistance
(8) International Price Reimbursement Scheme
(9) Free Trade Zones
(10) Preferential Freight Rates
(11) Preferential Diesel Fuel Program
(12) 100 Percent Export-Oriented Units Program
Applicable Statute and Regulations
The Department is conducting this administrative review in
accordance with section 751(a) of the Tariff Act of 1930, as amended
(the Act). 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), the Department is required to calculate a
country-wide CVD rate, i.e., the all-other 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 weight-averaged the rate
received by each company using as the weight its share of total Indian
exports to the United States of subject merchandise. We then summed the
individual companies' weight-averaged rates to determine the subsidy
rate from all programs benefitting exports of subject merchandise to
the United States.
Since 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). Three companies (Dinesh Brothers, Pvt. Ltd., Super
Castings (India) Pvt. Ltd., and Kajaria Iron Castings Pvt. Ltd.)
received significantly different net subsidy rates during the review
period pursuant to 19 CFR 355.22(d)(3). These companies are treated
separately for assessment and cash deposit purposes. All other
[[Page 44844]]
companies are assigned the country-wide rate.
Analysis of Comments
Comment 1
Petitioners state that the Department improperly calculated the
amount of countervailable benefit conferred by the Cash Compensatory
Support (CCS) program. They state that the Department failed to follow
its standard practice of calculating benefits from a program based upon
the date the benefit is received rather than the date the benefit is
earned. Petitioners argue that the Department only calculates benefits
on an ``as earned'' basis when the benefit is earned on a shipment-by-
shipment basis and the exact amount of the benefit is known at the time
of export. Petitioners claim that the CCS program does not meet this
exception because the exact amount of benefits to be received under the
CCS program is not known at the time of export.
Respondents state that petitioners are incorrect. Respondents claim
that the exporter knew at the time of shipment the amount of rebate he
or she would receive under the CCS program.
Department's Position
CCS rebates are paid upon export and are calculated as a percentage
of the f.o.b. invoice price. Thus, these rebates are earned on a
shipment-by-shipment basis, and the exact amount of the rebate is known
at the time of export. Therefore, the Department calculated the benefit
from the CCS program on an ``as earned'' basis based upon the date of
export, consistent with our long-standing practice and in conformity
with the Proposed Rules. Section 355.48(b)(7) of the Proposed Rules
provides that, in cases of an export benefit provided as a percentage
of the value of the exported merchandise (such as a cash payment or an
over-rebate of indirect taxes), the timing of the receipt of
countervailable benefits will be the date of export. See, e.g., Certain
Textile Mill Products and Apparel From Colombia, 52 FR 13272 (April 22,
1987), Cotton Shop Towels From Pakistan, 53 FR 34340 (September 6,
1988), and Certain Textile Mill Products From Thailand, 52 FR 7636
(March 12, 1987).
Petitioners argue that the benefits from the CCS program should not
be calculated in this manner because it was not clear at the time of
export whether the exporter would receive the full amount of the CCS
rebate. They base this argument on (1) the fact that, in the official
publication in which the Government of India established the CCS rates,
it reserved the right to withdraw or alter the rebates, and (2) the
fact that the CCS rebate percentages would be reduced if the exporter
waited six months or after the date of export or longer to submit the
application for the rebates. However, the fact that a government may
reserve the right to alter or terminate a program does not affect the
timing of the receipt of benefits, or whether the exporter knew the
amount of benefits he or she would receive. Indeed, one of the criteria
used by the Department to determine whether a program which rebates
indirect taxes is countervailable is whether the government
periodically reviews and revises the rebate level based on changes in
the indirect tax incidence incurred by the exporter. See, e.g., Leather
Wearing Apparel From Argentina 59 FR 25611 (May 17, 1994).
Under the CCS program, exporters knew at the time of export that
they would receive the full amount of the CCS rebate if they submitted
their applications within six months of the date of export. Therefore,
petitioners second point also does not merit a change in our long-
standing policy of calculating the benefit from the overrebate of
indirect taxes based on the date of export of the merchandise.
Comment 2
Petitioners claim that the Department improperly set the cash
deposit rate for the CCS program at zero. Petitioners state that the
Department may only adjust the cash deposit rate if there has been a
program-wide change as defined under section 355.50 of the Department's
Proposed Rules. Petitioners claim that the CCS program does not qualify
for an adjusted cash deposit rate under section 355.50 because the
Government of India has only provided the Department with a copy of an
ambiguous announcement of a suspension of the CCS program. They state
that the announcement by India's Ministry of Commerce does not
constitute an ``official act, such as the enactment of a statute,
regulation, or decree'' as required by section 355.50 of the
Department's regulations. Petitioners further state that the CCS
program has only been suspended, not terminated. Petitioners state
that, in Certain Fresh Cut Flowers from Ecuador, 52 FR 1361 (January
13, 1987), the Department determined that an indefinitely-suspended
program implied the reinstatement of the program was possible and
therefore refused to consider the indefinite suspension a program-wide
change.
Respondents argue that the method of termination was as official as
necessary under the Indian system of government. They state that the
Department verified that the program was terminated and that no claims
for benefits under the program were made by castings exporters after
the termination date. Respondents further state that the Department
verified that there were no outstanding residual benefits under the CCS
program. Therefore, respondents conclude that the Department should
maintain the CCS deposit rate at zero.
Department's Position
Section 355.50(a) of the Proposed Rules states that the Department
may adjust the cash deposit rate when (1) there has been a program-wide
change which occurred prior to the Department's preliminary results of
review and (2) the Department is able to measure the change in the
amount of countervailable subsidies provided under the program in
question. In addition, Sec. 355.50(b)(2) states that the change in the
program must be effectuated by an official act, such as the enactment
of a statute, regulation, or decree, or contained in the schedule of an
existing statute, regulation, or decree. India's Ministry of Commerce
terminated the CCS program as of July 3, 1991. Therefore, there was a
program-wide change in the CCS program which (1) occurred prior to the
January 24, 1995 preliminary results of review and (2 ) resulted in a
change in the amount of countervailable subsidies that the Department
was able to measure. This program-wide change was effectuated by an
official government announcement which satisfies the requirements of
Sec. 355.50(b)(2).
We agree with petitioners that it is our practice not to adjust the
cash deposit rate for programs which are suspended rather than
terminated. However, we disagree with petitioners' assertion that the
CCS program is only suspended. While the India Ministry of Commerce
announcement terminating the program refers to the program as being
suspended, the conclusion of the notice states that the program has
been terminated. See the December 13, 1993 verification report entitled
Verification of the Government of India (GOI) Questionnaire Response
for the 1990 Countervailing Duty Order on Certain Iron-metal Castings
from India. As the verification report explains, officials from the
Government of India confirmed that the CCS program is terminated.
Therefore, we have determined that the CCS program has been terminated.
Furthermore, Sec. 355.50(d) states that the Department will only
adjust the cash deposit rates for terminated programs if it determines
that residual benefits will not be bestowed under the terminated
[[Page 44845]]
program. As stated in the Preliminary Results of this review, to
ascertain whether castings exporters received any residual benefits
from this terminated program, we reviewed the exporters accounting
ledgers through September 1993 (which was the time of our verification
for the 1990 administrative review and over two years after the
effective termination of the CCS program which was July 3, 1991). Based
upon this examination, we found no evidence of any application for or
receipt of residual benefits under the CCS program.
Therefore, we confirm the decision made in the Preliminary Results
that the cash deposit rate be adjusted to zero for the CCS program.
Comment 3
Petitioners argue that, to the extent that any respondent received
CCS payments on non-subject castings, the Department should calculate
and countervail the value of CCS payments on non-subject castings in
these administrative reviews. 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.''
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 paid on other merchandise is
not ``indirectly'' paid on subject castings merely because it is 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 putting
forth the old ``money is fungible'' argument, which has never been
accepted by the Department. They state the Department should not do so
now.
Department's Position
Section 771(5)(A)(ii) of the Act states that subsidies can be
``paid or bestowed directly or indirectly on the manufacture,
production, or export of any class or kind of merchandise''. However,
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. 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. This kind
of interpretation proposed by petitioners is clearly not within the
purview or intent of the statutory language under section
771(5)(B)(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, 52 FR 833 (January 9, 1987); Apparel from
Thailand, 50 FR 9818 (March 12, 1985); and Extruded Rubber Thread from
Malaysia, 60 FR 17515 (April 9, 1995).
Comment 4
Respondents argue that the CCS program does not provide an over-
rebate of indirect taxes. They argue that the charges paid to the
Indian port authority on imported pig iron are taxes paid to the
Government of India and contend that, while the port charges are
labeled as ``wharfage, berthage, pilotage, and towage,'' these charges
are more in the nature of taxes since they are not tied to the real
cost of these services. Accordingly, respondents state that the
Department should reconsider its finding that these charges are service
charges rather than taxes and therefore are not eligible for rebate
under the CCS program. In addition, they argue that, even if the CCS
payments may have been over-rebated, the Department has miscalculated
the over-rebate by disallowing respondents' claim that ``port dues'' be
treated as an indirect tax. Respondents state that dues are not fees
for services and therefore should have been allowed as offsets to the
CCS.
Petitioners claim that information provided by respondents
themselves reveals that the port and harbor ``taxes'' rebated under the
CCS program are not indirect taxes but are charges for services. They
state that respondents' position is based upon the claim that payment
for these charges is made to the Calcutta Port Trust, an alleged entity
of the Government of India. Petitioners state that a payment made to a
government does not inherently mean that the payment is a tax. The type
of port charges under discussion in the CCS program are similar to the
user fees charged by the U.S. government. User fees are charged by the
government to help defray the government's cost of providing a service
to the public, and are not regarded as taxes under U.S. law.
Department's Position
The CCS program was established to provide a rebate of indirect
taxes incurred on items physically incorporated into an exported
product. Items (h) and (i) of the Illustrative List of Export Subsidies
permits the non-excessive rebate of indirect taxes and import charges
paid on items physically incorporated into an export product. However,
the Items (h) and (i) do not permit the rebate of service charges on
such items.
During the verification of the 1990 administrative review, we
examined information which showed that the port charges claimed by the
exporters to be indirect taxes were, in fact, service charges. The
documentation gathered at verification indicates that the item claimed
as port charges included berthage, port dues, pilotage, and towage
charges. See the February 25, 1994 report titled Verification of
Information Submitted by RSI India Pvt. Ltd. for the 1990
Administrative Review of the Countervailing Duty Order on Certain Iron-
Metal Castings from India which is on file in the Central Records Unit
(room B009 of the Main Commerce Building). Because this was verified at
the company level, we afforded the Government of India the opportunity
to provide information to demonstrate that the port and harbor
collections were actually indirect taxes rather than charges for
services. The information provided by the Government of India did not
demonstrate that these charges, which were used in the calculation of
the indirect tax incidence, were indirect taxes or import charges that
are allowable under item (h) or (i) of the
[[Page 44846]]
Illustrative List of Export Subsidies. Therefore, we determined that
the charges in question were service charges rather than import
charges. As such, we disallowed these items in the calculation of the
indirect tax incidence on items physically incorporated in the
manufacture of castings under the CCS program. For further discussion
of this analysis, see the May 26, 1994 briefing paper titled Cash
Compensatory Support (CCS) Program which is on file in the Central
Records Unit (room B009 of the Main Commerce Building).
Comment 5
Petitioners claim that the Department understated the benefit to
Carnation Enterprise from the CCS program in the 1991 administrative
review. They state that the Department relied upon Carnation's claim
that it was eligible for only a two percent CCS rebate in calculating
its benefit from the CCS program because the company imported more than
80 percent of their pig iron. Petitioners state that information in
Carnation's questionnaire indicates that the company understated its
CCS rebate. Furthermore, petitioners contend that during the
verification of Carnation's response for the 1990 review, the
Department confirmed that all claims filed by Carnation for CCS
benefits for subject castings were for rebates of five percent.
Therefore, they argue that in its final analysis the Department should
recalculate the benefits to Carnation under the CCS program based on a
rebate rate of five percent.
Respondents state that petitioners' claim is based on the fact that
(1) Carnation's financial statement shows less than 80 percent
utilization of pig iron and (2) that the financial statements show that
CCS receipts are greater than five percent of export sales. Respondents
state that percentages of utilization of pig iron from year to year do
not necessarily mean that less than (or more than) a certain amount was
imported. Carry over of inventories will also affect the calculated
ratios. In addition, the amount of CCS rebates paid on non-subject
merchandise is greater than five percent. Therefore, the fact that the
financial statement shows more than five percent CCS in terms of sales
does not negate the fact that only two percent was received on subject
castings.
Department's Position
In its response to the questionnaire in the 1991 administrative
review, Carnation specifically stated that the CCS rebate in effect for
its exports of the subject castings was only two percent. The company
stated that because it imported more than 80 percent of its pig iron
during this period it was only eligible for a two percent CCS rebate.
In addition, the company also stated that it did not use the CCS
program after February 1, 1991. There is no information on the record
which contradicts that statement. Therefore, the benefit calculated for
Carnation in the 1991 administrative review for the CCS program was
based on a two percent rebate.
Comment 6
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. Petitioners claim that the advance license program does not
meet the criteria of a duty drawback system which would be permissible
in light of Item (i) of the Illustrative List of Export Subsidies,
annexed to the General Agreement on Tariffs and Trade (GATT) Subsidies
Code (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 Government of India 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 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
state that no advance licenses were sold.
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 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 incorporated into 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
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. Since the amount of
raw materials imported was not excessive vis-a-vis to the products
exported, we determine that use of the advance licenses was not
countervailable.
Comment 7
Petitioners claim that the Department understated the benchmark
interest rate used to calculate the benefits for pre-shipment and post-
shipment loans. They state that, rather than using the interest rate
obtained from commercial banks during verification or the average
lending rates published by the International Market Fund (IMF), the
Department used the average interest rates published by the Reserve
Bank of India (RBI) for small-scale industry loans to calculate the
benchmark. Petitioners claim that these were regulated and preferential
small-scale industry rates which were used to calculate average
benchmark interest rates. As such, the Department merely compared
interest rates for one type of preferential loan to interest rates for
another type of preferential loan.
Respondents state that the RBI rates used by the Department are the
commercial rates available in India. Therefore, it is those rates which
should be used as the benchmark.
[[Page 44847]]
Department's Position
We have used the average interest rates for loans to small-scale
industries as published by the RBI as the benchmark for the
administrative reviews of this order. (See, e.g., the 1988 and 1989
Final Results of Countervailing Duty Administrative Review: Certain
Iron Metal Castings from India, 56 FR 52515 and 56 FR 52521; October
21, 1991.)
It is the Department's long-standing policy that a program is not
specific under the countervailing duty law solely because it is limited
to small firms or to small- and medium-sized firms. See, e.g.,
Sec. 355.43(b)(7) of the Proposed Rules, and Textile Mill Products and
Apparel from Singapore, 50 FR 9840 (March 12, 1985). Therefore,
interest rates which are set for a loan program provided to small-size
firms and industries can be used as an appropriate benchmark. (See,
e.g., the discussion of the benchmark used in the FOGAIN program in
Bricks From Mexico, 49 FR 19564 (May 8, 1984).) Because the castings
exporters qualify as small-scale industry firms, we have used the
interest rates set under this program as our benchmark.
Comment 8
Petitioners argue that the Department has improperly failed to
countervail IPRS benefits bestowed on non-subject castings. They state
that the Department's failure to countervail such subsidies is at odds
with the language and intent of the countervailing duty law, which
applies to any bounty or grant whether bestowed directly or indirectly.
In addition, because eligibility for IPRS payments is based on the use
of domestic pig iron, and pig iron is fungible, castings exporters can
easily avoid paying countervailable duties by making no claims for IPRS
payments on the subject castings but rather make all such claims on
non-subject castings. Therefore, if a castings exporter used
approximately equal amounts of pig iron and scrap to manufacture its
castings, it could receive IPRS payments for all of the pig iron it
consumed by claiming that 100 percent of its pig iron was used to
produce non-subject castings. Thus, petitioners state that, although
IPRS claims would only be for exports of non-subject castings, the IPRS
payments would reimburse the producer for the cost of pig iron actually
consumed to manufacture subject castings as well as non-subject
castings.
Department's Position
Our response to petitioners' argument that International Price
Reimbursement Scheme (IPRS) rebates received on non-subject exports
provides an indirect benefit to exports of the subject merchandise can
be found in the Department's Position for Comment 3 above. We find no
merit in petitioners' claim that the castings exporters can avoid
paying countervailing duties by shifting their claims for IPRS payments
from subject to non-subject castings. When claims are filed for IPRS
payments, the amount of the rebate determined by the Government of
India is based on the contention that 100 percent of the material used
in the production of the exported good is domestic pig iron. This being
the case, it is impossible to shift the claims from subject to non-
subject merchandise because the IPRS payments are based upon 100
percent use of domestic pig iron regardless of the actual content of
domestic pig iron, imported pig iron, or scrap used in the production
of the exported good. In addition, at the point in time when the
companies submitted their IPRS claims covering the period of this
administrative review, the Department's policy was to countervail the
full amount of IPRS rebates. Therefore, there was no incentive for the
castings exporters to shift their domestic pig iron claims from subject
to non-subject castings.
Comment 9
Petitioners state that under Sec. 355.44 of the Proposed Rules, the
Department defines a countervailable benefit as the full or partial
exemption, remission, or deferral of a direct tax or social welfare
charge in excess of the tax the firm otherwise would pay absent a
government program. They state that, under the regulations, to examine
the taxes the firm otherwise would have paid, the Department will take
into account the firm's total tax liability as a result of a firm's use
of a tax subsidy. Therefore, petitioners argue that the Department's
approach to the treatment of tax subsidies should likewise apply to the
receipt of the IPRS subsidies on non-subject castings, in that both
types of subsidies reduce a firm's total costs whether it be in the
form of taxes or the cost of pig iron inputs.
Respondents state that petitioners' argument is misplaced. They
state that the IPRS is not remotely like a tax program. Furthermore,
respondents claim that the IPRS received on non-subject merchandise
does not benefit other merchandise the way a tax reduction might
benefit all production.
Department's Position
Section 355.44(i)(1) of the Proposed Rules states that the
countervailable benefit conferred by a tax program is the amount of
taxes a company otherwise would have paid absent the use of the
program. To determine that amount, the Department must examine the
company's total tax liability and the effect of the tax program on that
liability, as there are numerous variables which affect that liability.
For example, if a tax program allows an exporter a tax deduction based
on the value of 20 percent of its export sales, this does not
necessarily mean that there is a benefit from this program. If the
company has a net loss for the year before taking any tax deductions,
then there is no benefit in the period of review provided from this tax
program. With or without the use of this tax program, the company's tax
liability is still zero.
The methodology the Government of India used to determine the
amount of the benefit conferred by a tax program has no effect on how
the Department determines whether a grant received by a company
provides a countervailable benefit to the subject merchandise. Grants
that are tied to the production or export of only non-subject
merchandise do not provide a countervailable benefit to the subject
merchandise. As stated in our response to Comment 3, the allocation of
countervailable benefits conferred upon a specific product or market is
clearly detailed in Sec. 355.47 of the Proposed Rules. This allocation
methodology applies equally to grants as it does to tax programs.
Although to determine the benefit from an export tax program, the
Department must examine whether the tax program changes the company's
total tax liability, as explained above, the Department will allocate
any benefit found from the use of that export tax program only over the
company's export sales, not the company's total sales. See, e.g.
Extruded Rubber Thread from Malaysia. It is for these reasons that we
have determined that IPRS rebates provided upon non-subject merchandise
do not provide a benefit to the subject castings exported to the United
States.
Comment 10
Petitioners state that the Department should countervail benefits
provided to castings exporters through exchange rate schemes. A
verification report for the 1990 administrative review explains that,
previously, companies converted dollars to rupees at exchange rates no
higher than 25 rupees per dollar, but, under a new scheme, the RBI
allowed companies to convert 40 percent of their
[[Page 44848]]
dollars at this rate and remaining 60 percent of their dollars at a
rate of 30 rupees per dollar. See the December 13, 1993 verification
report entitled Meetings with Commercial Banks for the 1990
Administrative Review of the Countervailing Duty Order on Certain Iron-
metal Castings from India. Petitioners state that this program is
targeted to certain export markets because it provides benefits for
export earnings in U.S. dollars.
Respondents state that this allegation of a new subsidy is well
beyond the deadline established under 19 CFR 355.31(c)(1)(ii). They
also state that there is nothing in the record to suggest that this is
a subsidy. Respondents contend that it appears that the program merely
allows exporters to convert some of their dollars at the commercial
rate, rather than the controlled rate. Furthermore, they state that
there is no information in the record that respondents used this
program. Respondents also claim that the fact the program refers to the
conversion of dollars into rupees is not an indication of targeting
because the U.S. dollar is the currency of international commerce.
Department's Position
The time limits for making allegations of a new subsidy in an
administrative review are established under 19 CFR 355.31(c)(1)(ii).
The allegation made by petitioner is untimely under the regulations and
must be rejected. Further, this alleged subsidy program was not in
place during the period of the administrative review. Rather, it was
instituted in March 1992. See the Reserve Bank of India Annual Report
1993-94 (page 22) which is on file in the Central Records Unit (room
B009 of the Main Commerce Building).
Comment 11
Respondents state that countervailing the CCS payments and the
income tax deductions under section 80HHC of the Income Tax Act double
counts the subsidy from the CCS program. They argue that, under section
80HHC, payments received under the CCS program are considered export
income which may be deducted from taxable income to determine the tax
payable by the exporter. Therefore, respondents argue that, since CCS
payments are also part of the deductions under 80HHC, to countervail
the payments and then the deduction is to double count the CCS benefit.
In addition, respondent's state that, just as the CCS payments form a
component of profit for purposes of the 80HHC tax deduction, so do the
payments received by respondents under the IPRS program. They argue
that since IPRS rebates are no longer paid on subject castings exported
to the United States, the deduction by respondents of IPRS rebates from
income for 80HHC purposes is not a countervailable subsidy benefitting
subject castings exported to the United States.
Petitioners claim that there is no double-counting of benefits
because respondents first benefit from the excessive rebates under the
CCS program, and also benefited again because the 80HHC program
eliminated the need to pay taxes on the income from those rebates.
Regarding respondents' comment on IPRS, petitioners state that
respondents have argued for many years that IPRS payments merely
represent the difference between the cost of domestic pig iron and the
international price for pig iron. Therefore, petitioners conclude that
because IPRS payments are not profit, they do not represent a benefit
under 80HHC, and there is no reason to factor out the IPRS payments
when calculating the subsidy from the 80HHC tax program.
Department's Position
Under section 80HHC of the Income Tax Act, the Government of India
allows exporters to deduct from taxable income profits derived from the
export of goods and merchandise. The benefit conferred by this program
is the amount of taxes that would have been paid by the castings
exporters absent this program. Therefore, the full amount of the tax
savings realized by castings exporters from this exemption under the
80HHC program is countervailable.
Respondents' argument that we should adjust the benefit of the
80HHC tax program to account for CCS and IPRS rebates is at odds with
the language and intent of the statute. The only permissible offsets to
a countervailable subsidy are those provided under section 771(6) of
the Act. The Department has consistently interpreted this provision of
the statute as the exclusive source of permissible offsets. Such
offsets include application fees paid to attain the subsidy, losses in
the value of the subsidy resulting from deferred receipt, 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., Textile Mill Products From Mexico, 50 FR 10824
(March 18, 1985).) Adjusting the benefit conferred by the 80HHC tax
program to account for the CCS and IPRS rebates is not a permissible
offset under section 771(6) of the Act. In addition, we also note that,
with respect to respondents' CCS argument, that it is the Department's
established policy to disregard the secondary tax effects of
countervailable subsidies. See , e.g., Certain Fresh Atlantic
Groundfish From Canada, 51 FR 10041 (March 24, 1986) and Fresh and
Chilled Atlantic Salmon From Norway, 56 FR 7678 (February 25, 1991).
Comment 12
Respondents claim the subsidy calculated for Commex under the 80HHC
tax program is over-stated because the Department used the tax rate for
corporations to calculate the tax amount Commex would have paid without
the tax deduction provided by this program. They claim that Commex is a
partnership, not a corporation. Therefore, respondents state that the
Department should correct this error and use the tax rate for
partnerships to calculate the subsidy provided to Commex under the
80HHC tax program in the 1991 administrative review.
Department's Position
For the preliminary results of the 1991 administrative review, the
income tax rate for corporations was used to calculate the benefit
provided to Commex under the 80HHC tax program. A review of the record
shows that Commex is a registered partnership. Therefore, we have
recalculated the benefit provided to Commex under the 80HHC tax program
using the tax rates applicable to a registered partnership firm. This
recalculation changed the ad valorem subsidy for this program from 1.22
percent to 0.39 percent. In addition, this recalculation also resulted
in a change to the country-wide all-other rate and to the country-wide
all-other cash deposit rate for the 1991 administrative review. The
country wide rate changed from 5.54 to 5.53 percent ad valorem and the
country-wide cash deposit rate changed from 3.06 to 3.05 percent ad
valorem.
Comment 13
Respondents state that it is not appropriate to include company
rates that are based on best information available (BIA) in the
calculation of the country-wide rate. Respondents also state that the
inclusion in the country-wide rate of companies' rates which are
``significantly'' higher than the country-wide rate is improper when
those companies are also given their own separate company-specific
rates. See 19 CFR 355.22(d)(3) for explanation about the calculation of
individual, ``significantly different'' rates. Respondents argue that
Ceramica Regiomontana, S.A. v. United States,
[[Page 44849]]
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 which 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. 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
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 rate (including BIA rates) should not be included in the
calculation in the calculation of the CVD country-wide rate.
Respondents' reliance on Ceramica and Ipsco is misplaced. 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
the Department 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.
Final Results of Review
For the period January 1, 1991 through December 31, 1991, we
determine the net subsidies to be 0.00 percent ad valorem for Dinesh
Brothers, Pvt. Ltd., 41.75 percent for Super Castings (India) Pvt. Ltd.
, 16.14 percent for Kajaria Iron Castings Pvt. Ltd., and 5.53 percent
ad valorem for all other companies.
The Department will instruct the U.S. Customs Service to assess
the following countervailing duties:
------------------------------------------------------------------------
Rate
Manufacturer/Exporter (percent)
------------------------------------------------------------------------
Dinesh Brothers, Pvt. Ltd.................................. 0.00
Super Castings (India) Pvt. Ltd............................ 41.75
Kajaria Iron Castings Pvt. Ltd............................. 16.14
All Other Companies........................................ 5.53
------------------------------------------------------------------------
The Department will also instruct the U.S. Customs Service to
collect a cash deposit of estimated countervailing duties of 5.12
percent of the f.o.b. invoice price on all shipments of the subject
merchandise entered, or withdrawn from warehouse, for consumption on or
after the date of publication of the final results of this review from
all companies except Super Castings (India) Pvt. Ltd., Kajaria Iron
Castings Pvt. Ltd. and Dinesh Brothers, Pvt. Ltd.. Because Super
Castings and Kajaria did not use the CCS program, the cash deposit
rates for those companies will equal the calculated net subsidies of
41.75 percent and 16.14 percent, respectively. Because the net subsidy
for Dinesh Brothers Pvt., Ltd. is zero, the Department will instruct
the Customs Service not to collect cash deposits on shipments of this
merchandise from this company entered or withdrawn for consumption on
or after the date of publication of the final results of this
administrative review.
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 19 CFR
353.34(d). 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: August 17, 1995.
Susan G. Esserman,
Assistant Secretary for Import Administration.
[FR Doc. 95-21436 Filed 8-28-95; 8:45 am]
BILLING CODE 3510-DS-P
