Preliminary Affirmative Countervailing Duty Determination: Certain Carbon Steel Butt-Weld Pipe Fittings From India

DEPARTMENT OF COMMERCE

[C-533-812]

Preliminary Affirmative Countervailing Duty Determination:

Certain Carbon Steel Butt-Weld Pipe Fittings From India

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: June 1, 1994.

FOR FURTHER INFORMATION CONTACT: Julie Anne Osgood or Annika O'Hara,

Office of Countervailing Investigations, Import Administration, U.S.

Department of Commerce, Room 3099, 14th Street and Constitution Avenue,

N.W., Washington, D.C. 20230; telephone (202) 482-0167 and (202) 482-

4198, respectively.

PRELIMINARY DETERMINATION: The Department of Commerce (``the

Department'') preliminarily determines that benefits which constitute

subsidies within the meaning of section 701 of the Tariff Act of 1930,

as amended (``the Act''), are being provided to manufacturers,

producers, or exporters in India of certain carbon steel butt-weld pipe

fittings. For information on the estimated net subsidies, please see

the Suspension of Liquidation section of this notice.

Case History

Since the publication of the notice of initiation in the Federal

Register, 59 FR 14148 (March 25, 1994), the following events have

occurred.

On April 5, 1994, we issued a questionnaire to the Government of

India (``GOI'') in Washington, D.C. concerning petitioner's

allegations. On May 9, 1994, we received questionnaire responses from

the GOI, Karmen Steels of India (``Karmen''), and Sivanandha Pipe

Fittings Limited (``Sivanandha''). According to the GOI, Karmen,

Sivanandha, and Tata Iron & Steel Limited (``Tata'') accounted for over

85 percent of exports of butt-weld pipe fittings to the United States.

Therefore, these companies are the respondents in this investigation.

However, Tata did not respond to the Department's questionnaire.

We issued deficiency questionnaires on May 11, 1994, to the GOI,

Karmen, and Sivanandha. We received responses on May 18, 1994.

Scope of Investigation

The products covered by this investigation are certain carbon steel

butt-weld pipe fittings (``pipe fittings'') having an inside diameter

of less than fourteen inches (355 millimeters), imported in either

finished or unfinished condition. Pipe fittings are formed or forged

steel products used to join pipe sections in piping systems where

conditions require permanent welded connections, as distinguished from

fittings based on other methods of fastening (e.g., threaded, grooved,

or bolted fittings). Butt-weld fittings come in a variety of shapes

which include ``elbows'', ``tees'', ``caps'', and ``reducers.'' The

edges of finished pipe fittings are beveled, so that when a fitting is

placed against the end of a pipe (the ends of which have also been

beveled), a shallow channel is created to accommodate the ``bead'' of

the weld which joins the fitting to the pipe. These pipe fittings are

currently classifiable under subheading 7307.93.3000 of the Harmonized

Tariff Schedule of the United States (``HTSUS'').

Although the HTSUS subheading is provided for convenience and

customs purposes, our written description of the scope of this

proceeding is dispositive.

Injury Test

Because India is a ``country under the Agreement'' within the

meaning of section 701(b) of the Act, the U.S. International Trade

Commission (``ITC'') is required to determine whether imports of pipe

fittings from India materially injure, or threaten material injury to,

a U.S. industry. On April 20, 1994, the ITC preliminarily determined

that there is a reasonable indication that an industry in the United

States is being materially injured or threatened with material injury

by reason of imports from India of the subject merchandise (59 FR

18825).

Analysis of Programs

For purposes of this preliminary determination, the period for

which we are measuring subsidies (the period of investigation

(``POI'')) is the respondents' fiscal year: April 1, 1993 to March 31,

1994.

Non-Responding Company

Since Tata did not respond to our countervailing duty

questionnaire, we have used best information available (``BIA'') in

accordance with Sec. 355.37(a) of the Department's regulations. As BIA,

we have used information provided in the petition except where we have

calculated a rate for a given program in a previous countervailing duty

investigation or administrative review for India which is higher than

that provided in the petition. We did not include in the BIA subsidy

rate for Tata programs for which we have no basis to calculate a

benefit (i.e., programs for which rates are not calculated in the

petition, programs not previously investigated, or programs previously

found not used). Based on this approach, we calculated a BIA rate for

Tata of 23.03 percent ad valorem.

Calculation of Country-Wide Rate

In determining the benefits to the subject merchandise from the

various programs described below, we used the following calculation

methodology. We first calculated a country-wide rate for each program.

This rate comprised the ad valorem benefit received by each firm

weighted by each firm's share of exports of the subject merchandise to

the United States. The program rates were then added together to arrive

at the country-wide rate.

Pursuant to 19 CFR 355.20(d) of the Department's regulations, we

compared the total ad valorem benefit received by each firm to the

country-wide rate for all programs. The rates for Karmen and Tata were

significantly different from the country-wide rate. Therefore, Karmen

and Tata received company- specific rates. Because Sivanandha was the

only company whose total ad valorem benefit was not significantly

different from the country-wide rate for all programs, we based the

all-other rate only on benefits received by Sivanandha. We then

assigned this all-other rate to all other manufacturers, producers, and

exporters.

Consistent with our practice in preliminary determinations, when a

response to an allegation denies that a program exists, that producers

of the subject merchandise receive benefits under a program, or that

producers of the subject merchandise are eligible for a program, and

the Department has no persuasive evidence showing that the response is

incorrect, we accept the response for purposes of the preliminary

determination. All such responses, however, are subject to

verification. If the response cannot be supported at verification, and

the program is otherwise countervailable, the program will be

considered a subsidy in the final determination.

Karmen's Exports of Refurbished Pipe Fittings

Karmen reported in its responses that in addition to its production

of new pipe fittings, the company imports rusty, unused pipe fittings

from a Singaporean company which it refurbishes and subsequently re-

exports to a customer of the Singaporean company in the United States.

For purposes of this preliminary determination, we have considered this

refurbished merchandise to be covered by this proceeding. For the final

determination, we will seek additional information concerning the

following: (1) the nature and extent of the processing operation, and

(2) the extent to which the refurbished pipe fittings are being

subsidized.

In its responses, Karmen reported only the value added in the

refurbishing process for these sales. The U.S. Customs Service,

however, collects duties based on the full value of the subject

merchandise exported, i.e., the value of the pipe fittings and any

value-added through the refurbishing process. Therefore, to avoid an

over-assessment of the duty, we have adjusted Karmen's sales value used

as the denominator in our subsidy rate calculation. For purposes of

this preliminary determination, we have valued Karmen's exports of

refurbished pipe fittings using the price per metric ton of new pipe

fittings because we do not have an actual export value of refurbished

pipe fittings.

Based upon our analysis of the petition and the responses to our

questionnaires, we preliminarily determine the following:

A. Programs Preliminarily Determined to be Countervailable

1. Preferential Pre-Shipment Financing

Pre-shipment financing is extended to exporters prior to shipment

as working capital for purchasing raw materials, processing, packing,

warehousing, transporting and shipping. Any exporter showing a

confirmed export order or a letter of credit is eligible for this

program. Generally, the loans are extended for 180 days. According to

the responses, both Karmen and Sivanandha used pre-shipment financing

during the POI.

Because only exporters are eligible for loans under this program,

we preliminarily determine that they are countervailable to the extent

they are provided at a preferential interest rate. We have used the

average annual commercial interest rate on short-term financing in the

POI as the benchmark interest rate. The GOI reported a short-term

financing rate of 16.5 percent. We compared this benchmark rate to the

interest rate charged on pre-shipment loans and found that the interest

rate charged was lower than the benchmark rate. Therefore, we determine

that loans provided under this program are countervailable.

To calculate the benefit, we followed the short-term loan

methodology which has been applied consistently in our past

determinations and is described in more detail in the Subsidies

Appendix accompanying Cold-Rolled Carbon Steel Flat-Rolled Products

from Argentina: Final Affirmative Countervailing Duty Determination and

Countervailing Duty Order, 49 FR 18006 (April 26, 1984); see also,

Alhambra Foundry v. United States, 626 F. Supp. 402 (CIT 1985).

We compared the amount of interest paid during the POI to the

amount of interest that would have been paid at the benchmark rate. The

difference between these two amounts is the benefit. We then divided

the benefit by total exports. On this basis, we preliminarily determine

the estimated net subsidy from this program to be 0.23 percent ad

valorem for Karmen and 0.84 ad valorem for all other manufacturers,

producers, and exporters of pipe fittings in India.

2. Income Tax Deductions Under Section 80HHC

Income tax benefits are available to exporters in India under

Section 80HHC of the Income Tax Act of 1961. This program allows

exporters to reduce their taxable income by the profits earned on

exports. Both Karmen and Sivanandha claimed deductions under this

program on their income tax returns filed in the POI.

Since tax deductions under Section 80HHC are available only to

exporters, we preliminarily determine that this program is

countervailable. To calculate the benefit, we multiplied the amount of

the deduction claimed by each company by the corporate income tax rate

and divided the result by total exports. On this basis, we

preliminarily determine the estimated net subsidy from this program to

be 1.07 percent ad valorem for Karmen and 2.69 ad valorem for all other

manufacturers, producers, and exporters of pipe fittings in India.

B. Programs Preliminarily Determined not to Provide Benefits During the

POI

1. Advance Licenses and Advance Customs Clearance Permits (``ACCP's'')

Under the GOI's Duty Exemption Scheme, inputs used in the

production of exports may enter the country duty-free. Two mechanisms

under the Duty Exemption Scheme are Advanced Licenses and Advanced

Custom Clearance Permits (``ACCP's''). Sivanandha used Advanced

Licenses to import seamless carbon steel pipes in the POI. Karmen used

ACCP's to import rusty unused butt-weld pipe fittings in the POI.

Both Advance Licenses and ACCP's permit the importation of goods

duty free provided the imports are used in the production of goods

which are subsequently re-exported. We consider the use of Advance

Licenses and ACCP's to be the equivalent of a duty-drawback program

(see Final Affirmative Countervailing Duty Determination: Steel Wire

Rope from India, 56 FR 46292 (September 11, 1991).

Under Sec. 355.44(i)(4)(1) of the Department's proposed regulations

(see Countervailing Duties; Notice of Proposed Rulemaking and Request

for Public Comments, 54 FR 23366 (May 31, 1989), the non-excessive

drawback of import duties is not countervailable if the imported inputs

are subsequently physically incorporated into exported products.

According to the questionnaire responses, inputs imported under Advance

Licenses and ACCP's were physically incorporated into pipe fittings

which were subsequently re-exported. Therefore, we preliminarily

determine that Advance Licenses and ACCP's did not provide a

countervailable benefit in the POI.

2. International Price Reimbursement Scheme

The International Price Reimbursement Scheme (``IPRS'') was

established to compensate Indian exporters for the difference between

the world market price and the domestic price of inputs. According to

the responses, as of April 1, 1993, the input product used in the

production of pipe fittings, i.e., seamless carbon steel pipe, was no

longer eligible for IPRS benefits. However, residual benefits could be

received after that date and, in fact, Karmen indicated in its response

that it received residual benefits under this program during the POI

for exports of pipe fittings shipped prior to the POI.

Respondents maintain that the IPRS program is permissible within

the framework of Item (d) of the Illustrative List of Export Subsidies

annexed to the Agreement on the Interpretation and Application of

Article VI, XVI and XXIII of the General Agreement of Tariff and Trade

(1979). Pursuant to the Court of International Trade's decision in

Creswell Trading Co. v. United States, 783 F. Supp. 1418 (CIT 1992),

the IPRS program must be examined in light of Item (d). Accordingly, if

the IPRS program does not provide a reimbursement which exceeds the

difference between the international price and the domestic price, the

program does not provide a countervailable benefit.

As discussed above, since the IPRS program was designed to

compensate exporters for the difference between the world market price

and the domestic price of inputs and since information provided in

Karmen's response demonstrates that it was reimbursed in an amount

equal to the difference between the domestic price and the

international price, we preliminarily determine that the IPRS program

is not countervailable with respect to inputs used in the production of

pipe fittings.

C. Programs Preliminarily Determined to be not Used

The Department preliminarily determines that the following programs

were not used during the POI.

A. Preferential Post-Shipment Financing

B. Additional and Replenishment Licenses

C. Market Development Assistance

D. Export Promotion, Capital Goods Scheme

E. Benefits for 100 Percent Export-Oriented Units

F. Benefits Provided to Export Processing Zones Verification

In accordance with section 776(b) of the Act, we will verify the

accuracy of the information used in making our final determination.

Suspension of Liquidation

In accordance with section 703(d) of the Act, we are directing the

U.S. Customs Service to suspend liquidation of all entries of pipe

fittings from India, which are entered or withdrawn from warehouse, for

consumption on or after the date of the publication of this notice in

the Federal Register, and to require a cash deposit or bond for such

entries of the merchandise in the amounts indicated below. This

suspension will remain in effect until further notice.

------------------------------------------------------------------------

Percent ad

Pipe fittings valorem

------------------------------------------------------------------------

Karmen Steels of India..................................... 1.30

Tata Iron & Steel Limited.................................. 23.03

All-Others................................................. 3.53

------------------------------------------------------------------------

ITC Notification

In accordance with section 703(f) of the Act, we will notify the

ITC of our determination. In addition, we are making available to the

ITC all nonprivileged and nonproprietary information relating to this

investigation. We will allow the ITC access to all privileged and

business proprietary information in our files, provided the ITC

confirms that it will not disclose such information, either publicly or

under administrative protective order, without written consent of the

Deputy Assistant Secretary for Investigations, Import Administration.

If our final determination is affirmative, the ITC will make its

final determination within 45 days after the Department makes its final

determination.

Public Comment

In accordance with 19 CFR 355.38, we will hold a public hearing, if

requested, to afford interested parties an opportunity to comment on

this preliminary determination on Wednesday, July 27, 1994, at 10 a.m.

at the U.S. Department of Commerce, Room 3708, 14th Street and

Constitution Avenue, NW., Washington, DC 20230. Individuals who wish to

request a hearing must submit such a request within ten business days

of the publication of this notice in the Federal Register to the

Assistant Secretary for Import Administration, U.S. Department of

Commerce, room B099, 14th Street and Constitution Avenue, NW.,

Washington, DC 20230. Parties should confirm by telephone the time,

date, and place of the hearing 48 hours before the scheduled time.

Requests should contain: (1) The party's name, address, and

telephone number; (2) the number of participants; (3) the reason for

attending; and (4) a list of the issues to be discussed. In addition,

case briefs must be submitted to the Assistant Secretary no later than

July 18, 1994. Rebuttal briefs must be submitted to the Assistant

Secretary no later than July 25, 1994. An interested party may make an

affirmative presentation only on arguments included in that party's

case or rebuttal briefs. Written arguments should be submitted in

accordance with section 355.38 of the Department's regulations and will

be considered if received within the time limits specified above.

This determination is published pursuant to section 703(f) of the

Act (19 U.S.C. 1671b(f)).

Susan G. Esserman,

Assistant Secretary for Import Administration.

Dated: May 24, 1994.

[FR Doc. 94-13316 Filed 5-31-94; 8:45 am]

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