Certain Iron-Metal Castings From India: Preliminary Results of Countervailing Duty Administrative Review

DEPARTMENT OF COMMERCE

[C-533-063]

Certain Iron-Metal Castings From India: Preliminary Results of

Countervailing Duty Administrative Review

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

ACTION: Notice of preliminary results of countervailing duty

administrative review.

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SUMMARY: The Department of Commerce (the Department) is conducting an

administrative review of the countervailing duty order on certain iron-

metal castings from India for the period January 1, 1992 through

December 31, 1992. We preliminarily determine the net subsidy to be

12.93 percent ad valorem for Kajaria Iron Castings (Kajaria); 0.00

percent ad valorem for Dinesh Brothers, Pvt. Ltd. (Dinesh) and 3.54

percent ad valorem for all other companies. Interested parties are

invited to comment on these preliminary results. Parties who submit

comments in this proceeding are requested to submit with their comments

(1) a statement of the issue and (2) a brief summary of their position.

EFFECTIVE DATE: August 29, 1995.

FOR FURTHER INFORMATION CONTACT: Elizabeth Graham or Kristin Mowry,

Office of Countervailing Investigations, International Trade

Administration, U.S. Department of Commerce, Washington, D.C. 20230;

telephone: (202) 482-4105 and 482-3798.

SUPPLEMENTARY INFORMATION:

Background

On October 16, 1980, the Department published in the Federal

Register (45 FR 68650) the countervailing duty order on certain iron-

metal castings from India. On October 8, 1992, the Department published

in the Federal Register a notice of ``Opportunity to Request an

Administrative Review'' (57 FR 46371) of this countervailing duty

order. On October 27, 1992, we received a timely request for review

from the Municipal Castings Fair Trade Council and individually-named

members (petitioners), all of which are interested parties.

We initiated the review, covering the period January 1, 1992

through December 31, 1992, on November 17, 1993 (58 FR 60600). The

review covers 14 companies (11 exporters and three producers of the

subject merchandise), which account for virtually all exports of the

subject merchandise from India, and 12 programs.

Applicable Statute and Regulations

The Department is now 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

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

[[Page 44840]]

Request for Public Comments, 54 FR 23366 (May 31, 1989) (Proposed

Regulations), are provided solely for further explanation of the

Department's countervailing practice. Although the Department has

withdrawn the particular rulemaking proceeding pursuant to which the

Proposed Regulations 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 (January 3, 1995).

Scope of 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 Deposit Purposes

Pursuant to Ceramica Regiomontana, S.A. v. United States, 853 F.

Supp. 431 (CIT 1994), Commerce 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 calculated the net subsidy on a country-wide basis by first

calculating the 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, including all companies, even

those with de minimis and zero rates. 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 Sec. 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 Sec. 355.22(d)(3). Two companies (Kajaria and Dinesh) received

significantly different net subsidy rates during the review period

pursuant to 19 CFR Sec. 355.22(d)(3). These companies are treated

separately for assessment and cash deposit purposes. All other

companies are assigned the country-wide rate.

Analysis of Programs

I. Programs Conferring Subsidies

A. Pre-Shipment Export Financing

The Reserve Bank of India, through commercial banks, provides pre-

shipment financing, or ``packing credit,'' to exporters. With these

pre-shipment loans, exporters may purchase raw materials and packing

materials based on presentation of a confirmed order or letter of

credit. In general, the loans are granted for a period of up to 180

days.

In prior administrative reviews of this order, this program was

determined to be countervailable because receipt of the loans under

this program is contingent upon export performance and the interest

rates were preferential. (See e.g., Final Results of Countervailing

Duty Administrative Review: Certain Iron-Metal Castings From India (56

FR 41658; (August 22, 1991) (1987 Indian Castings Final Results); Final

Results of Countervailing Duty Administrative Review: Certain Iron-

Metal Castings From India (56 FR 52515; October 21, 1991) (1988 Indian

Castings Final Results); and Final Results of Countervailing Duty

Administrative Review: Certain Iron-Metal Castings From India (56 FR

52521; October 21, 1991) (1989 Indian Castings Final Results).) There

has been no new information or evidence of changed circumstances in

this review to warrant reconsideration of this program's

countervailability. During the review period, the rate of interest

charged on Pre-Shipment Export loans ranged from 13 to 15 percent,

depending on the length and date of the loan.

In the case of a short-term loan provided by a government, the

Department uses the average interest rate for an alternative source of

short-term financing in the country in question as a benchmark. In

determining this benchmark, the Department selects the predominant

source of short-term financing in the country in question. (See section

355.44(3)(b)(i) of the Proposed Regulations).

The Government of India (GOI) classifies the companies under review

as small-scale industry companies. Therefore, we used the small-scale

industry short-term interest rate published in a Reserve Bank of India

periodical, Reserve Bank of India Annual Report 1992-93, that was

submitted by the GOI. This publication provided us with the actual

short-term small-scale industry interest rate of 15 percent.

During the review period, 9 of the 14 respondent companies made

payments on Pre-Shipment Export loans for shipments of subject castings

to the United States.

To calculate the benefit from the pre-shipment loans to these nine

companies, we compared the actual interest paid on these loans during

the review period with the interest that would have been paid using the

benchmark interest rate of 15 percent. If the benchmark rate exceeded

the program rate, the difference between those amounts is the benefit.

We then divided the benefit by either total exports or by total exports

of the subject merchandise to the United States, depending on how the

pre-shipment financing was reported. That is, if a company was able to

segregate pre-shipment financing applicable to subject merchandise

exported to the United States, we divided the benefit derived from only

those loans by total exports of subject merchandise to the United

States. If a firm was unable to segregate pre-shipment financing, we

divided the benefit from all pre-shipment loans by total exports. On

this basis, we preliminarily determine the net subsidy from this

program to be 0.06 percent ad valorem for all manufacturers and

exporters in India of certain iron-metal castings, except for Kajaria

and Dinesh which have significantly different aggregate benefits. The

net subsidy for Kajaria is 0.30 percent ad valorem. The net subsidy for

Dinesh is 0.00 percent ad valorem.

2. Post-Shipment Export Financing

The Reserve Bank of India, through commercial banks, provides post-

shipment loans to exporters upon presentation of export documents.

Post-shipment financing also includes bank discounting of foreign

customer receivables. In general, post-shipment loans are granted for a

period of up to 180 days. The interest rate for post-shipment financing

ranged from 12.5 to 24.75 percent during the review period.

In prior administrative reviews of this order, this program was

determined to be countervailable because receipt of the loans under

this program is contingent upon export performance and the interest

rates were preferential. (See the 1988 and 1989 Indian Castings Final

[[Page 44841]]

Results.) There has been no new information or evidence of changed

circumstances in this review to warrant reconsideration of this

program's countervailability. For reasons stated above for pre-shipment

financing, we are using 15 percent as our short-term interest rate

benchmark for these loans.

On January 1, 1992, the GOI introduced a program entitled ``Scheme

for Post-Shipment Credit Denominated in Foreign Currency'' (PSCFC). The

loans are denominated in dollars and provided at interest rates at or

above the London Interbank Offering Rate (LIBOR). Upon presentation of

the export documents, the bank will credit the exporter's account in

rupees for the loan amount less interest. The interest rate charged on

these loans ranged from 6.5 percent to 8.5 percent during the review

period.

Our normal practice is to use a foreign currency benchmark where

loans are denominated in foreign currency. In this case, however, the

Indian exporter borrowing under this program receives rupees. The loans

are generally repaid in dollars when the customer makes payment.

However, if the customer defaults, the exporter must repay the loan in

rupees. Therefore, as explained more fully below, although the loans

are tied to foreign exchange, foreign currency benchmarks are not

appropriate.

Under these loans, the rupee equivalent of the amount of principal

repaid will vary according to the exchange rate. This occurs because

the principal remains constant in dollar terms, but as the dollar/rupee

exchange rate varies, the amount of rupees necessary to repay the

constant dollar amount varies. In this situation, the preferred

benchmark would be the interest rate on alternative dollar-indexed

loans in India. However, we have not been able to locate such a

benchmark, and must, therefore, use as a benchmark a rupee-denominated

interest rate. To make dollar-denominated post-shipment export

financing rates comparable to the benchmark, we took account of the

effect of movements in the rupee-dollar exchange rate over the loan

period.

On March 1, 1992, the GOI introduced the Liberalised Exchange Rate

Management System, whereby the rupee was made partly convertible. Under

this system, 40 percent of all foreign exchange remitted was required

to be exchanged at the official exchange rate and the remaining 60

percent at a market determined rate.

Because Indian exporters and banks use two exchange rates, we have

used both of those rates (in the proportions, 40 percent at the

official rate and 60 percent at the market rate) to calculate the

amount of interest paid in rupees, adjusting for exchange rate

fluctuations between the day of receipt and the day of repayment. We

then compared the interest that would be paid on a benchmark rupee loan

to the interest paid on the dollar-indexed loans. In this calculation,

we have followed our consistent methodology of assuming that interest

would be paid on the rupee loans at the time of repayment. (See section

355.48(b)(3) of the Proposed Regulations.)

During the review period, 11 of the 14 respondent companies made

payments on post-shipment export loans for shipments of subject

castings to the United States. One of these 11 companies, Serampore

Industries Private Ltd. (Serampore), provided incomplete post-shipment

loan information in its response to our questionnaire. We have

requested Serampore provide the complete post-shipment loan

information. Since we have not received the information in time for

these preliminary results, in accordance with section 776(c) of the

Act, we have assigned Serampore the highest subsidy rate for post-

shipment loans calculated for another company in this review. We will

use the information provided by Serampore in our final results of this

review.

Also during the review period, the Reserve Bank of India refinanced

banks' rupee post-shipment export credit at a rate of 11 percent per

annum, while credit under the PSCFC scheme was refinanced at 5.5

percent per annum. Such refinancing practices encourage lending to the

export sector; thus, driving down interest rates for exporters while

driving up interest rates for domestic firms. Similar practices by

other central banks of foreign governments have been considered to have

been subsidizing their export sector, and thus found to be

countervailable. However, we were unable to locate a reference to use

as a benchmark for such refinancing practices. We will continue to

search for such a benchmark, and invite interested parties to submit

relevant information.

To calculate the ad valorem subsidy we divided the benefit by

either total exports or exports of the subject merchandise to the

United States, depending on whether the company was able to segregate

the post-shipment financing on the basis of destination of the exported

good. On this basis, we preliminarily determine the net subsidy from

this program to be 0.43 percent ad valorem for all manufacturers and

exporters in India of certain iron-metal castings, except for Kajaria

and Dinesh which have significantly different aggregate benefits. The

net subsidy for Kajaria is 0.15 percent ad valorem. The net subsidy for

Dinesh is 0.00 percent ad valorem.

3. Income Tax Deductions Under Section 80HHC

Under section 80HHC of the Income Tax Act, the GOI allows exporters

to deduct profits derived from the export of goods and merchandise from

taxable income. In prior administrative reviews of this order, this

program has been determined to be countervailable because receipt of

benefits under this program is contingent upon export performance. (See

the 1988 and 1989 Indian Castings Final Results.) There has been no new

information or evidence of changed circumstances in this review to

warrant reconsideration of this program's countervailability.

To calculate the benefit to each company, we subtracted the total

amount of income tax the company actually paid during the review period

from the amount of tax the company would have paid during the review

period had it not claimed any deductions under section 80HHC. We then

divided this difference by the value of the company's total exports. On

this basis, we preliminarily determine the net subsidy from this

program to be 2.97 percent ad valorem for all manufacturers and

exporters in India of certain iron-metal castings, except for Kajaria

and Dinesh which have significantly different aggregate benefits. The

net subsidy for Kajaria is 12.39 percent ad valorem. The net subsidy

for Dinesh is 0.00 percent ad valorem.

4. Import Mechanisms

The GOI allows companies to transfer certain types of import

licenses to other companies in India. During the review period,

castings manufacturers/exporters sold Additional Licenses,

Replenishment Licenses, Exim Scrip Licenses, and Special Exim Licenses.

However, exporters reported that the Replenishment Licenses and Exim

Scrip Licenses they sold during the review period were for non-subject

merchandise. The GOI reported that the Replenishment License Program

was terminated for exports made after February 29, 1992. The

Replenishment License Program was replaced by the Exim Scrip Program,

which was itself terminated on March 1, 1992. On April 1, 1992, the

Special Exim License Program was created to replace the Exim Scrip

Program.

Additional licenses permit the exporter to import a variety of

products

[[Page 44842]]

in an amount equal to ten percent of the ``net foreign exchange''

earned in the previous year. Imports under an additional license are

subject to customs duties and there is no obligation to export the

products incorporating the imported inputs.

Special Exim Licenses are issued to exporters based on their net

foreign exchange earnings. Special Exim Licenses specify the products

that may be imported using the license and the exporter is not required

to incorporate the inputs into the products it exports.

Replenishment Licenses permit the replacement of imported inputs

used in exported products. The types and amounts of products which can

be imported under a Replenishment License are contingent upon the

particular product exported. Exporters are required to pay import

duties on the inputs imported under a Replenishment License, but the

importer is not required to incorporate the inputs into the product it

exports. Additionally, Replenishment Licenses may not be issued to

exporters utilizing Advance Licenses to import inputs.

Exim Scrip Licenses are issued for 30 percent of the F.O.B. value

of the exports. Import duties are payable on inputs imported under

these licenses and like Replenishment Licenses, they may not be issued

to exporters utilizing Advance Licenses to import inputs.

Because the companies received these licenses based on their status

as exporters, we preliminarily determine that the sale of these

licenses is countervailable. See the 1988 and 1989 Indian Castings

Final Results. There has been no new information or evidence of changed

circumstances in this review to warrant reconsideration of this

program's countervailability.

Since companies receive Additional Licenses and Special Exim

Licenses based on their total export earnings from the previous year,

we calculated the subsidies by dividing the total amount of proceeds a

company received from sales of Additional Licenses and Special Exim

Licenses by the total value of its exports of all products to all

markets.

Companies receive Replenishment Licenses and Exim Scrip Licenses

based on individual export shipments. Since the Replenishment Licenses

and Exim Scrip Licenses sold by exporters during the review period were

for non-subject merchandise, we do not consider these sales to have

benefitted exports of the subject merchandise.

We preliminarily determine the net subsidy from the sale of

Additional and Special Exim Licenses to be 0.08 percent ad valorem for

all manufacturers and exporters in India of certain iron-metal

castings, except for Kajaria and Dinesh which have significantly

different aggregate benefits. The net subsidy for Kajaria is 0.09

percent ad valorem. The net subsidy for Dinesh is 0.00 percent ad

valorem.

II. Program Preliminary Found Not To Confer Subsidies Advance Licenses

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.

During the review period, eight of the respondent castings

manufacturers/exporters used advance licenses to import pig iron, an

input which is physically incorporated into the subject iron-metal

castings exported to the United States. 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 consider respondents' use of advance licenses to

be the equivalent of a duty drawback scheme. 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 the products

exported, we preliminarily determine that use of the advance licenses

was not countervailable. See the 1988 and 1989 Indian Castings Final

Results, and the Final Affirmative Countervailing Duty Determination:

Steel Wire Rope from India (Steel Wire Rope), (56 FR 46293, September

11, 1991).

III. Programs Preliminarily Found Not To Be Used

We also examined the following programs and preliminarily determine

that exporters of certain iron-metal castings did not apply for or

receive benefits under these programs with respect to exports of the

subject merchandise to the United States during the review period: (1)

Market Development Assistance; (2) the International Price

Reimbursement Scheme; (3) Falta Free Trade Zones and Other Free Trade

Zones Program; (4) Preferential Freight Rates; (5) Preferential Diesel

Fuel Program; and (6) 100 Percent Export-Oriented Units Program.

IV. Program Preliminarily Found To Be Terminated

During the 1990 review, we verified that the GOI terminated the CCS

program effective July 3, 1991. (See the Verification of the Government

of India (GOI) Questionnaire Responses for the 1990 Administrative

Review of the Countervailing Duty Order on Certain Iron-Metal Castings

from India (public version) dated December 13, 1993, located in the

Central Records Unit, room B-099, Department of Commerce). However,

exporters have two years in which to file applications for CCS rebates

for exports made prior to July 3, 1991. We have found no evidence of

any residual benefits during this review period. Therefore, we

preliminarily determine that exporters of certain iron-metal castings

did not apply for or receive benefits under this program with respect

to exports of the subject merchandise to the United States during the

review period.

Preliminary Results of Review

For the period January 1, 1992 through December 31, 1992, we

preliminarily determine the net subsidy to be 12.93 ad valorem for

Kajaria; 0.00 percent for Dinesh; and 3.54 percent ad valorem for all

other companies. If the final results of this review remain the same as

these preliminary results, the Department intends to instruct the U.S.

Customs Service to assess the following countervailing duties at the

above percentages of the f.o.b. invoice price on shipments of the

subject merchandise exported on or after January 1, 1992, and on or

before December 31, 1992. Because the total net subsidy for Dinesh

Brothers Pvt., Ltd, is determined to be zero, we intend to instruct the

Customs Service not to assess countervailing duties on shipments of the

subject merchandise with respect to that company.

Parties to the proceeding may request disclosure of the calculation

methodology and interested parties may request a hearing not later than

10 days after the date of publication of this notice. Interested

parties may submit written arguments in case briefs on these

preliminary results within 30 days of the day of publication. Rebuttal

briefs, limited to arguments raised in case briefs, may be submitted

seven days after the time limit for filing the case brief. Any hearing,

if requested, will be held seven days after the scheduled date for

submission of rebuttal briefs. Copies of case briefs and rebuttal

briefs must be served on interested parties in accordance with 19 CFR

Sec. 355.38(e).

[[Page 44843]]

Representatives of parties to the proceeding may request disclosure

of proprietary information under administrative protective order no

later than ten days after the representative's client or employer

becomes a party to the proceeding, but in no event later than the date

the case briefs, under section 355.38(c)of the Department's

regulations, are due. The Department will publish the final results of

this administrative review, including the results of its analysis of

issues raised in any case or rebuttal brief or at a hearing.

This administrative review and notice are in accordance with

section 751(a)(1) of the Act (19 U.S.C. Sec. 1675(a)(1)) and 19 CFR

Sec. 355.22.

Dated: August 18, 1995.

Susan G. Esserman,

Assistant Secretary for Import Administration.

[FR Doc. 95-21433 Filed 8-28-95; 8:45 am]

BILLING CODE 3510-DS-P