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

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