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

DEPARTMENT OF COMMERCE.

[C-533-812]

Final Affirmative Countervailing Duty Determination: Certain

Carbon Steel Butt-Weld Pipe Fittings From India

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: February 27, 1995.

FOR FURTHER INFORMATION CONTACT: Susan M. Strumbel, Office of

[[Page 10565]] Countervailing Investigations, Import Administration,

U.S. Department of Commerce, Room 3099, 14th Street and Constitution

Avenue, N.W., Washington, D.C. 20230; telephone (202) 482-1442.

Final Determination

The Department of Commerce (``the Department'') 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 preliminary determination in the

Federal Register, 59 FR 28337 (June 1, 1994), the following events have

occurred.

On June 27, 1994, at petitioner's request, we extended the final

determination in this investigation to coincide with the final

determination in the companion antidumping investigation (59 FR 32955).

On June 30, 1994, petitioner requested that the Department postpone

its preliminary determination in the antidumping investigation.

Therefore, on July 26, 1994, the Department published in the Federal

Register a notice postponing the preliminary antidumping determination

and, therefore, also the final countervailing duty determination (59 FR

37961).

On October 5, 1994, respondents requested that the Department

postpone the final antidumping and countervailing duty determinations.

Therefore, on November 14, 1994, the Department published in the

Federal Register a notice postponing the final antidumping and

countervailing duty determinations until no later than February 16,

1995 (59 FR 56461).

We conducted verification of the responses submitted on behalf of

the Government of India (GOI), Karmen Steels of India (Karmen) and

Sivanandha Pipe Fittings Ltd. (Sivanandha) from November 4 through

November 7, 1994. We received case briefs on January 24 from petitioner

and respondents, and received rebuttal briefs from petitioner on

January 31, 1995.

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.

Applicable Statue and Regulations

Unless otherwise indicated, all citations to the statute and to the

Department's regulations are references to the provisions as they

existed on December 31, 1994. References to the Countervailing Duties:

Notice of Proposed Rulemaking and Request for Public Comments, 54 FR

23366 (May 31, 1989) (Proposed Regulations), are provided solely for

further explanation of the Department's CVD 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).

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).

Period of Investigation

For purposes of this final 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 section 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 61.56 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, Sivanandha

and Tata were significantly different from the country-wide rate.

Therefore, all three companies received company-specific rates. The

country-wide rate will be assigned to all other manufacturers,

producers and exporters.

Karmen's Exports of Refurbished Pipe Fittings

Karmen has an arrangement with a Singaporean company, under which

the Singaporean company supplies Karmen with rusty pipe fittings.

Karmen reconditions and refurbishes these pipe fittings and ships them

directly to the Singaporean company's U.S. customer. For purposes of

the preliminary determination, we considered this refurbished

merchandise to be covered by this proceeding. However, we stated

[[Page 10566]] that we would seek additional information concerning:

(1) The nature and extent of the processing operation, and (2) the

extent to which the refurbished pipe fittings are being subsidized.

For purposes of this final determination, we are treating the

``sales'' of Singaporean pipe as outside of the scope of our

investigation and, hence, not subject to any potential countervailing

duty order on butt-weld pipe fittings from India. Karmen essentially

performs a tolling service for its Singaporean customer. Moreover,

Karmen does not ``substantially transform'' these pipe fittings.

Substantial transformation generally refers to a degree of processing

or manufacturing resulting in a new and different article. Through that

transformation, the new article becomes a product of the country in

which it was processed or manufactured. See Cold-Rolled Steel from

Argentina, 58 FR 37062, 37065 (1993) (Appendix I). The Department makes

these determinations on a case-by-case-basis. See, e.g., Certain Fresh

Cut Flowers from Colombia, 55 FR 20491, 20299 (1990); Limousines from

Canada, 55 FR 11036, 11040 (1990).

In determining whether Karmen substantially transformed these pipe

fittings, we examined whether the degree of processing or manufacturing

resulted in a new and different article. Karmen receives rusty pipe

fittings from Singapore, it removes the rust, paints the fitting, and

forwards it to the Singaporean company's customer. We do not consider

this refurbishing process as substantially transforming the subject

merchandise because it remains a pipe fitting after refurbishment.

Therefore, because Karmen does not substantially transform the

merchandise, we do not consider it as falling within the scope of this

investigation.

However, we have also determined that the benefits received by

Karmen under two of the countervailable export subsidy programs

discussed below (pre-shipment financing and income tax deductions under

80HHC) cannot be limited exclusively to Karmen's export sales of new

pipe fittings (i.e., all Karmen's export sales excluding the

Singaporean transactions). In neither instance is there any indication

that Karmen is precluded from receiving these benefits on its

refurbishing operations. Therefore, we have included the fee Karmen

receives for refurbishing the Singaporean pipe fittings as part of the

denominator for calculating the ad valorem subsidy rate. This is

consistent with past practice. When we cannot specifically tie the

receipt of an export subsidy to a subset of export sales, such as

exports of the subject merchandise, we divide the total value of the

export subsidy received by the total value of exports. (See, e.g.,

Final Results of Countervailing Duty Administrative Review: Certain

Iron-Metal Castings from India, 56 FR 52521, (October 21, 1991), Final

Affirmative Countervailing Duty Determination; Certain Electrical

Conductor Aluminum Redraw Rod from Venezuela, 53 FR 24763, 24767 (June

30, 1988) (Redraw Rod)). (For a further discussion of this issue,

please refer to the Interested Party Comments section of this notice).

Analysis of Programs

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

questionnaires, verification and comments made by interested parties,

we determine the following:

A. Programs 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. We verified

that both Karmen and Sivanandha had loans on which interest was paid

during the POI under this program.

Because only exporters are eligible for loans under this program,

we determine that they are countervailable to the extent they are

provided at a preferential interest rate. See, e.g., Redraw Rod. As our

commercial benchmark interest rate, we used 16.50 percent, which is the

rate reported by the GOI as the annual average commercial interest rate

on short-term financing during the POI. 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 determine the estimated

net subsidy from this program to be 0.47 percent ad valorem for Karmen,

0.44 percent ad valorem for Sivanandha and 5.27 percent ad valorem for

Tata.

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 or export

subsidies 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 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 determine the estimated

net subsidy from this program to be 2.10 percent ad valorem for Karmen,

2.73 percent ad valorem Sivanandha and 15.82 percent ad valorem for

Tata.

3. International Price Reimbursement Scheme

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

established to compensate Indian exporters for the difference between

the domestic price of inputs and their world market price. We verified

that, as of April 1, 1993, the input product used in the production of

pipe fittings (seamless carbon steel pipe), was no longer eligible for

IPRS benefits. However, residual benefits could be received after that

date and, in fact, Karmen 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 on Tariffs and Trade

(Subsidies Code), (1979). Pursuant to the remand determination in Final

Results of Redetermination Pursuant to Court Remand, Creswell Trading

Company, Inc., et al. v. United [[Page 10567]] States, Slip. Op. 94-65

(Creswell Trading), the IPRS program must be examined in light of Item

(d).

To conduct the analysis with respect to Item (d) of the

Illustrative List, we examined whether the IPRS program involves a

consistently applied calculation methodology for determining the

difference between the higher domestic and lower international price of

a product available to exporters and whether the pricing and other data

used in this methodology are regularly updated to reflect accurately

the price differential at the time of the purchase of the product.

We verified that India's IPRS program utilizes a clearly defined

and consistently applied methodology for calculating the difference

between the higher domestic and lower international price of seamless

carbon steel pipe available to their exporters. We also verified that

the price schedules for both domestic and international prices are

updated periodically. Therefore, we determine that the basic terms and

conditions of the provision of carbon steel pipe under the IPRS program

are not ``more favourable than those commercially available on world

markets'' to Indian exporters. However, we have also determined that

the IPRS rebate is ``excessive,'' because the government failed to

include ocean freight in its calculation of the world market price.

Item (d) is concerned with the government's provision of goods to

exporters on terms more favorable than those ``commercially available

on world markets to their exporters.'' Indian exporters who purchase

seamless carbon steel pipe on the world market would necessarily also

incur the cost of delivering the pipe to India. Therefore, the

commercially available alternative is the price of seamless carbon

steel pipe itself, from sources outside of India, plus a delivery

charge to India.

The international prices used by the GOI in its calculations of

IPRS rebates are stated in F.O.B. (port of origination) terms and,

thus, do not reflect the delivery of foreign seamless carbon steel pipe

to India. Consequently, we added delivery costs to the price of

foreign-sourced seamless carbon steel pipe and compared the delivered

domestic price to a delivered world market price. On this basis, we

determine that the IPRS rebates received by the Indian pipe fittings

producers are excessive in the amount of the delivery charges necessary

to transport carbon steel pipe to India. The excess amount is a

countervailable subsidy because the rebate enabled the pipe fittings

exporters to pay a lower price for carbon steel pipe than that

commercially available on world markets.

To calculate Karmen's benefit, we divided the amount of ocean

freight necessary to ship seamless carbon steel pipe to India by

Karmen's total exports of pipe fittings. We did not include in the

denominator the fees Karmen receives for refurbishing Singaporean pipe

because refurbished pipe fittings are not eligible for the IPRS. On

this basis, we determine the estimated net subsidy from this program to

be 7.05 percent ad valorem for Karmen, 0.00 percent ad valorem for

Sivanandha and 32.66 percent ad valorem for Tata.

B. Programs Determined not to Provide Benefits During the POI 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 Advance Licenses and Advance Custom

Clearance Permits (``ACCPs''). Sivanandha used Advance Licenses to

import seamless carbon steel pipes in the POI. Advance Licenses permit

the importation of goods duty free provided that the imports are used

in the production of merchandise subsequently exported.

Karmen used ACCPs during the POI. ACCPs allow exporters to import

merchandise duty free for the purpose of jobbing, restoration,

reconditioning and other servicing, provided that such merchandise is

re-exported. Karmen used its ACCPs to import the aforementioned pipe

fittings from Singapore.

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 products are physically incorporated

into exported products. According to the questionnaire responses and

verification, the products imported under Advance Licenses are

physically incorporated into pipe fittings which are subsequently re-

exported. The products imported under the ACCP's were refurbished and

also re-exported. Therefore, we determine that Advance Licenses and

ACCP's did not provide a countervailable benefit in the POI.

C. Programs Determined To Be Not Used

We established at verification 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

Interested Party Comments

Comment 1: Karmen argues that it would be inappropriate to subtract

the fees received for its refurbishing operations from the denominator

but to leave the subsidies resulting from the refurbishing in the

numerator. Karmen argues that the job-working fees received for the

Singaporean transactions must be included in the denominator to

calculate its subsidy rate. Karmen contends that the benefits from the

two subsidies we preliminarily found countervailable, the 80HHC tax

program and the pre-shipment export financing, resulted significantly

from the transactions involving Singaporean pipe.

Petitioner argues that the transactions involving the refurbished

pipe fittings do not constitute a sale for the purposes of this

investigation. Furthermore, petitioner disagrees that the refurbished

pipe fittings contributed to Karmen's benefits under either of the

above-mentioned programs.

DOC's Position: As noted above, we have determined that the

benefits from the pre-shipment export financing and 80HHC programs

cannot be tied solely to Karmen's export sales, exclusive of the income

received for refurbishing Singaporean pipe. During verification, we

were told by Karmen officials that they did not use pre-shipment export

financing for shipments of refurbished pipe fittings, but based on our

analysis of the information submitted regarding this program, there is

no reason to believe that Karmen could not have used the financing for

these shipments. We do not typically narrow our export subsidy

denominator to less than total exports unless the benefits provided can

be exclusively linked to a smaller subset of export sales. Therefore,

consistent with our past practice, we divided the benefit amount by the

value of Karmen's total exports, including the fees it received for

refurbishing. [[Page 10568]]

With respect to the 80HHC program, our past practice has been to

divide the value of the benefits by total exports in the POI. Pursuant

to our general tax methodology, we consider tax benefits to be

``received'' when a company files the return. Consequently, the benefit

used in our calculation usually relates to sales activity in the year

prior to the POI. As a result, the sales denominator we use in our

subsidy calculation is rarely, if ever, the sales from the same fiscal

year covered by the tax return. The only basis to exclude sales from

the denominator is to determine that they are incapable of generating

the tax benefit in question. The only issue then, in this

investigation, is whether the fees Karmen receives for its refurbishing

operations can generate 80HHC benefits.

The 80HHC benefits Karmen claimed on the tax return filed during

the POI (covering a pre-POI period) were not generated by Karmen's

refurbishing operations because Karmen did not refurbish any

Singaporean pipe during the fiscal year covered by the tax return.

However, we verified that the fees received by Karmen for its

refurbishing operations during the POI did generate 80HHC benefits on

the tax return which covers the POI. It is clear that the refurbishing

fees received by Karmen qualify for 80HHC benefits. The only reason

80HHC benefits generated by the refurbishing operations are not in the

80HHC subsidy calculation in this investigation is the Department's tax

methodology which mandates the use of the tax return filed during the

POI.

Comment 2: Respondents argue that the benchmark interest rate of

16.5 percent used in the Department's preliminary determination is the

appropriate benchmark rate and should also be used in the Department's

final determination. They state that this interest rate is the national

average commercial rate for comparable loans. They contend that the

18.75 percent interest rate listed in the Department's verification

reports is a company-specific rate and therefore should not be used.

They further state that the 18.75 percent interest rate is for a loan

that has a one year term while pre-shipment financing has a much

shorter term. Finally, they argue that pre-shipment export financing is

a low risk form of credit because the exporter has to show a purchase

order prior to receiving financing.

DOC's Position: We agree that the 18.75 percent interest rate is a

company-specific rate. When selecting a short-term interest rate

benchmark the Department's first choice is a national average rate

rather than a company-specific rate. See, Subsidies Appendix. The

questionnaire response of the GOI stated that the annual average

interest rate on short-term financing in India during the POI was 16.5

percent. According to the Reserve Bank of India, the minimum commercial

short-term rate on loans above 200,000 rupees in India during the POI

was 15.00 percent. Information from the May 1994 edition of

International Financial Statistics indicates that the average short-

and medium-term interest rate in India during the POI was approximately

15.59 percent. Given the information on the record, we used as our

benchmark the rate provided by the GOI.

Comment 3: Respondents argue that the Department should uphold its

preliminary finding that the IPRS program is non-countervailable.

DOC's Position: Based on verification and the recent remand

determination in Creswell Trading, we have determined that the IPRS

program provided a countervailable benefit during the POI.

Verification

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

information used in making our final determination. We followed

standard verification procedures, including meeting with government and

company officials, examination of relevant accounting records and

examination of original source documents. Our verification results are

outlined in detail in the public versions of the verification reports,

which are on file in the Central Records Unit (Room B-99 of the Main

Commerce Building).

Suspension of Liquidation

In accordance with our affirmative preliminary determination, we

instructed the U.S. Customs Service to suspend liquidation of all

entries of butt-weld pipe fittings from India, which were entered or

withdrawn from warehouse for consumption, on or after June 1, 1994, the

date our preliminary determination was published in the Federal

Register.

After the preliminary determination, this final countervailing duty

determination was aligned with the final antidumping duty determination

on certain carbon steel butt-weld pipe fittings from India, pursuant to

section 606 of the Trade and Tariff Act of 1984 (section 705(a)(1) of

the Act).

Under article 5, paragraph 3 of the Subsidies Code, provisional

measures cannot be imposed for more than 120 days without final

affirmative determinations of subsidization and injury. Therefore, we

instructed the U.S. Customs Service to discontinue the suspension of

liquidation on the subject merchandise on or after September 30, 1994,

but to continue the suspension of liquidation of all entries, or

withdrawals from warehouse, for consumption of the subject merchandise

entered between June 1, 1994, and September 29, 1994. We will reinstate

the suspension of liquidation, under section 703(d) of the Act, if the

ITC issues a final affirmative injury determination, and will require a

cash deposit of estimated countervailing duties in the amounts

indicated below:

Karmen Steels of India: 9.62 percent ad valorem

Sivanandha Pipe Fittings Ltd.: 3.16 percent ad valorem

Tata Iron & Steel Limited: 61.56 percent ad valorem

All-Others: 29.40 percent ad valorem

ITC Notification

In accordance with section 705(d) of the Act, we will notify the

ITC of our determination. In addition, pursuant to section 705(c) 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 an administrative protective

order, without the written consent of the Deputy Assistant Secretary

for Investigations, Import Administration.

If the ITC determines that material injury, or threat of material

injury, does not exist, these proceedings will be terminated and all

estimated duties deposited or securities posted as a result of the

suspension of liquidation will be refunded or cancelled. If, however,

the ITC determines that such injury does exist, we will issue a

countervailing duty order directing Customs officers to assess

countervailing duties on butt-weld pipe fittings from India.

Return of Destruction of Proprietary Information

This notice serves as the only reminder to parties subject to

Administrative Protective Order (APO) of their responsibility

concerning the return or destruction of proprietary information

disclosed under APO in accordance with 19 CFR 355.34(d). Failure to

comply is a violation of the APO.

This determination is published pursuant to section 705(d) of the

Act and 19 CFR 355.20(a)(4).

[[Page 10569]] Dated: February 16, 1995.

Barbara S. Stafford,

Acting Assistant Secretary for Import Administration.

[FR Doc. 95-4721 Filed 2-24-95; 8:45 am]

BILLING CODE 3510-DS-P