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.

[[Page 64670]]

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 information on the net subsidy for

each reviewed company, as well as for all non-reviewed companies,

please see the Preliminary Results of Review section of this notice. If

the final results remain the same as these preliminary results of

administrative review, we will instruct the U.S. Customs Service to

assess countervailing duties as detailed in the Preliminary Results of

Review section of this notice. Interested parties are invited to

comment on these preliminary results. (See Public Comment section of

this notice.)

EFFECTIVE DATE: December 6, 1996.

FOR FURTHER INFORMATION CONTACT:

Christopher Cassel or Lorenza Olivas, Office of CVD/AD Enforcement VI,

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 October 16, 1980, the Department published in the Federal

Register (45 FR 50739) the countervailing duty order on certain iron-

metal castings from India. On October 5,1995, the Department published

a notice of ``Opportunity to Request Administrative Review'' (60 FR

52149) of this countervailing duty order. We received a timely request

for review, and we initiated the review, covering the period January 1,

1994, through December 31, 1994, on November 16, 1995 (60 FR 57573).

In accordance with section 355.22(a) of the Department's Interim

Regulations, this review covers only those producers or exporters of

the subject merchandise for which a review was specifically requested.

See Antidumping and Countervailing Duties: Interim Regulations: Request

for Comments, 60 FR 25130 (May 11, 1995) (``Interim Regulations''). The

producers/exporters of the subject merchandise for which the review was

requested are:

Calcutta Ferrous Kajaria Iron Casting RSI Limited

Pvt. Ltd.

Carnation Enterprise Kejriwal Iron & Steel Seramapore Industries

Pvt. Ltd Works Pvt. Ltd

Commex Corporation Nandikeshwari Iron Shree Rama Enterprise

Foundry Pvt. Ltd

Crescent Foundry Co. Orissa Metal Industries Shree Uma Foundries

Pvt. Ltd

Delta Enterprises R.B. Agarwalla & Siko Exports

Company Pvt. Ltd

Dinesh Brothers R.B. Agarwalla & Co Super Iron Foundry

Uma Iron & Steel Victory Casting Ltd

Delta Enterprises, Orissa Metal Industries, R.B. Agarwalla & Co. Pvt.

Ltd., Shree Uma Foundries and Uma Iron & Steel did not export the

subject merchandise during the period of review (``POR''). Therefore,

these companies have not been assigned an individual company rate for

this administrative review. This review covers nineteen programs.

On May 29, 1996, we extended the period for completion of the

preliminary and final results pursuant to section 751(a)(3) of the

Tariff Act of 1930, as amended. See Certain Iron-Metal Castings From

India; Extension of Time Limit for Countervailing Duty Administrative

Review, 61 FR 26879. As explained in the memoranda from the Assistant

Secretary for Import Administration to the File, dated November 22,

1995, and January 11, 1996 (on file in the public file of the Central

Records Unit, Room B-099 of the Department of Commerce), all deadlines

were further extended to take into account the partial shutdowns of the

Federal Government from November 15 through November 21, 1995, and

December 15, 1995, through January 6, 1996. Therefore, the deadline for

these preliminary results is no later than November 27, 1996, and the

deadline for the final results of this review is no later than 180 days

from the date on which these preliminary results are published in the

Federal Register.

Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute are

references to the provisions of the Tariff Act of 1930, as amended by

the Uruguay Round Agreements Act (``URAA'') effective January 1, 1995

(``the Act''). The Department is conducting this administrative review

in accordance with section 751(a) of the Act. 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

countervailing duty 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 URAA. See Advance Notice of Proposed Rulemaking and

Request for Public Comments, 50 FR 80 (January 3, 1995); Antidumping

Duties; Countervailing Duties: Notice of Proposed Rulemaking and

Request for Public Comments, 61 FR 7308 (February 27, 1996).

Scope of the Review

Imports covered by the administrative 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.

Verification

As provided in section 782(i) of the Act, we verified information

submitted by the Government of India and certain producers/exporters of

the subject merchandise. We followed standard verification procedures,

including meeting with government and company officials and examination

of relevant accounting and financial records and other original source

documents. Our verification results are outlined in the public versions

of the verification reports, which are on file in the Central Records

Unit (Room B-099 of the Main Commerce Building).

Analysis of Programs

I. Programs Conferring Subsidies

A. Programs Previously Determined To Confer Subsidies

1. Pre-Shipment Export Financing

The Reserve Bank of India (``RBI''), through commercial banks,

provides pre-shipment financing, or ``packing credits,'' to exporters.

Upon presentation of a confirmed export order or letter of credit,

companies may

[[Page 64671]]

receive pre-shipment loans for working capital purposes, i.e., for the

purchase of raw materials and for packing, warehousing, and

transporting of export merchandise. Exporters may also establish pre-

shipment credit lines upon which they may draw as needed. Credit line

limits are established by commercial banks, based upon the company's

creditworthiness and past export performance. Companies that have pre-

shipment credit lines typically pay interest on a quarterly basis on

the outstanding balance of the account at the end of each period. In

general, packing credits are granted for a period of up to 180 days.

Commercial banks extending export credit to Indian companies must,

by law, charge interest on this credit at rates determined by the RBI.

During the POR, the rate of interest charged on pre-shipment export

loans was 13.0 percent. For packing credits not repaid within 180 days,

banks could charge interest at 15.0 percent for the number of days the

loan was overdue. Exporters lose the concessional interest rates if the

loan is not repaid within 270 days. If that occurred, banks could

charge interest at 15.0 percent plus two (2.0) percent penalty interest

for the duration of the loan. From October 18, 1994, banks could charge

commercial interest rates on pre-shipment loans not repaid within 270

days. These rates are based on the prime lending rate (``PLR''), and

ranged from 15.0 percent to 22.0 percent, depending on a company's

credit rating. The non-concessional interest rate for export financing

is designated as ``export credit not otherwise specified'' and is

published in the RBI's Annual Report. This rate has been synchronized

with the normal lending rate as applicable to domestic financing in

India. Interest charges under this program must be liquidated with

export proceeds. If the interest is paid with sources other than

foreign currency export proceeds, the interest element of the loan will

not be treated as export credit, and will be charged at rates

applicable to domestic credit.

The Department found this program to be an export subsidy, and thus

countervailable, in prior administrative reviews of this order, because

receipt of pre-shipment export financing was 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); Final Results

of Countervailing Duty Administrative Review: Certain Iron-Metal

Castings From India, 56 FR 52515 (October 21, 1991) (``1987 and 1988

Indian Castings Final Results''), and Certain Iron-Metal Castings From

India; Final Results of Countervailing Duty Administrative Review,

being simultaneously published with this notice (``1993 Indian Casings

Final Results'').

In prior administrative reviews of this order, the Department used

the small-scale industry (``SSI'') short-term interest rate published

in the RBI's Annual Report as its benchmark to measure the benefit

under the pre-shipment export financing scheme. See, e.g., 1988 Indian

Castings Final Results, 56 FR 52515, and 1993 Indian Castings Final

Results. However, during this administrative review we received

allegations that castings exporters may benefit from programs

administered by the Small Industries Development Bank of India

(``SIDBI''). These allegations led us to reexamine the SSI interest

rate. At verification, we learned that producers/exporters of the

subject merchandise would not finance their domestic operations at the

SSI interest rate. Therefore, we now determine that the SSI interest

rate is no longer an appropriate ``comparable'' short-term benchmark,

in accordance with section 771(5)(E)(ii) of the Act.

As we explained in our November 21, 1996, Decision Memorandum on

Appropriate Benchmark for Preferential Short-Term Financing, we have

determined that the appropriate comparable short-term benchmark is the

``Cash Credit'' interest rate reported by the Government of India

(``GOI'') in its March 13, 1996, questionnaire response. According to

GOI and Bank officials, the ``cash credit'' interest rate is for

domestic working capital finance, comparable to pre- and post-shipment

export working capital finance. See Verification of the Government of

India Questionnaire Responses at 4-6 (November 19, 1996) (``GOI

Verification Report'') (public version, on file in the public file of

the Central Records Unit, Room B-099 of the Department of Commerce).

During the POR, this rate was 16.5 percent. We compared this benchmark

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

for loans granted under this program, the interest rate charged was

lower than the ``cash credit'' benchmark. Accordingly, this program

continues to be countervailable because the interest rate on these

loans is less than what a company would have to pay on a comparable

short-term loan. See section 771(5)(E)(ii) of the Act.

Eleven of the fifteen respondent companies used pre-shipment export

loans for shipments of subject castings to the United States during the

POR. To calculate the benefit from the pre-shipment loans to these

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

with the amount of interest that would have been paid using the

benchmark interest rate of 16.5 percent. Where the benchmark rate

exceeded the program rate, the difference between those amounts is the

benefit. 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 for the producers/exporters

of the subject merchandise to be as follows:

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

Net

subsidy

Net subsidies--producer/exporter rate

(percent)

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

Calcutta Ferrous............................................ 0.12

Carnation Enterprise Pvt. Ltd............................... 0.24

Commex Corporation.......................................... 0.03

Crescent Foundry Co. Pvt. Ltd............................... 0.04

Dinesh Brothers............................................. 0.57

Kajaria Iron Castings Pvt. Ltd.............................. 0.40

Kejriwal Iron & Steel Works................................. 0.00

Nandikeshwari Iron Foundry Pvt. Ltd......................... 0.24

R.B. Agarwalla & Company.................................... 0.03

RSI Limited................................................. 0.59

Seramapore Industries Pvt. Ltd.............................. 0.04

Shree Rama Enterprise....................................... 0.00

Siko Exports................................................ 0.00

Super Iron Foundry.......................................... 0.25

Victory Castings Ltd........................................ 0.25

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

2. Pre-Shipment Credit in Foreign Currency (``PCFC'')

On November 8, 1993, the GOI introduced a modified pre-shipment

financing scheme, Pre-Shipment Credit in Foreign Currency, to help

exporters obtain additional export credit at internationally

competitive interest rates. Under this scheme, commercial banks may

extend PCFC loans in all convertible currencies for a period up to 180

days on the basis of a firm's export order or irrevocable letter of

credit. Because the bank's investment is denominated in foreign

currency, this financing is properly viewed as foreign currency

denominated financing. Accordingly, Indian commercial banks may draw

upon foreign exchange balances in Exchange Earners' Foreign Currency

Accounts, and Resident and Non-Resident Foreign Currency Accounts as a

source of funds. Commercial banks may also raise lines of credit

abroad. Under RBI regulations,

[[Page 64672]]

however, commercial banks may not pay more than one (1.0) percent over

the six month London Interbank Offering Rate (``LIBOR'') on overseas

lines of credit.

The interest rate charged by commercial banks on PCFC loans is

linked to LIBOR, and, as per RBI regulations, may not exceed two (2.0)

percent over LIBOR. See GOI Verification Report, Exhibit 6 at 11 and

18. Because LIBOR varies on a daily basis, the actual interest rate on

a PCFC loan may, therefore, vary depending on when the loan was taken

out. Interest on PCFC loans is paid on the foreign currency amount of

the loan. Banks may extend the credit period beyond 180 days and charge

additional interest of two (2.0) percent above the rate charged for the

initial 180 day period. If export has not taken place within 360 days,

or if the export order is canceled, banks may liquidate the loan by

selling the equivalent amount of foreign currency (principal plus

interest) at the selling foreign exchange rate prevailing on the day of

liquidation. The interest recovered on the liquidated loan will be

charged on the rupee equivalent of the principal amount at the rate of

``Export Credit Not Otherwise Specified,'' plus a penalty rate of two

(2.0) percent. Until October 17, 1994, this rate was set by the RBI at

15.0 percent (not including the penalty). Thereafter, commercial banks,

were free to determine the rate. As of May 18, 1994, Indian commercial

banks could also extend PCFC loans under a line of credit, or ``running

account facility,'' similar to the line of credit under the pre-

shipment rupee financing scheme described above.

Receipt of PCFC loans is contingent upon export performance.

Therefore, we determine that this program constitutes an export

subsidy, in accordance with section 771(5A)(B) of the Act, to the

extent that the interest rate on these loans is less than what a

company would have to pay on a comparable commercial short-term loan.

Because PCFC loans are denominated in foreign currency, our normal

practice would be to use a foreign currency benchmark, which would be

the interest rate on alternative foreign-indexed loans in India.

However, we have not been able to find such a benchmark, and have,

therefore, used as a benchmark the rupee-denominated benchmark interest

rate, adjusted to take into account the ``expected'' movements in the

rupee/dollar exchange rate. (PCFC loans taken out by castings exporters

were dollar-denominated.) We did this by comparing the spot rate on the

day the PCFC loan was taken out with the six-month forward exchange

rates. Because we had only limited data on forward rates, we could not

match the forward rates with the period covered by the loan terms. We

therefore used the forward exchange rate that most closely matched the

loan period. We compared the adjusted benchmark to the interest rate

charged on PCFC loans and found that for loans granted under this

program the interest rate charged was lower than the benchmark.

Therefore, in accordance with section 771(5)(E)(ii) of the Act, we

determine that this program confers countervailable benefits.

One of the fifteen respondent companies used PCFC financing for

shipments of subject castings to the United States during the POR. To

calculate the benefit from the PCFC loans to this company, we compared

the actual interest paid on these loans with the amount of interest

that would have been paid using the adjusted benchmark interest. If the

benchmark rate exceeded the program rate, the difference between those

amounts is the benefit. Because the company was unable to segregate

PCFC financing applicable to subject merchandise exported to the United

States, we divided the benefit from all PCFC loans by total exports. On

this basis, we preliminarily determine the net subsidy from this

program to be 0.45 percent for Calcutta Ferrous and 0.00 percent for

all other producers/exporters of the subject merchandise.

3. Post-Shipment Export Financing

Post-shipment export financing consists of loans in the form of

trade bill discounting or advances by commercial banks. The credit

covers the period from the date of shipment of goods to the date of

realization of export proceeds from the overseas customer. Post-

shipment finance, therefore, is a working capital finance or sales

finance against receivables. In general, post-shipment loans are

granted for a period of up to 90 days. The interest rate charged on

these loans was 13.0 percent during the POR. For loans not repaid

within the negotiated number of days (90 days maximum), banks must

charge interest at 15.0 percent for the number of days the loan was

overdue. If the loan is not repaid within 180 days, exporters lose the

concessional interest rates on this financing, and interest is charged

at 20.0 percent for the duration of the loan. As of October 18, 1994,

banks could charge commercial interest rates on post-shipment loans not

repaid within 180 days. These rates are based on the PLR, and ranged

from 15.0 percent to 22.0 percent during 1994.

In the 1993 Indian Castings Final Results, the Department found

this program to be an export subsidy, because receipt of the post-

shipment financing was contingent upon export performance. The

Department also found that the program conferred countervailable

benefits, because the interest rates were preferential. For reasons

stated in the prior section for pre-shipment financing above, we are

using the ``cash credit'' interest rate as our benchmark. Because loans

under this program are discounted, and the effective rate paid by

exporters on these loans is a discounted rate, we calculated from the

``cash credit'' benchmark a discount rate of 14.16 percent for the POR.

We compared this benchmark to the interest rate charged on post-

shipment loans and found that the program interest rate charged was

lower than the benchmark. Therefore, in accordance with section

771(5)(E)(ii) of the Act, this program continues to be countervailable,

because the interest rate on these loans is less than what a company

would have to pay on a comparable commercial short-term loan.

During the POR, two of the fifteen respondent companies made

payments on post-shipment loans for shipments of subject castings to

the United States. to calculate the benefit from these preferential

loans we followed the same short-term loan methodology discussed above

for pre-shipment financing. Because the company was unable to segregate

post-shipment financing applicable to subject merchandise exported to

the United States, we divided the benefit from all post-shipment loans

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

subsidy from this program to be 0.03 percent for Dinesh Brothers Pvt.

Ltd, 0.02 percent for Super Iron Foundry and 0.00 percent for all other

producers/exporters of the subject merchandise.

4. Post-Shipment Export Credit in Foreign Currency (``PSCFC'')

On January 1, 1992, the GOI introduced a modified post-shipment

financing scheme, i.e., post-shipment export credit in foreign

currency. Under this modified scheme, exporters may discount foreign

currency export bill at foreign currency interest rates linked to

LIBOR. Loans under this financing scheme are not provided to the

exporter in the foreign currency, but the post-shipment credit

liability of the exporter is denominated in foreign currency, which is

then liquidated with export proceeds in foreign currency. PSCFC loans

are normally granted for a period of up to 180 days and the interest

rate is fixed and announced by the RBI. See GOI Verification Report at

2-3 and Exhibit 6. The interest amount,

[[Page 64673]]

calculated at the applicable foreign currency interest rate, is

deducted from the total amount of the bill, and the exporter's account

is credited for the rupee equivalent of the net foreign currency

amount. During the POR, the interest rate for PSCFC loans was 6.5

percent for the negotiated term of the loan (up to 180 days). Interest

for overdue loans was charged at 8.5 percent. If the loan is not repaid

within 30 days beyond the negotiated due date, the loan is converted

into rupee credit, and interest is charged at a commercial interest

rate over the entire loan period. During the POR, non-export related

short-term commercial interest rates in India ranged from 15.0 to 22.0

percent. Where the overseas customer defaults and the export bill

cannot be liquidated with export proceeds, the exporter must repay the

rupee equivalent of the bill at the exchange rate prevailing on the day

of liquidation by the bank.

In the 1993 Indian Castings Final Results, the Department found

this program to be an export subsidy, and thus countervailable, because

receipt of PSCFC loans was contingent upon export performance, and the

interest rates were preferential. We also stated in the 1993

administrative review that where loans were denominated in foreign

currency, such as PSCFC, our normal practice would be to use a foreign

currency benchmark to determine whether the loans are preferential.

Because we were unable to locate an interest rate for alternative

foreign currency-indexed loans in India, we adjusted the rupee-

denominated SSI benchmark interest rate, taking into account movements

in the rupee-dollar exchange rate over the term of the loan (all PSCFC

loans by castings exporters were dollar-denominated). However, during

this administrative review we obtained additional information

concerning the operation of the PSCFC program which has led us to

modify this approach.

Under the PSCFC program, companies can elect to have export bills

converted into rupees using either the spot rate of exchange or the

forward rate of exchange. If the spot rate of exchange is used, and the

bank (holding the bill) realizes and exchange rate gain due to exchange

rate movements up to the date the bill comes due, the bank must, by

law, transfer this gain to the exporter. On the other hand, if the bank

suffers an exchange rate loss, exporters, by law, must cover that loss.

See GOI Verification Report at 5, and Memorandum Re: Meeting with Bank

of America Officials at 3 (November 21, 1996) (public document, on file

in the public file of the Central Records Unit, Room B-099 of the

Department of Commerce). Thus, the bank, in effect, faces an exchanges

rate that is fixed over the ``life of the bill.'' Under such

circumstances, where the rupee value of the bill--from the bank's

standpoint--is, in fact, fixed at the time of discount, the rate of

discount measured in either dollars or rupees is the same. Therefore,

the PSCFC discount rate can be viewed equivalently as either a dollar-

denominated rate or a rupee-denominated rate. If viewed as a dollar-

denominated rate, no exchange rate adjustment to the rupee-denominated

benchmark is warranted, because the banks face no exchange rate risks

in holding the bills. Thus, however the PSCFC discount rate is viewed,

a rupee-benchmark is appropriate for benefit calculation purposes where

the exporter opts to convert his bills using the spot rate of exchange.

Where the exporter opts, instead, to convert bills using the

forward rate of exchange, the PSCFC discount rate is properly viewed as

dollar-denominated, but a downward adjustment to this rate is warranted

due to the forward premium that attached to the dollar throughout the

POR. Use of the forward rate transferred this premium to the exporter,

increasing the rupees (and dollar-equivalent) the bank pays the

exporter at the time of discount. Since the face value (in dollars) of

the bill remains fixed, this increase in the dollar-equivalent paid to

the exporter effectively reduces the discount rate charged by the bank.

Because we attempt to compare effective interest rates to effective

interest rates, it was necessary to adjust the interest rate for

exporters that opted to convert their bills at the forward rate of

exchange. Accordingly, the Department used a dollar-denominated

benchmark rate and reduced the PSCFC discount rate by the forward

premium rate prevailing at the time of discount. Because we had only

limited data on forward rates, we could not match exactly forward rates

with bill specific discount periods. Therefore, we have used forward

rates that most closely matched the discounting period.

For reasons stated in the pre-shipment financing section above, we

are using the ``cash credit'' interest rate as our benchmark for PSCFC

loans. Because loans under this program are discounted, and the

effective rate paid by exporters on these loans is a discounted rate,

we derived a benchmark discount rate of 14.16 percent for the POR.

However, as stated above, where exporters converted their bills at the

forward rate of exchange, we adjusted the rupee-denominated discount

benchmark by expected movements in the exchange rate over the term of

the loan. We compared this benchmark discount rate to the interest rate

charged on PSCFC loans and found that the program interest rate charged

was lower than the benchmark. Therefore, in accordance with section

771(5)(E)(ii) of the Act, this program continues to confer

countervailable benefits, because the interest rates on these loans are

less than what a company would have to pay on a comparable commercial

short-term loan.

During the POR, thirteen of the fifteen respondent companies made

payments on PSCFC loans for shipments of subject castings to the United

States. To calculate the benefit from these loans we followed the same

short-term loan methodology discussed above for pre-shipment financing.

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 tie each loan to individual destinations. On this

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

be as follows:

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

Net

subsidy

Net subsidies--producer/exporter rate

(percent)

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

Calcutta Ferrous............................................ 1.91

Carnation Enterprise Pvt. Ltd............................... 0.14

Commex Corporation.......................................... 0.91

Crescent Foundry Co. Pvt. Ltd............................... 0.59

Dinesh Brothers............................................. 1.45

Kajaria iron Castings Pvt. Ltd.............................. 3.54

Kejriwal Iron & Steel Works................................. 0.10

Nandikeshwari Iron Foundry Pvt. Ltd......................... 2.74

R.B. Agarwalla & Company.................................... 0.67

RSI Limited................................................. 2.21

Seramapore Industries Pvt. Ltd.............................. 2.15

Shree Rama Enterprise....................................... 0.00

Siko Exports................................................ 2.23

Super Iron Foundry.......................................... 0.00

Victory Castings Ltd........................................ 1.77

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

5. 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 the 1988 Indian Castings Final Results, the

Department found this program to be an export subsidy, and thus

countervailable, because receipt of benefits was contingent upon export

performance. No new information or evidence of changed circumstances

has been submitted in this proceeding to warrant reconsideration of

this finding. Therefore, in accordance with section 772(5A)(B) of the

Act, we continue to find that this program constitutes an export

subsidy, and that financial

[[Page 64674]]

contributions in the form of tax revenue not collected, are

countervailable.

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 as follows:

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

New subsidy

Net subsidies--producer/exporter rate

(percent)

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

Calcutta Ferrous.......................................... 3.19

Carnation Enterprise Pvt. Ltd............................. 2.15

Commex Corporation........................................ 0.45

Crescent Foundry Co. Pvt. Ltd............................. 7.52

Dinesh Brothers........................................... 0.00

Kajaria iron Castings Pvt. Ltd............................ 11.64

Kejriwal Iron & Steel Works............................... 15.04

Nandikeshwari Iron Foundry Pvt. Ltd....................... 0.28

R.B. Agarwalla & Company.................................. 3.86

RSI Limited............................................... 4.89

Seramapore Industries Pvt. Ltd............................ 7.02

Shree Rama Enterprise..................................... 13.09

Siko Exports.............................................. 2.28

Super Iron Foundry........................................ 0.05

Victory Castings Ltd...................................... 0.00

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

6. Import Mechanisms (Sale of Licenses)

The GOI allows companies to transfer certain types of import

licenses to other companies in India. During the POR, producers/

exporters of subject castings sold Special Import Licenses. In prior

administrative reviews of this order, the Department found this program

to be an export subsidy, and thus countervailable, because companies

received these licenses based on their status as exporters. See, e.g.,

1993 Indian Castings Final Results. No new information or evidence of

changed circumstances has been submitted in this proceeding to warrant

reconsideration of this finding. Therefore, in accordance with section

771(5A)(B) of the Act, we continue to find that this program

constitutes an export subsidy, and that financial contributions in the

form of the revenue earned on the sale of licenses, are

countervailable.

Because the sale of Special Import Licenses could not be tied to

specific shipments, we calculated the subsidies by dividing the total

amount of proceeds a company received from sales of these licenses by

the total value of its exports of all products to all markets. We

preliminarily determine the net subsidy from the sale of Special

Licenses to be as follows:

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

Net

subsidy

Net subsidies--producer/exporter rate

(percent)

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

Calcutta Ferrous............................................ 0.00

Carnation Enterprise Pvt. Ltd............................... 0.00

Commex Corporation.......................................... 0.00

Crescent Foundry Co. Pvt. Ltd............................... 0.00

Dinesh Brothers............................................. 0.00

Kajaria Iron Castings Pvt. Ltd.............................. 0.24

Kejriwal Iron & Steel Works................................. 0.06

Nandikeshwari Iron Foundry Pvt. Ltd......................... 0.00

R.B. Agarwalla & Company.................................... 0.00

RSI Limited................................................. 0.00

Seramapore Industries Pvt. Ltd.............................. 0.15

Shree Rama Enterprise....................................... 0.00

Siko Exports................................................ 0.00

Super Iron Foundry.......................................... 0.00

Victory Castings Ltd........................................ 0.00

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

7. Exemption of Export Credit From Interest Taxes

Indian commercial banks are required to pay a three percent tax on

all interest accrued from borrowers. This tax is passed on to borrowers

in its entirety. As of April 1, 1993, the GOI exempted form the

interest tax all interest accruing or arising to any commercial bank on

loans and advances made to any exporter as export credit. In the 1993

Indian Castings Final Results, we determined that this exemption is an

export subsidy, and thus countervailable, because only interest

accruing or arising on loans and advances made to exporters in the form

of export credit is exempt from the interest tax. No new information or

evidence of changed circumstances has been submitted in this proceeding

to warrant reconsideration of this finding. Therefore, in accordance

with section 771(5A)(B) of the Act, we continue to find that this

program constitutes an export subsidy, and that financial

contributions, in the form of tax revenue not collected, are

countervailable.

During the POR, fourteen of the fifteen respondent companies made

interest payments on export related loans, through the pre- and post-

shipment financing schemes, and, thus, were exempted from the interest

tax under this export program. To calculate the benefit to each

company, we first determined the total amount of interest paid by each

producer/exporter of subject castings during the POR by adding all

interest payments made on pre- and post-shipment loans. Next, we

multiplied this amount by three percent, the amount of tax that the

interest would have been subject to without the exemption. We then

divided the benefit by the value of the company's total exports or

exports of subject merchandise to the United States, depending on

whether the export financing was on total exports or only exports of

subject casting to the United States. On this basis, we preliminarily

determine the net subsidy from this program to be as follows:

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

Net

subsidy

Net subsides--producer/exporter rate

(percent)

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

Calcutta Ferrous............................................ 0.09

Carnation Enterprise Pvt. Ltd............................... 0.03

Commex Corporation.......................................... 0.03

Crescent Foundry Co. Pvt. Ltd............................... 0.02

Dinesh Brothers............................................. 0.16

Kajaria Iron Castings Pvt. Ltd.............................. 0.24

Kejriwal Iron & Steel Works................................. 0.00

Nandikeshwari Iron Foundry Pvt. Ltd......................... 0.15

R.B. Agarwalla & Company.................................... 0.02

RSI Limited................................................. 0.12

Seramapore Industries Pvt. Ltd.............................. 0.06

Shree Rama Enterprise....................................... 0.00

Siko Exports................................................ 0.13

Super Iron Foundry.......................................... 0.07

Victory Castings Ltd........................................ 0.08

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

B. Other Program Preliminarily Determined To Confer Subsidies Payment

of Premium Against Advance Licenses

The Advance License scheme allows exporters to import raw materials

used in the production of an exported product duty free. During the

1993 administrative review, we found that exporters could pay for goods

imported under an Advance License at two exchange rates under the

Liberalized Exchange Rate Management System (``LERMS''). The LERMS was

in effect from March 1, 1992 through February 28, 1993. Under the

LERMS, the GOI maintained a dual exchange rate system where all foreign

currency export proceeds were remitted at two exchange rates: Forty

percent of the export value was exchanged at the official RBI rate and

sixty percent at the (higher) market-determined rate. Purchases of most

imports were made at the market exchange rate. This applied to both

exporters and non-exporters. Exporters holding Advance Licenses under

the Duty Exemption Scheme, however, could purchase imports at the dual

exchange rates. Because forty percent of the value of the imported

goods was exchanged at the lower official exchange rate, the net cost

of these goods to the exporter was lowered. Advance Licenses are issued

to companies based on their status as exporters. Therefore, in the 1993

review, we determined that provisions allowing exporters to import

goods at exchange rates more favorable than those available to non-

exporters

[[Page 64675]]

was an export subsidy, and thus countervailable. See 1993 Indian

Castings Final Results. We verified that the LERMS was terminate

effective February 28, 1993.

During the POR, however, exporters could obtain a premium from the

GOI equal to eight (8.0) percent of the value of their unutilized

Advance Licenses. The purpose of the premium is to compensate exporters

for ``losses'' incurred due to the equalization of exchange rates in

March 1993. To qualify for this premium, companies must have exported

goods prior to March 1993 and realized export proceeds at the 60/40

ratio. These companies must also have experienced delays in the

delivery of imported raw material inputs under an Advance License for

the exports. To fulfill the export obligation, these companies had to

use domestically-soured inputs. Under the Advance License scheme,

exporters then may obtain special permission from licensing authorities

to dispose of the raw material inputs that were imported duty free in

their own production or by transferring them to another company. If the

goods are transferred for use in domestically sold goods, the imported

goods will subject to duty. In either case, the exporter must show that

the export obligation has been met for which the company imported duty

free raw materials. However, because the exchange rates were equalized,

the exporters would now have to pay for the Advance License imports at

the full market exchange rate. Thus, the eight percent premium is

designed to compensate the exporter for the fact that export proceeds

were realized at lower exchange rates, while the raw material imports

intended for use in the exported goods were paid for at higher exchange

rates.

Receipt of the premium is limited to companies that imported raw

materials under an Advance License. Because Advance Licenses are issued

to companies based on their status as exporters, we determine that

receipt of this compensation is an export subsidy, and thus

countervailable. See section 771(5A)(B) of the Act. During the POR,

only Dinesh Brothers Pvt. Ltd. received the premium against Advance

Licenses. We calculated the benefit to Dinesh by dividing the amount of

the compensation by the value of the company's total exports during

1994. On this basis, we preliminarily determine the net subsidy from

this program to be 3.65 percent ad valorem for Dinesh Brothers and 0.00

percent for all other companies.

II. Programs Preliminarily Found Not To Be Used

We examined the following programs and preliminarily find that the

producers/exporters of the subject merchandise did not apply for or

receive benefits under these programs during the period of review:

1. Market Development Assistance (MDA).

2. Rediscounting of Export Bills Abroad.

3. International Price Reimbursement Scheme (IPRS).

4. Cash Compensatory Support Program (CCS).

5. Programs Operated by the Small Industries Development Bank of

India (SIDBI).

6. Export Promotion Replenishment Scheme (EPRS) (IPRS Replacement).

7. Export Promotion Capital Goods Scheme.

8. Benefits for Export Oriented Units and Export Processing Zones.

9. Special Imprest Licenses.

10. Special Benefits.

11. Duty Drawback on Excise Taxes.

Preliminary Results of Review

In accordance with section 355.22(c)(4)(ii) of the Department's

Interim Regulations, we calculated an individual subsidy rate for each

producer/exporter subject to this administrative review. For the period

January 1, 1994 through December 31, 1994, we preliminarily determine

the net subsidy for the reviewed companies to be as follows:

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

Net

subsidy

Net subsidies--producer/exporter rate

(percent)

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

Calcutta Ferrous............................................ 5.77

Carnation Enterprise Pvt. Ltd............................... 2.56

Commex Corporation.......................................... 1.42

Crescent Foundry Co. Pvt. Ltd............................... 8.16

Dinesh Brothers............................................. 5.85

Kajaria Iron Castings Pvt. Ltd.............................. 16.06

Kejriwal Iron & Steel Works................................. 15.21

Nandikeshwari Iron Foundry Pvt. Ltd......................... 3.40

R.B. Agarwalla & Company Pvt. Ltd........................... 4.59

RSI Limited................................................. 7.82

Seramapore Industries Pvt. Ltd.............................. 9.43

Shree Rama Enterprise....................................... 13.90

Siko Exports................................................ 4.65

Super Iron Foundry.......................................... 0.39

Victory Castings Ltd........................................ 2.10

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

If the final results of this review remain the same as these

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

Customs Service (``Customs'') to assess countervailing duties as

indicated above.

The Department also intends to instruct Customs to collect cash

deposits of estimated countervailing duties as indicated above of the

f.o.b. invoice price on all shipments of the subject merchandise from

reviewed companies, entered, or withdrawn from warehouse, for

consumption on or after the date of publication of the final results of

this review. As provided for in the Act, any rate less than 0.5 percent

ad valorem in an administrative review is de minimis. Accordingly, for

those exporters with de minimis rates, no countervailing duties will be

assessed or cash deposits required.

Because the URAA replaced the general rule in favor of a country-

wide rate with a general rule in favor of individual rates for

investigated and reviewed companies, the procedures for establishing

countervailing duty rates, including those for non-reviewed companies,

are now essentially the same as those in antidumping cases, except as

provided for in section 777A(e)(2)(B) of the Act. The requested review

will normally cover only those companies specifically named. See

Sec. 355.22(a) of the Interim Regulations. Pursuant to 19 CFR

355.22(g), for all companies for which a review was not requested,

duties must be assessed at the cash deposit rate, and cash deposits

must continue to be collected, at the rate previously ordered. As such,

the countervailing duty cash deposit rate applicable to a company can

no longer change, except pursuant to a request for a review of that

company. See Federal-Mogul Corporation and The Torrington Company v.

United States, 822 F.Supp. 782 (CIT 1993) and Floral Trade Council v.

United States, 822 F.Supp. 766 (CIT 1993) (interpreting 19 CFR

353.22(e), the antidumping regulation on automatic assessment, which is

identical to 19 CFR 355.33(g)). Therefore, the cash deposit rates for

all companies except those covered by this review will be unchanged by

the results of this review.

We will instruct Customs to continue to collect cash deposits for

non-reviewed companies at the most recent company-specific or country-

wide rate applicable to the company. Accordingly, the cash deposit

rates that will be applied to non-reviewed companies covered by this

order are those established in the most recently completed

administrative proceeding. See 1993 Indian Castings Final Results.

These rates shall apply to all non-reviewed companies until a review of

a company assigned these rates is requested. In addition, for the

period January 1, 1994 through December 31, 1994, the assessment rates

applicable to all non-reviewed companies covered

[[Page 64676]]

by this order are the cash deposit rates in effect at the time of

entry.

Public Comment

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 date 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. Parties who

submit argument in this proceeding are requested to submit with the

argument (1) a statement of the issue and (2) a brief summary of the

argument. 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 355.38.

Representatives of parties to the proceeding may request disclosure

of proprietary information under administrative protective order no

later than 10 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 19 CFR 355.38, 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. 1675(a)(1)).

Dated: November 27, 1996.

Robert S. LaRussa,

Acting Assistant Secretary for Import Administration.

[FR Doc. 96-31094 Filed 12-5-96; 8:45 am]

BILLING CODE 3510-D5-M