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.

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SUMMARY: On May 22, 1996, 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, 1993, through

December 31, 1993. We have completed this administrative review and

determine the net subsidy to be zero percent ad valorem for Delta

Enterprises and Super Iron Foundry, and 5.45 percent ad valorem for all

other companies. We will instruct the U.S. Customs Service to assess

countervailing duties as indicated above.

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 May 22, 1996, the Department published in the Federal Register

(61 FR 25623) 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 June 21, 1996, case briefs were submitted by the

Engineering Export Promotion Council of India (EEPC) and the exporters

of certain iron-metal castings to the United States (respondents)

during the period of review (POR), and the Municipal Castings Fair

Trade Council and its members (petitioners). Company specific comments

to the Department's preliminary determination were also submitted on

June 21, 1996, by R.B. Agarwalla & Company, exporter of the subject

merchandise to the United States during the POR. On June 28, 1996,

rebuttal briefs were submitted by respondents and petitioners. The

review covers the period January 1, 1993, through December 31, 1993,

and involves 14 companies and twelve programs.

Applicable Statute and Regulations

The Department is conducting this administrative review in

accordance with section 751(a) of 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 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 Uruguay Round Agreements

Act (URAA). See 60 FR 80 (January 3, 1995).

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

provided by the Government of India, and six producers/exporters of the

subject merchandise. We followed standard verification procedures,

including meeting with government and company officials, and

examination of relevant accounting and 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).

Calculation Methodology for Assessment and Cash Deposit Purposes

In accordance with Ceramica Regiomontana, S.A. versus United

States, 853 F. Supp. 431 (CIT 1994), we calculated the net subsidy on a

country-wide basis by first calculating the subsidy rate for each

company subject to the administrative review. We then weighed the rate

received by each company using as the weight its share of total Indian

exports to the United States of subject merchandise, including all

companies, even those with de

[[Page 64677]]

minimis and zero rates. We then summed the individual companies'

weighted rates to determine the weighted-average, country-wide 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). Two companies had 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 companies are assigned the country-wide rate.

Analysis of Programs

Based upon the responses to our questionnaire, the results of

verification, and written comments from the interested parties, we

determine the following:

I. Programs Conferring Subsidies

A. Programs Previously Determined to Confer Subsidies

1. Pre-Shipment Export Financing

In the preliminary results, we found that this program conferred

countervailable benefits on the subject merchandise. Our review of the

record and our analysis of the comments submitted by the interested

parties, summarized below, has not led us to change our findings from

the preliminary results. Accordingly, the net subsidies for this

program remain unchanged from the preliminary results and are as

follows:

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

Manufacturer/exporter Rate %

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

Delta Enterprises............................................. 0.00

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

Program Rate.................................................. 0.13

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

2. Post-Shipment Export Financing and Post-Shipment Credit Denominated

in Foreign Currency (PSCFC)

In the preliminary results, we found that this program conferred

countervailable benefits on the subject merchandise. Our review of the

record and our analysis of the comments submitted by the interested

parties, summarized below, has not led us to change our findings from

the preliminary results. Accordingly, the net subsidies for this

program remain unchanged from the preliminary results and are as

follows:

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

Manufacturer/exporter Rate %

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

Delta Enterprises............................................. 0.00

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

Program Rate.................................................. 1.25

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

3. Income Tax Deductions Under Section 80HHC

In the preliminary results, we found that this program conferred

countervailable benefits on the subject merchandise. Our review of the

record and our analysis of the comments submitted by the interested

parties, summarized below, has not led us to change our findings from

the preliminary results. Accordingly, the net subsidies for this

program remain unchanged from the preliminary results and are as

follows:

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

Manufacturer/exporter Rate %

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

Delta Enterprises............................................. 0.00

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

Program Rate.................................................. 3.64

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

4. Import Mechanisms

In the preliminary results, we found that this program conferred

countervailable benefits on the subject merchandise. Our review of the

record and our analysis of the comments submitted by the interested

parties, summarized below, has not led us to change our findings from

the preliminary results. Accordingly, the net subsidies for this

program remain unchanged from the preliminary results and are as

follows:

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

Manufacturer/exporter Rate %

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

Delta Enterprises............................................. 0.00

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

Program Rate.................................................. 0.04

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

B. New Programs Determined To Confer Subsidies

1. Exemption of Export Credit From Interest Taxes

In the preliminary results, we found that this program conferred

countervailable benefits on the subject merchandise. Our review of the

record and our analysis of the comments submitted by the interested

parties, summarized below, has not led us to change our findings from

the preliminary results. Accordingly, the net subsidies for this

program remain unchanged from the preliminary results and are as

follows:

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

Manufacturer/exporter Rate %

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

Delta Enterprises............................................. 0.00

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

Program Rate.................................................. 0.06

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

2. Imports Made Under an Advance License Through the Liberalized

Exchange Rate Management System (LERMS)

In the preliminary results, we found that this program conferred

countervailable benefits on the subject merchandise. Our review of the

record and our analysis of the comments submitted by the interested

parties, summarized below, has not led us to change our findings from

the preliminary results. Accordingly, the net subsidies for this

program remain unchanged from the preliminary results and are as

follows:

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

Manufacturer/exporter Rate %

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

Delta Enterprises............................................. 0.00

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

Program Rate.................................................. 0.33

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

We verified that this program was terminated as of February 28, 1993,

and that there were no residual benefits. See Certain Iron-Metal

Castings from India: Preliminary Results of Countervailing Duty

Administrative Review, 61 FR 25623, 25626 (May 22, 1996) (1993 Castings

Prelim). Because this constituted a program-wide change, the cash

deposit rate for this program will be zero. See Sec. 355.50 of the

Proposed Regulations.

II. Programs Found Not To Confer Subsidies

Inward Exchange Remittances Under the Liberalized Exchange Rate

Management System (LERMS)

In the preliminary results, we found that this program did not

confer subsidies during the POR. Our review of the record and our

analysis of the comments submitted by the interested parties,

summarized below, has not led us to change our findings from the

preliminary results.

III. Programs Found To Be Not Used

In the preliminary results, we found that the producers and/or

exporters of the subject merchandise did not apply for or receive

benefits under the following programs:

A. Market Development Assistance (MDA)

B. Rediscounting of Export Bills Abroad

C. International Price Reimbursement Scheme (IPRS)

D. Cash Compensatory Support Program (CCS)

[[Page 64678]]

E. Pre-Shipment Financing in Foreign Currency (PSFC)

Our analysis of the comments submitted by the interested parties,

summarized below, has not led us to change our findings from the

preliminary results.

Analysis of Comments

Comment 1

Petitioners argue that the Department incorrectly used the small-

scale industry (SSI) short-term interest rate published in the Reserve

Bank of India's (RBI) August 1994 Annual Report to calculate the

benefit provided to castings exporters under the Pre- and Post-Shipment

export financing programs. By using the SSI rate, the Department has

underestimated the full benefit received by castings exporters under

these programs.

The SSI rate, petitioners claim, is a preferential loan rate

regulated by the RBI. Therefore, the Department's benefit calculation

is skewed, because one preferential lending rate (export financing) is

being judged against another preferential rate (SSI). Petitioners

contend that this type of comparison is ``unjust,'' irrespective of

whether the benchmark rate is provided to a specific industry.

Petitioners further contend that by relying on its finding in the 1991

Castings Final Results, the Department again assumes that loans to the

SSI sector are non-specific within that sector without having made such

a determination based on record evidence and in accordance with section

355.43(b)(2)(i) of the Proposed Regulations. According to petitioners,

the Department's regulations do not permit a program to escape a

specificity finding, merely because it ``appears'' not to be limited to

a group of companies.

Finally, petitioners assert that in selecting a benchmark rate, the

Department is directed by Sec. 355.44(b)(3)(i) of the Proposed

Regulations to rely on the predominant source of short-term financing

in India. Petitioners also cite Royal Thai Government v. United States,

850 F. Supp. 44, 49 (Ct. Int'l Trade 1994), for the proposition that

because the rate must be ``representative'' of short-term commercial

lending, it may not be unreasonably low in comparison to other

commercial rates. According to petitioners, record evidence indicates

that the SSI rate is not the predominant source of short-term financing

in India. Rather, because RBI credit regulations require that 32

percent of net bank credit to be targeted to priority sectors,

including the SSI sector, the predominant type of financing appears to

fall under the 68 percent of financing that is not provided on

preferential terms.

Accordingly, petitioners contend that the Department should use the

``non-specific'' commercial borrowing rate in India as its benchmark in

the Final Results, as published in the International Monetary Fund's

International Financial Statistics Yearbook. In 1993 this rate was

16.25 percent.

Respondents claim that petitioners have not presented any new

arguments that should propel the Department to depart from its prior

findings. According to respondents, the information submitted by

petitioners concerning the rate published in the IMF Yearbook

constitutes new and untimely information, and should, therefore, be

rejected. Respondents contend that statements made by Indian commercial

bank officials concerning lending rates were ``imprecise,'' and not

sufficient for setting the benchmark rate. Also, petitioners do not

demonstrate that SSI loans are in fact specific, but merely indicate

that the non-specific finding should not be adopted without additional

investigation of the loans. With respect to statements by commercial

bank officials that a percentage of net bank credit be targeted to

certain industry sectors, respondents argue that this merely notes the

minimum and not the actual amount that was lent to these sectors.

Accordingly, the Department should reject petitioners arguments, and,

consistent with its past practice, apply the SSI rate as the benchmark.

Department's Position

While petitioners may argue that comparing one preferential rate

against another is ``unjust,'' and that the SSI rate does not represent

the ``predominant'' source of short-term financing in India, it has

been the Department's practice to use as a short-term loan benchmark

for small businesses, the interest rates provided to small businesses,

even if that benchmark is lower than other commercial interest rates.

See, e.g., the discussion of the benchmark used in the FOGAIN program

in Bricks From Mexico, 49 FR 19564 (May 8, 1984). Because castings

exporters qualify as small-scale industry firms, we have used the

interest rate for small-scale industries as our benchmark. This has

been our consistent practice for the export financing programs in this

and past administrative reviews. See e.g., Final Results of

Countervailing Duty Administrative Review: Certain Iron-Metal Castings

from India, 56 FR 52515 (October 21, 1991) (1988 Castings Final), and

Certain Iron-Metal Castings from India, 60 FR 44843 (August 29, 1995)

(1991 Castings Final.)

With respect to petitioners' argument that the Department must

determine whether loans to the SSI sector are non-specific within that

sector, it has been the Department's practice not to examine whether a

program provided to small businesses is specific absent an allegation

that the assistance under the program is limited to enterprises or

industries within the universe of small businesses. 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). We have found no

evidence, and petitioners have not presented any information on the

record of this review, that would lead us to examine the specificity of

the SSI loans. As such, we continue to find that the SSI rate is an

appropriate benchmark to use in the calculation of the benefit under

the export financing programs. However, new allegations that we are

investigating in the 1994 administrative review of this case (see

Memorandum to the File Re: Petitioners' New Allegations (May 29, 1996)

(public document on file in the public file of the Central Records

Unit, Room B-099 of the Department of Commerce)) may lead us to

reconsider the use of the SSI interest rates as the benchmark for the

export financing programs in that review.

Comment 2

Petitioners argue that in order to provide a more accurate measure

of the level of subsidization under the export financing programs, the

Department should adjust the benchmark interest rate to reflect the

``effective'' cost of commercial financing in India. In particular,

certain service charges that the Government of India (GOI) reported as

adding to the normal cost of commercial borrowing should be added to

the benchmark rate. This would also be in accordance with the Proposed

Regulations, which express a preference for a comparison of effective

interest rates.

Respondents indicate that the service charges are also applicable

to export financing. Therefore, if they were added to the benchmark,

they should also be added to the preferential export financing rate.

Because this would be a difficult exercise, the Department has always

correctly used the nominal rates for both the benchmark and the export

loan interest rates.

Department's Position

We agree with respondents. There is no indication that the charges

listed in

[[Page 64679]]

the GOI's questionnaire response are limited to export financing and do

not apply to domestic commercial lending. According to the GOI, these

service charges add ``to the cost of normal commercial borrowing''

(emphasis added). See GOI Original Questionnaire Response at 9

(February 22, 1995) (public version on file in the public file of the

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

Petitioners have not cited any record information that would lead us to

conclude that the service charges are limited solely to non-export

financing and that adding them to the cost of commercial borrowing

would provide a more accurate measure of the level of subsidization

under the export financing programs. Accordingly, the service charges

will not be added to the benchmark interest rate.

Comment 3

Petitioners cite statements made by commercial bank officials and

other statements by the GOI to support their contention that exporter's

``effective'' rate of interest under the PSCFC program is much lower

than the ``nominal'' rate reported in the response and used by the

Department in its preliminary calculations. Specifically, petitioners

cite a statement by commercial bank officials that under the PSCFC,

exporters could lower their cost of borrowing ``by selling the dollar

value of the export bill at the forward rate to the bank [and] capture

the forward dollar premium against the rupee.'' See Citibank

Verification Report at 2 (October 30, 1995) (public version on file in

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

Department of Commerce). Petitioners argue that by comparing

``nominal'' subsidized and benchmark interest rates for PSCFC loans,

the Department is not capturing the full benefit received by castings

exporters under this program.

Respondents claim that the practice of booking forward exchange

rates is not a subsidy. Rather, buying forward is an established

commercial practice throughout the world and is one method used by

exporters to hedge against fluctuations in exchange rates. Respondents

also indicate that exporters may hedge their export bills without using

the PSCFC program.

Department's Position

Upon completing verification of the questionnaire responses in this

administrative review, petitioners submitted comments on the

verification reports and requested that the Department ask respondents

to provide further information concerning the forward premium, as well

as additional programs discussed at verification. See Review of

Verification Reports in Countervailing Duty Administrative Review for

1993 (November 29, 1995) (public document on file in the public file of

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

After analyzing petitioners' comments on the verification reports, we

did not request further information from the respondents with respect

to the forward booking option. We examined petitioners' arguments in

light of the information on the record which consisted of statements

made at verification by bank officials and respondent companies. These

indicated that only one of the fourteen companies under review had

exercised the forward booking option. In our view, at that time, the

arguments made by petitioners were insufficient to send out new

questionnaires and gather new information after verification.

Accordingly, our preliminary results did not discuss or account for the

forward premium.

The comments that petitioners have filed for these final results

are the same as those filed on the verification reports. Since no new

factual information has been submitted since the preliminary results, a

determination cannot be made based on the record evidence of this

proceeding as to whether and to what extent Indian exporters received

an even greater benefit under the PSCFC if the program interest rate is

adjusted to take into account the forward premium.

However, during the 1994 administrative review, which is ongoing,

we received timely new subsidy allegations that we are investigating.

Our investigation of these allegations has led us to reexamine the

short-term lending practices in India, including how the option of

booking forward exchange rates operates, and whether and to what extent

this affects exporters' effective rate of borrowing under PSCFC.

Comment 4

Petitioners argue that the Department must calculate a benefit for

the RBI's refinancing practices that it preliminarily determined to be

countervailable in the 1992 administrative review of this order.

Petitioners indicate that the Department did not mention this program

in its preliminary results for this review, although information on the

record shows that the circumstances with respect to this program have

not changed.

According to petitioners, the GOI has, by encouraging private banks

to lend to the export sector, provided exporters with access to

preferential funds that they otherwise would not have had available to

them. Domestic firms did not have access to these preferential funds,

and the interest rates charged were more preferential than they might

have been because the GOI's involvement created a greater differential

between rates of interest available on the market to all Indian firms

and rates available to the export sector.

Petitioners cite Certain Steel Products from Korea (Steel), 58 FR

37,338 (July 9, 1993) and Certain Stainless Steel Cooking Ware from the

Republic of Korea (Cooking Ware), 51 FR 42,867, 42,868 (1986) as

support for their contention. Petitioners state that, as the Department

recognized in Steel and Cooking Ware, when a government encourages

private banks to target a greater proportion of the finite amount of

capital that is available to a certain industry (or export sector),

this leaves fewer funds for the non-targeted sector to borrow. Thus,

the GOI's provision of refinancing to banks, which encourages banks to

make more funds available to the export sector than they otherwise

would have provided, in turn making fewer funds available to the non-

export sector, has the effect of driving up the cost of financing for

non-exporters. Accordingly, because the GOI's refinancing practices

constitute an export subsidy, petitioners argue that the Department

should calculate the benefit conferred by these practices and

countervail the full amount of the benefit.

Respondents argue that the Department was correct not to consider

the GOI's refinancing practices in this administrative review.

According to respondents, RBI refinancing is not a separate subsidy

from the Post-Shipment Export Financing, but is, rather, what allows

the banks to provide preferential post-shipment credit. If the

Department were to countervail the refinancing, it would be

countervailing the same subsidy twice. Therefore, the Department should

find that these practices do not confer countervailable subsidies.

Department's Position

We disagree with petitioners. Higher rediscount or refinancing

ratios provided for export loans may indeed encourage commercial banks

to provide export loans over domestic loans and drive up the cost of

financing for non-exporters. In such cases, when we determine that a

program provides a preference for lending to exporters rather than non-

exporters, we must

[[Page 64680]]

determine an appropriate way to measure that preference. Normally, we

measure the preference by the difference between the interest rates

charged on the export loans and the higher interest rates charged on

domestic loans. See, e.g., Cooking Ware, 51 FR at 42868. We only seek

alternative methodologies when we find that there is no difference

between the benchmark interest rate on export loans and the interest

rate on domestic loans. See, e.g., Certain Steel Products from Korea,

58 FR at 37345. In the 1992 final results of this case, we found that

the higher refinancing ratios provided on export loans are the

mechanism that allows the banks to provide the preferential post-

shipment financing. We also agreed with respondents' assertion that

countervailing the refinancing would result in double-counting the

benefit from the program. Therefore, we measured the preference as the

differential between the program interest rate and the benchmark

interest rate. See Certain Iron-Metal Castings from India; Final

Results of Administrative Review, (1992 Castings Final), being

simultaneously published with this notice.

Petitioners' cites to Steel and Cooking Ware are misplaced. In

Cooking Ware, we stated that the different rediscount ratios for export

and domestic loans results in the provision of export financing on

preferential terms because ``* * * commercial banks have an incentive

to channel more funds to finance those firms' export transactions and

fewer funds to finance their domestic transactions.'' Cooking Ware, 51

FR at 42868. This is consistent with our finding in the 1992 Castings

Final that the higher refinancing ratios provided on export loans is

the mechanism and incentive that allows the commercial banks to extend

the preferential post-shipment financing. However, in Cooking Ware, we

found that the interest rate on both export and domestic short-term

loans provided by banks were the same. Therefore, to measure the

preference for export over domestic loans, we compared the 10 percent

rate for short-term export loans with a weighted average of short-term

domestic credit, including credit provided outside the normal banking

system. We considered this measure the best approximation of what firms

would pay for export financing if there were not a preference within

the banking system for providing loans for export transactions. See

Cooking Ware, 51 FR at 42868. In Steel, we found that the GOK provided

the steel industry with preferential access to medium- and long-term

credit from government and commercial banking institutions. We

determined that, absent the GOK's targeting of specific industries, all

industries would compete on an equal footing for the scarce credit

available on the favorable markets. However, because the GOK controlled

long-term lending in Korea and placed ceilings on long-term interest

rates, there was a limited amount of capital available, which would

force companies to resort to less favorable markets. Therefore, we

determined that the three-year corporate bond yield on the secondary

market was the best approximation of the true market interest rate in

Korea.

In this case, we can measure the preference created by the export

refinancing using the difference between the interest rates charged on

export loans and the interest rates charged on domestic loans. This

approach is consistent with our treatment of export loans provided by

the Privileged Circuit Exporter Credits Program in Carbon Steel Wire

Rod from Spain: Final Affirmative Countervailing Duty Determination, 49

FR 19557 (May 8, 1984). The use of an alternative method for measuring

the preference is not warranted in this case because the interest rates

charged on export and domestic loans are not uniform within India.

Therefore, we have used our standard short-term loan methodology, as

described in Sec. 355.44(3)(b) of the Proposed Regulations, and have

not calculated any additional benefit for the higher refinancing ratio

provided for export loans.

Comment 5

According to petitioners, there are miscellaneous calculation

issues relating to respondents use of the export financing programs

which conceal benefits under these programs. Petitioners cite the RSI

and R.B. Agarwalla verification reports for their claim that the

``quarterly billing'' approach for pre-shipment financing is likely to

conceal interest costs that would otherwise be countervailed.

Petitioners also contend that the Department must subtract all credits

posted to company accounts to determine the total net post-shipment

interest expense incurred during the POR.

Respondents reject petitioners' argument that the quarterly billing

approach under the pre-shipment financing program allows castings

exporters to conceal interest charges. According to respondents, the

Department has verified the questionnaire response of RSI, R.B.

Agarwalla, and other castings exporters on numerous occasions and has

never found that interest charges were being concealed under the pre-

shipment financing program. With respect to interest credits,

respondents argue that petitioners have misunderstood how the post-

shipment financing program works and that if the credits were deducted

as suggested by petitioners, the subsidy would be overstated.

Department's Position

We disagree with petitioners that the quarterly billing method or

running account facility allows exporters to conceal interest charges.

Respondents correctly indicate that the Department's verification of

the pre-shipment export financing program in this and past

administrative reviews has not revealed that castings exporters are

concealing interest charges under this program. In the instant review,

for example, of the four companies that reported utilizing the running

account facility for pre-shipment interest payments, the Department

verified the accuracy of the information of three of these, Kajaria,

R.B. Agarwalla and RSI. As the verification reports for these companies

attest, we traced the reported interest payments to each company's

general ledger, bank statements, payment vouchers and financial

statements. We found that the companies paid the interest actually

charged by the banks on these loans and that they accurately reported

in the questionnaire responses the amount of interest paid to the bank.

Moreover, information presented at verification indicates that the

quarterly billing method is a normal banking practice afforded to those

exporters that meet certain criteria. For example, RSI officials stated

at verification that upon review of a company's creditworthiness,

Indian commercial banks may establish a line of credit under the pre-

shipment financing program. To secure the loan, exporters must pledge

their raw materials and works in progress as collateral. RSI officials

also explained that interest is charged to the company by the bank on

the last day of each quarter, based on the outstanding balance at the

end of that period. See RSI Verification Report at 2 (October 30, 1995)

(public version, on file in the public file of the Central Records

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

With respect to the interest credits on post-shipment export

financing, we disagree with petitioners. As we explained in the

preliminary results, under post-shipment financing, commercial banks

discount export bills for a period of up to 180 days. The interest

amount, calculated at the

[[Page 64681]]

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. If payment from

the overseas customer is received prior to the due date of the loan,

exporters will receive a credit in an amount equal to the interest

calculated over the number of days early payment is made. Therefore,

castings exporters have appropriately provided post-shipment interest

payments net of all credits received due to early payment. To do

otherwise would overstate the benefit received under this program, as

the higher interest payment would yield a higher absolute benefit on

those loans which were paid early. Accordingly, these credits have

appropriately been subtracted by respondent companies.

At verification, Commex Corporation officials explained that they

had failed to subtract interest credits for early payment of post-

shipment loans in their questionnaire response. Therefore, after

tracing the revised loan information through the company's records, and

calculating the amount of the credit, we accepted these data showing

interest payments net of all credits received. Post-shipment interest

payments reported by R.B. Agarwalla, on the other hand, were already

net of any credits received. See R.B. Agarwalla Verification Report at

4 (October 30, 1995) (public version, on file in the public file of the

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

Likewise, the public version of Calcutta Ferrous' post-shipment loan

sheet indicates that the company subtracted all credits posted to its

accounts for early payment. For the reasons stated above, we conclude

that there are no miscellaneous calculation issues as claimed by

petitioners.

Comment 6

Petitioners state that the Department improperly failed to

countervail the value of Advance Licenses, because Advance Licenses are

export subsidies and not equivalent to duty drawback. According to

petitioners, Advance Licenses constitute a countervailable subsidy

within the meaning of Item (a) of the Illustrative List of Export

Subsidies (Illustrative List), which defines one type of export subsidy

as ``[t]he provision by governments of direct subsidies to any firm or

any industry contingent upon export performance.'' Because Advance

Licenses are issued to companies based on their status as exporters,

and because products imported under such a license are duty-free,

petitioners state that such licenses provide a subsidy based on the

requirement that an export commitment be met.

Petitioners further claim that the Department has in this and

previous reviews mistakenly confused the nature of the Advance License

program with duty drawback programs. According to petitioners, for a

duty drawback program not to be countervailed, it must meet certain

conditions outlined in Item (i) of the Illustrative List. Item (i)

provides that ``[t]he remission or drawback of import charges [must not

be] in excess of those levied on imported goods that are physically

incorporated (making normal allowance for waste) in the exported

products.'' This condition, according to petitioners, has not been met

with respect to the Advance License program, because the Indian

government apparently has made no attempt to determine whether the

amount of material that is imported duty-free under Advance Licenses is

at least equal to the amount of pig iron contained in exported subject

castings, i.e., ``physically incorporated in the exported products.''

Moreover, petitioners argue that respondents' ability to transfer

Advance Licenses to other companies under certain conditions is further

evidence that this program is not the equivalent of a drawback program,

because the licenses are not limited to use solely for the purpose of

importing duty-free materials. For these reasons, petitioners state

that the Department should countervail in full the value of Advance

Licenses received by respondents during the POR.

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

indicate that if a license had been transferred during the POR, then it

might have been a subsidy; this did not occur, however.

Department's Position

As we explained in the 1991 review (see 1991 Castings Final, 60 FR

at 44846), 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 a duty drawback scheme. That is, they used the licenses

in order to import, net of duty, raw materials which were physically

incorporated into the exported products. Furthermore, we have never

found that castings exporters have transferred an Advance License.

Accordingly, our determination that the use of Advance Licenses is not

countervailable remains unchanged.

Comment 7

Petitioners claim that the Department has underestimated the

benefit received by castings exporters under the program that exempts

export credit from interest taxes. According to petitioners, certain

companies have received additional export credit, either in the form of

loans or advances from sources other than Pre- and Post-Shipment export

financing. In support of their contention, petitioners cite the company

verification reports and financial statements as well as a GOI

verification report exhibit that allegedly details a range of export

credit options available to castings exporters.

Respondents argue that the information cited by petitioners from

both the questionnaire responses and verification reports in no way

indicates that castings exporters received tax exempt export financing

other than that provided through the Pre- and Post-Shipment lending

programs. With respect to other export credit options listed in the GOI

verification report, respondents claim there is no record evidence

showing that respondents companies used any of these programs during

the POR.

[[Page 64682]]

Department's Position

At verification, we traced each company's total interest payments

listed in the general ledger to the financial statements. We found no

discrepancies and no evidence that castings exporters had received any

additional export financing or had utilized other export credit options

as cited by petitioners. See, e.g., Commex Verification Report at 2

(October 30, 1995) (public version, on file in the public file of the

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

respect to the ``Unsecured Loans'' reported by RSI, the company stated

at verification that these were ``non-bank loans pertaining to their

polymer products division.'' We confirmed that none of these were for

exports of the subject merchandise. See RSI Verification Report at 3

(October 30, 1995) (public version, on file in the public file of the

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

Moreover, there is no indication that the short-term loans listed in

RSI's February 22, 1995, questionnaire response were export-related

loans. Again, we traced all export financing shown in RSI's general

ledger to the company's financial statements at verification and found

no discrepancies. Accordingly, because all export-related financing has

been accounted for in the Department's calculations for this program,

we determine that the benefit from the exemption for exporters from the

tax on loan interest has not been underestimated.

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.

Petitioners further contend that the statute requires Commerce to

countervail indirect as well as direct subsidies because the benefit

reduces a respondent's costs, regardless of whether it is paid

(directly) upon the export of subject castings or (indirectly) upon the

export of non-subject castings. In either event, petitioners claim, the

company's costs are equally reduced, thereby conferring the

countervailable benefit. In support of their contention, petitioners

cite 19 U.S.C. 1303(a)(1) and Armco, Inc. v. United States, 733 F.

Supp. 514 (Ct. Int'l Trade) (1990). Petitioners further assert that the

URAA makes clear that U.S. law continues to countervail benefits that

are conferred, regardless of ``whether the subsidy is provided directly

or indirectly on the manufacture, production, or export of

merchandise.''

Petitioners further contend that castings exporters can easily

avoid paying countervailable duties by making no claims for IPRS

payments on the subject castings, but linking their claims on non-

subject castings. This is possible, according to petitioners, because

eligibility for IPRS payments is based on the use of domestic pig iron,

and pig iron is fungible.

Respondents state that petitioners have misapplied the term

``indirectly.'' They state that IPRS payments are not ``indirectly''

paid on subject castings merely because they are 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 making the ``money is

fungible'' argument which has never been accepted by the Department.

They state the Department should not accept this argument now.

Respondents also object to petitioners' contention that respondents

are circumventing the countervailing duty law by linking their claims

to exports of non-subject castings. According to respondents,

petitioners provide no evidence in support of their assertions. In

fact, the GOI and respondent companies have been verified numerous

times, and the Department has never found any indication that claims

for IPRS were paid on non-subject castings in a way that circumvents

the countervailing duty law, as claimed by petitioners.

Department's Position

As we stated in the 1992 Castings Final and the 1991 Castings

Final, petitioners have misinterpreted the term ``indirect subsidy.''

According to petitioners, a reimbursement of costs incurred in the

manufacture of product B may provide an indirect subsidy upon the

manufacture of product A. As such, petitioners argue that grants 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

clearly 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. This is the point the court was

making in Armco where it was concerned that subsidies not escape being

countervailed because of certain parent/subsidiary relationships. The

interpretation proposed by petitioners, that a benefit tied to one type

of product also provides an indirect subsidy to another product, is not

within the purview or intent of the statutory language under section

771(5)(B)(ii).

The Department's practice with respect to this issue is spelled out

in our Proposed Regulations. These state that for countervailable

benefits found to be ``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) of the Proposed Regulations. Tying

benefits to specific products is established Department practice in the

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). Moreover, we find no merit in

petitioners' claim that 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 GOI 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.

Comment 9

According to petitioners, the Department should countervail

benefits provided to castings exporters under numerous programs found

during the course of this proceeding. Citing the GOI verification

report, petitioners claim that the Duty Drawback Scheme (DDS) appears

to be identical to the Cash Compensatory Support Scheme that the

Department found countervailable in prior reviews. Given these

similarities, petitioners state, respondents must prove that the

drawback under this program is not excessive. According to petitioners,

the

[[Page 64683]]

record does not establish that the allowable rebate for castings

exporters is less than the applicable excise rates. Accordingly, the

Department should calculate a benefit for this program.

Petitioners further note that Commex Corporation and the GOI have

not provided sufficient information to show that Commex's Export

Development Rebate Reserve should not be countervailed. Therefore,

petitioners contend, the Department should calculate a subsidy benefit

for this program by dividing the amount listed in the financial

statements by the company's total exports. If the Department decides

not to countervail the export reserve, it should determine what it will

do with this reserve if it is ``used'' in the future.

Finally, petitioners note from RSI's verification report that the

company's financial statement refers to a Deferred Export Market

Development Expenditure and that respondents have not explained whether

these expenditures are part of a GOI program. Lacking information to

show affirmatively that this amount should not be countervailed,

petitioners assert that the Department should calculate a benefit for

this program. If the Department decides not to countervail the export

reserve, it should determine what it will do with this reserve if it is

``used'' in the future.

With respect to the DDS, respondents argue that the Department long

ago determined that this was not a subsidy. In support of their

argument, respondents cite the Department's August 20, 1980, final

countervailing duty determination. Respondents also claim that

irrespective of whether Commex's Export Development Rebate Reserve was

a subsidy, petitioners acknowledge that it was not used during the POR

and, therefore, cannot be countervailed during the review period.

Respondents make the same argument concerning RSI's Deferred Export

Market Development Expenditure. In any case, the Department noted in

RSI's verification report that the deferred expenditure was not related

to subject castings, and, as such, cannot be a subsidy benefiting

castings exported to the United States.

Department's Position

We disagree with petitioners that there are additional programs

that should be countervailed during this proceeding. First, with

respect to the DDS, we noted in our May 14, 1996, Memorandum to the

File Re: Duty Drawback of Excise Taxes Program (public document on file

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

Department of Commerce) that this program had been examined during the

investigation. At that time, we found that the rebate of excise taxes

on domestically sourced pig and scrap iron consumed in the production

of exported goods was non-excessive, and, therefore, did not confer

countervailable benefits. During the verification of the questionnaire

responses for this administrative review, we again found that the duty

drawback claimed for excise taxes paid on domestically sourced pig iron

was not excessive. See e.g., Commex Corporation Verification Report at

3-4 (October 30, 1995) (public version on file in the public file of

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

Therefore, our original determination for this program has not changed.

With respect to the Export Development Rebate Reserve and the

Deferred Export Market Development Expenditure, we verified that these

were not used during this POR and, accordingly, cannot be

countervailed. See, e.g., RSI Verification Report at 4 (October 30,

1995), and Commex Corporation Verification Report at 4 (October 30,

1995) (public versions on file in the public file of the Central

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

Comment 10

According to respondents, the Department incorrectly found that

sales of import licenses by Kejriwal during the POR conferred

countervailable benefits on exports of subject castings. Respondents'

claim that Kejriwal's August 14, 1995, supplemental questionnaire

response clearly indicates that the licenses sold by the company during

the POR were earned on sales other than exports of the subject

merchandise to the United States. Respondents argue that in the absence

of verification of the company or other record evidence demonstrating

that the licenses were tied to subject castings, the Department should

not consider these licenses to have benefited Kejriwal's exports of the

subject merchandise to the United States.

Petitioners argue the respondents' claim should be rejected because

the record does not demonstrate that the licenses sold by Kejriwal

during the POR were received only in connection with non-subject

merchandise. According to petitioners, respondents' argument that these

licenses are tied to non-subject castings rests upon Kejriwal's

ambiguous statement in its supplemental questionnaire response that

``[t]he licenses sold * * * was [sic] obtained on total exports less

exports of subject merchandise to the U.S.A.'' Petitioners claim that

this statement is not only unsupported by record evidence but

contradicts other evidence. In its original questionnaire response,

Kejriwal stated that the licenses sold during the POR were Special

Replenishment and Additional Licenses. The Department found in its

preliminary determination of this administrative review that receipt of

Special and Additional Licenses is based on a company's overall export

performance and that these licenses cannot be tied to specific export

shipments. Accordingly, respondents' claim that these licenses were

tied to exports other than subject castings is inconsistent with the

stated purpose of these licenses. Therefore, petitioners contend that

record evidence fully support the Department's determination to

countervail the licenses sold by Kejriwal during the POR.

Department's Position

We disagree with respondents. In this and past administrative

reviews of this order, we found that receipt of Additional and Special

Licenses was based on a company's export performance for all exports

and that these licenses could not be tied to specific sales. See, e.g.,

1991 Castings Final, 60 FR at 44843. Where a benefit is not tied to a

particular product, it is the Department's practice to allocate the

benefit to all products exported by a firm where the benefit received

is pursuant to an export program. See Sec. 355.47(c) of the Proposed

Regulations. Accordingly, where we have found that castings exporters

sold licenses that could not be tied to specific sales, we determined

that the sale benefited the company's entire export sales. During this

administrative review, we verified that Additional and Special Licenses

could be received only on the basis of a company's total export

performance. Therefore, Kejriwal's statement that ``[t]he licenses sold

* * * was [sic] obtained on total exports less exports of subject

merchandise to the U.S.A.,'' does not constitute sufficient new

evidence to overturn our earlier finding. Moreover, the mere fact that

a company may choose not to include exports to the United States in

applying for a license does not in any way demonstrate that the sale of

such licenses cannot benefit exports to the United States. See, e.g.,

Extruded Rubber Thread from Malaysia; Final Results of Countervailing

Duty Administrative Review, 61 FR 55272, 55276 (October 25, 1996).

Therefore, our determination that the sale of these licenses benefits

Kajaria's total export

[[Page 64684]]

sales, including the subject merchandise, remains unchanged.

Comment 11

Respondents contest the Department's use of a rupee-loan interest

rate, adjusted for exchange rate changes, as the benchmark to calculate

the benefit on PSCFC loans. According to respondents, this is

inconsistent with item (k) of the ``Illustrative List of Export

Subsidies,'' annexed to the GATT Subsidies Code. Item (k) provides that

an ``export credit'' is a subsidy only if those credits are granted by

governments at interest rates below the cost of funds to the

government. Because the Indian commercial banks providing PSCFC loans

could themselves borrow at LIBOR-linked rates, the appropriate

benchmark, respondents claim, is a LIBOR-linked interest rate.

Accordingly, PSCFC loans should not be considered beneficial to the

extent that they are provided at rates below the appropriate benchmark,

i.e., the rate at which Indian commercial banks could borrow U.S.

dollars.

According to petitioners, the Department has consistently rejected

the ``cost-to-government'' methodology of item (k), because that

approach does not adequately capture the benefits provided under short-

term financing programs. In support of their argument, petitioners cite

the Department's determinations in Extruded Rubber Thread from

Malaysia; Final Results of Countervailing Duty Administrative Review,

60 FR 17515, 17517 (1995) and Certain Textile Mill Products from

Mexico; Final Results of Countervailing Duty Administrative Review, 56

FR 12175, 12177 (1991). Petitioners also cite the 1989 final results of

Certain Textile Mill Products from Mexico, in which the Department

stated:

When we have cited the Illustrative List as a source for

benchmarks to identify and measure export subsidies, those

benchmarks have been consistent with our long-standing practice of

using commercial benchmarks to measure the benefit to recipient of a

subsidy program. The cost-to-government standard in item (k) of the

Illustrative List does not fully capture the benefits provided to

recipients of FOMEX financing. Therefore, we msut [sic] use a

commercial benchmark to calculate the benefit from a subsidy,

consistent with the full definition of ``subsidy'' in the statute.

See 54 FR 36841, 36843 (1989). According to petitioners, the

Department's repudiation of the ``cost-to-government'' standard

contemplated in item (k) was upheld and restated in the Statement of

Administrative Action: Agreement on Subsidies and Countervailing

Measures, H. Doc. No. 316, 103d Cong., 2d Sess. (1994). For these

reasons, the Department should reject respondents' argument and adopt

as a benchmark a non-preferential interest rate based on the

``predominant'' form of short-term financing in India.

Department's Position

We disagree with respondents that the Department should use a

LIBOR-linked interest rate as an appropriate benchmark for the PSCFC

program. In determining whether a short-term export loan is

preferential and confers countervailable benefits, the Department's

practice has been to compare the amount of interest paid by a company

for the loan with the amount the firm would have paid on a benchmark

loan. In the case of short-term financing, the Department is instructed

to use as a benchmark

* * * the average interest rate for an alternative source of

short-term financing in the country in question. In determining this

benchmark, the Secretary normally will rely upon the predominant

source of short-term financing in the country in question.

See Sec. 355.44(b)(3)(i) of the Proposed Regulations, 54 FR at 23380

(emphasis added). In the preamble to the Proposed Regulations, we

explained that ``the purpose of the comparison is to determine what a

firm's cost of money would be absent the allegedly countervailable

government loan.'' 54 FR at 23369.

In this case, we have determined that the predominant source of

short-term financing in India is financing for the SSI sector at

interest rates defined by the RBI. See, e.g., 1991 Castings Final, 60

FR 44843. We also found that PSCFC loans are limited only to exporters,

and only exporters have access to LIBOR-linked interest. Therefore, as

explained in Sec. 355.44(b)(1) of the Proposed Regulations, because the

amount paid by exporters on PSCFC loans is less than what a firm would

pay for benchmark loans, we determined that PSCFC loans confer

countervailable benefits. Because we found that PSCFC loans are limited

to exporters and that non-exporters do not have access to these low-

cost financing rates, LIBOR-linked interest rates clearly do not

represent the predominant source of short-term financing in India. The

fact that commercial banks may borrow at LIBOR-linked rates is,

therefore, irrelevant to our finding.

Furthermore, petitioners correctly note that the Department has

consistently rejected the ``cost-to-government'' standard of item (k)

of the Illustrative List, which respondents cite in support of their

argument that the appropriate benchmark for PSCFC loans should be a

LIBOR linked interest rate. The cost-to-government standard

contemplated in item (k) does not limit the United States in applying

its own national countervailing duty law to determine the

countervailability of benefits on goods exported from India. See, e.g.,

Porcelain-on-Steel Cookingware From Mexico; Final Results of

Countervailing Duty Administrative Review, 57 FR 562 (January 7, 1992).

Therefore, in compliance with the U.S. countervailing duty law and the

Department's past practice, we will continue to use as a benchmark the

``predominant'' source of short-term financing in India to determine

whether PSCFC loans confer countervailable benefits upon exports of the

subject merchandise to the United States.

Comment 12

According to respondents, the Department correctly adjusted the

discounted benchmark interest rate for exchange rate changes.

Respondents claim, however, that this adjustment is erroneous when it

increases the benchmark, because the benchmark interest rates cannot be

higher than the rate at which exporters could otherwise have borrowed.

Petitioners contend that respondents fail to understand that the

discounted benchmark could only be capped if PSCFC loans were

denominated in rupees. However, the adjustment was made because these

loans were dollar denominated. Accordingly, the Department correctly

determined that on dollar terms the appropriate benchmark on these

foreign currency loans did not equal the non-adjusted benchmark.

Department's Position

Respondents' assertion that the benchmark rate for PSCFC loans

should be capped is incorrect. The discounted benchmark interest rate

reflects the predominant source of short-term rupee financing in India.

As we explained in the preliminary results, we have adjusted this

benchmark because we were unable to find a foreign currency interest

rate to use as a benchmark. Accordingly, we adjusted the benchmark for

changes in the rupee/dollar exchange rate, thereby converting the rupee

benchmark into a foreign currency benchmark. See 1993 Castings Prelim,

61 FR at 25625. If the benchmark increased beyond the rupee rate, that

merely reflected the effect of currency movements on the interest rate

and the exporter's alternative cost of borrowing. Accordingly, the

benchmark should not be capped at the rupee rate

[[Page 64685]]

because the rupee interest rate was not the exporter's alternative cost

of borrowing. Therefore, our determination in the preliminary results

remains unchanged.

Comment 13

According to respondents, for purposes of Section 80HHC, earnings

from the sale of licenses are considered export income which may be

deducted from taxable income to determine the tax payable by the

exporter. Therefore, because proceeds from the sale of licenses are

also part of the deductions under Section 80HHC, to countervail this

revenue and the deduction results in double counting the subsidy from

the sale of licenses. Respondents also contend that the Department is

double counting the subsidy from the export financing programs. The

financing programs reduce the companies' expenses in financing exports,

which in turn increases profits on export sales. Because the 80HHC

deduction increases as export profits increase, the financing programs

increase the 80HHC deduction. Therefore, respondents argue,

countervailing the financing programs and the 80HHC deduction means the

benefit to the exporter is countervailed twice.

In the 1991 final results of this case, the Department argued that

adjusting the benefit from 80HHC for other subsidies is not a

permissible offset under section 771(6) of the Act. Under section

771(6), deductions are allowed because they represent actual costs to

the exporter which lessen the benefit on the subsidy to the exporter.

Respondents claim that section 771(6) of the Act is irrelevant to this

issue, because it does not deal with the potential double counting of

subsidies. With respect to the Department's policy to disregard the

secondary tax effects of countervailable subsidies, respondents assert

that this is also irrelevant in this case. According to respondents,

the issue is whether the same subsidy is being countervailed twice

(once because it provides a direct countervailable benefit and once

because it makes up part of a tax deduction), and not whether the

``after tax benefit'' is somehow less than the nominal benefit.

According to petitioners, respondents' argument that the interest

saved under the export financing programs and the proceeds from license

sales are included in the Section 80HHC deduction is not supported by

any record information. Respondents also offer no support for their

claim that these programs increase the exporter's profits. Petitioners

state that respondents err in equating revenues with profits, because

profit is reached only at the point that revenues exceed costs.

Respondents have not identified any record information indicating that

castings exporters' receipt of concessional financing directly results

in their revenues exceeding costs.

Moreover, petitioners argue that even if countervailing proceeds

from the sale of licenses and concessional export credit had some

effect on the amount of the Section 80HHC deduction, it would not be an

allowable offset under the countervailing duty law. Also, because these

effects would be secondary, they would not be permissible. Therefore,

the Department should use the same methodology for calculating the

benefit from these programs as it used in its analysis for the

preliminary results of review.

Department's Position

Contrary to respondents' arguments, the same subsidy is not being

countervailed twice. The 80HHC income tax exemption is a separate and

distinct subsidy from the pre- and post-shipment export financing

subsidy and the sale of import licenses subsidy. The pre- and post-

shipment financing programs permit exporters to obtain short-term loans

at preferential rates. The benefit from that program is the difference

between the amount of interest the respondents actually pay and the

amount of interest they would have to pay on the market. The interest

enters the accounts as an expense or cost, just like hundreds of other

expenses. There is no way to determine what effect a reduced interest

expense has on a company's profits because there are so many variables

(not just countervailable subsidies) that enter into, and affect, a

company's costs. In order to consider the effect that such reduced

interest expense would have on profits, all of the other variables that

affect profits (all other revenues and expenses) would have to be

isolated.

Similarly, the revenue from the sale of import licenses is

considered to be a grant to the company, and that grant constitutes the

benefit. The revenue a company receives from the sale of the licenses

may enter the accounts as income, or it may enter the accounts as a

reduction in costs. Because all the income and expenses from all

sources enters into the calculation of a company's profit (or loss),

there is no way to determine what effect the countervailable grant has

on a company's profit.

Respondents suggest that the Department attempt to isolate the

effect of the countervailable grants and loans on the company's profits

and, once that effect is determined, alter the measurement of the

benefit of the 80HHC program to reflect the effect of the

countervailable grants and loans. As stated in the Proposed Regulations

under section 355.46(b), this is something the Department does not do;

``In calculating the amount of countervailable benefit, the Secretary

will ignore the secondary tax consequences of the benefit.'' To factor

in the effect of other subsidies on the calculation of the benefit from

a separate subsidy undermines the principle that we do not, and are not

required to, consider the effects of subsidies on a company's profits

or financial performance.

In all of the cases where we have actually examined both grant and

loan programs, as well as income tax programs (either exemptions or

reductions), this principle has been applied even though it has not

been expressly discussed. For example, in the Final Affirmative

Countervailing Duty Determinations: Certain Steel Products From

Belgium, 58 FR 37273 (July 29, 1993), the Department found cash grants

and interest subsidies under the Economic Expansion Law of 1970 to

constitute countervailable subsidies. 58 FR at 37275-37276. At the same

time, the Belgian government exempted from corporate income tax grants

received under the same 1970 Law. 58 FR at 37283. The Department found

the exemption of those grants from income tax liability to be a

countervailable subsidy. Id. Significantly, it did not examine the tax

consequences of the tax exemption of the grants. See also Final

Affirmative Countervailing Duty Determination: Certain Pasta From

Turkey, 61 FR 30366 (June 14, 1996), and Final Affirmative

Countervailing Duty Determination and Countervailing Duty Order;

Extruded Rubber Thread From Malaysia, 57 FR 38472 (Aug. 25, 1992).

In this case, because all companies' profits are taxable at the

corporate tax rate, an exemption of payment of the corporate tax for

specific enterprises or industries constitutes a countervailable

subsidy. The amount of the benefit is equal to the amount of the

exemption. The countervailable grant may or may not have contributed to

the taxable profits, but the grant does not change the amount of the

exemption that the government provided, and countervailing the tax

exemption does not overcountervail the grant.

Respondents claim that they are not asking us to consider the

secondary tax consequences of subsidies--yet they are asking us to

consider the effect of the grant and loan subsidies in the

[[Page 64686]]

valuation of the tax subsidy. As stated above, we do not adjust the

calculation of the subsidy to take into consideration the effect of

another subsidy. This would be akin to an offset, and the only

permissible offsets to a countervailable subsidy are those provided

under section 771(6) of the Act. Such offsets include application fees

paid to attain the subsidy, losses in the value of the subsidy

resulting from deferred receipt imposed by the government, 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., Final Affirmative Countervailing Duty

Determination and Countervailing Duty Order: Extruded Rubber Thread

from Malaysia 57 FR 38472 (August 25, 1992).)

It is clear that the 80 HHC program is an export subsidy; it

provides a tax exemption to exporters that other companies in the

economy do not receive. This is not a secondary consequence of a grant

or loan program. Rather it is the primary consequence of a particular

government program designed to benefit exporters. Just as we do not

consider the effect of the standard tax regime on the amount of the

grant to be countervailed, we do not consider the effect of other

subsidy programs on the amount of tax exemption to be countervailed.

Accordingly, we continue to find these programs to be separate and

distinct subsidies and to find that no adjustment to the calculation of

the subsidy for any of the programs is necessary.

Comment 14

According to respondents, each type of payment received under the

IPRS, CCS, the sales of licenses, and another program involving duty

drawback, is considered export income and is, therefore, deducted from

taxable income under 80HHC. Accordingly, because revenues from the CCS,

IPRS, duty drawback, and sales of licenses are not related to, and were

not earned on exports of subject castings to the United States, they

should not be included in the calculation of 80HHC benefits.

Respondents claim they are not suggesting that the Department offset

the 80HHC subsidy, which would be impermissible under section 771(6) of

the Act; nor are they asking the Department to disregard secondary tax

effects. Rather, respondents maintain that because the income does not

relate to subject castings at all, the unpaid tax on this income cannot

be a subsidy benefitting the subject merchandise.

Petitioners assert that the Department properly countervailed the

benefits received under the 80HHC program, because it provides a

subsidy associated with the export of all goods and merchandise.

Petitioners further state that no new information has been provided in

this review to suggest that the Department should modify its method for

calculating the benefit under this program. Accordingly, the

Department's final determination should continue to fully countervail

80HHC benefits.

Department's Position

We disagree with respondents' assertion that we incorrectly

calculated the benefit provided under the 80HHC program. In the case of

programs where benefits are not tied to the production or sale of a

particular product or products, it is our practice to allocate the

benefit to all products produced by the firm. See e.g., Final

Affirmative Countervailing Duty Determination: Certain Pasta

(``Pasta'') from Turkey, 61 FR 30366, 30370 (June 14, 1996). Because

the 80HHC program is an export subsidy, we appropriately allocated the

benefit over total exports. We have used this methodology to calculate

benefits from the 80HHC program in previous reviews of this order. See

e.g., 1991 Final Results, and our response to comment 13, above.

Comment 15

Respondents argue that the Exemption of Export Credit from Interest

Taxes program should not be viewed as a subsidy to castings exporters,

because this merely enables the banks to provide export financing at a

lower interest rate. According to respondents, because the lower

interest rate is the subsidy, the interest tax exemption is subsumed in

the subsidy relating to the lower interest rate on export loans.

Petitioners argue that respondents have not provided any record

evidence to support their claim that interest tax exemption is subsumed

in the preferential export credit rates. According to petitioners,

respondents' assumption is unfounded, because it is the RBI, and not

Indian commercial banks, that sets the level of subsidized interest

rates in India. Furthermore, the Department noted in the preliminary

results notice that the interest tax is passed on to borrowers by

commercial banks. Therefore, petitioners contend, the Department

correctly found that the interest tax exemption constituted an

additional benefit for castings exporters.

Department's Position

Contrary to respondents' claim, there is no relationship between

the interest tax and commercial banks' ability to extend financing at

preferential rates to Indian exporters. In our preliminary results, we

found that the GOI charges a three percent tax on all interest accruing

from borrowers. As of April 1, 1993, however, the GOI exempted from the

interest tax all interest accruing on export loans and advances made to

an exporter. See 1993 Castings Prelim, 61 FR at 25625. Our finding that

this exemption conferred countervailable benefits upon exporters was

based on the fact that the interest tax was passed on to borrowers in

its entirety. Because the interest tax is passed on by commercial

banks, the effective cost of borrowing for the exporter increases. The

exemption for exporters, however, relieves them of this additional

liability. Accordingly, their cost of borrowing is lower than that for

non-exporters, interest rates notwithstanding. Respondents' contention

that the ``interest tax exemption is subsumed in the subsidy relating

to the lower interest rate on export loans'' is incorrect and not

supported by record evidence. Petitioners correctly note that the

interest rate structure in India is regulated by the RBI, which

announces periodically the interest rates commercial banks must charge

on export financing. The interest tax does not in any way influence

these rates, but is, rather, an additional cost to borrowers from which

exporters are exempt.

Comment 16

According to respondents, argued collectively and by R.B. Agarwalla

individually, the Department over-calculated the subsidy found as a

result of imports made under an Advance License, because it failed to

deduct revenue lost from export sales of subject castings due to LERMS.

Respondents argue that exporters could purchase pig iron under an

Advance License at two exchange rates, the higher market rate and the

lower official rate. However, they also argue that under the LERMS, the

exporters lost revenue on the exports produced with the imported pig

iron, because payment for the export sale was converted into rupees at

dual exchange rates: 60 percent at the higher market rate and 40

percent at the lower government-controlled rate. The revenue lost from

the exchange at the lower rate, respondents contend, should be deducted

from the benefit calculated by the Department under this program. In

its brief, R.B. Agarwalla provided an attachment detailing its ``loss

due to LERMS'' on the company's exports of subject castings to the

United States.

[[Page 64687]]

According to petitioners, the Department noted in its preliminary

results notice that during 1993 all export earnings, regardless of

whether inputs were imported under an Advance License, were subject to

the same LERMS treatment, i.e., remitted at the dual exchange rates. In

light of this, petitioners contend that respondents' argument should be

rejected, because they have not explained why this non-targeted

treatment under LERMS should provide a basis for an offset to the

benefit provided under the Advance License scheme.

Department's Position

We disagree with respondents. In the preliminary results, we

explained that during 1993, while the LERMS was still in effect, all

imports had to be purchased at the market exchange rate, with the

exception of goods imported under an Advance License. Under this

scheme, 40 percent of the value of imported goods could be paid for at

a lower rate of exchange. Because Advance Licenses are issued to

companies based on their status as exporters, we determined that the

provision under LERMS allowing exporters with Advance Licenses to

import goods at exchange rates more favorable than those available to

non-exporters constitutes an export subsidy. See 1993 Castings Prelim,

61 FR at 25626.

Respondents' claim that the exporters ``lost revenue'' on exports

produced with goods imported under an Advance License is misleading and

does not correspond to the facts. Prior to the implementation of the

LERMS, all export earnings were converted at a single exchange rate,

the official government rate, which corresponds to the lower government

rate at which 40 percent of export earnings were exchanged under the

LERMS. Accordingly, the GOI's liberalization of the foreign currency

markets provided exporters with increased export earnings, as only 40

percent of remittances were converted at the lower official rate after

implementation of the LERMS. Moreover, as we stated in the preliminary

results, under the LERMS, all export earnings were remitted at the

60:40 exchange rates. Accordingly, there was no discrimination in the

application of the LERMS among exporters. Thus, there is no basis for

considering that the exchange rates applied to export earnings

constitute an offset for the exchange rates applied to imports. For the

above reasons, our findings for this program remain unchanged.

Final Results of Review

For the period January 1, 1993 through December 31, 1993, we

determine the net subsidy to be zero percent for Delta Enterprises and

Super Iron Foundry and 5.45 percent ad valorem for all other companies.

In accordance with 19 CFR 355.7, any rate less than 0.5 percent ad

valorem is de minimis.

The Department will instruct the U.S. Customs Service to assess the

following countervailing duties:

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

Manufacturer/exporter Rate

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

Delta Enterprises............................................. 0.00

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

All Other Companies........................................... 5.45

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

The Department will also instruct the U.S. Customs Service to

collect a cash deposit of estimated countervailing duties of zero

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

merchandise from Delta Enterprises and Super Iron Foundry, and 5.13

percent ad valorem of the f.o.b. invoice price on all shipments of the

subject merchandise from all other companies, entered, or withdrawn

from warehouse, for consumption on or after the date of publication of

the final results of this review.

This notice serves as a reminder to parties subject to

administrative protective order (APO) of their responsibility

concerning the disposition of proprietary information disclosed under

APO in accordance with 19 C.F.R. 355.34(d). Timely written notification

of return/destruction of APO materials or conversion to judicial

protective order is hereby requested. Failure to comply with the

regulations and the terms of an APO is a sanctionable violation.

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: November 27, 1996.

Robert S. LaRussa,

Acting Assistant Secretary for Import Administration.

[FR Doc. 96-31095 Filed 12-5-96; 8:45 am]

BILLING CODE 3510-DS-P