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

DEPARTMENT OF COMMERCE

[C-533-063]

Certain Iron-Metal Castings From India: Final Results of

Countervailing Duty Administrative Review

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

ACTION: Notice of final results of countervailing duty administrative

review.

SUMMARY: On August 29, 1995, the Department of Commerce (the

Department) published in the Federal Register its preliminary results

of administrative review of the countervailing duty order on Certain

Iron-Metal Castings From India for the period January 1, 1992 to

December 31, 1992. We have completed this review and determine the net

subsidies to be 0.00 percent ad valorem for Dinesh Brothers, Pvt. Ltd.,

13.99 percent for Kajaria Iron Castings Pvt. Ltd., and 6.02 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: Elizabeth Graham or Marian Wells,

Import Administration, International Trade Administration, U.S.

Department of Commerce, 14th Street and Constitution Avenue, N.W.,

Washington, D.C. 20230; telephone: (202) 482-4105 or 482-6309,

respectively.

SUPPLEMENTARY INFORMATION:

Background

On August 29, 1995, the Department published in the Federal

Register (60 FR 44839) 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 September 28, 1995, case briefs were submitted by the

Municipal Castings Fair Trade Council (MCFTC) (petitioners), and the

Engineering Export Promotion Council of India (EEPC) and individually-

named producers of the subject merchandise that exported iron-metal

castings to the United States during the review period (respondents).

On October 5, 1995, rebuttal briefs were submitted by the MCFTC and the

EEPC. The comments addressed in this notice were presented in the case

and rebuttal briefs.

The review covers the period January 1, 1992 through December 31,

1992. The review involves 14 companies (11 exporters and three

producers of the subject merchandise) and the following programs:

(1) Pre-Shipment Export Financing

(2) Post-Shipment Export Financing

[[Page 64688]]

(3) Income Tax Deductions under Section 80HHC

(4) Import Mechanisms

(5) Advance Licenses

(6) Market Development Assistance

(7) International Price Reimbursement Scheme (IPRS)

(8) Falta Free Trade Zones and Other Free Trade Zones Program

(9) Preferential Freight Rates

(10) Preferential Diesel Fuel Program

(11) 100 Percent Export-Oriented Units Program

(12) Cash Compensatory Support Program (CCS)

Applicable Statute and Regulations

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

Department's regulations are in reference to the provisions as they

existed on December 31, 1994. However, references to the Department's

Countervailing Duties; Notice of Proposed Rulemaking and Request for

Public Comments, 54 FR 23366 (May 31, 1989) (Proposed Rules), are

provided solely for further explanation of the Department's

countervailing duty practice. Although the Department has withdrawn the

particular rulemaking proceeding pursuant to which the Proposed Rules

were issued, the subject matter of these regulations is being

considered in connection with an ongoing rulemaking proceeding which,

among other things, is intended to conform the Department's regulations

to the Uruguay Round Agreements Act. See 60 FR 80 (Jan. 3, 1995).

Scope of the Review

Imports covered by the review are shipments of Indian manhole

covers and frames, clean-out covers and frames, and catch basin grates

and frames. These articles are commonly called municipal or public

works castings and are used for access or drainage for public utility,

water, and sanitary systems. During the review period, such merchandise

was classifiable under the Harmonized Tariff Schedule (HTS) item

numbers 7325.10.0010 and 7325.10.0050. The HTS item numbers are

provided for convenience and Customs purposes. The written description

remains dispositive.

Calculation Methodology for Assessment and Cash Deposit Purposes

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

Supp. 431, 439 (CIT 1994), Commerce is required to calculate a country-

wide CVD rate, i.e., the all-others rate, by ``weight averaging the

benefits received by all companies by their proportion of exports to

the United States, inclusive of zero rate firms and de minimis firms.''

Therefore, we first calculated a subsidy rate for each company subject

to the administrative review. We then weighted the rate received by

each company using its share of U.S. exports to total Indian exports to

the United States of subject merchandise. 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.

Because 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 (Kajaria and Dinesh) received

significantly different net subsidy rates during the review period.

These companies would be treated separately for assessment and cash

deposit purposes, while all other companies would be assigned the

weighted-average country-wide rate. However, because this notice is

being published concurrently with the final results of the 1993

administrative review, the 1993 administrative review will serve as the

basis for setting the cash deposit rate.

Analysis of Comments

Comment 1

Petitioners argue that the Department must calculate a benefit for

the Reserve Bank of India (RBI) refinancing practices that it

preliminarily determined to be countervailable. Petitioners assert that

the Government of India (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 Oil Country Tubular Goods from Korea (OCTG),

49 FR 46,776, 46,777, 46,784 (November 28, 1994) as support for their

contention. Petitioners state that, as the Department recognized in

Steel and OCTG, 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-export 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.

Petitioners assert that even if potential benchmark rates are

inflated due to the refinancing program, a substantial gap still exists

between the benchmark rates and the refinancing rates. They cite the

benchmark used in the preliminary results (15 percent) as well as a

lending rate listed in the International Financial Statistics Yearbook

(18.92 percent) which are both much higher than the refinance rates (11

and 5.5 percent). They assert that the Department should use the 18.92

percent rate because the RBI rate used in the preliminary results (15

percent) underestimates the benchmark rate.

Respondents contend that the RBI refinancing is not a separate

subsidy from the Post-Shipment Export Financing, and hence should not

be countervailed. They argue that the refinancing is what allows the

banks to give the preferential post-shipment credit and if the

Department were to countervail the refinancing, it would be

countervailing the same subsidy twice. They add that petitioners'

concern over the fact that the refinancing rates are lower than other

rates in India is without merit. Respondents state that refinancing

rates between central banks and commercial banks are always lower than

rates charged by commercial banks to non-bank customers.

Department's Position

Petitioners are correct when they assert that higher rediscount or

refinancing ratios provided for export loans may encourage commercial

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

of financing for non-exporters. See section 771(5)(A)(ii) of the Act.

In such cases, when we determine that a program provides a preference

for lending to exporters rather than non-exporters, we must 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., OCTG.) In this case, we consider the higher refinancing

ratios provided

[[Page 64689]]

on export loans to be the mechanism that allows the banks to provide

the Preferential Post-Shipment Financing. We agree with respondents'

assertion that countervailing the refinancing would result in double-

counting the benefit from the program. Therefore, we have measured the

preference as the differential between the program interest rate and

the benchmark interest rate.

We believe petitioners' cites to OCTG and Steel are misplaced. In

OCTG, the Government of Korea (GOK) set the interest rates for both

export and domestic loans at a uniform rate of 10 percent. We stated

that if all the other terms and conditions were the same for export and

domestic loans then we would find no export subsidy to exist. However,

we found that the GOK set different rediscount ratios for export and

domestic loans to encourage banks to provide export financing. Because

there was no difference in the interest rates which were set for export

and domestic loans, we had to devise another method to measure this

preference. As such, we measured the preference for export over

domestic loans by comparing the 10 percent rate with a weighted average

of short-term domestic credit. 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.

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 (see

19 CFR 355.44(3)(b) (1994)) and have not calculated any additional

benefit for the higher refinancing ratio provided for export loans.

Comment 2

Petitioners state that the Department improperly failed to

countervail the value of advance licenses, because advance licenses are

simply export subsidies and not the equivalent of a duty drawback

program. First, petitioners contend that the advance licenses are

export subsidies as defined by item (a) of the Illustrative List of

Export Subsidies (Illustrative List), annexed to the General Agreement

on Tariffs and Trade (GATT) Subsidies Code, as they are contingent upon

export performance. Petitioners also claim that the advance license

program does not meet the criteria of a duty drawback system that would

be permissible in light of item (i) of the Illustrative List. They base

this claim on the fact that (1) the advance licenses were not limited

to use just for importing duty-free input materials because the

licenses could be sold to other companies; (2) eligibility for drawback

is always contingent upon the claimant demonstrating that the amount of

input material contained in an export is equal to the amount of such

material imported, which the respondents failed to do; and (3) the GOI

made no attempt to determine the amount of material that was physically

incorporated (making normal allowances for waste) in the exported

product as required under Item (i). For these reasons, petitioners

state that the Department should countervail in full the value of

advance licenses received by respondents during the period of review.

Respondents state that advance licenses allow importation of raw

materials duty free for the purposes of producing export products. They

state that if Indian exporters did not have advance licenses, the

exporters would import the raw materials, pay the 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 rebut petitioners' contention that the GOI has no way of knowing

how much imported pig iron is in the exported product. Respondents

contend that the Department has verified in prior reviews that the

Indian government carefully checks the amount imported under advance

licenses and the amount physically incorporated into the exported

merchandise. Respondents also state that no advance licenses were sold

during the POR.

Department's Position

Petitioners have only pointed out the administrative differences

between a duty drawback system and the advance license scheme used by

Indian exporters. Such differences do not render the advance license

scheme different from a duty drawback system. Similar 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: To allow a producer to import raw materials used in the

production of an exported product without having to pay duties.

Companies importing under advance licenses are obligated to export

the products made using the duty-free imports. Item (i) of the

Illustrative List specifies that the remission or drawback of import

duties levied on imported goods that are physically incorporated into

an exported product is not a countervailable subsidy, if the remission

or drawback is not excessive. We determined that respondents used

advance licenses in a way that is equivalent to how a duty drawback

scheme would work. That is, they used the licenses in order to import,

net of duty, raw materials which were physically incorporated into the

exported products. We have determined in previous reviews of this order

(see, e.g., Certain Iron-Metal Castings from India: Final Results of

Countervailing Duty Administrative Review (Castings 91) (60 FR 44843,

August 29, 1995)), based on verified information, that the amount of

raw materials imported and reported in the context of this

administrative review was not excessive vis-a-vis the products

exported. On this basis, we determine that use of the advance licenses

was not countervailable.

Comment 3

Petitioners argue that, to the extent that any respondent received

CCS or IPRS payments on non-subject castings or sold Replenishment and

Exim Scrip Licenses related to non-subject castings, the Department

should calculate and countervail the value of CCS and IPRS payments and

the sale of licenses

[[Page 64690]]

related to non-subject castings in this administrative review. They

state that the Department's failure to countervail subsidies on non-

subject castings exports is at odds with the language and intent of the

countervailing duty law, which applies to any subsidy whether bestowed

``directly or indirectly.'' To support their contention, petitioners

cite Armco, Inc. versus United States, 733 F. Supp. 514 (1990). They

also 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.' They argue that subsidies

conferred on non-subject castings should be countervailed because these

subsidies provide indirect benefits on exports of the subject castings.

Respondents state that petitioners have misapplied the term

``indirectly.'' They state that the CCS, IPRS payments, and proceeds

from the sales of licenses relating to other merchandise 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 law by claiming more CCS or IPRS on non-subject

castings. They claim that there is no basis for petitioners'

assertions. In fact, the GOI and the respondent companies have been

verified numerous times, and not once has the Department determined

that claims for CCS, IPRS or licenses were paid on non-subject castings

in a way that circumvents the law.

Department's Position

Section 771(5)(A)(ii) of the Act is concerned with subsidies that

are ``paid or bestowed directly or indirectly on the manufacture,

production, or export of any class or kind of merchandise''.

Petitioners have misinterpreted the term ``indirect subsidy.'' They

argue that a subsidy tied to the export of product B may provide an

indirect subsidy to product A, or that a reimbursement of costs

incurred in the manufacture of product B may provide an indirect

subsidy upon the manufacture of product A. As such, they argue that

grants that are tied to the production or export of product B, should

also be countervailed as a benefit upon the production or export of

product A. As explained below, this is at odds with established

Department practice with respect to the treatment of subsidies,

including indirect subsidies. The term ``indirect subsidies'' as used

by the Department refers to the manner of delivery of the benefit which

is conferred upon the merchandise subject to an investigation or

review. The term, as used by the Department, does not imply that a

benefit tied to one type of product also provides an indirect subsidy

to another product. The kind of interpretation proposed by petitioners

is clearly not within the purview or intent of the statutory language

under section 771(5)(A)(ii).

In our Proposed Rules, we have clearly spelled out the Department's

practice with respect to this issue. ``Where the Secretary determines

that a countervailable benefit is tied to the production or sale of a

particular product or products, the Secretary will allocate the benefit

solely to that product or products. If the Secretary determines that a

countervailable benefit is tied to a product other than the

merchandise, the Secretary will not find a countervailable subsidy on

the merchandise.'' Section 355.47(a). This practice of tying benefits

to specific products is an established tenet of the Department's

administration of the countervailing duty law. See, e.g., Industrial

Nitrocellulose from France; Final Results of Countervailing Duty

Administrative Review 52 FR 833, 834-35 (January 9, 1987); Final

Affirmative Countervailing Duty Determination and Countervailing Duty

Order: Certain Apparel from Thailand, 50 FR 9818, 9823 (March 12,

1985); and Extruded Rubber Thread from Malaysia: Final Results of

Countervailing Duty Administrative Review, 60 FR 17515, 17517 (April 6,

1995).

Comment 4

Importers argue that the Department incorrectly calculated the

country-wide rate. They state that the Department assigned Kajaria an

individual company rate based on the fact that it was significantly

different from the weighted-average country-wide rate. However, the

Department also included the amount of subsidies found to have been

received by Kajaria in calculating the weighted-average country-wide

rate. Importers argue this is contrary to the countervailing duty

statute because it results in the collection of countervailing duties

in excess of the subsidy amounts found by the Department. This is

because the inclusion of this high rate in the weighted-average

country-wide rate increases the all others' rate and, hence, the amount

collected from all other shippers would include a portion of the

subsidies received by Kajaria, which are already offset by the

collection of the individual rate on Kajaria's shipments. Importers

assert that the Department must exclude Kajaria's rate from the all

others rate calculations to ensure that the amount collected is equal

to, and does not exceed, the actual amount of subsidies that were

found.

Respondents agree with importers that the inclusion in the country-

wide rate of companies' rates that are ``significantly'' higher than

the country-wide rate is improper when those companies are also given

their own separate company-specific rates. They argue that this

methodology overstates and, in part, double counts the overall benefit

from the subsidies received by respondents. Respondents argue that

Ceramica Regiomontana, S.A. v. United States, 853 F. Supp. 431 (CIT

1994) does not require the Department to include ``significantly''

higher rates in calculation of the country-wide rate. They state that a

careful reading of that case, as well as Ipsco Inc. v. United States,

899 F. 2d 1192 (Fed. Cir. 1990), demonstrates that the courts in both

cases were only concerned about the over-statement of rates owing to

elimination of de minimis or zero margins from the country-wide rate

calculation. Respondents claim that every company's rate is being

pulled up to a percentage greater than it should be because the

Department has included in the weighted-average country-wide rate the

rates of companies that received their own ``significantly'' higher

company-specific rates. Thus, they state that the country-wide rate is

excessive for every company to which it applies. Respondents state

that, not only is it unfair to charge this excessive countervailing

duty, it is also contrary to law, in conflict with the international

obligations of the United States, and violative of due process.

Petitioners state that respondents have misread Ceramica and Ipsco.

They state that the plain language of Ceramica requires the Department

to calculate a country-wide rate by weight averaging the benefits

received by all companies by their proportion of exports to the United

States inclusive of zero rate firms and de minimis firms. Petitioners

state that while Ceramica and Ipsco dealt factually with the

circumstances in which respondent companies had lower-than-average

rates, the principle on which these cases is based applies equally to

instances in which some companies have higher-than-average

[[Page 64691]]

rates. They state that the courts have determined that the benefits

received by all companies under review are to be weight-averaged in the

calculation of the country-wide rate. Therefore, petitioners conclude

that the Department followed the clear directives from the court.

Department's Position

We disagree with respondents that ``significantly different''

higher rates (including BIA rates) should not be included in the

calculation of the CVD country-wide rate. We further disagree with

respondents' reading of Ceramica and Ipsco. In those cases, the

Department excluded the zero and de minimis company-specific rates that

were calculated before calculating the country-wide rate. The court in

Ceramica, however, rejected this calculation methodology. Based upon

the Federal Circuit's opinion in Ipsco, the court held that Commerce is

required to calculate a country-wide CVD rate applicable to non-de

minimis firms by ``weight averaging the benefits received by all

companies by their proportion of exports to the United States,

inclusive of zero rate firms and de minimis firms.'' Ceramica, 853 F.

Supp. at 439 (emphasis on ``all'' added).

Thus, the court held that the rates of all firms must be taken into

account in determining the country-wide rate. As a result of Ceramica,

Commerce no longer calculates, as it formerly did, an ``all others''

country-wide rate. Instead, it now calculates a single country-wide

rate at the outset, and then determines, based on that rate, which of

the company-specific rates are ``significantly'' different.

Given that the courts in both Ipsco and Ceramica state that the

Department should include all company rates, both de minimis and non de

minimis, there is no legal basis for excluding ``significantly

different'' higher rates, including BIA rates. To exclude these higher

rates, while at the same time including zero and de minimis rates,

would result in a similar type of country-wide rates bias of which the

courts were critical when the Department excluded zero and de minimis

rates under its former calculation methodology.

Comment 5

Respondents claim that the Department used the incorrect

denominator, total exports of subject castings, to calculate the

benefit to RSI Ltd. from the Section 80 HHC income tax program.

Department's Position

Upon a review of our calculations, we have determined that we did

use the incorrect denominator, exports of subject merchandise, in

calculating the benefit to RSI Ltd. from the Section 80 HHC program.

For purposes of these final results, we have corrected our calculations

by using total export sales of all merchandise as the denominator for

this calculation.

Comment 6

Respondents argue that the Department has incorrectly calculated

preshipment interest for two of RB Agarwalla's loans. First,

respondents claim that the Department assumed that RB Agarwalla Pre-

Shipment Export Financing loans taken on October 30, 1991 and November

16, 1991 ran for 17 days plus 53 days, for a total of 70 days.

Respondents state that only 19 days of interest should be considered

for the 1992 calculation, since much of the interest was not paid in

the period of review. In the second case, regarding loans from the

Hongkong & Shanghai Banking Corporation to RB Agarwalla, respondents

claim that the Department failed to take into account an interest

payment made in 1992. According to respondents, the Department assumed

incorrectly that the interest was paid in 1991. This interest accrued

during 1991 but was actually paid during 1992 and should, therefore, be

included in the calculation of preshipment interest for 1992.

Department's Position

Upon a review of our calculations, we have determined that we did

use the incorrect number of days to calculate the benefit to RB

Agarwalla from certain of its preshipment loans. We have corrected our

calculations by using 19 days rather than 70, as we determined that

interest was calculated for those days in the 1991 review.

Additionally, we have included RB Agarwalla's interest payment in our

calculation of the interest paid by RB Agarwalla during 1992.

Comment 7

Respondents claim that the Department used the incorrect

denominator, RB Agarwalla's sales of subject castings, in its

calculation of the benefit to RB Agarwalla from the Pre-Shipment Export

Financing Program. According to respondents, the correct denominator

for calculating the benefit is total exports of all products during the

POI.

Department's Position

Upon a review of our calculations, we have determined that we did

use the incorrect denominator, exports of subject merchandise, in

calculating the benefit to RB Agarwalla from the Pre-Shipment Export

Financing program. For purposes of these final results, we have

corrected our calculations by using total exports of all merchandise to

all markets as the denominator.

Comment 8

Respondents claim that the Department's calculation of Pre-shipment

Export Financing loans includes loans that are not included in

Kejriwal's list of loans. Therefore, these loans should not be included

in the Department's calculation.

Petitioners disagree with respondents' claim. They assert, based on

proprietary information, that the Department has actually

underestimated the benefit provided to Kerjriwal by the Pre-Shipment

Export financing program because there is no evidence that these loans

were paid off during the review period.

Department's Position

We disagree with respondents. The loans to which respondents refer

are not new loans but rather unpaid balances on existing loans.

Kejriwal did not report its remaining payments on these loans in its

1992 questionnaire responses. Additionally, we have checked the public

record of the 1993 administrative review and discovered that Kejriwal

reported not having used this program during 1993. Based on these

facts, in our preliminary results of review, we calculated a benefit

based on the assumption that Kejriwal paid the loan off in 180 days.

However, as petitioners have argued, we may have underestimated the

benefit as we have no evidence on the record to indicate that Kejriwal

paid off this loan during the review period. Therefore, for purposes of

this review period, we have calculated interest on the unpaid balance

through the end of 1992 for both of these loans.

Comment 9

Respondents state that the Department has incorrectly countervailed

the sale of an additional license by Kejriwal during the period of

review. Respondents state that all licenses listed in the company's

response were earned on sales of industrial castings or on sales of

subject castings to markets other than the United States. Therefore,

the Department should not consider the sale

[[Page 64692]]

of the license as a subsidy when it calculates Kejriwal's benefits.

Petitioners state that the Department was correct in finding that

the sale of an additional license by Kejriwal is a subsidy on subject

castings.

Department's Position

Upon a review of our calculations and Appendix J of Kejriwal's May

9, 1994, response, we have determined that Kejriwal did receive its

additional license for non-subject merchandise. Therefore, we are not

calculating a benefit from Kejriwal's sale of this additional license

for purposes of these final results of review.

Comment 10

Respondents state that countervailing the Pre- and Post-Shipment

Export Financing programs, the sale of import licences and the income

tax deductions under Section 80 HHC of the Income Tax Act double counts

the subsidy from the financing programs and import license sales. They

argue that, under Section 80 HHC, 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, respondents

argue that, because proceeds from the sale of licenses are also part of

the deductions under Section 80 HHC, to countervail the payments and

the deduction results in double counting the subsidy from the sale of

licenses. Additionally, the Department is double counting the subsidy

by countervailing both the financing programs and the 80 HHC tax

deduction. Respondents assert that the financing programs reduce the

companies' expenses in financing exports, which in turn, increases

profits on export sales. Because the 80 HHC deduction increases as

export profits increase, the financing programs increase the 80 HHC

deduction. Thus, countervailing the financing programs and the 80 HHC

deduction means the benefit to the export is countervailed twice.

Respondents argue that adjusting the tax deduction in order to

avoid double counting should not be considered offsetting the subsidy

as provided by section 771(6) of the Act. Under that section,

deductions are allowed because they represent actual costs to the

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

Respondents also assert that the Department's treatment of secondary

tax effects is also not relevant in this case. The issue in this case

is whether the same subsidy is being countervailed twice, not whether

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

Petitioners assert that respondents benefit from both the

preferential financing programs and sale of import licenses as the

programs ultimately increase their profits and their total income.

Respondents further benefit because they are able to use the 80 HHC

program to eliminate or reduce the taxes owed on these increased

profits and income. 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 80 HHC 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 80 HHC 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 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

[[Page 64693]]

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 11

Respondents state that the Department preliminarily found that

several programs, including IPRS, CCS, the sales of licenses, and

another program involving duty drawback, did not benefit sales of

subject castings to the United States. Respondents argue that,

regardless of the fact that none of the income earned through these

programs benefitted subject castings exported to the United States, the

Department still countervailed the deduction of this income.

Respondents suggest that income from the CCS, IPRS, duty drawback, and

sales of licenses should not be included in the calculation of 80 HHC

benefits. Respondents are not suggesting that the Department offset the

subsidy or disregard secondary tax effects. They are stating that

because the income does not relate to subject castings, the unpaid tax

on this income cannot be a subsidy benefitting the subject merchandise.

Respondents also argue that the Department overstated Kajaria's

benefits from the Section 80 HHC Income Tax Deduction program by not

factoring out its greater profits made on exports of non-subject

castings. They assert that the Department should not include the profit

earned on non-subject castings in its 80 HHC calculation.

Petitioners state that the Department has correctly countervailed

the benefits received under the 80 HHC program. They argue that

respondents have failed to recognize that the Department has

countervailed this program because it provides a subsidy associated

with the export of all goods and merchandise. Petitioners add that no

new information has been provided in this review to suggest that the

Department should change its calculations. They assert that the

Department should reject Kajaria's claim that its 80 HHC benefits are

overstated.

Department's Position

We disagree with respondents' assertion that we incorrectly

calculated the benefit provided by the 80 HHC program. Again,

respondents are, in effect, requesting the Department to trace specific

revenues in order to determine the tax consequences on such revenues.

As we explained above in Comment 10, this is something the Department

does not do and is not required to do.

Further, it is our practice, in the case of programs where benefits

are not tied to the production or sale of a particular product or

products, 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).) In

this case, because the 80 HHC program is an export subsidy not tied to

specific products, we appropriately allocated the benefit over total

exports. We have used this methodology to calculate benefits from the

80 HHC program in previous reviews of this order.

Final Results of Review

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

determine the net subsidies to be 0.00 percent ad valorem for Dinesh

Brothers, Pvt. Ltd., 13.99 percent for Kajaria Iron Castings Pvt. Ltd.,

and 6.02 percent ad valorem for all other companies. Because this

notice is being published concurrently with the final results of the

1993 administrative review, the 1993 administrative review will serve

as the basis for setting the cash deposit rate.

This notice serves as the only reminder to parties subject to APO

of their responsibilities concerning the return or destruction of

proprietary information disclosed under APO in accordance with section

355.34(d) of the Proposed Regulations. Failure to comply is a violation

of the APO.

This administrative review and notice are in accordance with

section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)) and 19 CFR 355.22.

Dated: November 27, 1996.

Robert S. LaRussa,

Acting Assistant Secretary for Import Administration.

[FR Doc. 96-31106 Filed 12-5-96; 8:45 am]

BILLING CODE 3510-DS-P