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

DEPARTMENT OF COMMERCE

International Trade Administration

[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 December 6, 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, 1994 through

December 31, 1994 (61 FR 64669). The Department has now completed this

administrative review in accordance with section 751(a) of the Tariff

Act of 1930, as amended. For information on the net subsidy for each

reviewed company, and for all non-reviewed companies, see the Final

Results of Review section of this notice. We will instruct the U.S.

Customs Service to assess countervailing duties as detailed in the

Final Results of Review section of this notice.

EFFECTIVE DATE: June 13, 1997.

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

Pursuant to 19 C.F.R. 355.22(a), this review covers only those

producers or exporters of the subject merchandise for which a review

was specifically requested. The producers/exporters of the subject

merchandise for which this review was requested are:

Calcutta Ferrous.................... Kajaria Iron Castings RSI Limited.

Pvt. Ltd.

Carnation Enterprise Pvt. Ltd....... Kejriwal Iron & Steel Seramapore Industries Pvt. Ltd.

Works.

Commex Corporation.................. Nandikeshwari Iron Shree Rama Enterprise.

Foundry Pvt. Ltd.

Crescent Foundry Co. Pvt. Ltd....... Orissa Metal Industries Shree Uma Foundries.

Delta Enterprises................... R.B. Agarwalla & Siko Exports.

Company Pvt. Ltd.

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

Uma Iron & Steel.................... Victory Castings Ltd .................................................

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

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

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

these companies have not been assigned an individual company rate for

this administrative review. This review covers the period January 1,

1994 through December 31, 1994, and nineteen programs.

Since the publication of the preliminary results on December 6,

1996, we invited interested parties to comment on the preliminary

results. On January 6, 1997, 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 review period and the Municipal Castings Fair Trade Council

and its members (petitioners). On January 13, 1997, rebuttal briefs

were submitted by the EEPC, respondents and petitioners.

Applicable Statute

Unless otherwise indicated, all citations to the statute are

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

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

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

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

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 Sec. 782(i) of the Act, we verified information

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

the subject merchandise. We followed standard verification procedures,

including meeting with government and company officials and examination

of relevant accounting and financial records and other original source

documents. Our verification results are outlined in the public versions

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

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

Analysis of Programs

Based upon the responses to our questionnaire, the results of

verification, and written comments from the interested parties we

determine the following:

[[Page 32298]]

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 subsidies on the subject merchandise. Our review of the

record and our analysis of the comments submitted by the interested

parties, summarized below, have not led us to change our preliminary

findings. Accordingly, the net subsidies for this program remain

unchanged from the preliminary results and are as follows:

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

Rate

Manufacturer/exporter (percent)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In the preliminary results, we found that this program conferred

countervailable subsidies on the subject merchandise. Our review of the

record and our analysis of the comments submitted by the interested

parties, summarized below, have not led us to change our preliminary

findings. Accordingly, the net subsidies for this program remain

unchanged from the preliminary results and are 0.45 percent for

Calcutta Ferrous and 0.00 percent for all other producers/exporters of

the subject merchandise.

3. Post-Shipment Export Financing

In the preliminary results, we found that this program conferred

countervailable subsidies on the subject merchandise. Our review of the

record and our analysis of the comments submitted by the interested

parties, summarized below, have not led us to change our preliminary

findings. Accordingly, the net subsidies for this program remain

unchanged from the preliminary results and are 0.03 percent for Dinesh

Brothers Pvt. Ltd., 0.02 percent for Super Iron Foundry and 0.00

percent for all other producers/exporters of the subject merchandise.

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

In the preliminary results, we found that this program conferred

countervailable subsidies on the subject merchandise. Our review of the

record and our analysis of the comments submitted by the interested

parties, summarized below, have not led us to change our preliminary

findings. Accordingly, the net subsidies for this program remain

unchanged from the preliminary results and are as follows:

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

Rate

Manufacturer/exporter (percent)

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

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

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

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

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

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

Kajaria Iron Castings Pvt. Ltd............................. 3.54

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

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

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

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

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

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

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

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

Victory Castings Ltd.1.91%................................. 1.77

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

5. Income Tax Deductions Under Section 80 HHC

In the preliminary results we found that this program conferred

countervailable subsidies on the subject merchandise under section

771(5A)(B) (Note: The preliminary results mistakenly indicated the

section as 772(5A)(B)). Our review of the record and our analysis of

the comments submitted by the interested parties, summarized below,

have not led us to change our preliminary findings. Accordingly, the

net subsidies for this program remain unchanged from the preliminary

results and are as follows:

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

Rate

Manufacturer/exporter (percent)

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

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

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

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

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

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

Kajaria Iron Castings Pvt. Ltd............................. 11.64

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

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

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

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

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

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

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

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

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

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

6. Import Mechanisms (Sale of Licenses)

In the preliminary results, we found that this program conferred

countervailable subsidies on the subject merchandise. Our review of the

record and our analysis of the comments submitted by the interested

parties, summarized below, have not led us to change our preliminary

findings. Accordingly, the net subsidies for this program remain

unchanged from the preliminary results and are 0.24 percent for Kajaria

Iron Castings Pvt. Ltd, 0.06 percent for Kejriwal Iron & Steel Works,

0.15 percent for Seramapore Industries Pvt. Ltd, and 0.00 percent for

all other producers/exporters of the subject merchandise.

7. Exemption of Export Credit From Interest Taxes

In the preliminary results, we found that this program conferred

countervailable subsidies on the subject merchandise. Our review of the

record and our analysis of the comments submitted by the interested

parties, summarized below, have not led us to change our preliminary

findings. Accordingly, the net subsidies for this program remain

unchanged from the preliminary results and are as follows:

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

Rate

Manufacturer/exporter (percent)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

B. Other Program Determined to Confer Subsidies

In the preliminary results we found that the following new program

conferred countervailable benefits on the subject merchandise:

Payment of Premium Against Advance License

Our analysis of the comments submitted by the interested parties,

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

preliminary results. Accordingly, the net subsidies for this program

are 3.65 percent ad valorem for Dinesh Brothers Pvt. Ltd. and 0.00

percent for all other

[[Page 32299]]

producers/exporters of the subject merchandise.

II. 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:

1. Market Development Assistance (MDA)

2. Rediscounting of Export Bills Abroad

3. International Price Reimbursement Scheme (IPRS)

4. Cash Compensatory Support Program (CCS)

5. Programs Operated by the Small Industries Development Bank of India

(SIDBI)

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

7. Export Promotion Capital Goods Scheme

8. Benefits for Export Oriented Units and Export Processing Zones

9. Special Imprest Licenses

10. Special Benefits

11. Duty Drawback on Excise Taxes

We did not receive any comments on these programs from the

interested parties, and our review of the record have not led us to

change our findings from the preliminary results.

Analysis of Comments

Comment 1

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 Agreement on Subsidies and Countervailing

Measures. 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 above 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 (April 6, 1995) and Certain Textile Mill Products

from Mexico; Final Results of Countervailing Duty Administrative

Review, 56 FR 12175, 12177 (March 22, 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 must [sic] use a

commercial benchmark to calculate the benefit from a subsidy,

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

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. 927-928 (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 examining whether a short-term export loan confers

countervailable benefits, the Department must determine whether ``there

is a difference between the amount the recipient of the loan pays on

the loan and the amount the recipient would pay on a comparable

commercial loan that the recipient could actually obtain on the

market.'' See Sec. 771(5)(E)(ii) of the Act. See also S. Rep. No. 412,

103d Cong., 2d Sess. 91 (1994).

In this case, we have determined that commercial financing

comparable to PSCFC is the ``cash credit'' interest rate. As we

explained in Certain Iron-Metal Castings From India: Preliminary

Results of Countervailing Duty Administrative Review, 61 FR 64669,

64671 (December 6, 1996) (1994 Castings Prelim), the ``cash credit''

interest rate is for domestic working capital finance, comparable to

pre- and post-shipment export working capital finance. We also found

that PSCFC loans are limited only to exporters, and only exporters have

access to LIBOR-linked interest. Therefore, in accordance with

Sec. 771(5)(E)(ii) of the Act, because the interest rate on PSCFC loans

is less that what a company would have to pay on a comparable ``cash

credit'' short-term loan, 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, loans with interest rates linked to LIBOR clearly

do not represent the ``comparable commercial loan that the recipient

could actually obtain on the market.'' The fact that commercial banks

may borrow at LIBOR-linked rates is, therefore, irrelevant to our

finding.

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 accordance with the

U.S. countervailing duty law and the Department's past practice, we

will continue to use as a benchmark the ``comparable'' cash credit

commercial loan rate that Indian exporters would actually obtain on the

market to determine whether PSCFC loans confer countervailable benefits

upon exports of the subject merchandise to the United States.

Comment 2

According to respondents, for purposes of the Sec. 80 HHC tax

program, 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 revenue from the sale of

licenses are also part of the deductions under Sec. 80 HHC, 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

[[Page 32300]]

financing exports, which in turn increases profits on export sales.

Because the Sec. 80 HHC deduction increases as export profits increase,

the financing programs increase the Sec. 80 HHC deduction. Therefore,

respondents argue, countervailing the financing programs and the

Sec. 80 HHC deduction means the benefit to the exporter is

countervailed twice.

According to respondents, the Department rejected similar arguments

in the 1990 administrative review of this case, stating that an

adjustment to the Sec. 80 HHC benefit to account for other subsidies is

contrary to our practice of disregarding secondary tax effects of

subsidies. See Certain Iron-Metal Castings from India: Final Results of

Countervailing Duty Administrative Review, 60 FR 44849, 44854 (August

29, 1995). However, the 1990 final results were appealed to the Court

of International Trade (CIT), and on December 26, 1996, the CIT ruled

in that appeal. See Crescent Foundry Co., et al. v. United States, 951

F.Supp. 252 (CIT 1996) (Crescent). In that ruling, the CIT addressed

the issue of double-counting, stating:

Commerce cited this policy of disregarding secondary tax

consequences as the reason for refusing to eliminate countervailed

CCS payments from its calculation of the Sec. 80 HHC subsidy.

[citation omitted] However, the logic of that policy would seem to

dictate the opposite result: that when companies pay lower taxes as

a result of receiving a subsidy, Commerce should not add the

additional tax benefit to the amount of the subsidy when calculating

the benefit conferred. That is, it should not countervail the tax

exemption for that subsidy. * * *

Id. at 261. The issue was then remanded by the CIT for ``a

reexamination of whether countervailing the portion of the Sec. 80 HHC

subsidy attributable to CCS over-rebates double-counts the CCS

subsidy.'' Id.

Respondents argue that the Department should reexamine its

preliminary results in this review in light of the CIT's ruling in

Crescent, and find that the subsidy from export financing and import

license sales was double counted when the unpaid tax on those subsidies

was also countervailed under Sec. 80 HHC.

Petitioners contend that the Department's prior findings on this

issue should be upheld in this administrative review on the basis of

(1) the facts on the record; (2) because the subsidies being

countervailed are separate and distinct; (3) because the Department has

a consistent policy of not examining the tax consequences of tax

exemptions related to loans and grants; and (4) there is no reasonable

way for the Department to isolate the alleged effects on respondents'

export tax liability. For these reasons, the Department should reject

respondents' double-counting allegations.

Petitioners indicate that the Department's policy of not examining

secondary tax effects of subsidies has been upheld in the courts. In

support of this, petitioners cite Geneva Steel v. United States, 914 F.

Supp. 563, 609-610 (CIT 1996) (Geneva Steel); Ipsco, Inc. v. United

States, 687 F. Supp. 614, 621-22 (Ct. Int'l Trade 1988); and Michelin

Tire v. United States, 6 CIT 320, 328 (1983), vacated on other grounds,

9 CIT 38 (1985). According to petitioners, the legislative history of

the URAA also makes clear that in determining whether a countervailable

subsidy exists, the Department is not required to consider the effect

of the subsidy. SAA, H.R. Doc. No. 103-316 at 926 (1994). When applied

to the alleged double-counting issue, this means that the Department

does not have to consider whether subsidies in the form of grants or

loans have any effect on the Sec. 80 HHC tax program when determining

whether subsidies under Sec. 80 HHC are countervailable. Petitioners

assert that this is the only reasonable policy given the difficulties

in calculating such secondary effects. Furthermore, petitioners argue

that even if the Department could consider the secondary effect of a

subsidy program in determining its countervailability, the Department's

ability to correct for unfair subsidization would be impaired, as

governments would structure subsidy programs to appear to have

overlapping effects.

Petitioners state that the Department has applied this policy in

all cases involving grant and loan programs as well as income tax

programs. Only in two previous cases did the Department make different

findings. See Carbon Steel Wire From Argentina; Suspension of

Investigation, 47 FR 42393 (September 17, 1982), and Final Affirmative

Countervailing Duty Determinations and Countervailing Duty Orders;

Certain Welded Steel Pipe and Tube Products From Argentina, 53 FR 37619

(September 27, 1988). In the Argentine cases, the Department found that

excessive rebates of indirect taxes were countervailable. The

petitioners at the time claimed that there was an additional subsidy

due to the fact that the rebates were not subject to income taxes. The

Department determined in those cases that it had captured the full

benefit by countervailing the overrebate.

Petitioners point out, however, that factual circumstances in these

cases were different from those in the Indian castings reviews. In the

Argentine cases, the Department did not examine whether there was a

benefit as a result of the tax exemption because the overrebates were

provided through a non-income tax program. Indian castings exporters,

in contrast, were found to have benefitted from both non-income tax

programs (grants and loans), in addition to the Sec. 80 HHC income tax

program. According to petitioners, in such cases, it is the

Department's policy to countervail both types of programs as separate

and distinct subsidies.

Petitioners claim that the recent CIT ruling in Crescent does not

upset the Department's policy with respect to this issue, or the prior

CIT cases upholding that policy. Rather, the CIT has merely requested

that the Department on remand (1) reexamine whether countervailing the

portion of the Sec. 80 HHC subsidy attributable of the CCS overrebate

results in a double-counting of the CCS subsidy and (2) explain whether

the Department's determination in Argentine Wire Rod continues to

reflect current agency policy.

Petitioners indicate that respondents do not provide any comment on

how the Department should correct for alleged double-counting under

Sec. 80 HHC. According to petitioners, even if the Department had the

necessary data in this review to isolate all of the revenues and

expenses, doing so would be too difficult and burdensome for the agency

to accomplish. Accordingly, the Department should conclude that any

attempt to trace the tax consequences of other subsidies would be

overly complicated and administratively burdensome.

Department's Position

Respondents' argument that the subsidy under the export financing

and import licensing programs has been countervailed twice, by also

countervailing the full amount of the Sec. 80 HHC deduction, is

incorrect. With respect to the CIT's ruling in Crescent, the Department

responded to the court's instructions on February 24, 1997, in the

Final Results of Redetermination on Remand Pursuant to Crescent Foundry

Co. Pvt. Ltd., et al. v. United States (Crescent Remand).

As we explained in the Crescent Remand, adjusting the Sec. 80 HHC

subsidy to take into account the CCS grants (in this review revenue

from the export financing programs and earnings from the sale of

licences) would be in conflict with the countervailing duty law,

Department regulations, and longstanding Department policy. This type

of adjustment is inappropriate because, if made, it would: (1) require

[[Page 32301]]

the Department to examine the secondary effects and uses of a subsidy;

(2) expand the statutory definition of a permissible offset to a

subsidy; and (3) require the Department to no longer countervail the

full amount of the benefit provided by a government subsidy program.

The Department explained fully its reasoning with respect to this

issue in the 1991 final results of this case, and in the recently

completed 1992 and 1993 final results. See Certain Iron-Metal Castings

From India: Final Results of Countervailing Duty Administrative Review,

60 FR 44843, 44848 (August 29, 1995) (1991 Castings Final), Certain

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

Administrative Review, 61 FR 64687, 64692 (December 6, 1996) (1992

Castings Final), and Certain Iron-Metal Castings From India: Final

Results of Countervailing Duty Administrative Review, 61 FR 64676,

64685 (December 6, 1996) (1993 Castings Final). It has been and

continues to be our policy to ignore any secondary effect of a direct

subsidy on a company's financial performance. This policy has been

upheld by the court. See, e.g., Saarstahl AG v. United States, 78 F.3d

1539, 1543 (Fed. Cir. 1996).

With respect to the Argentine Wire Rod case, we stated in the

Crescent Remand that there was not sufficient information to determine

whether or not the Department should have investigated the allegation

of an income tax benefit. However, we also stated that under our

current approach, and under the approach adopted in the overwhelming

majority of cases, we would not take into account the secondary effect

of an income tax deduction on the calculation of the benefit conferred

under the rebate of indirect taxes (reembolso) program in Argentina.

Likewise, the Department would not take into account the secondary

effects of that rebate program on the calculation of the benefit

conferred by an income tax deduction program. If Argentine Wire Rod is

interpreted as suggesting that the Department would not investigate and

calculate separate benefits for a rebate program and a tax deduction

program, then Argentine Wire Rod must be considered an anomaly and not

reflective of current Department policy or of Department policy in

other case precedents. Crescent Remand at 4.

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

tax programs, this principle has been applied, even though it has not

always been expressly discussed. See, e.g., Final Affirmative

Countervailing Duty Determination: Certain Pasta From Turkey, 61 FR

30366 (June 14, 1996) (Pasta from Turkey); Final Affirmative

Countervailing Duty Determination: Certain Pasta (``Pasta'') From

Italy, 61 FR 30288 (June 14, 1996) (Pasta From Italy); Final

Affirmative Countervailing Duty Determination and Countervailing Duty

Order; Extruded Rubber Thread From Malaysia, 57 FR 38472 (Aug. 25,

1992) (Malaysian Rubber Thread); Final Affirmative Countervailing Duty

Determinations: Certain Steel Products From Belgium, 58 FR 37273 (July

29, 1993) (Belgian Steel); and Final Affirmative Countervailing Duty

Determination; Certain Fresh Atlantic Groundfish From Canada, 51 FR

10041 (March 24, 1986) (Groundfish from Canada). For example, in

Belgian Steel the Department found cash grants and interest subsidies

under the Economic Expansion Law of 1970 to constitute countervailable

subsidies. At the same time, the Belgian government exempted from

corporate income tax, grants received under the same 1970 Law. The

Department found the exemption of those grants from income tax

liability to be a separate countervailable subsidy. We determined that

a benefit had been provided under the grant program and an additional

benefit was provided by the tax exemption. In calculating the benefit

from the grant program, the Department did not take into account the

secondary effects of income taxation on those grants. Likewise, the

Department did not adjust the benefit from the tax exemption to take

into account the secondary effects of non-tax programs on the tax

exemption program. The pertinent fact here is that the Department, in

examining whether a subsidy was conferred under the tax exemption

provided by the Belgian Government, did not take into account the

secondary effect of other government subsidy programs in deciding

whether a countervailable benefit was conferred under the tax exemption

program. We did not factor in the grant in determining whether a

benefit was received from the tax exemption, and our decision would

have been the same regardless of the fact that the subsidy from the tax

exemption for the period of review in question was 0.00 percent.

It is our view that the export financing and import license

subsidies are not being double-counted and that the Sec. 80 HHC income

tax exemption is a separate and distinct subsidy from those subsidies.

For example, pre-and post-shipment export financing permits exporters

to obtain short-term loans at preferential interest rates. The

countervailable benefit from that program is the difference between the

amount of interest respondents actually pay and the amount of interest

they would have to pay at comparable interest rates on the market. In

an analogous manner, the revenue from the sale of licenses is

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

benefit. On the other hand, the countervailable portion of the Sec. 80

HHC program is the amount of taxes on all export income (both of

subject and non-subject merchandise) that is exempted and that

otherwise would have been paid absent the tax deduction. Just as the

Department does not consider the income tax effect on the amount of a

grant to be countervailed (i.e., by deducting from the grant the amount

of taxes that may have been due on the grant), it does not consider the

secondary effect of other direct subsidy programs on the amount of the

tax deduction because both programs provide separate and distinct

countervailable benefits. If companies knew we would reduce their tax

liability by the amount of other subsidies received, the Department

would be, in essence, encouraging companies that receive

countervailable income tax exemptions to use as many non-tax subsidy

programs as possible because these companies would end up with the same

countervailing duty rate as those companies that had no countervailable

income tax deductions.

Finally, we also have not followed the Court's decision in

Crescent, because that case does not represent a final and conclusive

decision and may yet be appealed. For these reasons, our determination

and calculation of the countervailable benefit conferred on the

castings exporters from the Sec. 80 HHC program is in accordance with

record evidence, Department policy, and is otherwise in accordance with

law.

Comment 3

According to respondents, each type of payment received under the

IPRS, CCS, the sales of licenses, and duty drawback program, is

considered export income and is, therefore, deducted from taxable

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

IPRS, duty drawback, and sales of certain 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 Sec. 80 HHC

benefits. Respondents claim they are not suggesting that the Department

offset the Sec. 80 HHC subsidy, which would be impermissible under

Sec. 771(6) of the Act; nor are they asking the Department to

[[Page 32302]]

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 benefiting the subject

merchandise.

Respondents further note that they had raised this issue in the

1990 administrative review, and that the Department rejected the

argument. According to respondents, the CIT has ruled on their appeal

on this issue, stating:

When Commerce specifically finds that a rebate program did not

benefit merchandise subject to the countervailing duty order under

review, Commerce cannot then countervail any of the benefit received

through that program.

Crescent, 951 F. Supp. at 262. The CIT then remanded the issue to the

Department, requiring ``recalculation of the benefit received through

Sec. 80 HHC after subtracting the value of IPRS payments received from

each company's taxable income.'' Id. Accordingly, respondents argue

that the Department should recalculate the Sec. 80 HHC benefit in

accordance with the court's ruling in the final results of this

administrative review.

Petitioners assert that the Department should sustain its practice

of allocating the benefit from the Sec. 80 HHC program over total

exports, because the program provides a subsidy associated with the

export of all goods and merchandise. According to petitioners, this

practice is consistent with Sec. 355.47(c)(1) of the 1989 Proposed

Rule. Furthermore, contrary to respondents' claim that this policy

elevates substance over form, it recognizes that a subsidy that is not

tied to the export of particular products is different from a subsidy

that is tied directly to one or more specific products.

Petitioners argue that if the Department were to adopt respondents'

approach, it would trace specific revenues to determine the tax

consequences of those revenues. While petitioners recognize that the

Department must conform to the Court's order in Crescent for the 1990

review period, they also state that the Court's determination is

subject to appeal. Accordingly, no final determination of this issue

has yet been reached. Absent any binding judicial precedent that

affects Department policy on this issue, petitioners urge the

Department to continue to apply its consistent practice for purposes of

the final results.

Department's Position

We disagree with respondents. It is our view that the Department's

rationale set forth above in Comment 2 for not adjusting the Sec. 80

HHC subsidy calculations for revenue earned on the sale of export

licenses and savings from pre- and post-shipment export financing

applies equally to not adjusting the Sec. 80 HHC subsidy calculations

for revenues from the CCS, IPRS, duty drawback, and sales of certain

licenses not related to exports of subject castings to the United

States. Further, the Department's approach is consistent with

longstanding and judicially upheld allocation principles that underlie

our countervailing duty methodology.

Under the Department's past practice, where we determined that a

subsidy is ``tied'' only to non-subject merchandise, that subsidy, of

course, will not be attributed to the merchandise under investigation.

To do so would violate the countervailing duty law which authorizes the

Department to countervail only those subsidies that benefit subject

merchandise.

In this case, however, the benefit is not ``tied'' to either

subject or non-subject merchandise, but applies across the board to all

of the firm's export revenue, i.e., it is applicable to exports of both

subject and non-subject merchandise. Under this type of situation, it

is the Department's longstanding practice to allocate the benefit to

the merchandise to which the benefit applies in order to produce an

``apples-to-apples'' comparison. If a benefit is ``tied'' to subject

merchandise, then the subsidy is determined by allocating the total

benefit over the sales of subject merchandise only. However, if a

benefit is firm-wide and not ``tied'' to specific merchandise, then the

benefit is allocated over the firm's total sales, if it is a domestic

subsidy, or over total exports, if it is an export subsidy. Either

method provides for fair and accurate results.

Under this longstanding practice, it is imperative that both the

numerator (the benefit) and denominator (the universe of sales to which

the benefit applies) used in our calculation of a subsidy reflect the

same universe of goods. Otherwise the rate calculated will either over-

or understate the subsidy attributable to the subject merchandise. If

the numerator reflects a benefit ``tied'' to one particular product,

then the denominator must reflect total sales or exports of only that

product. Likewise, if the numerator reflects a benefit that is

``untied'' and applies to all products, then the denominator must

consist of total sales (if a domestic subsidy) or total exports (if an

export subsidy) of all products.

This is precisely the situation concerning the Sec. 80 HHC program,

where a company can claim a tax deduction against taxable income (i.e.,

the company's profit prior to deductions) equal in amount to the profit

it earned on all exports, both of subject and of non-subject

merchandise. Indeed, this is a classic type of ``untied'' subsidy

program--where the benefit is broad-based and not ``tied'' to a

specific product or market. When calculating the benefit from an export

subsidy such as the Sec. 80 HHC program, the Department does not deduct

from the subsidy amount (the numerator) any benefits attributable to

non-subject merchandise because the benefit is not ``tied'' to a

specific product or market. Indeed, such an endeavor would be

impossible. Rather, in order to determine the correct benefit for this

type of export subsidy program, the Department divides the ``untied''

benefit by the company's total exports, which include both subject and

non-subject merchandise. This calculation, dividing the ``untied''

Sec. 80 HHC tax deduction claimed on all exports by each firm's total

exports, is consistent with longstanding Department practice. See,

e.g., Malaysian Rubber Thread; Pasta From Turkey; Lamb Meat from New

Zealand; Final Affirmative Countervailing Duty Determination; Standard

Carnations From Chile, 52 FR 3313 (February 3, 1987); Final Affirmative

Countervailing Duty Determination: Miniature Carnations From Colombia,

52 FR 32033 (August 25, 1987); Final Affirmative Countervailing Duty

Determinations: Certain Steel Products From Mexico, 58 FR 37352 (July

9, 1993); and the Final Affirmative Countervailing Duty Determination;

Certain Stainless Steel Cooking Ware From the Republic of Korea, 51 FR

42867 (November 26, 1986). By allocating this ``untied'' benefit over

both the company's subject and non-subject exports, we made an

``apples-to-apples'' comparison which accurately reflected the net

subsidy attributable to exports of subject merchandise.

As petitioners noted, the Court's ruling in Crescent was not a

final and conclusive court decision and is still subject to appeal.

Accordingly, absent such a binding judicial precedent that affects the

Department policy on this issue, we do not intend to not change our

methodology for calculating the benefit conferred to castings exporters

from the Sec. 80 HHC program. Also, for the reasons outlined above, it

is our view that our current approach is in accordance with record

evidence and Department policy, and is otherwise in accordance with

law.

[[Page 32303]]

Comment 4

According to respondents, certain castings exporters segregated

profits relating to subject merchandise sales from profits relating to

sales of non-subject merchandise. For these companies, respondents

claim, the Department should calculate the Sec. 80 HHC subsidy based on

profits relating to the subject merchandise only. For example, a

calculation submitted by Kajaria Iron Castings shows the percentage of

the company's total sales during the POR that were related to sales of

the subject merchandise. Kajaria then applied that percentage to the

company's total profits to derive the profit relating to sales of the

subject merchandise. With respect to this company, respondents argue

that the Department should have calculated the Sec. 80 HHC benefit

based only on profits relating to subject merchandise sales.

Petitioners first urge the Department to reject Kajaria's

calculation, because they claim it is factual information submitted

after the Department's deadline. Petitioners further contend that the

company's calculation does not demonstrate how Kajaria derived the

profit on sales of the subject merchandise. Rather, the company merely

determined what percentage of its total sales were comprised of subject

castings and applied that percentage to its profit. According to

petitioners, the Department did not verify Kajaria's calculation, and,

in any case, it would not allow the Department to determine accurately

what portion of Kajaria's export profit was attributable to subject

exports.

Petitioners argue that Kajaria's calculation does not provide a

reasonable basis to disaggregate the benefit attributable to various

exported products under the Sec. 80 HHC program. The calculation

presumes that in all cases there is a one-to-one correspondence between

sales revenue, cost of production and profits. Petitioners assert,

however, that the profit attributable to sales of different items will

vary according to several factors, including time period, destination,

customer, etc. In any case, petitioners state, it would be difficult to

perform a consistent analysis across different companies, because each

company may calculate end-of-year profit differently, depending on

accounting decisions made in any given year. Therefore, any attempt to

conduct such an analysis would be complicated and too administratively

burdensome for the Department.

Petitioners further argue that even if the profit attributable to

the subject merchandise could be traced, the results could be

anomalous, depending on the amount of the profit that is attributable

to subject castings. For example, if the profit margin on subject

castings in a given year is less than usual, the company's

countervailable benefit would be relatively less for sales of that

product. Conversely, if during a given period subject castings

contributed more than usual to profits, the company would receive a

larger countervailable benefit. Petitioners point out, however, that

respondents are not suggesting that the countervailing duty margins

should be increased because the operations of subject castings have

become more profitable. For these reasons, petitioners argue that the

Department should reject respondents proposal.

Department's Position

At the outset, we must note that petitioners incorrectly claim that

Kajaria's calculation, resubmitted by respondents in their January 6,

1997, case brief, is factual information submitted after the

Department's deadline. This calculation was originally provided by the

company in its March 13, 1996, original questionnaire response, at

Annexure B.

With respect to respondents' argument that the Department should

have calculated the Sec. 80 HHC subsidy based on profits relating to

subject castings only, we disagree. Where a benefit is not tied to a

particular product, the Department's consistent and longstanding

practice is to attribute the benefit to all products exported by a firm

where the benefit is received pursuant to an export subsidy program.

See, e.g., Pasta From Turkey, 61 FR at 30370; and the 1993 Castings

Final, 61 FR at 64683.

As explained above in the Department's position on Comment 3, the

benefit under Sec. 80 HHC applies, in this case, to exports of both

subject and non-subject merchandise. The benefit, therefore, is not

tied to any specific products manufactured or exported by a firm. If a

benefit is firm-wide and not ``tied'' to specific merchandise, then

that benefit is allocated over the firm's total exports, in the case of

an export subsidy. By allocating the ``untied'' benefit under Sec. 80

HHC over a company's total exports, we are making an ``apples-to-

apples'' comparison. This methodology accurately produces the net

subsidy attributable to exports of the subject merchandise and provides

for fair and accurate results.

We also note that respondents have not, under their methodology,

requested that the Department adjust the denominator in calculating the

Sec. 80 HHC benefit. Accordingly, the net benefit to the company under

this approach would be grossly understated because the ``apples-to-

apples'' comparison would be lost. In fact, the numerator (the benefit

adjusted according to respondents' methodology) would reflect a benefit

tied to the subject merchandise, while the denominator would still

cover total exports. This result is not only inconsistent with

Department practice, but is contrary to countervailing duty law. For

these reasons, our calculation of the subsidy under Sec. 80 HHC remains

unchanged from the preliminary results.

Comment 5

In prior administrative reviews of this case, the Department used

the small-scale industry (SSI) short-term interest rate as published by

the Reserve Bank of India (RBI) to measure the benefit under the pre-

and post-shipment export financing schemes. In this review, however,

the Department changed its benchmark, adopting the ``cash credit''

short-term interest rate, as reported by the Government of India (GOI)

in its March 13, 1997, original questionnaire response. According to

respondents, the Department's justification for changing the benchmark

was based on a statement by Small Industries Development Bank of India

(SIDBI) officials at verification that castings exporters are not

eligible for SIDBI financing at the small scale industry (SSI) interest

rates. On December 2, 1996, following release of the Department's GOI

verification report, respondents submitted a comment on that report,

clarifying that ``all SSI castings exporters were eligible for non-

export credit as SSI rates during the [POR].'' Accordingly, respondents

argue that the Department should use the SSI interest rate as a

benchmark to calculate the benefit from the export financing programs.

Respondents made similar arguments in their rebuttal brief which will

not be repeated in a separate comment.

Petitioners first argue that respondents December 2, 1996, letter

constitutes new, unsolicited information and should be rejected.

Petitioners further assert that record evidence does not support a

finding that castings exporters in fact obtained non-export credit at

SSI interest rates during the POR, notwithstanding respondents' claim

that they were eligible for such credit. According to petitioners,

Sec. 771(5)(E)(ii) of the Act directs the Department to select a

benchmark based on financing that could actually be received by the

recipient, and not one

[[Page 32304]]

for which respondents merely claim they are eligible to receive.

The Department has, petitioners claim, complied with

Sec. 771(5)(E)(ii) of the Act, by selecting a benchmark from a

``comparable'' form of financing. According to GOI officials at

verification, cash credit finance is comparable to financing received

by exporters under the pre-and post-shipment export financing programs.

Petitioners note that the same officials did not make such a claim with

respect to SSI interest rates. With respect to the statute's direction

to use a benchmark based on financing available ``on the market,''

petitioners assert that respondents failed to explain why market

sourced cash credit financing is inferior to government directed SSI

financing. Petitioners made similar arguments in their case brief which

will not be repeated in a separate comment.

Department's Position

We disagree with respondents. During the POR, the producers/

exporters of the subject merchandise obtained short-term financing

under the pre- and post-shipment export financing programs. The

companies are eligible for these loans based solely on their status as

exporters. In determining whether a benefit has been conferred in the

case of a loan, the statute very clearly directs the Department to

examine ``if there is a difference between the amount the recipient of

the loan pays on the loan and the amount the recipient would pay on a

comparable commercial loan that the recipient could actually obtain on

the market''. Section 771(5)(E)(ii) of the Act (emphasis added). While

it is true that in prior proceedings of this case, we determined that

the SSI interest rate was an appropriate benchmark to use in the

calculation of the benefit under the export financing programs,

information obtained at verification in this review has led us to

change that finding.

In this administrative review, the Department reexamined its use of

the SSI interest rate, in part because of new allegations that

respondents benefitted from programs administered by the Small

Industries Development Bank of India (SIDBI). In our meetings with

SIDBI and other GOI officials at verification, we learned that castings

producers would not finance their domestic operations at SSI rates,

but, rather, that such financing would most likely be linked to the

prime lending rate (PLR). It is also our understanding from SIDBI

officials that castings exporters were not eligible for financing at

SSI rates during the POR. See the November 19, 1996, Memorandum for

Barbara E. Tillman Re: Verification of the Government of India

Questionnaire Responses for the 1994 Administrative Review of the

Countervailing Duty Order on Certain Iron Metal Castings from India, at

5 (GOI VR) (Public Version, on file in the Central Records Unit, Room

B-099 of the Main Commerce Building).

Respondents now argue that Department officials misunderstood what

was stated at verification and that all castings exporters were

eligible for SSI-linked financing. However, we disagree. The

Department's findings with respect to interest rates are accurately

reflected in the verification report. During verification, State Bank

of India (SBI) officials stated that the domestic financing

``comparable'' to the pre- and post-shipment export financing during

the POR was financing at the ``cash credit'' interest rate, as reported

by the GOI in its March 13, 1996, questionnaire response. See GOI VR at

5. Furthermore, while respondents now claim that castings exporters

were ``eligible'' to obtain SSI-linked financing, they do not dispute

statements made by SIDBI officials that for non-export loans, castings

exporters ``would most likely borrow at interest rates linked to the

PLR.'' GOI VR at 8. The same officials, therefore, who claim that

castings exporters are eligible for SSI programs, also believe that

these companies would not, in fact, finance their non-export operations

at SSI interest rates. This fact was further corroborated by Indian

commercial bankers, who stated that an exporters' alternative source of

financing during the POR was the PLR plus a spread. See the November

19, 1996, Memorandum for Barbara E. Tillman Re: Meeting with Citibank

Officials for the 1994 Administrative Review of the Countervailing Duty

Order on Certain Iron Metal Castings from India, at 1 (Citibank VR)

(Public Document, on file in the Central Records Unit, Room B-099 of

the Main Commerce Building). Our discussions with bankers from the RBI

also revealed that under the export financing programs, if exporters

were unable to meet their obligations within a certain time period,

``banks were free to charge commercial interest rates.'' GOI VR at 2

(emphasis added). According to the RBI bankers, these rates ranged from

16 percent to 21 percent in 1994. Therefore, even if castings exporters

were eligible for SSI rates, the rates paid by these companies on

overdue export loans were not SSI rates, but, rather, commercial

interest rates comparable to those charged to non-exporting companies.

Finally, evidence collected at Calcutta Ferrous, exporter of the

subject merchandise, clearly indicates that non-export related

financing by these companies was, in fact, not equivalent to the SSI

interest rate during the POR. See the November 21, 1996, Memorandum for

Barbara E. Tillman Re: Verification of the Calcutta Ferrous Limited's

Questionnaire Responses for the 1994 Administrative Review of the

Countervailing Duty Order on Certain Iron Metal Castings from India, at

3-4 (CF VR) (Public Version, on file in the Central Records Unit, Room

B-099 of the Main Commerce Building). Calcutta Ferrous officials

explained the company maintains a ``cash credit'' account for domestic

financing purposes. The documents we examined at verification showed

that the company paid 16 percent on this financing through June 1994

and 19.5 percent after that date. See CF VR at 4. Record evidence,

therefore, supports the Department's preliminary finding. Accordingly,

for these final results, we will continue to use the cash credit

interest rate in calculating the benefit from the pre- and post-

shipment export financing programs.

Comment 6

According to respondents, in calculating the actual benefit to

castings exporters under the PSCFC program, the Department failed to

take into account penalty interest paid at interest rates higher than

the benchmark. Respondents argue that the Department should have

adjusted the benefit on those loans by the excess overdue interest paid

by the company at the penalty interest rate because that rate is

greater than the benchmark rate. Rather than account for this excess

interest paid on the loans, the Department calculated a zero benefit

where the interest rate on the portion of the loan that was overdue was

higher than the benchmark rate. According to respondents, the

Department should have calculated a negative figure and adjusted the

actual benefit on the loan.

Petitioners argue that the Department should reject this

methodology because it would permit a non-allowable offset to the

countervailable benefit under the PSCFC program. According to

petitioners, respondents fail to explain why an offset for penalty

interest should be allowed when payment of that interest does not fall

within the statute's list of allowable offsets under Sec. 771(6). The

penalty interest, petitioners assert, does not fall within that list,

but, rather, merely assures that the terms of the program are met. The

costs associated with such interest charges are, therefore, due to the

recipient's failure to comply with the terms of the loan. As such,

[[Page 32305]]

petitioners state, this is merely a secondary economic effect which the

Department has previously determined should not be used as an offset to

a program's benefit. See, e.g., Oil Country Tubular Goods from Canada;

Final Affirmative Countervailing Duty Determination, 51 FR 15037 (April

22, 1986), and Fabricas el Carmen, S.A. v. United States, 672 F. Supp.

1465 (CIT 1987).

Petitioners further claim that the Department has, in a comparable

situation, refused to offset preferential with non-preferential loans

in Oil Country Tubular Goods from Argentina: Final Results of

Countervailing Duty Administrative Reviews, 56 FR 38116, 38117 (August

12, 1991) (OCTG from Argentina). In that case, petitioners note,

respondents claimed that a loan-by-loan analysis overstated the benefit

received and that, taken together, the loans received by the company

provided no preferential benefit. In rejecting this argument, the

Department asserted that it

only examines loans received under programs that may potentially be

countervailable [sic] if the interest rate is preferential when

compared with the benchmark interest rate. We do not consolidate

these preferential loans with non-countervailable commercial loans

to examine whether the aggregate interest rate paid on a series of

loans is preferential. It is not the Department's practice to offset

the less favorable terms of one loan as an offset to another,

preferential loan.

Id. According to petitioners, the statue by extension also does not

allow the Department to offset the less favorable interest period of a

loan (the period during which the loan was overdue) with the period in

which the loan was provided on preferential terms. This is particularly

the case, petitioners state, when the higher penalty interest was a

result of the company's failure to comply with the terms of the

program.

Department's Position

We disagree with respondents. An adjustment to the benefit under

the PSCFC program in the form advocated by respondents would be an

impermissible offset to the benefit. Section 771(6) of the Act

authorized the Department to subtract from the countervailable subsidy:

(A) any application fee, deposit, or similar payment paid in

order to qualify for, or to receive, the benefit of the

countervailable subsidy,

(B) any loss in the value of the countervailable subsidy

resulting from its deferred receipt, if the deferral is mandated by

Government order, and

(C) export taxes, duties, or other charges levied on the export

of merchandise to the United States specifically intended to offset

the countervailable subsidy received.

As petitioners correctly note, penalty interest under the PSCFC program

does not fall within this list of allowable offsets.

Respondents cite no administrative or court precedent in support of

their argument, and provide no clear indication how the suggested

adjustment would be calculated. Apparently, respondents would have the

Department determine the amount of overdue interest that would have

been paid by the company at the benchmark interest rate. Overdue

interest above this amount would be considered ``excess interest'' and

deducted from the benefit calculated for the negotiated part of the

loan.

In light of how the PSCFC program operates, respondents' approach

is inaccurate. As we explained in the preliminary results, under the

PSCFC program, exporters discount their export bills with Indian

commercial banks to finance their operations. By discounting an export

bill, the company receives payment from the bank in the amount of the

export bill, net of interest charges. The loan is considered ``paid''

once the foreign currency proceeds from an export sale are received by

the bank. If those proceeds are not paid within the negotiated period,

then the loan is considered ``overdue.'' In essence, however, this

overdue period is like a new loan, because the original ``discounted

loan period'' is fully accounted for, that is, the company has received

payment from the bank and the interest on that payment has already been

deducted. For the overdue loan, the bank will charge the company

interest on the original amount of the loan at higher interest rates.

The overdue interest rate varies, depending on the period for which the

loan is overdue. Therefore, to determine whether interest charged on

the ``overdue'' loan confers a countervailable benefit, we

appropriately compared the overdue interest rate with the benchmark

rate. If the benchmark rate was higher than the overdue interest rate,

we found no benefit. Therefore, the adjustment suggested by respondents

is inappropriate given the way in which the PSCFC program is

structured.

Further, because respondents characterize interest paid on overdue

loans for which the interest rate exceeded the benchmark as ``excess

interest,'' respondents'' argument assumes that the overdue interest

rate for certain PSCFC loans does not reflect comparable commercial

rates. This is incorrect. In fact, statements by Indian government and

commercial bankers at verification indicate that the interest rates

charged on the overdue portion of PSCFC loans are ``commercial rates.''

See Citibank VR at 2 and GOI VR at 3-4. The GOI requires banks to

charge even higher penalty, rates for some of these loans so that

exporters comply with the terms of this preferential financing. Under

comparable domestic financing, companies that negotiated short-term

working capital loans, but which failed to meet the terms of the loan,

would also be subject to penalties if the terms of the loan were not

met. For these reasons, the benefit calculations for PSCFC loans have

not been changed.

Comment 7

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 consumed in

the production of the exported products (making normal allowance for

waste).'' 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.''

[[Page 32306]]

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

duty free imports rather than provide for remittance of duty upon

exportation, this does not make them countervailable. Respondents also

indicate that if an Advance 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 1993 Castings Final, 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 consumed in the production of 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 consumed

in the production of an exported product is not a countervailable

subsidy, if the remission or drawback is not excessive. We determined

that Advance Licenses are equivalent to a duty remission drawback. That

is, the licenses allow companies to import, net of duty, raw materials

which are physically incorporated into the exported products. Further,

we have never found that castings exporters have transferred an Advance

License. Accordingly, our determination that the provision of Advance

Licenses is not countervailable remains unchanged.

Final Results of Review

In accordance with 19 CFR 355.22(c)(4)(ii), we calculated an

individual subsidy rate for each producer/exporter subject to this

administrative review. For the period January 1, 1994 through December

31, 1994, we determine the net subsidy for the reviewed companies to be

as follows:

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

Net subsidy

Net subsidies--Producer/ Exporter rate

(percent)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

We will instruct the U.S. Customs Service (``Customs'') to assess

countervailing duties as indicated above. The Department will also

instruct Customs to collect cash deposits of estimated countervailing

duties in the percentages detailed above of the f.o.b. invoice price on

all shipments of the subject merchandise from reviewed companies,

entered or withdrawn from warehouse, for consumption on or after the

date of publication of the final results of this review. As provided

for in 19 CFR Sec. 355.7, any rate less than 0.5 percent ad valorem in

an administrative review is de minimis. Accordingly, for those

producers/exporters no countervailing duties will be assessed or cash

deposits required.

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

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

investigated and reviewed companies, the procedures for establishing

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

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

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

will normally cover only those companies specifically named. See 19 CFR

355.22(a). Pursuant to 19 CFR Sec. 355.22(g), for all companies for

which a review was not requested, duties must be assessed at the cash

deposit rate, and cash deposits must continue to be collected, at the

rate previously ordered. As such, the countervailing duty cash deposit

rate applicable to a company can no longer change, except pursuant to a

request for a review of that company. See Federal-Mogul Corporation and

The Torrington Company v. United States, 822 F.Supp. 782 (CIT 1993) and

Floral Trade Council v. United States, 822 F.Supp. 766 (CIT 1993)

(interpreting 19 CFR Sec. 353.22(e), the antidumping regulation on

automatic assessment, which is identical to 19 CFR Sec. 355.22(g)).

Therefore, the cash deposit rates for all companies except those

covered by this review will be unchanged by the results of this review.

We will instruct Customs to continue to collect cash deposits for

non-reviewed companies (including companies listed on page 2, above,

that did not export the subject merchandise during the POR) at the most

recent company-specific or country-wide rate applicable to the company.

Accordingly, the cash deposit rates that will be applied to non-

reviewed companies covered by this order are those established in the

most recently completed administrative proceeding, completed under the

pre-URAA statutory provisions. See Certain Iron-Metal Castings From

India: Final Results of Countervailing Administrative Review, 61 FR

64676 (December 6, 1996). These rates shall apply to all non-reviewed

companies until a review of a company assigned these rates is

requested. In addition, for the period January 1, 1994 through December

31, 1994, the assessment rates applicable to all non-reviewed companies

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

of entry.

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 CFR Sec. 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

Sec. 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)).

[[Page 32307]]

Dated: June 4, 1997.

Robert S. LaRussa,

Acting Assistant Secretary for Import Administration.

[FR Doc. 97-15606 Filed 6-12-97; 8:45 am]

BILLING CODE 3510-DS-P