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

DEPARTMENT OF COMMERCE

International Trade Administration

[C-533-063]

Certain Iron-Metal Castings From India; Final Results and Partial

Rescission 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 July 13, 1998, the Department of Commerce 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, 1996 through December 31, 1996 (63 FR 37534).

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: November 18, 1998.

FOR FURTHER INFORMATION CONTACT: Kristen Johnson or Christopher Cassel,

Office of CVD/AD Enforcement VI, Import Administration, International

Trade Administration, U.S. Department of Commerce, 14th Street and

Constitution Avenue, NW, Room 4012, Washington, D.C. 20230; telephone:

(202) 482-2786.

SUPPLEMENTARY INFORMATION:

Background

Pursuant to 19 CFR 351.213(b), this review covers only those

producers/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 Ltd.,

Carnation Industries Ltd.,

Commex Corporation,

Crescent Foundry Co. Pvt. Ltd.,

Delta Enterprises,

Dinesh Brothers (P) Ltd.,

Kajaria Iron Castings Pvt. Ltd.,

Kejriwal Iron & Steel Works Pvt. Ltd.,

Metflow Corporation,

Nandikeshwari Iron Foundry Pvt. Ltd.,

Orissa Metal Industries,

Overseas Iron Foundry,

R.B. Agarwalla & Company,

R.B. Agarwalla & Co. Pvt. Ltd.,

RSI Limited,

Seramapore Industries Pvt. Ltd.,

Shree Rama Enterprise,

Shree Uma Foundries,

Siko Exports,

SSL Exports,

Super Iron Foundry,

Uma Iron & Steel, and

Victory Castings Ltd.

Delta Enterprises, Metflow Corporation, Orissa Metal Industries,

R.B. Agarwalla & Co. Pvt. Ltd., Shree Uma Foundries, Siko Exports, and

SSL Exports reported, through company certifications submitted on the

record, that they did not export the subject merchandise to the United

States during the period of review. Therefore, in accordance with

section 351.213(d)(3) of the Department's regulations, we are

rescinding the review with respect to these companies. This review also

covers 19 programs.

In the notice of preliminary results, we invited interested parties

to comment on the preliminary results (63 FR 37534, July 13, 1998). On

August 12, 1998, case briefs were submitted by the Engineering Export

Promotion Council of India and the exporters of certain iron-metal

castings from India (respondents), and the Municipal Castings Fair

Trade Council and its members (petitioners). On August 19, 1998,

rebuttal briefs were submitted by the 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 of Commerce (Department) is conducting this

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

citations to the Department's regulations reference 19 CFR part 351

(1998).

Scope of the Review

Imports covered by this administrative review are shipments of

Indian manhole covers and frames, clean-out covers and frames, and

catch basin grates and frames. These articles are commonly called

municipal or public works castings and are used for access or drainage

for public utility, water, and sanitary systems. During the review

period, such merchandise was classifiable under the Harmonized Tariff

Schedule (HTS) item numbers 7325.10.0010 and 7325.10.0050. The HTS item

numbers are provided for convenience and Customs purposes. The written

description remains dispositive.

Verification

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

submitted by the Government of India (GOI) and certain producers/

exporters of the subject merchandise. We followed standard verification

procedures, including meeting with government and company officials and

examining 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 questionnaires, the results of

verification, and written comments from the interested parties, we

determine the following:

I. Programs Conferring Subsidies

A. 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, has led us to modify our findings from the

preliminary results for Dinesh Brothers (Dinesh). See Comment 1 below.

Our findings for the other companies have not changed as a result of

our review of the record and our analysis of the comments submitted by

the interested parties. Accordingly, the net subsidies for this program

are as follows:

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

Net subsidy

Net subsidies--producer/exporter rate--percent

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

Calcutta Ferrous Ltd..................................... 0.20

Commex Corporation....................................... 0.13

Crescent Foundry Co. Pvt. Ltd............................ 0.08

Dinesh Brothers Pvt. Ltd................................. 1.04

Kajaria Iron Castings Pvt. Ltd........................... 0.33

Nandikeshwari Iron Foundry Pvt. Ltd...................... 0.22

R.B. Agarwalla & Company................................. 0.34

RSI Limited.............................................. 0.37

Seramapore Industries Pvt. Ltd........................... 0.53

Super Iron Foundry....................................... 1.11

Uma Iron & Steel......................................... 0.34

Victory Castings Ltd..................................... 0.30

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

B. Post-Shipment Export Financing

In the preliminary results, we found that this program conferred

countervailable subsidies on the subject

[[Page 64051]]

merchandise. Our review of the record and our analysis of the comments

submitted by the interested parties, summarized below, has led us to

modify our findings from the preliminary results for Calcutta Ferrous

(Calcutta) and Dinesh. See Comment 1 below for Dinesh and the Memo to

the File regarding the Calculations for the Final Results of the Review

dated November 10, 1998 (public version) on file in the Central Records

Unit of the Department of Commerce (Room B-099) (Calculation Memo) for

Calcutta. Our findings for the other companies have not changed as a

result of our review of the record and our analysis of the comments

submitted by the interested parties. Accordingly, the net subsidies for

this program are as follows:

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

Net subsidy

Net subsidies--producer/exporter rate--percent

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

Calcutta Ferrous Ltd..................................... 0.29

Carnation Industries Ltd................................ 0.03

Commex Corporation....................................... 0.35

Crescent Foundry Co. Pvt. Ltd............................ 0.31

Dinesh Brothers Pvt. Ltd................................. 0.23

Kajaria Iron Castings Pvt. Ltd........................... 0.42

Nandikeshwari Iron Foundry Pvt. Ltd...................... 0.27

R.B. Agarwalla & Company................................. 0.35

RSI Limited.............................................. 0.20

Seramapore Industries Pvt. Ltd........................... 0.05

Super Iron Foundry....................................... 0.12

Uma Iron & Steel......................................... 0.53

Victory Castings Ltd..................................... 0.40

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

C. 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, has led us to modify our findings from the

preliminary results for Calcutta and Dinesh. See Comment 1 below for

Dinesh and the Calculation Memo for Calcutta. Our findings for the

other companies have not changed as a result of our review of the

record and our analysis of the comments submitted by the interested

parties. Accordingly, the net subsidies for this program are as

follows:

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

Net subsidy

Net subsidies--producer/exporter rate--percent

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

Calcutta Ferrous Ltd..................................... 0.02

Dinesh Brothers Pvt. Ltd................................. 0.05

Nandikeshwari Iron Foundry Pvt. Ltd...................... 0.08

R.B. Agarwalla & Company................................. 0.11

RSI Limited.............................................. 0.08

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

D. Income Tax Deduction Under Sec. 80 HHC

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, has led us to modify our findings from the

preliminary results for Dinesh. See Comment 1 below. Our findings for

the other companies have not changed as as result of our review of the

record and our analysis of the comments submitted by the interested

parties. Accordingly, the net subsidies for this program are as

follows:

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

Net subsidy

Net subsidies--producer/exporter rate--percent

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

Calcutta Ferrous Ltd..................................... 2.91

Carnation Industries Ltd................................. 2.92

Commex Corporation....................................... 4.79

Crescent Foundry Co. Pvt. Ltd............................ 4.53

Dinesh Brothers Pvt. Ltd................................. 1.82

Kejriwal Iron & Steel Works Pvt. Ltd..................... 11.76

Nandikeshwari Iron Foundry Pvt. Ltd...................... 3.71

Overseas Iron Foundry.................................... 3.74

R.B. Agarwalla & Company................................. 2.73

RSI Limited.............................................. 2.73

Seramapore Industries Pvt. Ltd........................... 4.16

Shree Rama Enterprise.................................... 10.85

Super Iron Foundry....................................... 1.93

Uma Iron & Steel......................................... 0.40

Victory Castings Ltd..................................... 2.17

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

E. 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 are as

follows:

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

Net subsidy

Net subsidies--producer/exporter rate--percent

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

Carnation Industries Ltd................................. 0.24

Kajaria Iron Castings Pvt. Ltd........................... 0.68

Kejriwal Iron & Steel Works.............................. 1.00

RSI Limited.............................................. 0.03

Seramapore Industries Pvt. Ltd........................... 0.73

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

F. 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, has led us to modify our findings from the

preliminary results for Calcutta and Dinesh. See Comment 1 below for

Dinesh and the Calculation Memo for Calcutta. Our findings for the

other companies have not changed as a result of our review of the

record and our analysis of the comments submitted by the interested

parties. Accordingly, the net subsidies for this program are as

follows:

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

Net subsidy

Net subsidies--producer/exporter rate--percent

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

Calcutta Ferrous Ltd..................................... 0.06

Carnation Industries Ltd................................. 0.13

Commex Corporation....................................... 0.06

Crescent Foundry Co. Pvt. Ltd............................ 0.06

Dinesh Brothers Pvt. Ltd................................. 0.13

Kajaria Iron Castings Pvt. Ltd........................... 0.26

Nandikeshwari Iron Foundry Pvt. Ltd...................... 0.13

R.B. Agarwalla & Company................................. 0.11

RSI Limited.............................................. 0.22

Seramapore Industries Pvt. Ltd........................... 0.07

Super Iron Foundry....................................... 0.16

Uma Iron & Steel......................................... 0.11

Victory Castings Ltd..................................... 0.18

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

II. Programs Found To Be Not Used

In the preliminary results, we found that the producers/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 (EBR)

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

12. Payment of Premium Against Advance Licenses

13. Pre-Shipment Export Financing in Foreign Currency (PCFC)

We did not receive any comments on these programs from the

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

change our findings from the preliminary results.

[[Page 64052]]

Analysis of Comments

Comment 1: Use of Denominator for Dinesh

Respondents state that the Department misread Dinesh Brothers'

(Dinesh) sales information and consequently used the wrong 1996 f.o.b.

values to calculate the company's ad valorem subsidy rates. As a result

of this error, the Department's calculations overstate the

countervailing duty applicable to the company for the period of review.

Petitioners counter stating that the sales values used in the

Department's calculations are consistent with the information provided

in the company's response. They argue that the burden is on respondents

to provide clear, complete responses to the Department's inquires.

Petitioners state that even if the Department has erred and used

the wrong values, this issue highlights a continuing problem with

respect to this order. That is, respondents often supply vague

information in their questionnaire responses and then clarify the

information only if the Department requests a further explanation or

the respondents explain the information at verification. In this case,

petitioners argue the Department did not feel it was necessary for

Dinesh to explain the reporting of its sales values and the company was

not verified. For these reasons, petitioners urge the Department to

affirm its use of the sales values used in determining Dinesh's program

benefits in the preliminary calculations.

Department's Position

Though we agree with petitioners that Dinesh's sales values were

not clearly presented in the company's questionnaire response, after a

further examination of the record, we agree with respondents that we

did not use the correct f.o.b. values to calculate Dinesh's program

benefits. In conducting our preliminary calculations, we incorrectly

read Dinesh's sales chart and thus used the wrong 1996 f.o.b. values to

calculate the company's ad valorem subsidy rates. Therefore, we have

recalculated the ad valorem subsidies under each program using the

correct f.o.b. values as our denominators. The program rates reported

above and the final subsidy rate and cash deposit rate for Dinesh

listed below reflect the use of the correct sales values.

Comment 2: Sale of Import License by Carnation

When calculating the benefit which Carnation Industries Ltd.

(Carnation) received from the sale of an import license, respondents

state that the Department mistakenly used an overstated revenue figure

as the numerator in its calculation. They argue that the Department

incorrectly used the amount of revenue Carnation earned on the sale as

reported in the company's financial statements. Respondents state that

this amount is inclusive of the sales price plus the tax which

Carnation paid to the State of West Bengal. They state that Carnation

did not receive the tax, and therefore, the correct amount of the

benefit to Carnation is the sales price minus the tax.

Petitioners state that the respondents' argument must be rejected

because the Department's regulations clearly state that: ``{i}n

calculating the amount of a benefit, the Secretary will not consider

the secondary tax consequences of the benefit.'' See Countervailing

Duties: Proposed Rule, 62 FR 8818, 8856 (February 26, 1997).

Petitioners further state that the Department's policy is clear from

previous cases and has been upheld by the courts. See, e.g., Certain

Steel Products from Belgium; Final Affirmative Countervailing Duty

Determinations, 58 FR 37273, 37275 (July 9, 1993); Geneva Steel v.

United States, 914 F. Supp. 563, 609-610 (CIT 1996); Ipsco, Inc. v.

United States, 687 F. Supp. 614, 621-22 (CIT 1988); and Michelin Tire

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

grounds, 9 CIT 38 (1985) (Michelin Tire).

In this review, petitioners state that the record clearly

establishes that the benefit received from the sale of the license was

the amount reported in the company's financial statements. Carnation's

claim that it initially received something less than that amount is not

supported by record evidence. Moreover, whether Carnation was obligated

to pay taxes on the revenue earned is inconsequential to the

Department's analysis. Therefore, the Department should affirm its

preliminary results in this matter.

Department's Position

We agree with petitioners. Not only is the Department's long-

standing policy to disregard secondary tax consequences of

countervailable benefits, but also the statute is clear in regard to

permissible offsets to subsidies. Section 771(6) of the Act provides an

exclusive list of offsets which may be deducted from the amount of a

gross subsidy, and an offset for income tax payments is not included in

that list. For purposes of determining the net subsidy, the Department,

pursuant to section 771(6), may subtract from the gross countervailable

subsidy the amount of:

(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.

In Michelin Tire, the court upheld the Department's policy of

disregarding secondary tax consequences, rejecting a claim that after-

tax considerations should be included in the calculation of a subsidy.

In its decision the court stated that: ``[T]hese effects [secondary tax

effects] are too uncertain to be considered a necessary part of a

subsidy calculation in these circumstances.'' See 6 CIT 320, 328

(1983), vacated on other grounds, 9 CIT 38 (1985). Therefore, based on

the statute, case precedent, and the Department's policy to disregard

secondary tax effects on subsidies, we have not altered our calculation

of the subsidy which Carnation received from the sale of an import

license during the review period.

Comment 3: Use of a Rupee-Loan Interest Rate Benchmark

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

rate, rather than a dollar-denominated interest rate, to calculate the

benefit on PSCFC loans. Respondents note that the Department has

determined that PSCFC loans are denominated in dollars and that the

discount rate is based on a dollar interest rate. Therefore, the

Department should have used as its benchmark to determine the benefit

conferred by PSCFC loans, a dollar-related interest rate. Respondents

assert that since the Indian banks offering PSCFC financing could

themselves borrow dollars at a rate linked to the London Interbank

Offering Interest Rate ( LIBOR), the appropriate benchmark to determine

the subsidy element of the loans, if any, would be a LIBOR-linked rate.

Respondents contend that the Department's use of a benchmark, other

than a LIBOR-linked rate, is inconsistent with item (k) of the

``Illustrative List of Export Subsidies,'' Annex I to the Agreement on

Subsidies and Countervailing Measures (Illustrative List). Item (k)

provides that an ``export credit'' is a subsidy only if governments or

government-controlled banks provide ``export credits at rates below

those which they actually have to pay for the funds so employed.''

Respondents assert

[[Page 64053]]

that PSCFC loans should not be viewed as subsidies so long as they are

not provided at rates that are below the rates at which the banks

themselves could borrow U.S. dollars. Accordingly, PSCFC loans should

not be considered beneficial to the extent that they are provided at

rates above the appropriate benchmark--a LIBOR-linked rate.

Petitioners argue that respondents are erroneously confusing the

terms ``export credit'' and ``packing credit,'' the type of financing

provided to castings exporters, when discussing item (k). Petitioners

note that the Department has consistently interpreted the term ``export

credit'' to refer to medium- and long-term loans and therefore, item

(k) does not apply to the short-term export loans which are under

review.

Additionally, petitioners assert that the Department has

consistently rejected the cost-to-government'' methodology of item (k).

In support of their argument, petitioners cite to 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 to 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 a 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 (September 5, 1989). Petitioners further point

out that the Department upheld its repudiation of the ``cost-to-

government'' standard contemplated in item (k) in the Statement of

Administrative Action: Agreement on Subsidies and Countervailing

Measures (SAA). The SAA states that ``* * * the Illustrative List has

no direct application to the CVD portion of the Subsidies Agreement,

and items (k) and (l) of the Illustrative List use a cost-to-the-

government standard which is inappropriate for CVD purposes.'' See H.R.

Doc. No. 103-316, Vol. 1, 927-928 (1994). The petitioners assert that

this language restates the Department's long-standing practice that the

``cost-to-government'' approach contemplated in item (k) does not

adequately capture the benefits provided under short-term export

financing programs. Therefore, the Department should reject

respondents' argument and continue using a non-preferential interest

rate based on comparable, rupee-based financing as a benchmark.

Department's Position

We disagree with respondents that the Department should use a

LIBOR-linked interest rate as the benchmark in measuring the benefits

conferred by 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 Section 771(5)(E)(ii) of the Act.

In determining whether there is a difference between the amount the

companies paid on the PSCFC loans and the amount they would have paid

on a comparable commercial loan, we used, as our benchmark, where

available, a company-specific interest rate for rupee-denominated

short-term working capital loans obtained on the market during the

review period. In the absence of a company-specific rate, we used the

``cash credit'' interest rate which is for domestic working capital

finance and is comparable to pre- and post-shipment export finance. See

Certain Iron-Metal Castings From India; Preliminary Results of

Countervailing Duty Administrative Review, 61 FR 64669, 64671 (December

6, 1996) (1994 Castings Prelim). In accordance with section

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

less than what a company would have to pay on a comparable short-term

commercial loan, we determined that PSCFC loans confer countervailable

benefits.

We have also determined that PSCFC loans are limited to exporters,

and only exporters have access to LIBOR-linked interest rates. 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. The SAA specifically states that ``* * * the

Illustrative List has no direct application to the CVD portion of the

Subsidies Agreement, and items (k) and (l) of the Illustrative List use

a cost-to-the-government standard which is inappropriate for CVD

purposes.'' See0 H.R. Doc. No. 103-316, Vol. 1, 927-928 (1994). For

these reasons, we maintain that the correct benchmark to use in

determining whether PSCFC loans confer countervailable benefits upon

exports of the subject merchandise to the United States, is the

``comparable'' commercial loan rate that the Indian exporters would

actually obtain on the market.

Comment 4: Double-Counting of Subsidies

Respondents state that, for purposes of the section 80 HHC tax

program (80 HHC), earnings from the sale of import licenses may be

deducted from taxable income to determine the tax payable by the

exporter. Therefore, because revenue from the sale of licenses is also

part of the deductions under 80 HHC, to countervail this revenue once

as a direct subsidy, and then to countervail the tax deduction, which

is made up of the same revenue, is to double count the subsidy from the

import license sales.

Respondents also contend that the Department is double-counting the

subsidy from the export financing programs. The financing programs

reduce a company's expenses in financing exports, which in turn

increases the company's profits on export sales. Because the 80 HHC

deduction increases as export profits increase, the financing programs

increase the 80 HHC deduction. Therefore, according to respondents, to

countervail the export financing as a separate program from the 80 HHC,

is to double-count the subsidies conferred by the export financing

programs.

Respondents note that they appealed this issue of double-counting

to the Court of Appeals for the Federal Circuit (CAFC) and in Kajaria

Iron Castings Pvt. Ltd. v. United States, No. 97-1490 (Fed. Cir.

September 8, 1988) (Kajaria), the CAFC ruled in favor of the

respondents. Accordingly, respondents assert that the Department should

revise its position on the issue double-counting for the final results

of this review.

Petitioners respond that the Department has analyzed this issue of

double-counting extensively in prior proceedings. See, e.g., Certain

Iron-Metal Castings from India; Final Results of Countervailing Duty

Administrative Review, 62 FR 32299-301 (June 13,

[[Page 64054]]

1997) (1994 Castings Final). 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. In addition, petitioners

argue that the Department has explained in earlier reviews that the 80

HHC income tax exemption for export earnings is a countervailable

subsidy that is separate and distinct from the subsidies received from

export financing programs and the sale of import licenses, and

therefore, each subsidy program should be separately countervailed.

Also, petitioners contend that it is not the Department's policy to

examine the secondary tax effects of subsidies. Petitioners indicate

that the Department's determination to separately countervail these

different subsidies is supported by the courts' affirmance of the

agency's policy to disregard any secondary effect of a direct subsidy

on a company's financial performance. In support of this, petitioners

cite Saarstahl AG v. United States, 78 F.3d 1539, 1543 (Fed. Cir.

1996). Petitioners assert that this approach is proper and reasonable

given the difficulties inherent in an effort to calculate secondary

effects. Petitioners cite to Michelin Tire Corp. v. United States, in

which the court stated, ``These {secondary} effects are too uncertain

to be considered a necessary part of a subsidy calculation.'' See 6 CIT

320, 328 (1983), vacated on other grounds, 9 CIT 38 (1985).

Petitioners further note that 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 at 246, 926 (codified at 19 U.S.C. 1677(5)(C)). The SAA

explains that:

[T]he Administration wants to make clear its view that the new

definition of subsidy does not require that Commerce consider or

analyze the effect (including whether there is any effect at all) of

a government action on the price or output of the class or kind of

merchandise under investigation or review.

Id. at 926. Petitioners state that 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 80 HHC tax program when determining whether subsidies

under 80 HHC are countervailable.

Petitioners further indicate that though respondents argue that the

Department should correct for the alleged double-counting issue by

making adjustments to the 80 HHC subsidy percentage, they do not

provide any comment on how the Department should do this. According to

petitioners, the Department has acknowledged in earlier reviews that

the adjustments requested by the respondents cannot be accomplished due

to the multiple variables, which affect a company's costs, that would

have to be isolated.

Department's Position

Respondents' argument that the subsidies provided under the export

financing and import licensing programs have been countervailed twice,

by also countervailing the full amount of the 80 HHC tax deduction, is

incorrect. In Kajaria, the CAFC reviewed the Department's decision to

countervail that portion of the Cash Compensatory Support (CCS) rebates

found to be excessive, and to also countervail those over-rebates under

the 80 HHC program. Under the CCS program, the GOI rebated indirect

taxes on inputs consumed in the production an exported product. The CCS

rebates were considered by the GOI to be export income. Under the GOI's

80 HHC program only profit from export income is exempt from tax

liability. With respect to these particular facts, the CAFC in its

decision concluded that by first countervailing the CCS over-rebates,

as a distinct program, and then countervailing the same over-rebates

again as tax exempt export income under the 80 HHC program, the

Department had improperly double-counted the over-rebates.

In its decision, the court stated:

* * * Commerce must avoid double-counting subsidies, i.e.,

countervailing both the full amount of a subsidy and the non-

taxation of that subsidy, when the party under investigation

provides documentation that allows Commerce to separate the tax

deduction based on the fully countervailed subsidy from the

otherwise countervailable portion of the tax deduction.

Kajaria, No. 97-1490 at 24-25. In the present review, neither the

interest saved under the export financing programs nor the proceeds

earned on the sales of import licenses are deemed to be export income.

There is no evidence on the record which demonstrates a direct link

between these separate and distinct program subsidies and a specific

tax exemption subsidy program, i.e., the 80 HHC tax deduction. The

respondents in this review did not provide either income and tax

statements, or government descriptions of the subsidy programs which

demonstrate that the export financing and import license subsidies are

considered by the GOI to be export income and that the profit derived

from such income is specifically exempt from tax liability under 80

HHC.

With respect to the export financing programs, the respondents

stated that under these schemes, the GOI provides exporters with short-

term export lending to finance their working capital requirements. The

respondents' contention that as a result of such financing, an exporter

realizes a reduction of interest expenses which in turn increases

profits on export sales, is speculative. It is incorrect for

respondents to assume that every rupee saved on interest costs

increases the profits of the company by one rupee and therefore, the

concessional financing programs increase the 80 HHC deduction since the

deduction increases as profits from exports increase. Thus, we find no

basis for the respondents' argument that, by countervailing the export

financing programs and the 80 HHC deduction in full, the benefit to the

exporter from the financing programs is being countervailed twice.

In regard to the sale of import licenses, the record is void of any

indication that the profit a company realizes from the sale of an

import license is exempt from tax liability. What evidence respondents

did put on the record shows, for example, that Carnation Industries

reported and documented on the record that the revenue it earned from

the sale of an import licence during the review period was taxed by the

State of West Bengal. Therefore, we find no basis for the respondents'

argument that revenue earned from the sale of an import license

constitutes export income, the profits from which may be deducted from

taxable income under 80 HHC. Accordingly, we determine that the subsidy

from the import license sale is not being double-counted by also

countervailing in full the 80 HHC tax deduction.

Comment 5: Exclusion of Income Earned on Non-Subject Merchandise

According to respondents, where a company was able to break down

revenues relating to subject castings versus revenues relating to non-

subject merchandise, the Department should have calculated the 80 HHC

subsidy based on revenues and profits relating to subject castings

only. Respondents assert that by not factoring out

[[Page 64055]]

incentives received on sales of merchandise other than subject

castings, the subsidies found to be conferred by the 80 HHC program are

greater than they ought to be. The respondents submit that it is ultra

vires to countervail income earned on merchandise other than subject

castings because only subject castings are covered by the order.

Respondents claim that two companies, Kejriwal Iron & Steel

(Kejriwal) and R.B. Agarwalla & Co. (R.B. Agarwalla) were able to break

down revenues relating to subject castings versus revenues relating to

non-subject merchandise. Kejriwal submitted a calculation showing

export incentives received on sales of non-subject merchandise. The

company factored out these incentives when calculating the benefit the

80 HHC program provided to subject castings. R.B. Agarwalla submitted

an 80 HHC calculation demonstrating that a portion of its income was

directly related to non-subject merchandise, and subtracted out this

income in determining the benefit to subject castings provided by the

tax program. Respondents assert, for these companies, the Department

should revise its 80 HHC calculations countervailing only the income

earned on subject castings.

Respondents note that the CAFC in Kajaria, stated that the

Department improperly included revenue received on non-subject castings

in determining the countervailing duty to be imposed on subject

castings. See Kajaria, No. 97-1490 at 25-27. Respondents state that

though the court's decision related to IPRS rebates received on non-

subject castings, the court's ruling on the non-countervailability of

tax deductions relating to non-subject castings applies to this review

since the exporters received revenue on non-subject castings during the

period of review. Therefore, in keeping with the decision in Kajaria,

the Department should recalculate the 80 HHC benefit by deducting all

revenues received on non-subject castings for those companies which

were able to break down revenues relating to subject castings versus

non-subject merchandise.

Petitioners note the respondents' argument has been rejected in

prior reviews. Since the facts of this review are no different from the

prior reviews, the Department should continue its policy of allocating

the benefit from the 80 HHC program over total exports. The 80 HHC

program is an export subsidy and the benefits provided under this

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

or products. Petitioners assert that it does not matter whether an

exporter is able to separate its revenues between subject and non-

subject castings, because the 80 HHC program is an ``untied'' subsidy

program.

Department's Position

We disagree with respondents that for the final results the

Department should revise its benefit calculations for the 80 HHC tax

exemption program in light of Kajaria. The circumstances and the record

developed in this review are different from those in the case of

Kajaria. In Kajaria, the Court ruled that the record showed that the

IPRS rebates for non-subject merchandise were deemed by the GOI to be

export income. Further, the Court found that profits derived from that

export income were specifically exempt from income tax liability under

the 80 HHC program. In short, rebates specifically identified as export

income under one program were directly linked to the exemption from tax

liability of profits derived from such export income under another

subsidy program. It is clear from the CAFC's opinion that its holding

was limited to the particular circumstances in Kajaria. The facts and

record in this review are not the same as those in Kajaria. Thus, no

revision to the 80 HHC benefit calculation is warranted.

During this administrative review, no exporter submitted

information for the record which demonstrated that IPRS rebates were

received for the sale of non-subject merchandise to the United States.

In fact, no exporter submitted information that demonstrated that any

alleged benefits received for non-subject merchandise were expressly

denominated as export income, and that the profits derived from such

export income were expressly exempt from tax liability under the 80 HHC

program.

As mentioned above, respondents claim that the export incentives

which Kejriwal received on the sale of non-subject merchandise should

be factored out of the Department's calculation of the benefit to

subject castings from the 80 HHC tax deduction. We disagree with the

respondents. Kejriwal provided no documentation on the record to

support its claim that the export incentives received were in fact

export income earned on the sale of non-subject merchandise. Further,

nowhere on the record does Kejriwal or the GOI indicate that export

incentives are export income and that the section 80 HHC specifically

exempts profits derived from that export income. Because the record is

void of such information, we have not modified the 80 HHC benefit

calculation for Kejriwal to exclude, from the computation, these export

incentives.

In like manner, R.B. Agarwalla did not provide any documentation to

support its claim that a portion of its income listed as duty drawback

received on non-subject merchandise is specifically denominated as

export income by the GOI. There is no information on the record which

indicates that duty drawback is considered to be export income and that

the section 80 HHC specifically exempts the profits derived from that

income. Therefore, we have not made any adjustments to the 80 HHC

benefit calculation for R.B. Agarwalla to take into account the duty

drawback the company received on non-subject merchandise.

The burden of creating an adequate record lies with respondents and

not with the Department. NTN Bearing Corp. of America v. United States,

997 F.2d 1453, 1458 (Fed. Cir. 1993), quoting Tianjin Mach. Import &

Export Corp. v. United States, 806 F. Supp. 1008, 1015 (CIT 1992). In

this review, neither Kejriwal nor R.B. Agarwalla developed such a

record with respect to the Kajaria-type adjustment they are requesting.

Moreover, the Department need not engage in any kind of subsidy tracing

exercise. On this point, the CAFC was very clear:

[W]e are mindful of the government's argument that Commerce does

not engage in subsidy tracing because of the burden involved in

sorting the tax treatment of subsidies. Again, our decision does not

mean that in every review or investigation Commerce must trace the

tax treatment of subsidies on non-subject merchandise when a tax

deduction results in a countervailable subsidy to determine if the

deduction is partially based on the subsidy on non-subject

merchandise.

Kajaria, No. 97-1490 at 27. Accordingly, the Department has not

made any adjustment to the 80 HHC calculations in the final results of

this review to determine the subsidy bestowed on exports of the subject

merchandise. Because respondents did not provide to the Department

documentation with respect to export profits derived from export income

earned on non-subject merchandise which is specifically exempt under

the 80 HHC, we have continued to employ our ``untied'' benefit

methodology to calculate the net subsidy attributable to exports of the

subject merchandise for those exporters which claimed the 80 HHC tax

deduction during the period of review. It is the Department's

consistent and long-standing practice to attribute a benefit from an

export subsidy that is not tied to a particular product or

[[Page 64056]]

market to all products exported by a firm. See, e.g., Final Affirmative

Countervailing Duty Determination: Certain Pasta from Turkey, 61 FR

30366, 30370, (June 14, 1996) (Pasta from Turkey), and the 1994

Castings Final, 62 FR 32303.

When an exporter cannot demonstrate to the Department that a

subsidy is tied to specific merchandise, then the benefit is not tied

to any specific product manufactured or exported by a firm, and

therefore, the benefit is ``firm-wide.'' If a subsidy is firm-wide and

not ``tied'' to specific merchandise, then the benefit from that

subsidy is allocated over the firm's total exports, in the case of an

export subsidy. By allocating the ``untied'' benefit provided under the

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

apples'' comparison. This ``untied'' benefit methodology accurately

produces the net subsidy attributable to exports of the subject

merchandise and provides for fair results. For these reasons, our

calculation of the subsidy under section 80 HHC remains unchanged from

the preliminary results.

Even if Kejriwal and R.B. Agarwalla demonstrated to the Department

that their respective export incentives and duty drawback were in fact

export income earned on non-subject merchandise (with respect to duty

drawback, documentation would also have to indicate that imported pig

iron was not incorporated into the subject merchandise) and that the 80

HHC specifically exempts profits derived from that export income, each

company's net program subsidy rate would remain essentially unchanged.

By factoring out export income attributable to non-subject merchandise

from the 80 HHC deduction, we would adjust the benefit (the numerator)

to reflect the 80 HHC tax deduction attributable to subject merchandise

only. Because adjusting the benefit in this manner is contrary to the

Department's long-standing practice with regard to the attribution of

subsidies and our tying principles, we would then have to adjust the

denominator. Since the numerator would reflect only subject

merchandise, we would follow our long-standing principles for

attribution, and divide the recalculated benefit only by exports of

subject merchandise to determine the net subsidy rate for each company.

Once all income attributable to non-subject merchandise is factored out

of the calculation of the benefit, the amount that remains would be

attributable solely to subject merchandise. As noted, the adjustments

made would affect both the numerator and denominator and would result,

in this proceeding, in net subsidy rates identical to the rates

obtained by the Department's current methodology of considering the

benefit of the 80 HHC program as ``untied.''

Comment 6: Penalty Interest Paid

According to respondents, in calculating the benefits received by

castings exporters from post-shipment export loans, the Department

failed to take into account penalty interest paid at interest rates

higher than the benchmark. Respondents argue that where a company paid

interest on loans at rates both less than and greater than the

benchmark rate, all interest--including the overdue penalty interest

paid at rates greater than the benchmark rate--needs to be taken into

account when determining the actual benefit to the company from the

loans. The respondents assert that the methodology employed by the

Department virtually eliminates the overdue penalty interest paid from

the calculation of the benefit from the post-shipment export loans.

The preliminary calculations demonstrate that where an export loan

was initially taken at a preferential rate, the Department calculated

the interest paid at the preferential interest rate and compared it to

interest that would have been paid at the benchmark rate. Respondents

argue that this methodology does not take into account all the interest

paid by the exporter on the loan since it ignores overdue interest that

the exporter may also have paid on the loan.

Respondents assert that the Department should have adjusted the

benefit on the post-shipment export 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 the

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

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

higher than the benchmark rate. The respondents argue that the

Department should correct its methodology so as to take into account

the overdue penalty interest paid on the loans, because the benefit

received by an exporter on any particular loan is a function of both

the interest paid at a rate lower than the benchmark and the additional

interest paid at a rate higher than the benchmark.

Petitioners state that the Department should reject the

respondents' methodology for calculating the countervailable benefit

under the export financing programs, because it would permit a non-

allowable offset to the countervailable benefit under the programs. In

addition, petitioners argue that 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 section 771(6) of the Act.

The penalty interest, petitioners assert, merely assures that the

terms of the program are met. The costs associated with such penalty

interest charges are, therefore, due to the recipient's failure to

comply with the terms of the loan. The penalty which is based on the

company's non-compliance with the terms of the program, represents

nothing more than a secondary economic effect. Petitioners note that

the Department has previously determined that a secondary economic

effect 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),

Fabricas El Carmen, S.A. v. United States, 672 F. Supp. 1465 (CIT

1987), vacated in part (on other grounds), Fabricas El Carmen, S.A. v.

United States, 680 F. Supp. 1577 (CIT 1988).

Petitioners further note that the Department has, in a comparable

situation, refused to offset preferential with non-preferential loans.

See 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, 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:

[I]t only examines loans received under programs that may

potentially be counteravailable [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. Petitioners argue that, by extension, the Department cannot,

under the terms of the statute, 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.

[[Page 64057]]

Therefore, the Department is correct in calculating a zero benefit

during the period in which the penalty rate exceeded the benchmark

rate.

Department's Position

An adjustment to the benefit under the export financing programs in

the form advocated by respondents would be an impermissible offset to

the benefit. In accordance with section 771(6) of the Act, the

Department may subtract from the gross countervailable subsidy the

amount of:

(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 export

financing programs does not fall within this list of allowable offsets.

Additionally, in light of how the post-shipment export financing

programs operate, respondents' approach is inaccurate. As we explained

in the preliminary results, exporters discount their export bills with

Indian commercial banks to finance their operations. See Certain Iron

Metal Castings from India; Preliminary Results of Administrative

Review, 63 FR 37536 (July 13, 1998) (1996 Castings Prelim). 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 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 a

higher interest rate. The overdue interest rate varies depending on the

period for which the loan is overdue. To determine whether interest

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

compared the overdue interest rate with the benchmark rate. If the

overdue interest rate was higher than the benchmark rate, we found no

benefit. Therefore, the adjustment suggested by respondents is

inappropriate given the way in which the export financing programs

operate.

Comment 7: Company-Specific Benchmarks

Respondents disagree with the Department's use of a company-

specific benchmark interest rate for determining the benefits which

Calcutta Ferrous and Crescent Foundry respectively received under the

pre- and post-shipment export financing programs. Respondents note

that, for companies which did not have commercial short-term loans

during the review period, the Department used as its benchmark the

``cash credit'' short-term interest rate which was provided by the GOI.

Respondents argue that since commercial loans were available to

borrowers at the cash credit rate during the review period, it was

inappropriate to use a higher rate as a benchmark for Calcutta Ferrous

and Crescent Foundry merely because these companies borrowed at rates

higher than the cash credit rate on certain commercial loans. It is the

respondents' contention that, where a company borrows at a rate which

is lower than the common benchmark, it is appropriate to use the lower,

company-specific rate. However, where a company borrows at a rate

higher than the common commercial rate, then the higher rate should not

be the benchmark used for that company. Respondents argue that there is

no reason to assume that a company, which happened to borrow at a

higher rate, could not have taken loans at the lower rate during the

period of review, and therefore, the Department should use the lower

commercial rate. Thus, the Department should cap Calcutta Ferrous' and

Crescent Foundry's benchmark rate at the level of the cash credit

short-term interest rate which was found available to borrowers in

India during the period of review.

Petitioners state that the respondents' argument should be rejected

as it is inconsistent with the Department's preferred benchmark

methodology. As directed by the Act, the Department is to measure the

benefit obtained through a loan program by finding the ``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 section

771(5)(E)(ii) of the Act. In measuring the benefit, it is the

Department's preference to use company-specific rates where available

and to use national averages (such as the cash credit rate) only in the

event that the investigated firm did not take out any comparable

commercial loans during the period. See Preamble to the Proposed

Regulations, 62 FR 8829, 8830 (February 26, 1997). By using a company-

specific benchmark rate for those companies which received, and paid

interest on, short-term working capital loans obtained on the market

during the period of review, the Department appropriately followed

statutory and regulatory policy. For the remaining companies which did

not receive, and pay interest on, comparable commercial loans, the

Department used, as a benchmark, the next best rate, the national-

average cash credit rate.

Petitioners further state that the respondents' argument is not in

accordance with the Department's statutory guidelines, since, in

certain cases, respondents' methodology would substitute the second

best (i.e., a national average rate) when the first best alternative

(i.e., a company-specific rate) is available. The respondents' proposed

approach is simply a results-oriented argument designed to lower the

countervailing duty rate applied to short-term, preferential loan

programs. Moreover, it is mere speculation on the part of respondents

to claim that companies which borrow at rates above the national-

average rate could also borrow at the lower rate. Petitioners contend

that it is this type of ambiguity that the statute and regulations

address and therefore, the Department must reject respondents' proposed

approach.

Department's Position

We disagree with the respondents' argument that the Department used

inappropriately high benchmarks to calculate the benefits from the pre-

and post-shipment export financing programs for Calcutta Ferrous and

Crescent Foundry. As stated in section 771(5)(E)(ii) of the Act, in the

case of a loan, a benefit is conferred ``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'' (emphasis added).

During the review period, four of the twelve respondent companies

received, and paid interest on, domestic working capital loans which

were obtained in a commercial banking market. Accordingly, for these

four companies, we used as our benchmark in determining the benefits

each company received under the export financing programs, a company-

specific rate; this benchmark was a weight-averaged rate based on the

interest rates each company paid on its respective

[[Page 64058]]

commercial working capital loans. It is the Department's policy to use

a company-specific benchmark rate in determining the benefit conferred

by a government program. See, e.g., Industrial Phosphoric Acid from

Israel; Final Results of Countervailing Duty Administrative Review, 63

FR 13626, 13634 (comment 9) (March 9, 1998).

For all other respondent companies which did not receive, and pay

interest on, comparable commercial loans during the period of review,

we used as our benchmark the next best alternative--the national-

average ``cash credit'' rate. In the 1994 administrative review of this

order, the Department determined that, in the absence of a company-

specific benchmark, the most ``comparable'' short-term benchmark to

measure the benefit under the export financing programs, is the cash

credit interest rate. The cash credit interest rate is for domestic

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

export financing.

Respondents argue that since commercial loans were available at the

cash credit rate during the review period, it was inappropriate for the

Department to use higher benchmark rates for Calcutta Ferrous and

Crescent Foundry simply because these companies borrowed at higher

rates on certain loans. As noted above, it is the Department's policy

to use, when determining the benefit conferred by a loan provided under

a government program, the interest rate a company would have paid on a

comparable loan obtained on the market. During the review period, both

Calcutta Ferrous and Crescent Foundry obtained commercial loans on the

market. The market determined the interest rates at which these

companies could borrow, and those rates were higher than the national-

average cash credit rate. Respondents state that the Department should

not assume that a company which happened to borrow at a rate higher

than the national-average could not have taken loans at the lower rate

during the period, and therefore, the Department should use the lower

commercial rate. We find no basis for this argument. If Calcutta

Ferrous and Crescent Foundry actually could have borrowed at the

national-average rate, then the interest rates charged by the banks on

the commercial loans would have reflected that. The fact that they did

not is an indication that they could not. It would be unreasonable to

expect a company to incur higher than necessary costs. Therefore, we

disagree with respondents' argument that the Department should cap

Calcutta Ferrous' and Crescent Foundry's company-specific benchmark

rates at the level of the cash credit rate.

Comment 8: Countervailability of Advance Licenses

Petitioners argue that the Department improperly failed to

countervail Advance Licenses which, they contend, are export subsidies.

According to petitioners, Advance Licenses constitute a countervailable

subsidy within the meaning of Item (a) of the 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

licenses are duty-free, petitioners state these licenses provide a

subsidy based on the requirement that an export obligation be met.

Petitioners claim that the Department has in this, as in prior

reviews, mistakenly confused the nature of the Advance License program

with a duty drawback program. For a duty drawback program not to be

countervailed, it must meet certain conditions as 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 GOI makes no attempt to determine the

amount of the imported duty-free material that is consumed in the

production of the exported product.

According to petitioners, there is no evidence on which to base a

conclusion that the amount of raw materials imported was not excessive

vis-a-vis the products exported. The GOI's concern that a sufficient

amount of value has been added to the exported products does not

regulate the amount of raw materials incorporated to the exports.

Petitioners argue that the yardstick used by the GOI for measuring

compliance with the Advance License program falls short of any

determination of whether the amount of raw materials imported was

excessive in relation to the amount of raw materials found in the

exported castings.

Petitioners further argue that no evidence on the record

demonstrates that the GOI attempts to determine the grade of pig iron

being imported or exported, and without knowing this information, the

amount of pig iron consumed in the production of exported subject

castings cannot be ascertained. Additionally, the GOI's system of

fixing ``input/output norms'' is hampered because exporters, who

experience delays in the delivery of raw material inputs imported under

an Advance License, may purchase the inputs on the domestic market.

Thus, there is no way to ensure that the amount of raw materials

imported was not excessive in relation to the amount of raw materials

found in the exported castings.

Moreover, petitioners argue that an exporter's ability to transfer

Advance Licenses to other companies is further evidence that this

program is not equivalent to a drawback program because the licenses

are not solely limited to the importation of duty-free materials. The

GOI permits Advance Licenses to be transferred between companies under

certain conditions and when transferring a license, an exporter would

receive in return a monetary payment. For this and the above-indicated

reasons, petitioners state that the Department should countervail in

full the value of Advance Licenses received by the respondents during

the period of review.

Respondents explain that the purpose of the Advance License scheme

is to allow for the importation of raw materials duty free for the

production of exported products. They state that if Indian exporters

did not have Advance Licenses, the exporters would simply import the

raw materials, pay duty, and then receive drawback upon export.

Respondents argue that just because Advance Licenses are slightly

different from a duty drawback system, in that they allow duty free

imports rather than provide for remittance of duty upon exportation,

does not make them countervailable.

In response to the petitioners' claim that the GOI makes no attempt

to determine the amount of imported material that is consumed in the

production of exported products, respondents counter that the GOI does

maintain such checks which have been verified by the Department in

prior reviews. Respondents note that in prior reviews the Department

has never found excessive imports, and this is one of the reasons why

Advance Licenses have not been found to be countervailable. See 1994

Castings Final.

Respondents refute petitioners' claim that the GOI is concerned

only with ensuring that a sufficient amount of value is added to

exported products. According to respondents, the question of value of

exports arises only in determining whether an exporter is eligible to

receive an Advance License. Respondents also rebut petitioners'

[[Page 64059]]

claim that the GOI does not attempt to determine the grade of pig iron

imported or exported. They state if more expensive grades of pig iron

were imported than exported, and the pig iron was sold for a premium in

the domestic market instead of producing exported castings, then the

premium might be a subsidy. However, the respondent companies did not

sell domestically any imported pig iron, rather they used it to produce

castings for export. Additionally, respondents state that if a license

was transferred for a fee during the review period, this might be a

subsidy. However, in this review, all the licenses were used to import

pig iron duty free for exported finished castings. Therefore, for these

reasons, the Department should reject the petitioners' arguments

regarding the Advance License scheme, and once again find the program

to be a non-countervailable equivalent to duty drawback.

Department's Position

As we have discussed in prior reviews, petitioners have only

pointed out the administrative differences between a duty drawback

system and the Advance License scheme used by Indian exporters. See

1994 Castings Final. Such administrative differences can also be found

between a duty drawback system and 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 program is to allow a company 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.

In prior reviews, we have determined that Advance Licenses are

equivalent to duty drawback. The licenses allow companies to import,

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

exported products. Further, we have found no evidence in this review,

or in a prior review, that imports under Advance Licenses have been

excessive, or that castings exporters have transferred such licenses.

Accordingly, our determination that the provision of Advance Licenses

is not countervailable remains unchanged for this review. However, if

in a future review of this order, new information becomes available to

the Department in regard to the manner in which the Advance License

program operates, we will reevaluate at that time our determination of

the program's non-countervailability.

Comment 9: Countervailability of the Duty Entitlement Passbook Scheme

Petitioners state the GOI has established during this review period

the Duty Entitlement Passbook Scheme (Passbook Scheme) which is related

to the Advance Licence scheme. Petitioners contend that this new scheme

extends the export subsidies provided under the Advance License program

and therefore is similarly countervailable. The purpose of the Passbook

Scheme, which commenced in April 1996, is to widen the Advance License

program, giving exporters greater flexibility in paying import duties.

See Memo to Barbara Tillman: Verification of the Government of India's

Questionnaire Response in the 1996 Administrative Review at 9, dated

June 29, 1998, (public version) on file in the Central Records Unit of

the Department of Commerce (Room B-099) (GOI VR). Upon the exportation

of goods by a Passbook holder, the GOI ``calculates, on the basis of

standard input/output norms, the deemed import content of the exports

and determines the basic customs duty payable on those imports.'' Id.

at 8. The Passbook holder, upon receiving credit for the equivalent

amount of the customs duty from the GOI, can ``pay the customs duties

on any imported goods,'' not just the duties on the imported goods from

which the credits were originally determined. Id. at 8.

Consequently, petitioners argue, just as with the Advance License

program, the Passbook Scheme lacks an adequate monitoring system to

ensure that the credits provided to Passbook holders are not excessive.

No evidence on the record demonstrates that the GOI attempts to

determine the grade of pig iron either imported or exported in the

finished goods to ensure that the amount of input material exported

equals the amount imported. Moreover, the flexibility exporters have in

using the Passbook credits to pay duties on any imports highlights that

the Passbook Scheme is very much unlike a traditional duty drawback

program. Therefore, petitioners assert that the Department should find

the Passbook Scheme countervailable.

Respondents state the Passbook Scheme, like the Advance License

program, operates in a manner equivalent to a duty drawback program

allowing for imports of pig iron which is consumed in the production of

exported castings. Therefore, the Passbook Scheme, for the same reasons

as the Advance License program, is not a countervailable subsidy.

Respondents argue that simply because the Passbook Scheme has been

referred to as an ``export incentive'' does not make it a

countervailable subsidy. Duty Drawback of Excise Duty, the Advance

License program, and the Passbook Scheme are all ``export incentives''

because they are for exports; however, they are not, as the Department

has previously determined, countervailable subsidies unless they

provide excessive rebates.

Respondents further state that if the castings exporters did, in

fact, use their Passbook credits to import products other than pig

iron, a subsidy might exist; however, there is no evidence on the

record that this was done by any of the castings exporters. Therefore,

based on the reasons presented, the Department should find the Passbook

Scheme, like the Advance License program, to be a non-countervailable

equivalent to the duty drawback program.

Department's Position

Petitioners first alleged that the Passbook Scheme might be an

export subsidy in their May 27, 1998 letter to the Department. See

Letter in regard to Pre-verification Comments at 12, dated May 27,

1998, public version of the letter is on file in the Central Records

Unit of the Department of Commerce (Room B-099). In accordance with

section 351.301(d)(4)(B) of the Department's regulations, we found the

petitioners' allegation of a new export subsidy to be untimely. See

Memo to the File: Untimely Allegations of New Subsidies, dated June 5,

1998 on file in the Central Records Unit of the Department of Commerce

(Room B-099). Because the allegation was untimely, we rejected

petitioners' subsidy allegation with respect to the Passbook Scheme in

this review. During the June 1, 1998 verification meeting with the GOI,

the Passbook Scheme was discussed as an extension of the Department's

inquiry of the Advance License program. However, because the Passbook

Scheme was not a program under examination in this review, the

Department did not obtain enough information to analyze whether the

scheme is, or is not, a countervailable subsidy. If a future review of

this order is requested by petitioners, we will

[[Page 64060]]

examine whether to initiate on the Passbook Scheme provided that

petitioners file their allegation on a timely basis.

Comment 10: Kajaria's Long-Term Loans From the IDBI

Petitioners assert that the Department erred in the preliminary

results of this review by not addressing the long-term loan assistance

which Kajaria Iron Castings (Kajaria) received from the Industrial

Development Bank of India (IDBI). Petitioners argue that the loan

assistance is countervailable because (1) it is provided by the

government; (2) it is export-oriented; (3) it allows a principal

repayment holiday; and (4) it is likely provided on preferential terms.

To begin with, petitioners state, according to the agency's

substantive regulations, the Department will investigate a loan

provided by a government-owned bank only when the ``government-owned

bank provided the loan at the direction of the government or with funds

provided by the government.'' See proposed 19 CFR 355.44(b)(9)(ii), 54

FR 23366, 23381 (May 31, 1989). Since the GOI owes 74 percent of the

IDBI's shares and 10 out of the 16 IDBI board members are government

employees, petitioners contend this criterion is satisfied. See GOI VR

at 10.

Petitioners further assert that evidence on the record demonstrates

that the long-term loan was export-oriented. Petitioners note that

during verification Kajaria officials stated that the company exports

all of its merchandise. See Memo to Barbara Tillman: Verification of

Kajaria Iron Castings Ltd.'s Questionnaire Response in the 1996

Administrative Review at 2, dated June 29, 1998, (public version) on

file in the Central Records Unit of the Department of Commerce (Room B-

099) (Kajaria VR).

Petitioners also argue that there is no evidence on the record to

demonstrate that Kajaria's principal repayment schedule is normal with

respect to commercial, long-term lending. In addition, petitioners

state that both Kajaria and the GOI failed to demonstrate at

verification that the loan was provided on commercial terms. The GOI

simply stated at verification that ``[t]here is no consistency in

regard to the interest rates or terms and conditions offered by banks

on long-term financing.'' See GOI VR at 12. According to petitioners,

it is likely that alternative long-term rates were significantly higher

than the rate Kajaria received, as most of the short-term financing

reported by the responding companies ranged as high as 22 percent. For

these reasons, petitioners urge the Department to countervail the long-

term loan assistance which Kajaria received from the IDBI.

Respondents contend that the loans received by Kajaria were not

provided on terms ``inconsistent with commercial considerations,''

which is the criterion for finding such loans countervailable. See

proposed regulations 19 CFR 355.44(b)(9)(ii), 54 FR at 23381.

Respondents assert that a grace period before paying principal is

consistent with commercial, long-term loans. Many commercial loans

permit a grace period for repayment of principal until the facility,

for which the loan was taken, is operational. This was, in fact, the

reason for the delayed payment of principal on Kajaria's loan.

With respect to petitioners' argument that there was an

``additional benefit'' owing to the interest rate Kajaria paid on the

loan, respondents state that short-term loans are more often than not

provided at rates higher than those on long-term loans. Long-term

construction loans are often secured by the facility being built, and

this generally results in lower, not higher rates. Respondents also

note that the Reserve Bank of India stated at verification that

commercial long-term rates are ``usually lower than both the prime

lending rate and the cash credit rate.'' See GOI VR at 12.

Further, respondents argue that petitioners' statement that

Kajaria's export-orientation had any bearing on the approval of the

loan is pure speculation. Respondents argue that there is nothing in

the loan documents provided by Kajaria or in the company's verification

report to suggest that the loan was contingent upon exports or that

Kajaria's ``export-orientation'' was taken into account by the lenders.

In fact, the IDBI specifically stated at verification that ``the

project financing given to Kajaria was not tied to any expectation of

exports.'' Id. at 11. Therefore, the Department should reject

petitioners' arguments relating to Kajaria's long-term loans provided

by the IDBI.

Department's Position

At our verification meeting with Kajaria officials, we inquired

about the long-term loans which the company received from the IDBI. The

officials explained that these long-term loans were received for the

construction of a pig iron plant, which commenced production in

February 1998. However there was insufficient time remaining before the

scheduled date of the final results of this review to fully examine

Kajaria's long-term financing. Therefore, in accordance with section

351.311(c)(2) of the Department's regulations, we are deferring an

examination of Kajaria's long-term loans from the IDBI until a future

administrative review of the company is requested.

Final Results of Review

In accordance with 19 CFR 351.221(b)(4)(i), we calculated an

individual subsidy rate for each producer/exporter subject to this

administrative review. For the period January 1, 1996 through December

31, 1996, we determine the net subsidy for the reviewed companies to be

as follows:

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

Net subsidy

Net subsidies--producer/exporter rate--percent

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

Calcutta Ferrous Ltd..................................... 3.48

Carnation Industries Ltd................................. 3.32

Commex Corporation....................................... 5.33

Crescent Foundry Co. Pvt. Ltd............................ 4.98

Dinesh Brothers Pvt. Ltd................................. 3.27

Kajaria Iron Castings Pvt. Ltd........................... 1.69

Kejriwal Iron & Steel Works Pvt. Ltd..................... 12.76

Nandikeshwari Iron Foundry Pvt. Ltd...................... 4.41

Overseas Iron Foundry.................................... 3.74

R.B. Agarwalla & Company Pvt. Ltd........................ 3.64

RSI Limited.............................................. 3.63

Seramapore Industries Pvt. Ltd........................... 5.54

Shree Rama Enterprise.................................... 10.85

Super Iron Foundry....................................... 3.32

Uma Iron & Steel......................................... 1.38

Victory Castings Ltd..................................... 3.05

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

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 below 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 discussed

in the 1996 Castings Prelim, the GOI terminated the PSCFC scheme

effective February 8, 1996. All PSCFC loans received by respondents

were repaid in their entirety (principal and interest) during the

period of review. We verified that no residual benefits have been

provided or received, and there is no evidence that a substitute

program has been established. Therefore, in determining the cash

deposit rates for the five castings producers/exporters which used the

PSCFC program, we have not included the subsidy conferred by this

program during the review period. We

[[Page 64061]]

determine that the cash deposit rates for the reviewed companies are as

follows:

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

Net subsidy

Net subsidies--producer/exporter rate--percent

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

Calcutta Ferrous Ltd..................................... 3.46

Carnation Industries Ltd................................. 3.32

Commex Corporation....................................... 5.33

Crescent Foundry Co. Pvt. Ltd............................ 4.98

Dinesh Brothers Pvt. Ltd................................. 3.22

Kajaria Iron Castings Pvt. Ltd........................... 1.69

Kejriwal Iron & Steel Works Pvt. Ltd..................... 12.76

Nandikeshwari Iron Foundry Pvt. Ltd...................... 4.33

Overseas Iron Foundry.................................... 3.74

R.B. Agarwalla & Company Pvt. Ltd........................ 3.53

RSI Limited.............................................. 3.55

Seramapore Industries Pvt. Ltd........................... 5.54

Shree Rama Enterprise.................................... 10.85

Super Iron Foundry....................................... 3.32

Uma Iron & Steel......................................... 1.38

Victory Castings Ltd..................................... 3.05

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

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

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

investigated and reviewed companies, the procedures for establishing

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

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

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

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

351.213(b). Pursuant to 19 CFR 351.212(c), for all companies for which

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

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

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

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

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

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

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

(interpreting 19 CFR 353.22(e) (now 19 CFR 351.212(c)), the antidumping

regulation on automatic assessment, which is identical to 19 CFR

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 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 will be the rate for that company established in the most

recently completed administrative proceeding conducted under the URAA.

See 1994 Castings Final. If such a review has not been conducted, the

rate established in the most recently completed administrative

proceeding pursuant to the statutory provisions that were in effect

prior to the URAA amendments is applicable. See Final Results of

Countervailing Duty Administrative Review: Certain Iron-Metal Castings

From India, 61 FR 64676 (December 6, 1996) (1993 Castings Final). These

rates shall apply to all non-reviewed companies, including those

companies for which the review is being rescinded, until a review of a

company assigned these rates is requested and completed. In addition,

for the period January 1, 1996 through December 31, 1996, 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 355.34(d). Timely written notification of

return/destruction of APO materials or conversion to judicial

protective order is hereby requested. Failure to comply with the

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

This administrative review and notice are in accordance with

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

Dated: November 10, 1998.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 98-30856 Filed 11-17-98; 8:45 am]

BILLING CODE 3510-DS-P