Final Affirmative Countervailing Duty Determination: Certain Cut- to-Length Carbon-Quality Steel Plate From India

DEPARTMENT OF COMMERCE

International Trade Administration

[C-533-818]

Final Affirmative Countervailing Duty Determination: Certain Cut-

to-Length Carbon-Quality Steel Plate From India

AGENCY: Import Administration, International Trade Administration,

Department of Commerce

EFFECTIVE DATE: December 29, 1999.

FOR FURTHER INFORMATION CONTACT: Robert Copyak or Eric B. Greynolds,

Office of AD/CVD Enforcement VI, Import Administration, U.S. Department

of Commerce, Room 4012, 14th Street and Constitution Avenue, NW,

Washington, DC 20230; telephone: 202-482-2786.

Final Determination: The U.S. Department of Commerce (the

Department) determines that countervailable subsidies are being

provided to certain producers and exporters of certain cut-to-length

carbon-quality steel plate from India. For information on the estimated

countervailing duty rate, please see the ``Suspension of Liquidation''

section of this notice.

SUPPLEMENTARY INFORMATION:

Petitioners

The petition for this investigation was filed by Bethlehem Steel

Corporation; U.S. Steel Group, a unit of USX Corporation; Gulf States

Steel, Inc.; IPSCO Steel Inc.; Tuscaloosa Steel Corporation; and the

United Steelworkers of America (the petitioners).

Case History

Since the publication of the Preliminary Affirmative Countervailing

Duty Determination and Alignment of Final Countervailing Duty

Determination with Final Antidumping Duty Determination: Certain Cut-

to-Length Carbon-Quality Steel Plate from India, 64 FR 40438 (July 26,

1999) (Preliminary Determination), the following events have occurred.

We issued a supplemental questionnaire on July 29, 1999, and we

received a response to that supplemental questionnaire on August 6,

1999. From August 8 through August 20, 1999, we conducted a

verification of the information submitted by the respondents. See

Memoranda to David Mueller, Director, Office of AD/CVD Enforcement VI,

dated September 20, 1999, ``Verification of the Questionnaire Responses

of the Government of India (GOI)'' and ``Verification of the

[[Page 73132]]

Questionnaire Responses Submitted by the Steel Authority of India

(SAIL)'' (GOI Verification Report and SAIL Verification Report,

respectively), which are on file in public version form in our Central

Records Unit (Room B-099 of the main Commerce building).

Petitioners, the GOI, and SAIL filed case briefs on September 29,

1999, and rebuttal briefs on October 4, 1999. On November 20, 1999, a

public hearing was conducted.

Scope of Investigation

The products covered by this scope are certain hot-rolled carbon-

quality steel: (1) universal mill plates (i.e., flat-rolled products

rolled on four faces or in a closed box pass, of a width exceeding 150

mm but not exceeding 1250 mm, and of a nominal or actual thickness of

not less than 4 mm, which are cut-to-length (not in coils) and without

patterns in relief), of iron or non-alloy-quality steel; and (2) flat-

rolled products, hot-rolled, of a nominal or actual thickness of 4.75

mm or more and of a width which exceeds 150 mm and measures at least

twice the thickness, and which are cut-to-length (not in coils).

Steel products to be included in this scope are of rectangular,

square, circular or other shape and of rectangular or non-rectangular

cross-section where such non-rectangular cross-section is achieved

subsequent to the rolling process (i.e., products which have been

``worked after rolling'')--for example, products which have been

beveled or rounded at the edges. Steel products that meet the noted

physical characteristics that are painted, varnished or coated with

plastic or other non-metallic substances are included within this

scope. Also, specifically included in this scope are high strength, low

alloy (HSLA) steels. HSLA steels are recognized as steels with micro-

alloying levels of elements such as chromium, copper, niobium,

titanium, vanadium, and molybdenum.

Steel products to be included in this scope, regardless of

Harmonized Tariff Schedule of the United States (HTSUS) definitions,

are products in which: (1) iron predominates, by weight, over each of

the other contained elements, (2) the carbon content is two percent or

less, by weight, and (3) none of the elements listed below is equal to

or exceeds the quantity, by weight, respectively indicated:

1.80 percent of manganese, or

1.50 percent of silicon, or

1.00 percent of copper, or

0.50 percent of aluminum, or

1.25 percent of chromium, or

0.30 percent of cobalt, or

0.40 percent of lead, or

1.25 percent of nickel, or

0.30 percent of tungsten, or

0.10 percent of molybdenum, or

0.10 percent of niobium, or

0.41 percent of titanium, or

0.15 percent of vanadium, or

0.15 percent zirconium.

All products that meet the written physical description, and in

which the chemistry quantities do not equal or exceed any one of the

levels listed above, are within the scope of this investigation unless

otherwise specifically excluded. The following products are

specifically excluded from these investigations: (1) products clad,

plated, or coated with metal, whether or not painted, varnished or

coated with plastic or other non-metallic substances; (2) SAE grades

(formerly AISI grades) of series 2300 and above; (3) products made to

ASTM A710 and A736 or their proprietary equivalents; (4) abrasion-

resistant steels (i.e., USS AR 400, USS AR 500); (5) products made to

ASTM A202, A225, A514 grade S, A517 grade S, or their proprietary

equivalents; (6) ball bearing steels; (7) tool steels; and (8) silicon

manganese steel or silicon electric steel.

The merchandise subject to this investigation is classified in the

HTSUS under subheadings: 7208.40.3030, 7208.40.3060, 7208.51.0030,

7208.51.0045, 7208.51.0060, 7208.52.0000, 7208.53.0000, 7208.90.0000,

7210.70.3000, 7210.90.9000, 7211.13.0000, 7211.14.0030, 7211.14.0045,

7211.90.0000, 7212.40.1000, 7212.40.5000, 7212.50.0000, 7225.40.3050,

7225.40.7000, 7225.50.6000, 7225.99.0090, 7226.91.5000, 7226.91.7000,

7226.91.8000, 7226.99.0000.

Although the HTSUS subheadings are provided for convenience and

Customs purposes, the Department's written description of the

merchandise under investigation is dispositive.

The Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute are

references to the provisions of the Tariff Act of 1930 (the Act), as

amended by the Uruguay Round Agreements Act (URAA) effective January 1,

1995. In addition, unless otherwise indicated, all citations to the

Department's regulations are to the regulations codified at 19 C.F.R.

part 351 (1998) and to the current substantive countervailing duty

regulations published in the Federal Register on November 25, 1998, 63

FR 65348 (CVD Regulations).

Injury Test

Because India is a ``Subsidies Agreement country'' within the

meaning of section 701(b) of the Act, the International Trade

Commission (ITC) is required to determine whether imports of the

subject merchandise from India materially injure, or threaten material

injury to, a U.S. industry. On April 5, 1999, the ITC announced its

preliminary determination that there is a reasonable indication that an

industry in the United States is being materially injured, or

threatened with material injury, by reason of imports from India of the

subject merchandise. See Certain Cut-to-Length Carbon-Quality Steel

Plate from the Czech Republic, France, India, Indonesia, Italy, Japan,

Korea, and Macedonia, 64 FR 17198 (April 8, 1999).

Alignment With Final Antidumping Duty Determination

On July 2, 1999, petitioners submitted a letter requesting

alignment of the final determination in this investigation with the

final determination in the companion antidumping duty investigation

(see Initiation of Antidumping Duty Investigations: Certain Cut-to-

length Carbon-Quality Steel Plate from the Czech Republic, France,

India, Indonesia, Italy, Japan, the Republic of Korea, and the Former

Yugoslav Republic of Macedonia, 64 FR 12959 (March 16, 1999)). In

accordance with section 705(a)(1) of the Act, we aligned the final

determination in this investigation with the final determinations in

the antidumping duty investigations of cut-to-length plate. See

Preliminary Determination, 64 FR 40438 (July 26, 1999). Because the

final determination of this countervailing duty investigation was

aligned with the final antidumping duty determination and the final

antidumping duty determination was postponed, the Department extended

the final determination of the countervailing duty investigation until

no later than December 13, 1999. See Postponement of Final Antidumping

Duty Determinations: Certain Cut-to-Length Carbon-Quality Steel Plate

Products from France, India, Indonesia, Italy, Japan, and Korea;

Postponement of Final Countervailing Duty Determinations: Certain Cut-

to-Length Carbon-Quality Steel Plate Products from France, India,

Indonesia, Italy, and Korea: and Amendment of the Preliminary

Determination of Sales at Less Than Fair Value: Certain Cut-to-Length

Carbon-Quality Steel Plate Product from Indonesia, 64 FR 46341, 46342,

(August 25, 1999).

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Period of Investigation (POI)

Because SAIL is the only exporter/producer of the subject

merchandise, the POI for which we are measuring subsidies is the period

for SAIL's most recently completed fiscal year, April 1, 1997 through

March 31, 1998.

Subsidies Valuation Information

Allocation Period: Under section 351.524 of the CVD Regulations,

non-recurring benefits are allocated over time, while recurring

benefits are expensed in the year of receipt. Section 351.524(d)(2) of

the CVD Regulations states that we will presume the allocation period

for non-recurring subsidies to be the average useful life (AUL) of

renewable physical assets for the industry concerned, as listed in the

Internal Revenue Service's (IRS) 1977 Class Life Asset Depreciation

Range System and updated by the U.S. Department of Treasury. The

presumption will apply unless a party claims and establishes that these

tables do not reasonably reflect the AUL of the renewable physical

assets for the company or industry under investigation and establishes

that the difference between the company-specific or country-wide AUL

for the industry under investigation is significant. In this

investigation, no party to the proceeding has claimed that the IRS

tables do not reasonably reflect the AUL of the renewable physical

assets for the firm or industry under investigation. Therefore,

according to section 351.524(d)(2) of the CVD Regulations, we have

allocated non-recurring benefits over 15 years, the AUL listed in the

IRS tables for the steel industry.

Under section 351.524 of the CVD Regulations, non-recurring

benefits which equal less than 0.5 percent of a company's relevant

sales are expensed in the year of receipt. SAIL realized non-recurring

benefits under a program during two separate years. In the first year,

SAIL realized a non-recurring benefit which was less than 0.5 percent

of the total value of its export sales during that year. We did not

allocate that benefit but rather expensed it in the year it was

realized. In the second year, which was the POI, SAIL realized a

benefit under the same program which was greater than 0.5 percent of

the total value of its export sales during that year. Therefore, we

allocated that benefit over 15 years.

Benchmarks for Loans and Discount Rate: SAIL did not report long-

term company-specific fixed rate loans denominated in rupees.

Therefore, for programs requiring a discount rate or the application of

a rupee-denominated long-term benchmark interest rate, we relied upon

the long-term rupee-denominated ``lending rates'' of private creditors

reported in the International Monetary Fund's International Financial

Statistics.

SAIL also reported several long-term foreign currency loans

obtained from commercial sources for use as a benchmark where

necessary. However, we are unable to rely upon those loans for

benchmark purposes because the agreement dates and currencies are not

consistent with the agreement dates and currencies of the loans under

investigation and because SAIL reported its payments in rupees and

reported weighted-average interest rates derived from those payments.

We attempted (both during and after verification) but were unable to

obtain any information regarding long-term foreign currency lending

rates for companies in India. Therefore, we have used the curreny-

specific ``Lending Rates'' from private creditors as published in

International Financial Statistics as the benchmark for foreign

currency loans.

For those programs requiring the application of a short-term

interest rate benchmark, we used for benchmark purposes company-

specific, short-term commercial interest rates reported by SAIL in

accordance with section 351.505(3)(i) of the CVD Regulations.

I. Programs Determined To Be Countervailable

A. Duty Entitlement Passbook Scheme (DEPS)

In its May 10, 1999, response to the Department's original

questionnaire, the GOI submitted copies of two publically available

Ministry of Commerce publications--''Export and Import Policy'' and

``Handbook of Procedures'' (see Exhibits P and Q of the public version

on file in the Central Records Unit, Room B-099 of the main Commerce

building). These publications set forth the rules and regulations for

the several programs which allow duty exemptions on imports. Chapter 7

of the ``Export and Import Policy'' contains the details of India's

Duty Exemption Scheme, which consists of the DEPS and ``Duty Free

Licenses'' (Advance Licenses, Advance Intermediate Licenses, and

Special Imprest Licenses).

On April 1, 1995, the GOI enacted the Passbook Scheme (PBS).

Administered under auspices of the Directorate General of Foreign Trade

(DGFT), the PBS enabled GOI-designated manufacturers/exporters, upon

export of finished goods, to earn import duty exemptions in the form of

credits which could be used to pay customs duties on subsequent

imports. The amount of PBS credit granted was determined according to

the GOI's ``Standard Input/Output Norms Schedule'' (SIO Norms), which

contains GOI-determined breakdowns of inputs needed to produce finished

products. Rather than receiving cash, companies record their PBS

credits in ``passbooks'' and then offset import duties on subsequent

GOI-approved imports by making debit entries in their passbooks.

The PBS was discontinued on April 1, 1997. However, exporters are

allowed to use their PBS credits for up to three years and, thus,

exporters could use PBS credits as late as March 31, 2000. We

established at verification that SAIL did not earn or use PBS credits

during the POI.

India's DEPS was enacted on April 1, 1997, as a successor to the

PBS. As with PBS, the DEPS enables exporting companies to earn import

duty exemptions in the form of passbook credits rather than cash.

Exporting companies may obtain DEPS credits on a pre-export basis or on

a post-export basis. Eligibility for pre-export DEPS credits is limited

to manufacturer/exporters that have exported for a three-year period

prior to applying for the program. The amount of pre-export DEPS

credits that can be earned is capped at five percent of the average

export performance of the applicant during the preceding three years.

Pre-export DEPS credits are not transferable. At verification, we

established that SAIL has not participated in the DEPS on a pre-export

basis.

All exporters are eligible to earn DEPS credits on a post-export

basis, provided that the exported product is listed in the GOI's SIO

Norms. Post-export DEPS credits can be used for any subsequent imports,

regardless of whether they are consumed in the production of an export

product. Post-export DEPS credits are valid for 12 months and are

transferable. With respect to subject merchandise, exporters are

eligible to earn credits equal to 13 percent of the f.o.b. value of

their export shipment. During the POI, SAIL earned post-export DEPS

credits. SAIL used such credits during the POI, and did not transfer

post-export DEPS credits during the POI.

Section 351.519 of the CVD Regulations sets forth the criteria

regarding the remission, exemption or drawback of import duties. Under

section 351.519(a)(4), the entire amount of an import duty exemption is

countervailable if the government does not have in place and apply a

system or procedure to confirm which imports are

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consumed in the production of the exported product and in what amounts,

or if the government has not carried out an examination of actual

imports involved to confirm which imports are consumed in the

production of the exported product.

The DEPS does not meet either of these standards. Upon exportation,

the exporter submits a listing of inputs used to produce the export

shipment. While some of these inputs may be imported items, the GOI has

no way of knowing whether the inputted items were imported or purchased

domestically. Therefore, the GOI has no system in place for determining

whether the value of credits issued is equal to the amount of import

duties that was payable on any imported items which were consumed in

the production of the export shipment. In addition, the GOI does not

carry out, nor has it carried out, examinations of actual inputs

involved. Consequently, under section 351.519 (a)(4) of the CVD

Regulations, the entire amount of import duty exemption earned by SAIL

during the POI constitutes a benefit. A financial contribution, as

defined under section 771(5)(D)(ii) of the Act, is provided under the

program because the GOI has provided SAIL with credits for the future

payment of import duties. This program can only be used by exporters

and therefore is specific under section 771(5)(A) of the Act. On this

basis, we determine that the DEPS is a countervailable program.

In our Preliminary Determination, we calculated the total benefit

to SAIL from the DEPS as the total amount of import duty exemptions

claimed by SAIL during the POI, against the DEPS credits the company

earned on its export shipments of subject merchandise to the United

States. Upon further review of the operation of this program, in

accordance with section 351.519(b)(2) of the CVD Regulations, we

determine that benefits from the DEPS are conferred as of the date of

exportation of the shipment for which the pertinent DEPS credits are

earned rather than the date DEPS credits are used. At that time, the

amount of the benefit is known by the exporter. The benefit to SAIL

under this program is the total value of DEPS import duty exemptions

that SAIL earned on its export shipments of subject merchandise to the

United States during the POI. We also determine that the application

fees paid by SAIL qualify as an ``...application fee, deposit, or

similar payment paid in order to qualify for, or to receive, the

benefit of the countervailable subsidy.'' See section 771(6)(A) of the

Act.

Under section 351.524(c) of the CVD Regulations, this program

provides a recurring benefit because DEPS credits all for the exemption

of import duties. To derive the DEPS program rate, we first calculated

the value of the credits that SAIL earned for its export shipments of

subject merchandise to the United States during the POI by multiplying

the f.o.b. value of each export shipment by 13 percent, the percentage

of DEPS credit allowed under the program for exports of subject

merchandise. We then subtracted as an allowable offset the actual

amount of application fees paid for each license in accordance with

section 771(6) of the Act. Finally, we took this sum (the total value

of the licenses net of application fees paid) and divided it by SAIL's

total exports of subject merchandise to the United States during the

POI.

On this basis, we determine the net countervailable subsidy from

this program to be 7.28 percent ad valorem. See, also, Comment 3 and

Comment 4 of the ``Interested Party Comments'' section.

B. Advance Licenses

Under India's Duty Exemption Scheme, companies may also import

inputs duty-free through the use of import licenses. Using advance

licenses, companies are able to import inputs ``required for the

manufacture of goods'' without paying India's customs duties (see

chapter 7 of ``Export and Import Policy''). Advance intermediate

licenses and special imprest licenses are also used to import inputs

duty-free. During the POI, SAIL used advance licences and also sold

some advance licenses. SAIL did not use or sell any advance

intermediate licenses or special imprest licenses during the POI.

The Department has previously determined that the sale of import

licenses confers a countervailable export subsidy. See, e.g., Certain

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

Administrative Review, 63 FR 64050 (Nov. 18, 1998) (1996 Castings) and

Certain Iron-Metal Castings from India: Final Results of Countervailing

Duty Administrative Review, 62 FR 32297 (June 13, 1997) (1994

Castings). No new or substantive evidence of changed circumstances has

been submitted in this proceeding to warrant reconsideration of this

determination. During the POI, SAIL sold advance licenses or portions

of advance licenses. Therefore, in accordance with section 771(5)(B) of

the Act, we determine that SAIL's sale of advance licenses is an export

subsidy and that the financial contribution in the form of the revenue

received from the license sales constitutes the benefit to SAIL.

With respect to the use of advance licenses, the Department found,

in 1994 Castings (62 FR 32297 (June 13, 1997)), that the advance

license system accomplished, in essence, what a drawback system is

intended to accomplish, i.e., finished products produced with imported

inputs are allowed to be exported free of the import duties assessed on

the imported inputs. The Department concluded that, because the

imported inputs were consumed in the production of castings which were

subsequently exported, the duty-free importation of these inputs under

the advance license program did not constitute a countervailable

subsidy. Subsequently, in 1996 Castings (63 FR 64050 (Nov. 18, 1998)),

we stated that we would reevaluate the program in light of new

information as to how the program operates. In the petition for this

investigation, petitioners provided new substantive information which

indicated that the GOI does not value the licenses according to the

inputs actually consumed in the production of the exported good. Based

on this information, we initiated a reexamination of the advance

license program.

SAIL used advance licenses during the POI. As explained above,

section 351.519 of the CVD Regulations contains the criteria used to

determine whether programs which provide for the remission, exemption,

or drawback of import duties are countervailable. Under section

351.519(a)(4), the entire amount of an import duty exemption is

countervailable if the government does not have in place and apply a

system or procedure to confirm which imports are consumed in the

production of the exported product and in what amounts, or if it has

not carried out an examination of actual imports involved to confirm

which imports are consumed in the production of the exported product.

The GOI reported in its questionnaire response and GOI officials

explained at verification that products imported under an advance

license need not be consumed in the production of the exported product.

Upon exportation, in order to obtain an advance license, the exporter

submits a listing of inputs used to produce the export shipment. While

some of these inputs may be imported items, the GOI has no way of

knowing whether the inputted items were imported or purchased

domestically. Because the GOI then issues the advance license based on

this list of inputted items, we find that the GOI does not base the

licenses it issues on

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the amount of import duties that were payable on the imported items

that were consumed in the production of the export shipment, i.e., the

exported merchandise. In addition, because the licenses specify ranges

of quantities to be imported rather than an actual amount of duty

exemption that can be claimed, the actual value of the advance licenses

is not known at the time the license is issued. Therefore, we determine

that the GOI has no system in place to confirm that the inputs are

consumed in the production of the exported product. In addition, the

GOI does not carry out, nor has it carried out, examinations of actual

inputs involved. Consequently, under section 351.519 (a)(4) of the CVD

Regulations, the entire amount of import duty exemption earned by SAIL

during the POI constitutes a benefit. Because only exporters can

receive advance licenses, this program constitutes an export subsidy

under section 771(5A)(B) of the Act. A financial contribution is

provided by the program under section 771(5)(D)(ii) of the Act because

the GOI foregoes the collection of import duties.

Under section 351.524(c) of the CVD Regulations, this program

provides a recurring benefit because advance licenses are issued on a

shipment-by-shipment basis. SAIL reported the advance licenses it used

and sold during the POI which it received for exports of subject

merchandise to the United States and the application fees it paid in

order to obtain those licenses. Because SAIL was able to segregate its

advance licenses according to specific export shipments, we included in

these calculations exemptions claimed and proceeds realized during the

POI which stemmed from exports of subject merchandise to the United

States only. As in the Preliminary Determination, we continue to

determine that benefits from advance licenses are conferred as of the

date they are used, not the date of exportation of the export shipment

for which the pertinent advance license is earned. See Department's

Position of Comment 1 and Comment 2 below. We also determine that the

application fees paid by SAIL qualify as an ``* * * application fee,

deposit, or similar payment paid in order to qualify for, or to

receive, the benefit of the countervailable subsidy.'' See section

771(6)(A) of the Act.

To calculate the program rate for the countervailable benefits

conferred to SAIL from its use and sale of advance licenses, we first

added the values of import duty exemptions realized by SAIL from the

use of advance licenses during the POI (net of application fees) and

the proceeds SAIL realized from sales of advance licenses during the

POI (net of application fees). We then divided the total benefit by

SAIL's total value of export of subject merchandise to the United

States during the POI. On this basis, we determine the net

countervailable subsidy from this program to be 3.33 percent ad

valorem.

C. Special Import Licenses (SILs)

During the POI, SAIL sold through public auction two other types of

import licenses--SILs for Quality and SILs for Star Trading Houses.

SILs for Quality are licenses granted to exporters which meet

internationally-accepted quality standards for their products, such as

IS0 9000 (series) and IS0 14000 (series). SILs for Star Trading Houses

are licenses granted to exporters that meet certain export targets.

Both types of SILs permit the holder to import products listed on a

``Restricted List of Imports'' in amounts up to the face value of the

SIL, but they do not relieve the importer of import duties.

The Department's practice is that the sale of special import

licenses constitutes an export subsidy because companies received these

licenses based on their status as exporters. See, e.g., 1996 Castings

and 1994 Castings. No new substantive information or evidence of

changed circumstances has been submitted in this proceeding to warrant

reconsideration of this determination. Therefore, in accordance with

section 771(5)(B) of the Act, we continue to determine that this

program constitutes a countervailable export subsidy and that the

financial contribution in the form of the revenue received on the sale

of licenses constitutes the benefit.

Because the receipt of SILs cannot be segregated by type or

destination of export, we calculated the program rate by dividing the

total amount of proceeds SAIL realized during the POI from the sales of

these licenses by the value of SAIL's total exports. On this basis, we

determine the net countervailable subsidy from this program be 0.15

percent ad valorem. See, also, Comment 5 of the ``Interested Party

Comments'' section.

D. Export Promotion Capital Goods Scheme (EPCGS)

The EPCGS provides for a reduction or exemption of customs duties

and an exemption from excise taxes on imports of capital goods. Under

this program, producers may import capital equipment at reduced rates

of duty by undertaking to earn convertible foreign exchange equal to

four to six times the value of the capital goods within a period of

five to eight years. For failure to meet the export obligation, a

company is subject to payment of all or part of the duty reduction,

depending on the extent of the export shortfall, plus penalty interest.

In the Final Negative Countervailing Duty Determination: Elastic

Rubber Tape From India, 64 FR 19125 (April 19, 1999) (Elastic Rubber

Tape), we determined that the import duty reduction provided under the

EPCGS was a countervailable export subsidy. See Elastic Rubber Tape, 64

FR at 19129-30. We also determined that the exemption from the excise

tax provided under this program was not countervailable. See Elastic

Rubber Tape, 64 FR at 19130. No new information or evidence of changed

circumstances has been provided to warrant a reconsideration of these

determinations. Therefore, we continue to find that import duty

reductions provided under the EPCGS to be countervailable export

subsidies.

SAIL reported that it imported machinery under the EPCGS in the

years prior to the POI and during the POI. For some of its imported

machinery, SAIL met its export requirements. Subsequently, the amount

of import duties on those imports for which SAIL claimed exemption was

completely waived by the GOI. However, SAIL has not completed its

export requirements for other imports of capital machinery. Therefore,

although SAIL received a reduction in import duties when the capital

machinery was imported, the final waiver on the potential obligation to

repay the duties has not yet been made by the GOI.

We determine that SAIL benefitted in two ways by participating in

this program. The first benefit to SAIL is the benefit from the waiver

of import duty on imports of capital equipment. SAIL met its export

requirement with respect to certain imports of capital equipment.

Because the GOI has formally waived the unpaid duties on those imports,

we have treated the full amount of the waived duty exemptions as a

grant received in the year the waiver of unpaid duties occurred. For

other imports of capital machinery, SAIL has not completed its export

commitments and the final waiver of the potential obligation to repay

the duties on those imports has not yet been made by the GOI.

Section 351.524 of the CVD Regulations specifies the criteria to be

used by the Department in determining whether to allocate the benefits

from a countervailable subsidy program. Under the CVD Regulations,

recurring benefits are not to be allocated but are to be expensed to

the year of receipt, while

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non-recurring benefits are to be allocated over time. In this

investigation, non-recurring benefits will be allocated over 15 years,

the AUL of assets used by the steel industry as reported in the IRS

tables.

Normally, tax benefits are considered to be recurring benefits and

are expensed in the year of receipt. Since import duties are a type of

tax, the benefit provided under this program is a tax benefit, and,

thus, normally would be considered a recurring benefit. However, the

CVD Regulations recognize that, under certain circumstances, it is more

appropriate to allocate over time the benefits of a program

traditionally considered a recurring subsidy, rather than to expense

the benefits in the year of receipt. Section 351.524(c)(2) of the CVD

Regulations allows a party to claim that a recurring subsidy should be

treated as a non-recurring subsidy and enumerates the criteria to be

used by the Department in evaluating such a claim. In the ``Explanation

of the Final Rules'' (the Preamble) to the CVD Regulations, the

Department provides an example of when it may be more appropriate to

consider the benefits of a tax program to be non-recurring benefits,

and, thus, allocate those benefits over time. We also stated in the

Preamble to the CVD Regulations that, if a government provides an

import duty exemption tied to major capital equipment purchases, it may

be reasonable to conclude that, because these duty exemptions are tied

to capital assets, the benefits from such duty exemptions should be

considered non-recurring, even though import duty exemptions are on the

list of recurring subsidies. See CVD Regulations, 63 FR at 65393.

Because the benefit received from the waiver of import duties under the

EPCGS is tied to the capital assets of SAIL, and therefore, is just

such a benefit, we determine that it is appropriate to treat the

benefit conferred to SAIL as non-recurring.

In its questionnaire response, SAIL reported all of the capital

equipment imports it made using EPCGS licenses and the application fees

it paid to obtain its EPCGS licenses. At verification, we confirmed the

accuracy of the information submitted and obtained clarifications

regarding certain amounts of duty waived, the timing of the waivers,

and the application fees paid. We determine that the application fees

paid by SAIL qualify as an ``* * * application fee, deposit, or similar

payment paid in order to qualify for, or to receive, the benefit of the

countervailable subsidy.'' See section 771(6)(A) of the Act.

In order to calculate the benefit received from the waiver of

SAIL's import duties on its capital equipment imports, we allocated the

amount of duty waived (less application fees paid) beginning with the

year amount of import duty outstanding was formally waived (not at the

time the export requirements were met). As explained above in the

``Subsidies Valuation Information'' section, SAIL realized its non-

recurring benefits under this program in two separate years. For each

of those years, we performed the ``0.5 percent test'' prescribed under

section 351.524(b)(2) of the CVD Regulations. Based on our test result,

the amount of non-recurring benefit realized by SAIL in the first year

must be expensed but the amount of non-recurring benefit realized in

the second year is to be allocated. Accordingly, we determine that it

is appropriate to allocate this benefit over the average useful life of

assets in the industry, as set forth in the ``Subsidies Valuation

Information'' section, above.

A second type of benefit received under this program was conferred

on SAIL involve the import duty reductions received on the imports of

capital equipment for which SAIL has not yet met its export

requirements. For those capital equipment imports, SAIL has unpaid

duties that may have to be paid to the GOI if the export requirements

are not met. Therefore, we determine that the company had outstanding

contingent liabilities during the POI. When a company has an

outstanding liability and repayment of that liability is contingent

upon subsequent events, our practice is to treat any balance on that

unpaid liability as an interest-free loan. See section 351.505(d)(1) of

the CVD Regulations.

We determine that the amount of contingent liability to be treated

as an interest-free loan is the amount of the import duty reduction or

exemption for which SAIL applied but, as of the end of the POI, was not

finally waived by the GOI. We calculated this benefit to be the

interest that SAIL would have paid during the POI had it borrowed the

full amount of the duty reduction at the time of import. Pursuant to

section 351.505(d)(1) of the CVD Regulations, the benchmark for

measuring the benefit is a long-term interest rate because the event

upon which repayment of the duties depends (i.e., the date of

expiration of the time period for SAIL to fulfill its export

commitments) occurs at a point in time more than one year after the

date the capital goods were imported.

To calculate the program rate, we combined the sum of the allocated

benefits attributable to the POI and the benefit conferred on SAIL in

the form of a contingent liability loan. We then divided that combined

total benefit by the total value of SAIL's exports to all destinations

during the POI. On this basis, we determine the net countervailable

subsidy from this program to be 0.25 percent ad valorem. See, also,

Comment 6 of the ``Interested Party Comments'' section.

E. Pre-Shipment and Post-Shipment Export Financing

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

short-term pre-shipment financing, or ``packing credits,'' to

exporters. Upon presentation of a confirmed export order or letter of

credit to a bank, companies may receive pre-shipment loans for working

capital purposes, i.e., for the purchase of raw materials, warehousing,

packing, and transporting of export merchandise. Exporters may also

establish pre-shipment credit lines against which they may draw as

needed. Credit line limits are established by commercial banks, based

upon a company's creditworthiness and past export performance, and may

be denominated in either Indian rupees or in foreign currency.

Companies that have pre-shipment credit lines typically pay interest on

a quarterly basis on the outstanding balance of the account at the end

of each period.

Commercial banks extending export credit to Indian companies must,

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

During the POI, the rate of interest charged on pre-shipment, rupee-

denominated export loans up to 180 days was 12.0 and 13.0 percent. For

those loans over 180 days and up to 270 days, banks charged interest at

15.0 percent. The interest charged on foreign currency denominated

export loans up to 180 days during the POI was a 6-month LIBOR rate

plus 2.0 percent for banks with foreign branches, or plus 2.5 percent

for banks without foreign branches. For those foreign currency

denominated loans exceeding 180 days and up to 270 days, the interest

charged was 6-month LIBOR plus 4.0 percent for banks with foreign

branches, or plus 4.5 percent for banks without foreign branches.

Exporters did not receive the concessional interest rate if the loan

was beyond 270 days.

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

discounted trade bills or advances by commercial banks. Exporters

qualify for this program by presenting their export

[[Page 73137]]

documents to their lending bank. The credit covers the period from the

date of shipment of the goods, to the date of realization of export

proceeds from the overseas customer. Post-shipment financing is,

therefore, a working capital program. This financing is normally

denominated in either rupees or in foreign currency, except when an

exporter used foreign currency pre-shipment financing, then the

exporter is restricted to post-shipment export financing denominated in

the same foreign currency.

In general, post-shipment loans are granted for a period of no more

than 180 days. The interest rate charged on these foreign currency

denominated loans during the POI was LIBOR plus 2.0 percent for banks

with overseas branches or LIBOR plus 2.5 percent for banks without

overseas branches. For loans not repaid within the due date, exporters

lose the concessional interest rate on this financing.

The Department has previously found both pre-shipment export

financing and post-shipment export financing to be countervailable,

because receipt of export financing under these programs was contingent

upon export performance and the interest rates were lower than the

rates the exporters would have paid on comparable commercial loans.

See, e.g., 1994 Castings, 62 FR at 32998. No new substantive

information or evidence of changed circumstances has been submitted in

this investigation to warrant reconsideration of this finding.

Therefore, in accordance with section 771(A)(B) of the Act, we continue

to find that pre-shipment and post-shipment export financing constitute

countervailable export subsidies.

To determine the benefit conferred on SAIL through the its rupee-

denominated pre-shipment export financing, we compared the interest

rate charged on these loans to a benchmark interest rate. SAIL reported

that, during the POI, it received and paid interest on commercial,

short-term, rupee-denominated cash credit loans which were not provided

under a GOI program. Cash credit loans are the most comparable type of

short-term loans to use as a benchmark because, like the pre-export

loans received under this program, cash credit loans are denominated in

rupees and take the form of a line of credit which can be drawn down by

the recipient. Thus, we used these loans to calculate a company-

specific, weighted-average, rupee-denominated benchmark interest rate.

We compared this company-specific benchmark rate to the interest rates

charged on SAIL's pre-shipment rupee-denominated loans and found that

the interest rates charged were lower than the benchmark rates.

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

program conferred countervailable benefits during the POI because the

interest rates charged on these loans were less than what a company

otherwise would have had to pay on a comparable short-term commercial

loan.

To calculate the benefit from these pre-shipment loans, we compared

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

would have been paid at the benchmark interest rate. Where the

calculated amount of benchmark interest exceeded the actual interest

paid, the difference is the benefit. We then divided the total amount

of the benefit by SAIL's total exports. SAIL did not have any post-

shipment rupee-denominated loans outstanding during the POI.

During the POI, SAIL also utilized pre-shipment and post-shipment

export financing denominated in U.S. dollars. To determine the benefit

conferred from this dollar pre-shipment and post-shipment export

financing, we again compared the program interest rates to a benchmark

interest rate. We used the company-specific interest rates from SAIL's

``bankers acceptance facility'' loans to derive the benchmark. SAIL's

bankers acceptance facility loans were the only commercial short-term

dollar lending received by the company during the POI. Because the

effective rates paid by the exporters are discounted rates, we derived

from the bankers acceptance facility rates a discounted weighted-

average, dollar-denominated benchmark interest rate. We compared this

company-specific benchmark interest rate to the interest rates charged

on pre-shipment and post-shipment dollar-denominated loans and

determined that the program interest rates were higher than the

benchmark interest rate. Therefore, we determine that SAIL did not

benefit from pre-shipment and post-shipment dollar-denominated export

financing during the POI.

We determine the net countervailable subsidy from rupee-denominated

pre-shipment export financing to be 0.10 percent ad valorem. See, also,

Comment 7 of the ``Interested Party Comments'' section.

F. Loan Guarantees From the GOI

In its questionnaire response, the GOI reported that it has not

extended loan guarantees pursuant to any program per se. Rather, the

Ministry of Finance extends loan guarantees to selected Indian

companies on an ad hoc basis, normally to public sector companies in

particular industries. The GOI also reported that GOI loan guarantees

are not contingent on export performance nor are they contingent on the

use of domestic over imported goods. The GOI stated that, while it has

not extended loan guarantees to the steel sector since 1992, it

continues to extend loan guarantees to other industrial sectors on an

ad hoc basis.

During the POI, SAIL had several long-term, foreign currency loans

outstanding on which it had received loan guarantees from the GOI and

the State Bank of India (SBI). According to SAIL, the loan guarantees

were earmarked for certain activities related to the company's steel

production (i.e., worker training, modernization activities, etc.). In

contradiction to the GOI's questionnaire response, SAIL finalized a

loan agreement and, thus, received a GOI loan guarantee as late as

1994.

Section 351.506 of the CVD Regulations states that, in the case of

a loan guarantee, a benefit exists to the extent that the total amount

a firm pays for the loan with a government-provided guarantee is less

than the total amount the firm would pay for a comparable commercial

loan that the firm could actually obtain on the market absent the

government-provided guarantee, including any differences in guarantee

fees. Thus, to determine whether a government loan guarantee confers a

benefit, we compare the total amount paid by the company (i.e., the

effective interest and guarantee fees) for the loan with the total

amount it would have paid for a comparable commercial loan.

Using the benchmark rates discussed in the ``Subsidies Valuation

Information'' section above for comparison purposes, we found that the

total amounts SAIL paid for its GOI-guaranteed loans were less than

total amounts SAIL would have otherwise paid for comparable commercial

loans. Thus, the loan guarantees from the GOI conferred a benefit on

SAIL equal to the difference between these two amounts. The GOI's

provision of loan guarantees is specific under section

771(5A)(D)(iii)(II) of the Act because it is limited to certain

companies selected by the GOI on an ad hoc basis. In addition, a

financial contribution is provided under the program as defined under

section 771(5)(D)(i) of the Act. To calculate the rate of subsidy

during the POI, we divided the benefit by SAIL's total sales during the

POI. Consistent with our practice regarding transnational subsidies, we

did not include in our calculations SAIL's World Bank, KFW, and Finnish

Export Credit loans.

[[Page 73138]]

On this basis, we determine the net countervailable subsidy to be

0.14 percent ad valorem. See, also, Comment 8 and Comment 9 of the

``Interested Party Comments'' section.

II. Program Determined To Be Not Countervailable

GOI Loans Through the Steel Development Fund (SDF)

The SDF was established in 1978 at a time when the steel sector was

subject to price and distribution controls. From 1978 through 1994, an

SDF levy was imposed on all sales made by India's integrated producers.

The proceeds from this levy were then remitted to the Joint Plant

Committee (JPC), the administrating authority consisting of four major

integrated steel producers in India that have contributed to the fund

over the years. These levies, interest earned on loans, and repayments

of loans due are the sources of funds for the SDF.

Under the SDF program, companies that have contributed to the fund

are eligible to take out long-term loans from the fund at favorable

rates. All loan requests are subject to review by the JPC along with

the Development Commission for Iron and Steel. At verification, we

confirmed the GOI's claim that it has not contributed any funds to the

SDF. Because the SDF was funded by producer levies and other non-GOI

monies and there is no evidence of direct or indirect funding by the

GOI, SDF loans do not confer a financial contribution as defined under

section 771(5)(D)(ii) of the Act. Therefore, consistent with our

practice regarding such producer funds, SAIL's SDF loans do not confer

a financial contribution from the GOI to SAIL.

On this basis, we determine that the SAIL's SDF loans are not

countervailable. See, also, Comment 10 of the ``Interested Party

Comments'' section.

III. Programs Determined To Be Not Used

Based upon the information provided in the responses and the

results of verification, we determine that SAIL did not apply for or

receive benefits under the following programs during the POI:

A. Passbook Scheme (PBS)

B. Advanced Intermediate Licenses

C. Special Imprest Licenses

D. Tax Exemption for Export Profits (Section 80 HHC of the India Tax

Act)

Interested Party Comments

Comment 1: The Use of Advance Licenses and Duty Drawback Equivalency

The GOI and SAIL argue that the use of advance licenses is the

equivalent to the use of a non-excessive duty drawback program. They

contend that, while the structure of India's advance license program

may differ from traditional duty drawback programs, the use of advance

licenses is not countervailable. Rather, through the use of advance

license, exporters obtain duty exemptions that do not exceed the duties

payable on the imported inputs used to produce the exported product.

They argue that the GOI has a reasonable and effective procedure for

confirming which inputs are consumed in the production of the exported

products, and in what amounts, and that the GOI uses the SIO norms to

ensure against excess drawback.

The GOI and SAIL contend that the mere fact that duty-free imports

under a particular advance license need not be physically incorporated

into the product exported under the same advance license does not

automatically render the advance license program a subsidy. They argue

that the regulations only require that the duty-free inputs be used to

produce the type of product that is being exported. The regulations do

not require that the actual exported product be physically incorporated

with the duty-free imports made under the same advance license. They

also state that the use of post-export advance licenses is similar to

the use of the U.S. substitution drawback regime in that the applicant

need only correlate or link the imported items with exported products.

Petitioners contend that the advance license program is not a

permissible duty drawback program. First, they argue that there is no

requirement that imported inputs be used in the production of the

exported merchandise. They argue that the GOI's reliance on the SIO

norms and the value-added requirement does not ensure that the amount

of benefits granted are not excessive. They argue that the relevant SIO

norm is neither a producer-specific nor product-specific norm'' but

encompasses a broad range of carbon, alloy and stainless steel products

made by all producers of such products in India. Therefore, the SIO

norm does not limit the amount of benefits granted to SAIL to those

imported inputs that SAIL actually consumes in the production of

exported cut-to-length plate.

In addition, Petitioners contend that the advance license program

does not meet the substitution drawback criteria because the GOI has no

mechanism for tracking items imported under advance license and that,

in the absence of such a mechanism, there can be no means for ensuring

that any domestic inputs used as substitutes are used in the same

quantities, and are of the same quality and characteristics as the

imported inputs.

Department's Position: We disagree with respondents. The first step

in our analysis is to examine whether the GOI has in place and applies

an effective system for confirming that imported inputs are consumed in

the production of the exported product and in what quantities. Although

section 351.519 of the regulations recognizes a longstanding principle

that governments may remit or drawback import charges levied on

imported inputs, the caveat to that provision is that such recognition

will be accorded when the finished product is exported. 19 CFR 351.519

(1999). Section 351.519 incorporates the rule set forth in Annexes II

and III of the Agreement on Subsidies and Countervailing Measures

(``SCM Agreement''). These annexes provide the analytical framework for

addressing the issue. The preamble to the CVD Regulations makes clear

that we first determine whether the government has a sufficient system

in place to confirm the consumption of the imported inputs and the

quantity of the imported inputs consumed in the production of the

exported product.

[u]nder the modified [linkage] test, we will first examine

whether the exporting government has a system in place that confirms

which inputs are consumed in the production of the exported product,

and in what amounts, and which taxes are imposed on the inputs

consumed in production. Where we find that such a system is in

operation, we will examine the system to determine whether it is

reasonable, effective, and based on generally accepted commercial

practices in the exporting country.

CVD Regulations, 63 FR at 65348, 65413 (Nov. 25, 1998) (emphasis

added). Thus, only if a government has a legitimate and effective

monitoring system will we then attempt to determine whether that system

prevents excessive drawback. Of course, qualification as a substitution

drawback system also requires that a government has in place and

applies a monitoring system to confirm consumption, quantity, and,

[[Page 73139]]

additionally, equality in characteristics of domestic inputs used in

place of imported ones. 19 CFR 351.519(a)(ii).

At verification, GOI officials stated that the GOI had no way of

confirming whether imported inputs were actually consumed in the

production of steel. They also stated that the GOI had no way of

knowing whether home market inputs were used in the production of the

exported product or whether imported inputs are used to produce

products destined for export or the domestic market. They explained the

GOI uses its SIO Norms to establish the quantities and maximum import

values to be imported under an advance license.

We determine that the use of advance licenses is not equivalent to

the use of a permissible duty drawback program. Upon review of the

application procedures and the process for issuing a licenses, we found

that GOI issues an advance license based on a list of inputs submitted

by the exporter and the quantities prescribed in the SIO norms. In this

application and approval process, however, there is no way to ascertain

whether the items listed for an export shipment were imported inputs or

domestic inputs. For a given input listed in an application, the GOI

does not know how much was imported and how much was purchased

domestically. Therefore, the GOI issued advance licenses without

confirming whether the items, upon which it based those licenses, were

indeed imported inputs consumed in the production of the export

shipment of domestic inputs.

We also determine that the use of advance licenses is not

equivalent to the use of a permissible substitution drawback program.

The GOI does not have a system in place for confirming that inputs

imported under that advance license are used to produce the exported

product. The GOI merely presumes that the imported inputs were consumed

in the production of the exported product because these inputs are

needed for production of cut-to-length plate. Under Annex III to the

SCM agreement and section 351.519 of the CVD Regulations, the drawback

substitution scheme must accomplish substitution on a one-to-one ratio

between the imported input and the home market input. The GOI has also

failed to provide evidence that such an objective is accomplished under

the advance license system.

In summary, the GOI has no way to know whether imported inputs are

consumed in subsequently exported products as required under Annex III

to the SCM agreement or whether an amount imported was equal to the

home market substitutes consumed in the exported product. Consequently,

the entire amount of the benefit conferred is countervailable, as

directed under section 351.519 of the CVD Regulations and reflected in

Annexes II and III to the SCM Agreement. Because the GOI does not have

a sufficient monitoring system, there is no need to further address

whether the system prevents excess drawback or is a viable substitution

drawback system.

Finally, at the hearing, the GOI argued that the type of advance

licenses used by SAIL is no longer available. This argument was not

made in the GOI's case brief and the record contains no factual

evidence on which to base this statement. Section 351.310 states that

arguments presented at the hearing are limited to those arguments

raised in the case briefs. Because the Government of India failed to

make this argument in its case brief, we will not address this

argument.

Comment 2: Timing and Calculation of Advance License Benefits

SAIL states that it is the Department's practice to measure the

benefit from an export subsidy according to the time of export. SAIL

then argues that the Department should measure any benefit to SAIL from

its advance licenses on an ``as earned basis'' because SAIL knew the

exact amount of duty exemption that it earned under each license at the

time of export. SAIL concludes that, because it did not earn any

benefits under the advance license program during the POI, the

Department may not allocate any benefits to SAIL for its use of advance

licenses during the POI. SAIL also argues that, whenever a license is

tied to a particular market and a particular product, the Department

should attribute the benefit only to that market and product.

Petitioners state that the Department's practice is to measure the

benefit of an export subsidy on an ``as earned'' basis when the benefit

is calculated as a percentage of the FOB value of the exported

merchandise on a shipment-by-shipment basis and the exporter knows the

amount of benefit it will receive at the time of export. They argue

that advance licenses are not valued according to these criteria and,

thus, the benefits should be calculated at the time they were used or

sold. They argue that the SIO norm is used to determine the quantities

of specified articles the license holder will be eligible to import

free of duty. They state that an advance license holder may know the

quantities of the specified articles that it will be eligible to import

but, until such merchandise is actually imported and the dutiable value

of the merchandise is established, it does not know the value of the

customs duties that will be forgiven.

Petitioners also argue that the Department's advance license

calculations for the Preliminary Determination contain two ministerial

errors. They argue that the value of one of the customs duty exemptions

and the value of one of the applications fees were incorrectly brought

forward from one spreadsheet to another. In addition, they voice a

concern that SAIL's submissions regarding advance licenses may not be

accurate. They also point out that the information in the advance

license documentation submitted by SAIL in Exhibit 27 to its June 25,

1999 supplemental questionnaire response does not reconcile with the

data listed for that license in SAIL verification exhibit VE-19.

Department Position: Upon making an export shipment, an exporter

can apply for and obtain an advance license. The advance license will

list the specific items which can be imported under the license,

including the total quantity of goods which can be imported and the

maximum value of those future imports that can be made using that

license. The GOI establishes those quantities and maximum import values

using its SIO Norms. Although an exporter knows the quantities and

maximum value of imports it could make under the advance license, the

actual value of duty exemptions cannot be determined until the license

is actually used by the exporter. Because the actual benefit derived

from the use of advance licenses, i.e., the amount of duty exemptions

received by the exporter, can only be determined when the license is

used, respondents are incorrect when they state that the benefit from

this program should be determined on an ``as earned basis.'' Therefore,

we calculated SAIL's benefit from this program based on the date the

company used advance licenses. This methodology is consistent with

prior Department practice. See e.g., Final Negative Countervailing Duty

Determination; Fresh Atlantic Salmon from Chile, 63 FR 31347, 31440-41

(June 9, 1998) (exports were not associated with particular export

transactions so amount could not be calculated); Certain Pasta from

Italy, 63 FR 17372, 17378 (April 9, 1998) (Preliminary Results of First

Countervailing Duty Administrative Review) (uncertainty in restitution

benefits because amount granted did not always equal the amount

declared by the company); Final Results of Countervailing

Administrative Review: Certain Iron Metal Castings from India,

[[Page 73140]]

56 FR 41658, 41661-62 (Aug. 22, 1991) (lag time between export and

identification of the price chosen to calculate IPRS payment).

We do not however agree with Petitioners' comments about the

accuracy of SAIL's advance licenses data. The materials provided in

Exhibit 27 include a sample application, sample shipping bills, and a

sample advance license. These documents do not represent a complete set

of supporting documentation for one particular license but are merely

examples from different transactions. Thus, it is not surprising that

the destination information on these sample shipping bills does not

match the destination data listed for the advance license also provided

in Exhibit 27. Most importantly, we verified the accuracy of all the

information used in the calculation of the benefit for this program.

Comment 3: The Use of DEPS Licenses and Duty Drawback Equivalency

The GOI and SAIL argue that the use of DEPS licenses is equivalent

to the use of a non-excessive duty drawback program. They contend that,

for the reasons discussed in the above section regarding advance

licenses, the SIO Norms and the program's value-added requirement

constitute an effective monitoring system. They also argue that the

fact that the DEPS provides the exporter duty drawback in the form of

credits rather than cash does not make the program a subsidy. In

addition, SAIL notes that, during the POI, it used all of its DEPS

credits to import a single major input used in the production of the

subject merchandise.

Petitioners argue that the DEPS does not qualify as a permissible

drawback program and therefore SAIL's DEPS credits are countervailable.

They argue DEPS credits may be used to import any article, not just

inputs used in the production of the exported merchandise. They further

state that SAIL is not required to import or consume any imported

inputs in the production of the exported goods in order to obtain post-

export DEPS credits. They also argue that, because post-export DEPS

credits can be used to offset duties on any imports and are

transferable, exemptions are not limited to inputs consumed in the

production of the exported goods. Petitioner state that the fact that

SAIL may have imported a single major input is irrelevant because the

Department's regulations are clear that the government in question (not

the importer) must maintain an effective system for guarding against

excessive drawback or the entire amount of the benefits will be

countervailable.

Department Position: We disagree with respondents for the reasons

outlined in response to Comment 1, above. The GOI issues DEPS licenses

without confirming whether and in what amounts imported inputs were

used to produce the export shipment against which the license is to be

based. Consequently, the GOI has no system for monitoring that DEPS

licenses are valued according to the import duties that were payable

for inputs imported for the production of the exported product.

Comment 4: Timing and Calculation of DEPS Benefits

SAIL argues that, if the DEPS is determined to be countervailable,

the Department should measure the benefit from its post-export DEPS

credits on an ``as used'' basis. SAIL explains that, due to

administrative irregularities and confusion with regard to how the

program operated, it did not know how much credit it earned at the time

of export.

Petitioners argue the Department should measure the benefit to SAIL

under the DEPS using all of the DEPS credits ``earned'' by SAIL on its

exports of the subject merchandise to the United States during the POI.

They state that this is the appropriate methodology because (1) post-

export DEPS credits are provided on a shipment-by-shipment basis, and

(2) SAIL knew the exact amount of DEPS credits it would earn on its

shipments because the credit rates are published by the GOI.

Department's Position: We agree with petitioners. Under the new CVD

regulations, the benefit is measured on an ``as earned'' basis under

the following conditions. If the program permits exemption of import

duties upon export, the Department normally will consider the benefit

as having been received upon exportation. 19 CFR 351.519(b)(2) (1999).

We calculate the benefit on an ``earned'' basis (that is upon export)

where it is provided as a percentage of the value of the exported

merchandise on a shipment-by-shipment basis and the exact amount of the

exemption is known. Certain Welded Carbon Steel Pipe and Tube and

Welded Carbon Steel Line Pipe From Turkey; Final Results and Partial

Recission of Countervailing Duty Administrative Reviews, 63 FR 18885,

18888 (April 16, 1998). Accord Cotton Shop Towels from Pakistan;

Preliminary Results of Countervailing Duty Administrative Reviews, 61

FR 50273, 50275 (Sept. 25, 1996); Certain Iron-Metal Castings From

India; Final Results of Countervailing Duty Administrative Review, 60

FR 44843, 44844 (Aug. 29, 1995).

DEPS credits are based upon the f.o.b. value of the shipment. Thus,

the amount of the benefit is known to the recipient upon export. Unlike

advance licenses, which are issued according to the quantities and

maximum values of the items to be imported, DEPS credits are equal to

the amount of import duty exemptions that the credit-holder is eligible

to claim. Despite some initial uncertainty on the part of SAIL as to

how the program operated and the amount of duty exemption that would be

granted, SAIL was able to confirm the rates applicable and know the

value of its credits by June 1997, which was not long after the program

was implemented and at the beginning of the POI.

Comment 5: Calculation of the Benefit from Selling SILs

Petitioners point out that, at verification, SAIL officials

explained that SAIL reported its revenues from its sales of SILs net of

tax. They argue that, because sales tax does not qualify as an

application fee, deposit or other payment pursuant to 771(6)(A) of the

Act, the Department should include in its calculations the sales taxes

reported in SAIL verification exhibit VE-13.

SAIL argues that the Department should not include the sales taxes

in its calculations pertaining to sales of SILs. They argue that SAIL

does not realize any benefit when the buyer of a SIL incurs a sales tax

liability and pays it through the seller (SAIL).

Department's Position: The only adjustments which can be made to a

subsidy benefit are those enumerated under section 771(6) of the Act.

Under section 771(6)(A), the Department is only authorized to adjust

the benefit from a subsidy by ``any application fee, deposit, or

similar payment paid in order to qualify for, or to receive, the

benefit of the countervailable subsidy.'' No other adjustments to the

benefit received under this program are applicable under section

771(6)(A) of the Act. Therefore the revenue earned by respondent on its

special import licenses is the countervailable benefit received by SAIL

under this program. No other offsets or adjustments to that benefit,

such as taxes, are authorized under the Act.

Comment 6: Timing and Calculation of EPCGS Benefits

SAIL argues the Department should treat SAIL's EPCGS import duty

exemptions as non-recurring grants and allocate the benefits during the

POI pursuant to section 351.524 of the CVD

[[Page 73141]]

Regulations. SAIL explains that, for its imports of capital equipment

under the EPCGS, SAIL received partial duty exemptions at the time of

importation. SAIL further explains that the exemptions were subject to

certain export performance commitments and that SAIL has always met its

export commitments under the program.

Petitioners argue the Department should not treat SAIL's EPCGS

benefits as being received at the time the capital goods were imported.

They argue that the Department has previously considered and rejected

this argument in Elastic Rubber Tape, 64 FR 19125, 19129 (April 19,

1999). They argue that the Department should allocate the benefits

according to the dates that the export obligations were fulfilled. For

the instances in which SAIL had export obligations outstanding during

the POI, they argue that the Department should regard the amount of

duty exemption as an interest-free loan and calculate the benefit by

applying its contingent liability methodology.

They also note that, at verification, SAIL officials indicated that

SAIL paid a single application fee for the three licenses utilized

during the POI. Accordingly, they argue that the Department should

exclude from its calculations only the single application fee paid by

SAIL. In addition, they note that, at verification, the Department

discovered a slight error in the duty rate reported for one of SAIL's

capital equipment imports under the EPCGS.

Department's Position: As explained above, we treated the benefits

provided under the EPCGS as non-recurring benefits and allocated them

according to when the pertinent export requirement was lifted and not

the date of importation. Although SAIL claims it has always met its

export requirements, there is no evidence on the record that the GOI

waived SAIL's export requirements. The benefit from this program, which

is the waiver of the import duties, is not confirmed until the

pertinent export requirements are met by the exporter. Therefore, the

methodology proposed by SAIL, which is based on the date the capital

equipment was imported, is not appropriate because that is not the

point at which the waiver of duty is made.

In our final calculations, we subtracted the application fees

discussed by petitioners only once and corrected for the error

regarding the duty rate as well.

Comment 7: Benchmarks for Pre-shipment Export Financing

SAIL argues that the Department should use SAIL's commercial paper

issuances rather than it's cash credit loans to determine whether a

benefit is provided for rupee-dominated pre-shipment export financing.

SAIL argues that the commercial paper issuances are preferable because

they represent the most market-based arms-length interest rate for

rupee-denominated short-term borrowing.

Petitioners argue that the Department should use SAIL's cash credit

loans for benchmark purposes because they are the most comparable to

SAIL pre-shipment export financing loans. They state that both types of

credit are secured by the corporate assets of SAIL, but SAIL's

commercial paper issuances are not secured.

Department's Position: Section 771(5)(E)(ii) of the Act states that

the benefit from a loan program is based upon the difference the

recipient pays for the program loan and the amount the recipient would

pay on a comparable commercial loan. SAIL's rupee-denominated pre-

shipment loan export loans and its cash credit loans operate in the

same way, as running lines of credit which can be drawn against as

needed. Therefore, we determine that the cash credit loan is a

comparable commercial loan with respect to the pre-shipment loan

provided under this program. The cash credit loan is also a ``market-

based arms-length'' rupee-dominated short-term loan.

Comment 8: Treatment of SAIL's Long-Term Foreign Currency Loans

Citing section 351.527 of the CVD Regulations, SAIL argues that the

Department should exclude from its calculations SAIL's foreign currency

loan from the World Bank. SAIL then argues that the Department should

also exclude SAIL's foreign currency supplier credit loans. SAIL

explains that the financing structure for supplier credits--which is

fixed by the suppliers, not SAIL--requires SAIL to pay a higher

purchase price for all non-cash purchases of capital equipment from the

supplier (as opposed to a lower purchase price if SAIL were to pay cash

up-front). SAIL then argues SAIL derived no benefit from its supplier

credits because they carry an ``implicit interest rate'' which exceeds

the interest rate that was otherwise available on the comparable

commercial market. In addition, SAIL argues that the Department should

exclude from its calculations its Kreditanstalt fur Weideraufbau (KFW)

loans and its Finnish Export Credit (FEC) supplier credit loans. SAIL

argues that these loans are not countervailable because they were

disbursed by government-owned banks in compliance to the Agreement on

Guidelines for Officially Supported Export Credit (``OECD Consensus'').

The GOI and SAIL argue that SAIL's loans from the State Bank of

India (SBI) should also not be included in the calculations. The GOI

argues that the SBI's foreign currency loan guarantees are purely

commercial in character and bear no relationship to the GOI's loan

guarantee policies or practices. SAIL also argues that, in the

Preliminary Determination, the Department erroneously treated SAIL's

foreign currency loans from the SBI as GOI-guaranteed loans. SAIL

argues that these loans were not guaranteed by the GOI but rather were

guaranteed by the largest and most important commercial bank in India.

Petitioners argue that the SAIL's GOI loan guarantees were provided

in limited numbers and therefore are specific. They then argue that the

Department should include in its calculations all of the long-term

guaranteed foreign currency loans reported by SAIL. Based on

information obtained at verification that commercial bankers would have

been unwilling to provide loan guarantees to SAIL, they argue the GOI's

provision of loan guarantees on SAIL's loans from international lending

or development institutions was not consistent with commercial

considerations. With regard to SAIL's supplier credit loans, they argue

that SAIL was unable to provide documentation that interest is factored

into the amount of the loan. They argue that the GOI guarantees clearly

played the decisive role in the lenders' decisions to grant SAIL these

loans. Finally, they argue the loan guarantees provided by the GOI-

owned SBI are countervailable. They maintain that, at the time SAIL

received loan guarantees from the SBI, it could not have obtained

guarantees from private sector banks because it was viewed as too great

a financial risk. They also argue that the references to documents

regarding the lending policies of the KFW and the FEC in SAIL's

September 29, 1999 case brief constitute the submission of factual

information after the deadline prescribed under 19 CFR 351.301(b)(1).

Department's Position: At verification, we discussed with SAIL

officials the foreign currency loans SAIL received from the World Bank

and the KFW, two well-known international lending/development

institutions. We learned that SAIL also received supplier credit loans

through FEC, which is a Finnish government bank. See SAIL Verification

Report at 15. Consistent with our practice of not countervailing

transnational subsidies, we excluded

[[Page 73142]]

from our calculations all of SAIL's transnational loans. In addition,

we excluded from the calculations any loans which were not guaranteed

by the GOI. We do not agree with Petitioners' argument that SAIL could

not have obtained commercial loan guarantees and therefore none of the

guarantees provided to SAIL were commercial in nature. We are not

examining the creditworthiness of SAIL in this investigation. See

Notice of Initiation of Countervailing Duty Investigations: Certain

Cut-to-Length Carbon-Quality Steel Plate from France, India, Indonesia,

Italy, and the Republic of Korea, 64 FR 12996 (March 16, 1999)

(Initiation). Therefore, information or argument regarding SAIL's

financial health at the time it obtained its loans cannot be a basis

for including or excluding from the calculations loans that were not

guaranteed by the GOI.

Comment 9: Benchmarks for SAIL's GOI-Guaranteed Loans

SAIL argues that SAIL's SBI-guaranteed long-term foreign currency

loans should be used for benchmark purposes in calculating the benefit

conferred by the GOI guarantees that SAIL received. SAIL argues that

the guarantee fee charged to SAIL by the SBI was a reasonable

commercial guarantee fee, considering SAIL's status as a large public

sector company in reasonable financial health. SAIL states that

commercial foreign currency lenders in general regarded loan guarantees

by the SBI as providing comparable security to GOI loan guarantees.

Accordingly, SAIL argues that the Department should not use a

methodology of comparing the total cost of borrowing, i.e., the

combination of interest and guarantee costs. Rather, SAIL argues that

Department need only account for any difference in guarantee fees and

should simply compare the GOI guarantee fee (1.20%) with the guarantee

fee charged by SBI. Then the Department should multiply the difference

by the outstanding balance during the POI for each GOI-guaranteed loan

and divide the total by SAIL's total sales during the POI.

Petitioners argue that, in absence of a company-specific benchmark

interest rate for SAIL, the Department should not use for benchmark

purposes the ``lending rates'' published in International Financial

Statistics. They argue that, pursuant to section 351.505(a)(3)(ii) of

the CVD Regulations, the use of a national average interest rate is

intended to be representative of a loan that ``could have been taken

out'' by SAIL. They then argue that, during the period in which SAIL

obtained GOI-guaranteed loans, SAIL could not have obtained loan

guarantees from commercial banks. They state that a company viewed by

commercial bankers as posing too great a risk to be eligible for loan

guarantees could not have obtained loans at the same interest rates

charged to SBI's best customers. Accordingly, they propose that the

Department should adopt an approach which is analogous to applying a

risk premium when a company is uncreditworthy. They argue that such an

approach should be used with respect to the loans SAIL received from

international lending or development institutions as well.

In its rebuttal brief, SAIL takes issue with Petitioners' argument

that the Department should select benchmark interest rates which

reflect an inability on the part of SAIL to obtain long-term long

guarantees from commercial banks. SAIL argues that there is substantial

evidence on the record that commercial banks were willing to make long-

term foreign currency loans to SAIL, including evidence that

independent credit rating agencies gave SAIL high ratings.

Department Position: We disagree with SAIL that SAIL's SBI-

guaranteed long-term foreign currency loans can be used for benchmark

purposes. The loans for which SAIL received guarantees from the SBI are

not denominated in the same currency as any of SAIL's GOI-guaranteed

long-term foreign currency loans and, in all but one instance, were

agreed upon in different years. Therefore, the SBI-guaranteed loans

cannot be used for benchmark purposes. We also disagree with SAIL that

the Department should only consider differences in guarantee fees.

Section 771(5)(E)(iii) of the Act makes clear the basis for calculating

the benefit from a guaranteed loan is a comparison of what the

recipient paid for the guaranteed loan (including any guarantee fees)

with what the recipient would pay to obtain comparable commercial

financing. This standard, which is repeated in section 351.506 of the

CVD Regulations, replaced the pre-URAA practice, under which we

followed the methodology proposed by SAIL. Given the change in

standard, we have followed the methodology outlined in our regulations

and compared the costs of the GOI-guaranteed loans with the appropriate

benchmark as discussed in the ``Subsidies Valuation Information''

section above.

With respect to Petitioners'' concerns about using national average

interest rates for benchmark purposes, we acknowledge that the

``lending rates'' published by the IMF are not ideal. However, there is

no information on the record containing interest rates that can be

regarded as preferable. As explained above, we attempted to obtain

other information regarding long-term foreign currency interest rates.

At verification, we were unable to obtain any information regarding the

foreign currency or other long-term interest rates available during the

years in which the GOI provided guaranteed loans to SAIL. The ``lending

rates'' published in International Financial Statistics are the only

interest rates on the record of this investigation which can reasonably

be used for benchmark purposes. In addition, we did not initiate an

examination of SAIL's creditworthiness. See Initiation, 64 FR 12996

(March 16, 1999). Consequently, we did not include a risk premium in

the calculation of our benchmark.

Comment 10: SAIL's SDF Loans

Petitioners argue that SAIL's long-term SDF loans are

countervailable under section 771(5)(B) of the Act. In short, they

argue that (1) the levies used to fund the SDF are, in essence, taxes

and thus constitute GOI contributions to the SDF, (2) the GOI controls

the SDF funds, and (3) SAIL received a financial contribution from the

GOI in the form of soft SDF loans. Throughout their initial and

rebuttal comments regarding the SDF, petitioners refer to information

contained in an article that was attached to their September 29, 1999,

case brief.

Petitioners argue that the statute does not make an exception for

governments that direct tax levies into special government-directed

``funds'' as opposed to placing such funds in the general treasury.

They argue that section 771(5)(B)(iii) of the Act defines as

countervailable the types of loans made by the GOI under the SDF

because, under this statute, a government need not make a financial

contribution itself to give rise to a subsidy. They then argue that, by

making soft loans through the SDF, the GOI has foregone revenue to

which it is entitled and has therefore made a financial contribution

under section 771(5)(D)(ii). They also argue that, because the SDF was

created through levies on sales to consumers, SAIL's SDF loans are

transfers of funds from the GOI and therefore constitute financial

contributions under section 771(5)(D)(i) of the Act.

The GOI and SAIL contend that SAIL's SDF loans are not

countervailable. They argue that the SDF was funded from levies on

steel producers and other non-GOI sources and that the Department's

practice is to not countervail benefits received by producers from such

``producer'' funds.

[[Page 73143]]

They argue that, because the GOI did not contribute any funds to the

SDF, SAIL has not received a financial contribution from the GOI as a

result of its SDF loans.

In addition, SAIL notes that the article and related arguments

contained in Petitioners case brief constitutes factual information.

SAIL points out that this information was submitted after the time

limit prescribed in section 351.301(b)(1) of the CVD Regulations,

should not be made a made a part of the record, and should be ignored

by the Department.

Department's Position: We agree with respondents. At verification,

we confirmed that the SDF was funded by producer levies and other non-

GOI sources. See, SAIL Verification Report at 10. Therefore, there is

no basis for concluding that the SDF loans received by SAIL confer a

financial contribution to SAIL from the GOI. In addition, there is no

information on the record indicating that the GOI contributed tax

revenues to the SDF either directly or indirectly. There is no

information on the record indicating that the GOI controls the SDF.

Accordingly, there is no basis on the record of this investigation for

determining that SAIL's SDF loans are countervailable.

We agree with SAIL that Petitioners' case brief contains new

factual information. We also agree that the information was submitted

in violation of section 351.301(b)(1) of the CVD Regulations. We

returned the brief and article to the Petitioners and requested that

they submit a redacted brief, which contains no references or argument

regarding the article or any new factual information. See Memorandum to

file Re: Removal of Untimely Factual Information from the Record, dated

December 13, 1999, which is on file in the public file of our Central

Records Unit (Room B-0990 of the main Commerce Building). Therefore,

all arguments relating to information in the article cannot be

addressed.

Comment 11: Treatment of SAIL's Stockyard Sales

Petitioners argue that the figure reported for the total value of

SAIL's sales it too large because the figure includes the

f.o.b.(stockyard) value of SAIL's stockyard sales rather than the

f.o.b.(factory) value of those sales. They argue that, in calculating

the ad valorem program rates for SAIL, the Department should use an

adjusted figure.

Department's Position: We agree with Petitioners. The original

figure reported by SAIL includes the f.o.b. (stockyard) value of SAIL's

stockyard sales rather than the f.o.b. (factory) value of those sales.

At verification, we requested SAIL to derive the f.o.b. (factory) value

of its stockyard sales. See SAIL Verification Report at 5 and 6. We

adjusted the figure for SAIL's total value of sales during the POI so

that the value of SAIL's stockyard sales is included on an f.o.b.

(factory) basis. We used this adjusted sales figure for the final

determination.

Verification

In accordance with section 782(i) of the Act, we verified the

information used in making our final determination. We followed

standard verification procedures, including meeting with government and

company officials and examining relevant accounting records and

original source documents. Our verification results are outlined in

detail in the public versions of the GOI Verification Report and the

SAIL Verification Report, which are on file in our Central Records Unit

(Room B-099 of the main Commerce building).

Suspension of Liquidation

In accordance with section 705(c)(1)(B)(i) of the Act, we have

calculated an individual countervailable subsidy rate for the company

under investigation--SAIL. This rate will also be used for purposes of

the ``all others'' rate. We determine that the total estimated net

countervailable subsidy rates are as follows:

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

Producer/exporter Net subsidy rate

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

Steel Authority of India (SAIL)........... 11.25% ad valorem.

All others................................ 11.25% ad valorem.

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

In accordance with our Preliminary Determination, we instructed the

U.S. Customs Service (Customs) to suspend liquidation of all entries of

certain cut-to-length carbon-quality steel plate from India which were

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

26, 1999, the date of the publication of our Preliminary Determination

in the Federal Register. In accordance with section 703(d) of the Act,

we instructed the U.S. Customs Service to discontinue the suspension of

liquidation for merchandise entered on or after November 23, 1999, but

to continue the suspension of liquidation of entries made between July

26, 1999, and November 22, 1999.

If the ITC determines that material injury or threat of material

injury does not exist, this investigation will be terminated, and all

estimated duties deposited or securities posted as a result of the

suspension of liquidation will be refunded or canceled. If the ITC

determines that such injury does exist and issues a final affirmative

determination, we will issue a countervailing duty order, reinstate

suspension of liquidation under section 706(a) of the Act, and require

a cash deposit of estimated countervailing duties for such entries of

merchandise in the amounts indicated above.

ITC Notification

In accordance with section 705(d) of the Act, we will notify the

ITC of our determination. In addition, we are making available to the

ITC all non-privileged and non-proprietary information related to this

investigation. We will allow the ITC access to all privileged and

business proprietary information in our files provided the ITC confirms

that it will not disclose such information, either publicly or under an

administrative protective order, without the written consent of the

Assistant Secretary for Import Administration.

Return or Destruction of Proprietary Information

In the event that the ITC issues a final negative injury

determination, this notice will serve as the only reminder to parties

subject to Administrative Protective Order (APO) of their

responsibility concerning the destruction of proprietary information

disclosed under APO in accordance with 19 CFR 351.305(a)(3). Failure to

comply is a violation of the APO.

This determination is published pursuant to sections 705(d) and

777(i) of the Act.

Dated: December 13, 1999.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 99-33229 Filed 12-28-99; 8:45 am]

BILLING CODE 3510-DS-P