65 FR 31515, May 18, 2000
C-533-063
Administrative Review 1997
Public Document
DAS II/Office VI: KMJ
MEMORANDUM TO: Troy H. Cribb
Acting Assistant Secretary
for Import Administration
FROM: Holly A. Kuga
Acting Deputy Assistant Secretary
for Import Administration
SUBJECT: Issues and Decision Memorandum for the Final Results of the
Countervailing Duty Administrative Review of Certain Iron Metal
Castings (January 1, 1997 through December 31, 1997)
Summary
We have analyzed the comments and rebuttals of interested parties
for the final results of the administrative review of the
countervailing duty order on certain iron metal casting from India.
As a result of our analysis, we have not made any modifications to
the preliminary results of this review. Presented below are the
Methodology and Background Information and Analysis of Programs
sections which discuss the decisions made in the final results of
this review. Also presented below is the Analysis of Comments section
that contains the Department of Commerce's (the Department) responses
to the comments and rebuttals which we received from interested
parties. We recommend that you approve the positions which we have
developed in this memorandum.
Methodology and Background Information
I. Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute are
references to the provisions of the Tariff Act of 1930, as amended by
the Uruguay Round Agreements Act (URAA) effective January 1, 1995
(the Act). The Department is conducting this administrative review in
accordance with section 751(a) of the Act. All citations to the
Department's regulations reference 19 C.F.R. Part 351 (1998), unless
otherwise indicated. Because the request for this administrative
review was filed before January 1, 1999, the Department's substantive
countervailing duty regulations, which were published in the Federal
Register on November 25, 1998 (see CVD Regulations, 63 FR 65348), do
not govern this review.
II. Facts Available
The following companies, for which a review was requested, failed to
respond to the Department's questionnaires: Delta Corporation Ltd.,
SSL Exports, Thames Engineering, and Trident International. Section
776(a)(2) of the Act requires the use of facts available when an
interested party withholds information that has been requested by the
Department, or when an interested party fails to provide the
information requested in a timely manner and in the form required.
Because these companies failed to submit the information that was
specifically requested by the Department, we have based our final
results for these companies on the facts available.
In addition, the above named parties provided no explanation as to
why they were unable to comply with the Department's information
requests. Therefore, the Department finds that by not providing the
requested information, the respondents have failed to cooperate to
the best of their abilities. In accordance with section 776(b) of the
Act, the Department may use an inference that is adverse to the
interests of that party in selecting from among the facts otherwise
available when the party has failed to cooperate by not acting to the
best of its ability to comply with a request for information. Such
adverse inference may include reliance on information derived from
(1) the petition; (2) a final determination in a countervailing duty
investigation;
(3) any previous administrative review, new shipper review,
expedited antidumping review, section 753 review, or section 762
review; or (4) any other information placed on the record. See
section 351.308(c) of the Department's regulations. In the absence of
information from the respondents, we consider information placed on
the record by other respondent producers/exporters to be the
appropriate basis for a facts available countervailing duty rate
calculation. Because we are relying upon information placed on the
record of this review, rather than secondary information, the
Department need not corroborate such information. See section 776(c)
of the Act.
Therefore, to calculate the ad valorem subsidy rate for these non-
respondent companies, we summed the highest company-specific net
countervailable subsidy rate for each program under review. See Final
Results of Review section below for the ad valorem rate calculated
for these companies.
III. Benchmark Rate
In order to determine the benefit conferred under the export
financing programs, we compared the interest rates charged against
each type of financing (i.e., pre- and post-shipment) to a benchmark
interest rate. As our benchmark, we used the 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 schemes is the cash credit interest rate. See
Certain Iron-Metal Castings From India; Final Results of
Countervailing Duty Administrative Review, 62 FR 32297, 32304 (June
13, 1997) (1994 Castings Final).
The cash credit interest rate is for domestic working capital
finance, and thus comparable to pre- and post-shipment export
finance. For the period of review (POR), we calculated a cash credit
rate of 16.31 percent based on the short-term interest rate and
spread information reported by the Government of India (GOI) in its
February 1, 1999 questionnaire response.(1)
To calculate the benefit from the pre-shipment export financing, we
compared the actual interest paid on the loans with the amount of
interest that would have been paid at the cash credit benchmark rate.
The difference between those amounts is the benefit.
Because the loans under the post-shipment export financing program
are discounted, and the effective interest rates paid by the
exporters on the loans are discounted rates, we derived a discounted
benchmark rate of 14.02 percent from the cash credit rate to measure
the benefit conferred by this program. To calculate the benefit from
these loans, we followed the same short-term loan methodology as for
pre-shipment financing.
We also used the cash credit rate of 16.31 percent to determine the
benefit Kajaria Iron Castings received from a short-term bridge loan
during the POR. We compared the actual interest paid on the loan with
the amount of interest that would have been paid at the cash credit
benchmark rate. If the cash credit rate exceeded the loan interest
rate, the difference between those amounts is the benefit. See
section "Other Program Examined" below for a discussion of the bridge
loan.
Analysis of Programs
I. Programs Conferring Subsidies(2)
A. Pre-Shipment Export Financing
In the preliminary results,(3) 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 modify our
findings from the preliminary results. Accordingly, the net subsidies
for this program are as follows:
Producers/Exporters Ad Valorem Rates
which used the program during the POR (Percentages)
Calcutta Ferrous Ltd. 0.04%
Commex Corporation 0.03%
Dinesh Brothers (Pvt.) Ltd. 0.44%
Ganapati Suppliers Pvt. Ltd. 0.24%
Kajaria Iron Castings Ltd. 0.22%
Nandikeshwari Iron Foundry Pvt. Ltd. 0.38%
R.B. Agarwalla & Company 0.17%
RSI Limited 0.38%
Serampore Industries Pvt. Ltd. 0.19%
Uma Iron & Steel Company 0.03%
Victory Castings Ltd. 0.40%
B. Post-Shipment Export Financing
In the preliminary results,(4) 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 modify our
findings from the preliminary results. Accordingly, the net subsidies
for this program are as follows:
Producers/Exporters Ad Valorem Rates
which used the program during the POR (Percentages)
Bengal Export Corporation 0.23%
Calcutta Ferrous Ltd. 0.25%
Calcutta Iron Foundry 0.37%
Carnation Industries Ltd. 0.25%
Commex Corporation 0.19%
Crescent Foundry Co. Pvt. Ltd. 0.11%
Dinesh Brothers (Pvt.) Ltd. 0.31%
Ganapati Suppliers Pvt. Ltd. 0.40%
Kajaria Iron Castings Ltd. 0.35%
Nandikeshwari Iron Foundry Pvt. Ltd. 0.20%
R.B. Agarwalla & Company 0.22%
RSI Limited 0.29%
Serampore Industries Pvt. Ltd. 0.24%
Uma Iron & Steel Company 0.20%
Victory Castings Ltd. 0.30%
C. Exemption of Export Credit from Interest Taxes
In the preliminary results,(5) 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 modify our
findings from the preliminary results. Accordingly, the net subsidies
for this program are as follows:
Producers/Exporters Ad Valorem Rates
which used the program during the POR (Percentages)
Bengal Export Corporation 0.05%
Calcutta Ferrous Ltd. 0.06%
Calcutta Iron Foundry 0.05%
Carnation Industries Ltd. 0.14%
Commex Corporation 0.04%
Crescent Foundry Co. Pvt. Ltd. 0.02%
Dinesh Brothers (Pvt.) Ltd. 0.11%
Ganapati Suppliers Pvt. Ltd. 0.13%
Kajaria Iron Castings Ltd. 0.16%
Nandikeshwari Iron Foundry Pvt. Ltd. 0.09%
R.B. Agarwalla & Company 0.07%
RSI Limited 0.13%
Serampore Industries Pvt. Ltd. 0.07%
Uma Iron & Steel Company 0.06%
Victory Castings Ltd. 0.12%
D. Income Tax Deductions Under Section 80 HHC
In the preliminary results,(6) 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 modify our
findings from the preliminary results. Accordingly, the net subsidies
for this program are as follows:
Producers/Exporters Ad Valorem Rates
which used the program during the POR (Percentages )
Bengal Export Corporation 8.07%
Calcutta Ferrous Ltd. 1.66%
Carnation Industries Ltd. 0.33%
Commex Corporation 2.45%
Crescent Foundry Co. Pvt. Ltd. 0.71%
Dinesh Brothers (Pvt.) Ltd. 0.74%
Ganapati Supplier Pvt. Ltd. 4.40%
Kajaria Iron Castings Ltd. 0.70%
Kiswok Industries Pvt. Ltd. 14.90%
Nandikeshwari Iron Foundry Pvt. Ltd. 1.77%
R.B. Agarwalla & Company 3.10%
RSI Limited 0.10%
Serampore Industries Pvt. Ltd. 0.54%
Super Iron Foundry 1.08%
Uma Iron & Steel Company 1.81%
E. Import Mechanisms (Sale of Licenses)
In the preliminary results,(7) 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:
Producers/Exporters Ad Valorem Rates
which used the program during the POR (Percentages )
Kajaria Iron Castings Ltd. 0.16%
Serampore Industries Pvt. Ltd. 0.47%
F. Passbook Scheme
In the preliminary results,(8) we found that this program conferred
countervailable subsidies on the subject merchandise. We received
comments on this program from the interested parties. However, our
review of the record and our analysis of the comments have not led us
to modify our findings from the preliminary results. Accordingly, the
net subsidies for this program are as follows:
Producers/Exporters Ad Valorem Rates
which used the program during the POR (Percentages )
Calcutta Ferrous Ltd. 7.27%
Kajaria Iron Castings Ltd. 3.60%
Nandikeshwari Iron Foundry Pvt. Ltd. 9.82%
G. Duty Entitlement Passbook Scheme
In the preliminary results,(9) 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 modify our
findings from the preliminary results. Accordingly, the net subsidies
for this program are as follows:
Producers/Exporters Ad Valorem Rates
which used the program during the POR (Percentages )
Dinesh Brothers (Pvt.) Ltd. 0.11%
Nandikeshwari Iron Foundry Pvt. Ltd. 1.46%
Victory Castings Ltd. 1.06%
II. Programs Determined To Be Not Countervailable
In the preliminary results,(10) we found the programs listed below
to be not countervailable. We received comments on these programs
from the interested parties. See Comment 2: Leasing of Land and
Comment 3: Long-Term Financing, below. However, our analysis of those
comments and our review of the record have not led us to change our
findings from the preliminary results.
A. Long-Term Financing from "All-India Development Banks"
B. Long-Term Loan from the West Bengal Industrial Finance Corporation
C. Leasing of Land from the Regional Government of West Bengal
III. Programs Found Not To Be Used
In the preliminary results,(11) we found that the
producers/exporters of the subject merchandise did not apply for or
receive benefits under the programs listed below. 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.
A. West Bengal Incentive Scheme 1993
1. State Capital Investment Subsidy
B. Market Development Assistance (MDA)
C. Rediscounting of Export Bills Abroad (EBR)
D. International Price Reimbursement Scheme (IPRS)
E. Cash Compensatory Support Program (CCS)(12)
F. Programs Operated by the Small Industries Development Bank of
India (SIDBI)
G. Export Promotion Replenishment Scheme (EPRS) (IPRS Replacement)
H. Export Promotion Capital Goods Scheme
I. Benefits for Export Oriented Units and Export Processing Zones
J. Special Imprest Licenses
K. Special Benefits
L. Duty Drawback on Excise Taxes
M. Payment of Premium Against Advance Licenses
N. Pre-Shipment Export Financing in Foreign Currency (PCFC)
O. Subsidies Provided by the State of Orissa
P. Advance Licenses
IV. Other Program Examined
A. Bridge Loan
In the preliminary results,(13) we found that Kajaria Iron Castings
received a short-term bridge loan from the West Bengal Industrial
Development Corporation (WBIDC) in 1997. The company made an interest
payment during the POR. We calculated the benefit provided by the
bridge loan as less than 0.005 percent ad valorem. Because any such
minuscule benefit would have no impact on the net countervailable
subsidy rate for Kajaria Iron Castings, we determine that it is not
necessary, for these final results, to analyze whether bridge loans
provided by the WBIDC under the West Bengal Incentive Scheme are
specific. See, e.g., Final Results of Countervailing Duty
Administrative Review: Certain Hot-Rolled Lead and Bismuth Carbon
Steel Products from the United Kingdom, 63 FR 18367, 18370 (April 15,
1998). We note that no comments on this program were submitted by the
interested parties.
V. Programs Found Not To Exist
In the preliminary results,(14) we found that the programs listed
below do not exist. We did not receive any comments with regard to
these programs from the interested parties, and our review of the
record has not led us to change our findings from the preliminary
results.
A. State Value-Added Tax "Set-Off" Program
B. Interest Rate Surcharge Exemption
Analysis of Comments
Comment 1: Cash Credit Benchmark Interest Rate
Petitioners argue that the Department's calculation of the benchmark
rate likely understates the actual cash credit rate during the period
of review. In particular, they state that the Department used
information provided in a deficient GOI response that provided data
on the lending activities of only one bank to estimate this rate.
Assuming that the prime lending rates (PLRs) for this bank are
reflective of all banks in India, the Department took a weighted-
average of the bank's PLRs to arrive at the base cash credit rate.
Then, the Department added an amount for the interest rate spread
which reflected the average spread applied by this bank to the PLR.
They argue that without additional data from other banks, it is
impossible to determine whether this particular bank's data is high,
low, or average. Therefore, without the additional lending data,
which was requested, the Department, for the final results, should
calculate the benchmark using the highest PLR reported in the GOI's
response plus the 4.0 percent spread value quoted by the GOI
officials at verification. See GOI Verification Report at 2.
Respondents disagree with petitioners' claim that the GOI, in
providing interest rate data from only one bank, was somehow
uncooperative. The PLR rate used by the Department is a weighted-
average of the 1997 rates provided by an Indian bank. There is no
reason to assume that the rates provided by the bank do not reflect a
true PLR for India. In addition, there is no information on the
record to suggest that the rates are not reflective of other bank
rates. To respond to the Department's question, the GOI sought
information from a bank and provided it. The GOI also specifically
noted in its response, "[a] predominant national average short term
interest rate in India is not available." See GOI's February 1, 1999
Questionnaire Response, at 5. Contrary to petitioners' assertions,
the Department did not ask "repeatedly" about short-term benchmark
rates. It asked about them once in the original questionnaire, and
the GOI responded to the question with what data it had. Accordingly,
there was no lack of cooperation and the Department should not modify
the interest rate benchmark calculation for the final results.
Department's Position:
We disagree with petitioners that our weighted-average calculation
of the benchmark interest rate understates the actual cash credit
rate during the period of review. In its February 1, 1999
questionnaire response, the GOI provided interest data for an Indian
bank, in the absence of a national average short-term interest rate.
We reconciled that bank's PLRs for the year 1997, to the PLRs
reported in the Reserve Bank of India's 1996-97 and 1997-98 Annual
Reports.(15) Within Appendix Table 1.2 "Interest Rate Structure of
Scheduled Commercial Banks,"(16) the prevailing range of the PLRs of
five major commercial banks for the year 1997, is reported. We noted
that the Indian bank's interest rate information is consistent with
the rates indicated in the RBI publications. Therefore, we determine
that it is not unreasonable to calculate the cash credit benchmark
rate using the Indian bank's information which was provided by the
GOI and which was verified. We calculated the benchmark by taking a
weighted-average of those PLRs which the bank charged during 1997, to
arrive at the base cash credit rate.
With regard to the appropriate spread to add to the cash credit
rate, we disagree with petitioners' argument. Given that we find the
Indian bank's PLRs to be reflective of the PLRs of other commercial
banks, we determine that using an average of the spreads used by the
bank to determine the spread to be applied to the benchmark is not
unreasonable. We find that it would be inappropriate to calculate the
benchmark using the highest PLR reported in the GOI's response plus a
maximum 4.0 percent spread. As stated in section 771(5)(E)(ii) of the
Act, we determine the difference between the amount a recipient pays
on the loan being examined and the amount the recipient would pay on
a comparable commercial loan obtained on the market. In this review,
there is no evidence that the respondent companies would only be able
to borrow at the highest PLR plus the highest spread. Therefore, for
these final results, we continue to use the cash credit benchmark
rate which was calculated at the preliminary results.
Comment 2: Leasing of Land
Petitioners argue that the lease arrangement which Kajaria Iron
Castings entered into with the Asanol Durgapur Development Authority
(ADDA) is regionally-specific and provided at less than adequate
remuneration. They claim that the company is able to make below-
market lease payments to a government lessor whose objective is to
develop certain West Bengal regions. They contend that the Department
must look beyond the numbers and types of other lease recipients and
focus its specificity analysis on the mission of the ADDA and the
types of activities that flow from that mission, especially as they
affect the production of subject castings.
They state that the ADDA, as an agency of the regional government of
West Bengal constitutes an "authority" within the meaning of section
777(5)(B) of the Act (i.e., a government of a country or any public
entity within that country). Petitioners argue that not only does the
ADDA, as a government authority, have the potential under the Act to
subsidize companies in its jurisdiction, but that the ADDA has been
tasked with specific development activities. In particular,
petitioners note that the objective of the ADDA is to develop certain
areas of West Bengal which lack infrastructure and are in need of
development. See Memorandum to David Mueller: Verification of the
Questionnaire Responses Submitted by the Asansol Durgapur Development
Authority, (September 9, 1999) at 2-3, (ADDA Verification
Report).(17) Therefore, they argue that the assistance provided by
the ADDA is not general in nature, but is limited to certain
underdeveloped areas in West Bengal. As such, the Department should
determine that the ADDA's lease assistance is regionally specific
under section 771(5A)(D) of the Act.
Petitioners also argue that Kajaria Iron Castings' lease terms do
not adequately remunerate the ADDA. They claim that, according to the
record, the lease price charged by the ADDA does not cover all costs
associated with developing the leased land. They add that the record
does not substantiate that the ADDA has actually received a
reasonable rate of return and that its lease transactions are based
on market principles. The record evidence only confirms that the
"goal of the ADDA is to realize a rate of return of approximately 20-
25 percent against each leasing contract." See id. at 3. Therefore,
on this basis, the Department should also find that Kajaria Iron
Castings' lease terms do not adequately remunerate the ADDA.
Respondents argue that no evidence on the record supports the
petitioners' assertions. With regard to specificity, petitioners are
mistaken in their statement that the ADDA's lease assistance is
"regionally specific." They state that petitioners have misread and
misinterpreted the following statement of the ADDA official with whom
the verification team met: "the objective of the ADDA is to develop a
region for the people of India." See id. at 2. The official was
conveying, not that the purpose of the ADDA is regional development,
but that the ADDA develops regions for the benefit of the people of
India in all areas of West Bengal. The ADDA leases land in both the
developed and backward areas of West Bengal and, therefore, the lease
assistance is not "regionally specific." Further, as stated on the
record, the ADDA does not offer preferential leasing terms or prices
to attract companies to specific regions (i.e., backward areas) of
West Bengal. See id. at 4. However, lease prices in backward areas
will be lower than prices in developed areas because the value of the
land is less in backward areas. See id.
As to whether the ADDA receives adequate remuneration from its lease
arrangements, respondents contend that the petitioners' argument is
not supported by the facts. As stated in the Department's
verification report, the ADDA takes into account the following
factors when setting the price per acre of land: 1) the cost to buy
the land; 2) the cost to construct infrastructure on the land; and 3)
the cost of working with companies which are unable to make lease
payments. See id. at 3. There is no evidence on the record which
indicates that the ADDA's lease terms do not cover the authority's
costs. In addition, there is no basis for the petitioners' statement
that the ADDA is not realizing a reasonable rate of return. As
indicated on the record, the ADDA, when setting its lease amounts,
has a goal of a 20-25 percent return. There is nothing on the record
to suggest that the ADDA is not achieving that goal with respect to
Kajaria Iron Castings or any other lessee. Therefore, there is no
reason for the Department to find that Kajaria Iron Castings is
leasing land from the ADDA at less than adequate remuneration.
Department's Position:
We affirm our preliminary analysis and determine that the ADDA's
lease arrangement with Kajaria Iron Castings is not countervailable.
We learned at verification that the ADDA is a development agency
whose mission is to develop rural and urban areas of West Bengal
through the construction of infrastructure, such as roads, bridges,
and sewage/drainage systems, and the establishment of schools and
medical facilities. The ADDA, which presently manages 60,000 acres of
land, leases both residential and industrial land throughout West
Bengal.(18) See id. at 1-2. The authority does not formulate or
implement industrial policies of the regional government, but
conducts town/country planning for the people of India. See id. The
mission of the ADDA is to determine those areas of West Bengal which
are lacking necessary infrastructure and then undertake the
construction of those facilities. We verified that the ADDA does not
offer preferential leasing terms and prices to those companies
leasing land in the backward areas of West Bengal. See id. at 4.
Therefore, based on the record evidence, we do not find that the
ADDA's lease assistance is regionally specific under section
771(5A)(D) of the Act.
In addition, at verification, we found that a large number of
companies are leasing industrial land from the ADDA. These
enterprises represent a wide variety of industries, e.g., auto parts,
ceramics, chemicals, electronic switches, engineering parts,
fertilizers, glass, paints and polishes, pig iron, and tire
retreading. On this basis, we determine that the ADDA does not extend
special leasing provisions or show a pricing preference to any
particular industry or industries, and therefore, the ADDA's leasing
assistance is not specific. Furthermore, we found no evidence that
the ADDA's price per acre of land varies with respect to the type of
industry and/or company leasing the land. See id.
Comment 3: Long-Term Financing
Petitioners argue that the long-term financing provided by the All-
India Development Banks and the West Bengal Financial Corporation
(WBFC) are export-related and, therefore, countervailable. They
contend that the "predominant factor" determining receipt of long-
term loans from these development banks by subject exporters was the
companies' export activity. In support of their position, petitioners
state that the banks, when determining a company's "commercial
viability," place particular importance on export data, domestic and
international market opportunities and competition. They emphasis
that the "viability" of a proposed loan includes a review of the
market potential for the product to be manufactured. See Memorandum
to David Mueller: Verification of the Questionnaire Responses
Submitted by the Government of India, (September 9, 1999) at 6 (GOI
Verification Report).(19)
As discussed in the preamble to the new substantive countervailing
duty regulations, the burden is placed on respondents to clearly
demonstrate that they received benefits solely under non-export-
related criteria. See Preamble to section 351.514 of the CVD
Regulations, 63 FR at 65381.(20) See also Extruded Rubber Thread from
Malaysia; Final Affirmative Countervailing Duty Determination and
Countervailing Duty Order, 57 FR 38472, 38476 (August 25, 1992)
(Rubber Thread from Malaysia). Petitioners argue that those
respondents which had long-term loans outstanding during the POR from
these financial institutions, have failed to meet the Department's
long-standing test of proving that export activity was not the
predominant factor determining the receipt of benefits. Therefore,
given the record evidence that the banks' lending was tied to an
analysis of the companies' sales opportunities and that the Indian
castings industry is almost "export-exclusive," the Department should
determine that these long-term loans are export specific and,
therefore, countervailable.
Respondents argue that petitioners have no support for their
assertion that the "predominate factor" for the provision of the
loans was the exporters' "export activity" other than the fact that
the companies are just that, exporters. They point out that the
authorities to which petitioners cite (i.e., Rubber Thread from
Malaysia and the preamble to section 351.514), stand only for the
proposition that programs contingent upon or tied to exporting will
be considered as specific, countervailable export subsidies. Pursuant
to section 351.514, a subsidy will be considered an export subsidy if
is "contingent upon export performance."
According to respondents, with regard to the long-term loans in this
case, the Department found that the loans were neither de jure nor de
facto specific and that the loans were not contingent upon or tied to
exporting. See Preliminary Results, 64 FR at 61597-9. There is no
evidence on the record to support petitioners' claim that the bank
officials confirmed that the export activities of those respondents,
which received long-term financing, were central to the banks'
lending decisions. As clearly indicated on the record, the only
reason exports of the companies were considered was to determine if
the projects were viable. See GOI Verification Report at 6. Further,
the record demonstrates that exporting companies must satisfy the
same lending criteria as any other borrower and that no preference is
given to exporting companies. See Memorandum to David Mueller:
Verification of the Questionnaire Responses Submitted by the Regional
Government of West Bengal, (September 9, 1999) at 5 (West Bengal
Verification Report).(21)
Respondents posit that petitioners are confusing the issue of
viability of operations with tying the loans to export performance.
Merely considering export data in order to determine the viability of
a company and its ability to repay a loan is not tantamount to making
the loan contingent upon exporting. In support of their position,
respondents cite to the Subsidies Code, which, in interpreting the
language "subsidies contingent, in law or in fact, whether solely or
as one of several other conditions, upon export performance," makes
clear:
The mere fact that a subsidy is granted to enterprises which export
shall not for that reason alone be considered to be an export subsidy
within the meaning of this provision.
Agreement on Subsidies and Countervailing Measures, Apr. 15, 1999,
Marrakesh Agreement Establishing the World Trade Organization, art.
3.1, fn. 4, Legal Instruments -- Results of the Uruguay Round vol. 27
(1994).
Department's Position:
We affirm our preliminary analysis and determine that the long-term
loans which certain respondents received from the All-India
Development Banks(22) and the West Bengal Financial Corporation
(WBFC) are not countervailable. After examining the evidence on the
record, we determine that the loans provided to the respondents were
not export subsidies under section 771(5A)(B) of the Act.
The All-India Development Banks function as the principal financial
institutions for promoting and developing industries in India, and
the WBFC promotes the industrial development of the West Bengal
region, as a whole. The financial institutions provide long- and
medium-term credits to promoters/entrepreneurs(23) who want to
construct new industrial units, expand or rehabilitate existing units
(under the project finance scheme) and upgrade machinery or purchase
pollution control equipment (under the equipment refinance scheme
(ERS)).(24)
We verified that any company in any industrial sector can receive a
term loan under the financing schemes, provided that the borrower is
creditworthy and the proposed project is financially and commercially
viable. See GOI Verification Report at 5 and West Bengal Verification
Report at 5-6. In our examination of the loan application and
approval process, we noted that export performance was not a factor
or criterion for approval and receipt of a loan from these banks and
financial institutions.
To be eligible for a loan from the WBFC, a company must meet the
following criteria: 1) the company must have been in operation for at
least four years prior to the application date; 2) the company must
have earned a profit (declared dividends) in the two fiscal years
prior to the application date; 3) the company must not have defaulted
with a financial institution during its existence; 4) the financial
assistance sought must be used for the purchase of machinery and
equipment (i.e., loans under the ERS are provided for specific
purchases; 5) the company's promoters must be able to contribute 25
percent of the total project's cost; and 6) the project for which
financing is sought must be commercially and economically viable. See
West Bengal Verification Report at 5. In addition, any industrial
concern(25) is eligible to apply for a loan under the project finance
scheme of the All-India Development Banks. See Memorandum to David
Mueller: Verification of the Questionnaire Responses Submitted by
Kiswok Industries (P) Ltd., (September 9, 1999) at Exhibit 1 (Kiswok
Verification Report).(26)
When determining whether to extend a loan to a prospective borrower,
the All-India Development Banks also examine a host of financial
indicators including: debt-to-equity ratio, debt services coverage
ratio, gross profit, operating profit, break-even ratio, internal
rate of return, cash flow, and cost of capital. The financial
institutions also request data regarding a borrower's production and
sales information, which includes export data, market opportunities
(i.e., supply/demand for the product(s) both at home and abroad) and
competition (both domestic and international), in addition to the
financial history of the company and promoters, outstanding debt,
distribution of shareholdings, and project report (e.g., means of
financing, projected cost of production and cash flow, etc.). See id.
at Exhibit 2. We verified that the banks request this information to
thoroughly assess the commercial viability of the promoters' project
and the borrowers' financial health and thus, ability to repay the
loan. See GOI Verification Report at 6.
The evidence on the record does not indicate that the respondents
received financing based on export-specific criteria; exportation or
anticipated exportation is not a factor with regard to the provision
of the loans by the All-India Development Banks and the WBFC. The
record indicates that the financial institutions collect sales/market
information to make an informed lending decision and not to provide
preferential treatment to companies which export or intend to export.
We found no evidence that a company had to obligate itself to export
a certain percentage of its production for the receipt of a loan. We
also found no evidence when reviewing the banks' annual reports for
the period 1993 through 1997, that any one of the banks gave
financing preferences to exporting units.
Given that any company, whether solely a domestic producer or a
company which also exports, can receive a long-term loan from the All-
India Development Banks and the WBFC, and that the financing is not
contingent upon export performance, and that exporting was not one of
the factors considered in the approval of loans, we determine that
financing provided by these financial institutions is not an export
subsidy under section 771(5A)(B)of the Act.
Comment 4: Benefit Provided Under the Passbook Scheme
Respondents argue that the Department, in its preliminary analysis,
employed an incorrect methodology to determine the benefit conferred
under the Passbook Scheme, claiming that the amount of the unpaid
duty for imported goods is not the benefit. Respondents contend that
the benefit from a program where goods are imported duty-free and
then sold is not the duty saved; rather, it is the profit made on the
sale of the imported goods during the POR. Only when the product is
an "input" used by a respondent is the duty saved the benefit. As
indicated on the record, those companies which used passbook credits
during 1997, imported goods to be sold; they did not import them to
be consumed as inputs in their manufacturing processes. As a result,
section 351.519(a)(3)(ii) of the CVD Regulations,(27) does not apply
in this instance because this provision applies specifically and only
to "inputs" and not to imported goods sold. Therefore, the Department
should revise its calculations for this program to capture each
company's actual benefit, which is the profit received from the sales
of the imported goods during the POR.
Petitioners defend the methodology the Department employed to
calculate the benefit at the preliminary results (i.e., summing the
amount of passbook credits used to pay the customs duty on goods
imported during the POR). The Department found that the passbook
credits constitute benefits based on the manner in which they are
calculated. In particular, petitioners explain that the credit in the
passbook scheme was calculated on the basis of input/output norms for
the deemed input content of the exported product. There is no
relationship between the standard input/output norms of the export
product and the goods being imported with passbook credits. The norms
are simply used to calculate the credits. In addition, the goods
imported do not have to be consumed in the production of an exported
product. Because there is no monitoring system in place to confirm
which imported goods are consumed in the production of the exported
product, the Department preliminarily found that the Passbook Scheme
is not a permitted drawback or substitution drawback scheme. See
Preliminary Results, 64 FR at 61597. The Department also correctly
determined that the benefit derives not from the type of imports, but
from the lack of a system or procedure to confirm whether the
imported goods are consumed in the production of the exported
product. See id. Therefore, the benefit is the amount of credits each
respondent company used to import goods during the POR.
Department's Position:
We affirm our preliminary analysis of the countervailability of the
Passbook Scheme and determine that the benefit therefrom is the
amount of credits used during the POR to pay the duties on the
imported goods. We agree with the petitioners that the passbook
credits constitute benefits based on the manner in which they were
calculated.
Under the Passbook Scheme, upon the export of finished goods, which
were produced with indigenous raw materials, an exporter was eligible
to claim credits which could be used to pay customs duties on
subsequent imports. The credit in the passbook scheme was calculated
on the basis of input/output norms for the deemed input content of
the exported product. The Indian Customs Authority determined the
basic customs duty payable against the input as if it had been
imported and not sourced from the domestic market. A company's
passbook account was then credited for the amount equivalent to the
basic customs duty payable on such deemed imports. The company could
then utilize the credits in its passbook account to pay the import
duties levied on the goods.
We verified that it was not mandatory for the passbook holder to
consume the goods, imported with passbook credits, in the production
of the exported products, against which the credits were earned.
There was no relation between the imported goods and the production
of the exporter and no relation between the standard input/output
norms of the export product and the goods being imported with
passbook credits. The norms were simply used to calculate the
credits. See GOI Verification Report at 3-4. Therefore, the program
does not fit under section 351.519, rather this program is a direct
subsidy contingent upon export performance.
However, the respondents are incorrect on the valuation of the
benefit. It is irrelevant whether the respondents make a profit on
the sale of the imported good. The financial contribution and benefit
provided to the respondents by the government under this program is
the amount of duties that otherwise would have been paid on these
imports. See section 771(5)(D)(ii) of the Act. Therefore, we
calculated the benefit under this program based upon the amount of
import duties that would have been paid by the respondents absent the
use of credits provided under the Passbook Scheme.
Comment 5: Section 80HHC - Tax Savings Relating to Subject Castings
Respondents argue that where a company was able to break down
revenues relating to subject castings versus revenues relating to non-
subject merchandise, the Department should calculate the Section 80
HHC (80 HHC) subsidy based on revenues and profits relating to the
subject castings only. For example, as regards Kiswok Industries (P)
Ltd. (Kiswok), the record indicates that "Kiswok stated that its
profit rate on sales of subject castings is 'much lower than other
castings.'" See Kiswok Verification Report at 4. Because profits are
lower on subject castings, subject castings benefit less from the tax
exemption afforded by 80 HHC. In extensive calculations provided at
verification, Kiswok demonstrated that subject castings earn a lower
profit rate than non-subject castings. See id. at Exhibit 6. As a
result, Kiswok's benefit from Section 80 HHC on sales of subject
castings to the United States is 6.93 percent ad valorem, which is
considerably lower than the 14.90 percent found by the Department.
See Preliminary Results, 64 FR at 61595.
Another example is R.B. Agarwalla & Company (R.B. Agarwalla), who
submitted an 80 HHC calculation in which it deducted income that was
directly related to non-subject castings. That income was from duty
drawback which was not received on subject castings. In its
supplemental questionnaire to R.B. Agarwalla, the Department required
the company to resubmit its tax calculation with the duty drawback
revenues included. Respondents submit that it is ultra vires to
countervail income earned on merchandise other than subject castings
since only subject castings are covered by the order.
Respondents note that in the Preliminary Results, the Department
explained its consistent and long-standing practice to attribute a
benefit from an export subsidy, which is not tied to a particular
product or market, to all products exported by the company (see 64 FR
at 61595). Respondents argue that this practice, however, is contrary
to the decision of the Court of Appeals for the Federal Circuit
(CAFC) in Kajaria Iron Castings Pvt. Ltd. v. United States, 156 F.3d
1163 (1998) (Kajaria). In its decision, the Court clearly stated:
[W]hen the party under investigation provides documentation that
allows Commerce to separate the portion of the tax deduction based on
rebates related to non-subject merchandise from the remainder of a
countervailable tax deduction, Commerce should not countervail the
portion of the tax deduction subsidy tied to non-subject merchandise.
Since the Producers provided such data, Commerce should eliminate the
IPRS rebates from the calculation of the subsidy provided by the
section 80HHC deduction.
Id. at 1176. Respondents posit that the same rationale applies to
both Kiswok's and R.B. Agarwalla's calculations. These producers
provided the necessary data to eliminate the portion of the 80 HHC
subsidy that applied to non-subject castings. Accordingly, in keeping
with Kajaria, their 80 HHC subsidy should be attributed to subject
merchandise only. Respondents emphasize that where a company
demonstrates that the actual benefit from a subsidy is less for
subject merchandise than for other merchandise, Kajaria requires the
Department to use the actual benefit. This is because, in effect, the
company has tied the subsidy to the merchandise benefitted by the
subsidy in the exact amount of the benefit.
Petitioners note the respondents' argument has been rejected by the
Department 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. Therefore, the Department should
continue to attribute the benefit from this "untied" export subsidy
to all products exported by each respondent company which used the
program during the POR. 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, in light of Kajaria, the
Department should revise its benefit calculations for Kiswok and R.B.
Agarwalla. 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 duty drawback which
R.B. Agarwalla 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. 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 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. See NTN Bearing Corp. of America v. United
States, 997 F.2d 1453, 1458 (Fed. Cir. 1993) (NTN Bearing Corp.),
quoting Tianjin Mach. Import & Export Corp. v. United States, 806 F.
Supp. 1008, 1015 (CIT 1992). In this review, R.B. Agarwalla did not
develop a record with respect to the Kajaria-type adjustment
requested. 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, 156 F.3d at 1176. 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.
Also, with regard to Kiswok's claim that its profit rate on export
sales of subject castings is lower than the profit rate on the export
sales of other castings, in prior reviews of this order, the
Department has found the 80 HHC tax deduction program to be an
"untied" export subsidy program. See, e.g., Certain Iron-Metal
Castings from India; Final Results of Countervailing
DutyAdministrative Review, 63 FR 64050, 64055-6 (November 18, 1998)
(1996 Castings Final). The benefits provided under this program are
not tied to the production or sale of a particular product or
products. 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 market to all products exported by
the company. See, e.g., Certain Pasta from Turkey; Final Affirmative
Countervailing Duty Determination, 61 FR 30366, 30370 (June 14, 1996).
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 an export subsidy is not "tied" to
specific merchandise, then the benefit from that subsidy is allocated
over the firm's total exports. 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.
Therefore, for these reasons, our calculation of Kiswok's benefit
under Section 80 HHC remains unchanged from the preliminary results.
Comment 6: Double-Counting of Subsidies
Respondents argue that by countervailing the interest saved under
the export financing programs and the proceeds earned on sales of
licenses, while at the same time countervailing tax deductions under
80 HHC, the Department is double-counting the subsidies from the
financing and license sales. Respondents state that, for purposes of
the 80 HHC tax program, earnings from the sale of import licenses may
be deducted from taxable income to determine the tax payable by the
exporter. 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. They state that the Department's statement in
the last review that these revenues are not "deemed to be export
income" is incorrect. See 1996 Castings Final, 63 FR at 64054. They
point out that in the Preliminary Results of this review, the
Department recognized that "companies receive these licences based on
their status as exporters," (see 64 FR at 61596). They explain that a
company which has only export-sales income and license-sale income
may take the 80 HHC deduction to the fullest extent.
In addition, respondents argue that the Department is double-
counting the subsidy from the export financing programs. Respondents
contend that the financing programs reduce a company's expenses in
financing exports, which in turn increases the company's profits on
export sales. That is to say, every rupee saved on interest increases
profits by one rupee, because every rupee saved decreases overall
costs by one rupee. Since 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 emphasize that this double-counting of subsidies is
contrary to the holding of the CAFC in Kajaria. In Kajaria, the Court
held that the Department improperly double-counted certain subsidies
received by India's castings exporters by countervailing them once as
a direct subsidy and again as a deduction under Section 80 HHC. See
Kajaria, 156 F.3d at 1173 - 1175. Though Kajaria relates to rebates
received under India's Cash Compensatory Support Program (CCS), which
was not countervailed in this review, the Court's ruling relating to
double-counting applies equally well to pre-shipment financing, post-
shipment financing, and sales of import licenses. Respondents argue
that these programs contribute to otherwise taxable income just as
the CCS over-rebates and are countervailed directly as were the CCS
over-rebates. When these programs are also countervailed indirectly
under 80 HHC, they are being double-counted just like the CCS over-
rebates.
Accordingly, the respondents assert that the Department should, for
the final results, eliminate the double-counting that occurs when the
export financing and license-sale programs are countervailed as
direct subsidies and then countervailed a second time as part of the
tax deduction under Section 80 HHC.
Petitioners respond that the Department has analyzed this issue of
double-counting extensively in prior proceedings and that those
earlier findings should be upheld in this review. See, e.g., 1996
Castings Final, 63 FR at 64053-4 and 1994 Castings Final, 62 FR at
32299-301. They emphasize 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. Petitioners also assert that it is not
the Department's policy to examine the secondary tax effects of
subsidies. 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. Petitioners posit that
this approach is proper and reasonable given the difficulties
inherent in an effort to calculate secondary effects, citing 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. See SAA at 926. 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. Therefore, 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.
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 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 of 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, 156 F.3d at 1175. 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 by the GOI 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 or 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. As such, respondents have not created an
adequate record to support their claim. See NTN Bearing Corp., supra.
With respect to the export financing programs, 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. Moreover, performing such calculations,
as requested by respondents, runs counter to what the CAFC ruled in
Kajaria. With regard to tracing subsidies, the CAFC was 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.
Kajaria, 156 F.3d at 1176. 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 income a company realizes from the sale of an
import license is exempt from tax liability. Therefore, we find no
basis for the respondents' argument that revenue earned from the sale
of an import license constitutes export income and that the profits
therefrom are deducted from taxable income under 80 HHC. Accordingly,
we find no basis for the respondents' argument that, by
countervailing the sale of the import licenses and the 80 HHC
deduction in full, the benefit to the exporter from the import
license program is being countervailed twice.
Comment 7: Overdue Penalty Interest Paid
According to respondents, in calculating the benefits received by
castings exporters from 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 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 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. 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. The Department rejected respondents'
argument.
Department's Position:
In light of how the post-shipment export financing program operates,
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 Preliminary
Results, 64 FR at 61594. 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." For the overdue loan, the bank will
charge the company interest on the original amount of the loan at a
higher interest rate, however, the bank does not go back and levy the
higher penalty interest on the original term of the loan. In essence,
the overdue loan becomes a new loan with a new applicable interest
rate. Because penalty interest does not apply to the period preceding
the date the loan is considered overdue, we have not taken the
penalty interest into account when calculating the subsidy provided
on the original discounted loan. We also note, that in making this
argument, respondents have not pointed to any information which would
indicate that penalties are not charged on commercial loans that are
not paid by the due date.
Final Results of Review
For the period January 1, 1997 through December 31, 1997, we
determine the net subsidy rates for the reviewed companies to be as
follows:
Producers/Exporters Ad Valorem Rates
(Percentages)
Bengal Export Corporation 8.35%
Calcutta Ferrous Ltd. 9.28%
Calcutta Iron Foundry 0.42%
Carnation Industries Ltd. 0.72%
Commex Corporation 2.71%
Crescent Foundry Co. Pvt. Ltd. 0.84%
Delta Corporation Ltd. 27.65%
Dinesh Brothers (Pvt.) Ltd. 1.71%
Ganapati Suppliers Pvt. Ltd. 5.17%
Kajaria Iron Castings Ltd. 5.19%
Kiswok Industries Pvt. Ltd. 14.90%
Nandikeshwari Iron Foundry Pvt. Ltd. 13.72%
Rangilal & Sons 0.00%
R.B. Agarwalla & Company 3.56%
RSI Limited 0.90%
Seramapore Industries Pvt. Ltd. 1.51%
SSL Exports 27.65%
Super Iron Foundry 1.08%
Thames Engineering 27.65%
Trident International 27.65%
Uma Iron & Steel Company 2.10%
Victory Castings Ltd. 1.88%
Recommendation
Based on our analysis of the comments received, we recommend
adopting all of the above positions. If these recommendations are
accepted, we will publish the final results of review and the final
net subsidy rate for those reviewed producers/exporters of the subject
merchandise in the Federal Register.
Agree _____
Disagree _____
Troy H. Cribb
Acting Assistant Secretary
for Import Administration
Date
___________________________________________________________________
footnotes:
1. Petitioners in their December 13, 1999 case brief argue that the
Department's calculation of the benchmark interest rate likely
understates the actual cash credit rate which existed during the
period of review. For reasons discussed below, we have rejected the
petitioners' arguments and have used, for these final results, the
cash credit rate which was calculated at the preliminary results. See
Comment 1: Cash Credit Benchmark Interest Rate.
2. Please note that during the POR not every respondent company used
each of the programs discussed below. Only those companies which used
the programs are indicated.
3. See Certain Iron-Metal Castings from India; Preliminary Results
and Partial Recission of Countervailing Duty Administrative Review,
64 FR 61592, 61593-4 (November 12, 1999) (Preliminary Results).
4. See id. at 61594-5.
5. See id. at 61595.
6. See id. at 61595-6.
7. See id. at 61596.
8. See id. at 61596-7.
9. See id. at 61597.
10. See id. at 61597-600.
11. See id. at 61600-01.
12. The Department determined that the IPRS and the CCS programs
were terminated in the Sunset Review. See Final Results of Expedited
Sunset Review: Iron Metal Castings From India, 64 FR 30316 (June 7,
1999), and Amended Final Results of Expedited Sunset Review: Iron
Metal Castings From India, 64 FR 37509 (July 12, 1999).
13. See id. at 61601. Please note that in the preliminary results,
this section was referred to as "Program Found To Be De Minimis."
14. See id.
15. See Annexure II of the GOI's February 1, 1999 questionnaire
response.
16. See page 168 of the 1996-97 Annual Report and page 150 of the
1997-98 Annual Report.
17. Public document on file in the Central Records Unit (CRU) of the
Main Commerce Building, Room B-099.
18. Of the total land acreage, only 600 acres are being used for
industrial purposes. See ADDA Verification Report at 2.
19. Public document on file in CRU.
20. We note that the Department's new substantive regulations cited
by petitioners are not controlling in this review since this review
was requested prior to the effective date of those regulations.
21. Public version of the document is on file in CRU.
22. The All-India Development Banks include the following financial
institutions: Industrial Development Bank of India (IDBI), Industrial
Investment Bank of India (IIBI), Industrial Credit and Investment
Corporation of India, Industrial Financial Corporation of India, and
Life Insurance Corporation (LIC).
23. The All-India Development Banks provide financing to medium- and
large-sized units. The WBFC provides financing to small- and medium-
sized units.
24. During the course of this review, we learned the following:
Kajaria Iron Castings received long-term loans under the project
finance scheme of the IDBI, IIBI, and LIC; Kiswok Industries received
a long-term loan under the project finance scheme of the IDBI; and
Victory Iron Works received a long-term loan under the equipment
refinance scheme of the WBFC.
25. An industrial concern is defined as any concern engaged, or to
be engaged in, a number of areas, including, but not limited to: (i)
the manufacture, preservation or processing of goods; (ii) shipping;
(iii) mining including development of mines; (iv) the hotel industry;
(v) the transport of passengers of goods by road or by water or air;
(vi) the generation, storage, or distribution of electricity of any
other form or energy; (vii) providing medical, health, or other
allied services, etc. See The Industrial Development Bank of India
Act, 1964, and the Industrial Reconstruction Bank of India Act, 1984,
for a complete description of an industrial concern, submitted as
Annexure II and Annexure III, respectively, in the GOI's June 22,
1999 response.
26. Public version of the document is on file in CRU.
27. Section 351.519(a)(3)(ii)(1999) of the Department's CVD
regulations provides, with respect to exemption from import duties,
that "the Secretary normally will consider the amount of the benefit
to be the import charges that otherwise would have been paid on the
inputs not consumed in the production of the exported product . . .
." We note that the Department's substantive CVD Regulations cited by
respondents are not controlling in this review because the request
for the review was received prior to the effective date of the new
regulations.