66 FR 49635, September 28, 2001
C-533-821
Investigation
Public Document
DAS II/Office VI: DB, MG, RC, EBG
September 21, 2001
MEMORANDUM TO: Faryar Shirzad
Assistant Secretary
for Import Administration
FROM: Bernard T. Carreau
Deputy Assistant Secretary
for AD/CVD Enforcement II
SUBJECT: Issues and Decision Memorandum: Final Results of the
Countervailing Duty Investigation: Certain Hot-Rolled
Carbon Steel Flat Products from India
Summary
We have analyzed the comments and rebuttals of interested parties in the
final determination of the above-mentioned countervailing duty (CVD)
investigation covering the period April 1, 1999 through March 31, 2000
(the POI). As a result of our analysis, we have made certain modifications
to our Preliminary Determination. Below are the "Methodology and
Background Information" and "Analysis of Programs" sections of this
memorandum that describe the decisions made in this CVD investigation with
respect to Essar Steel Ltd. (Essar), Ispat Industries, Ltd. (Ispat), the
Tata Iron and Steel Company, Ltd. (TISCO), and the Steel Authority of
India, Ltd. (SAIL), the producers/exporters of subject merchandise covered
by this segment of the proceeding. Also below is the "Analysis of
Comments" section in which we discuss the issues raised by interested
parties. We recommend that you approve the positions we have developed
below in this memorandum.
Methodology and Background Information
I. The Net Subsidy Rate Attributable to Jindal Vijaynagar Ltd.
Section 776(a) of the Act requires the use of facts available when an
interested party withholds information that has been requested by the
Department of Commerce (the Department) or when an interested party fails
to provide the information requested in a timely manner and in the form
required. As described in the Notice of Preliminary Affirmative
Countervailing Duty Determination and Alignment of Final Countervailing
Duty Determination with Final Antidumping Duty Determinations: Certain Hot-
Rolled Carbon Steel Flat Products from India, 66 FR 20240, at 20242 (April
20, 2001) (Preliminary Determination), we found that Jindal failed to
respond to the Department's questionnaire. Consequently, we used facts
otherwise available.
Subsequent to the issuance of the Preliminary Determination, we received
a letter from the GOI informing us that Jindal never received a
questionnaire from the Department of Commerce. See the GOI's May 3, 2001
letter, a public document on file in the Central Records Unit (CRU) of the
Main Commerce building. The letter requested that the Department provide
Jindal with an opportunity to submit a questionnaire response.
We have reconsidered our decision to apply adverse facts available to
Jindal based upon the GOI's claim that Jindal never received a
questionnaire. We note that we did not send a questionnaire to Jindal upon
receiving the May 3, 2001 letter. We further note that petitioners did not
comment on the GOI's letter. In light of assertions by the GOI coupled
with the fact that we did not subsequently require a response from Jindal,
we have determined that the application of adverse facts available is no
longer warranted and, thus, we are no longer employing adverse facts
available with respect to Jindal. Rather, we are applying the all others
rate to Jindal.
We note that in the "Suspension of Liquidation" section of the
Preliminary Determination, we referred to Jindal as the Jindal Iron and
Steel Company. See 66 FR 20250. In its May 3, 2001 letter, the GOI
informed us that the company that shipped subject merchandise to the
United States during the POI actually was named Jindal Vijaynagar Ltd.
II. Subsidies Valuation Information
A. Allocation Period
Under section 351.524(d)(2) of the CVD regulations, 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, as updated by the Department of the 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 the party can
establish that the difference between the company-specific or country-wide
AUL for the industry under investigation is significant.
In the Preliminary Determination, we used an allocation period of 15
years, which is the average useful life corresponding to the steel
industry, as indicated by the IRS depreciation tables. See 66 FR at
20242. No party contested the Department's use of a 15-year AUL in the
Preliminary Determination. Therefore, in accordance with section
351.524(d)(2) of the CVD regulations, we have allocated all non-recurring
subsidies over 15 years.
B. Creditworthiness
As explained in the Preliminary Determination, we initiated a
creditworthy investigation of SAIL for fiscal years 1999 and 2000, in
accordance with section 351.505(a)(4)(i) of the CVD regulations. See 66 FR
at 20243. Petitioners further alleged that SAIL was uncreditworthy during
fiscal years 1997 and 1998. However, we did not initiate a creditworthy
investigation of SAIL in those years due to insufficient information in
the petition. Id. at 20243. In the Preliminary Determination, we found
that SAIL was creditworthy during the fiscal years 1999 through 2000 based
on the company's financial ratios for the period and on the fact that SAIL
was able to secure commercial financing during fiscal years 1999 and 2000
without the aid of GOI guarantees. Id. at 20243. Petitioners further
alleged that Ispat and Essar were uncreditworthy during the years 1997
through 2000. As explained in the Preliminary Determination, Ispat's and
Essar's financial ratios as well as the fact that they were able to obtain
commercial financial without GOI guarantees during the years in question
lead us to conclude that they were creditworthy during fiscal years 1997
through 2000. Id. at 20243. See also the April 13, 2001, creditworthiness
memorandum to Melissa G. Skinner, Director to the Office of AD/CVD
Enforcement VI, a public document on file in the Department's Central
Records Unit (CAU), Room B099 (Preliminary Creditworthiness Memorandum).
As discussed in comment 9 of the "Analysis of Comments" section below,
our verification of the questionnaire responses submitted by SAIL, Ispat,
and Essar and comments from interest parties did not lead us to reconsider
our findings on this matter. Accordingly, we continue to find SAIL
creditworthy during fiscal years 1999 and 2000. We also continue to find
Ispat and Essar creditworthy during the fiscal years 1997 through 2000.
C. Benchmarks for Loans and Discount Rate
Benchmarks for Loans and Discount Rate
In the Preliminary Determination, for those programs requiring the
application of a short-term benchmark interest rate, we used, in
accordance with section 351.505(3)(i) of the CVD regulations, company-
specific, short-term interest rates on commercial loans as reported by
producers/exporters of subject merchandise. See 66 FR at 20242. With
respect to the rupee-denominated, short-term benchmark, we used the
weighted-average of the companies' cash credit loans. We note that in the
Final Affirmative Countervail Duty Investigation: Certain Cut-to-Length
Carbon-Quality Steel Plate from India, 64 FR 73131, 73137 (December 29,
1999) (CTL Plate from India), we found that cash credit loans provide the
most comparable type of short-term benchmark when calculating the benefit
under the GOI's short-term loan programs. Therefore, we have determined it
is appropriate to use the weighted-average of those loans as a short-term
benchmark in this case.
In the Preliminary Determination, we further explained that for those
programs requiring a rupee-denominated discount rate or the application of
a rupee-denominated, long-term benchmark interest rate, we used, where
available, company-specific, weighted-average interest rates on commercial
long-term, rupee-denominated loans. See 66 FR 20242. We note that some
producers/exporters of subject merchandise did not have rupee-denominated,
long-term loans from commercial banks for all required years. Therefore,
for those years, we had to rely on a rupee-denominated, long-term
benchmark interest rate that is not company-specific, but provides a
reasonable representation of industry practice, in order to determine
whether a benefit was provided to the companies from rupee-denominated,
long-term loans received from the GOI. Pursuant to section
351.505(a)(3)(iii) of the CVD regulations, we first sought to use national
average interest rates for those years in which the producer/exporters did
not report company-specific interest rates on comparable commercial loans.
However, the GOI did not have national average interest rates on long-
term, rupee-denominated financing for those years. Therefore, in keeping
with the Department's past practice, we used as our benchmark in these
instances the weighted-average interest rates of commercial rupee-
denominated, long-term loans that were received by the other respondent
companies in this investigation. This approach is consistent with the
Department's practice in recent investigations. See e.g., Final
Affirmative Countervailing Duty Determination: Stainless Steel Sheet and
Strip in Coils from the Republic of Korea, 64 FR 30636, 30640 (June 8,
1999) and Final Affirmative Countervailing Duty Determination: Structural
Steel Beams From the Republic of Korea, 65 FR 41051 (July 3, 2000).
SAIL used a countervailable program requiring the use of long-term
interest rate benchmarks that were denominated in foreign currencies.
During verification, we attempted to obtain information on foreign-
currency denominated loans issued in India. However, we were not able to
obtain such information. See the August 17, 2001 Memorandum to Melissa G.
Skinner, Director, Office of AD/CVD Enforcement VI, from Robert Copyak,
Case Analyst, Office of AD/CVD Enforcement VI, "Meeting with Commercial
Banker in New Delhi," a public document on file in Room B-099 of the CAU.
Thus, because SAIL did not have any comparable, commercial loans
denominated in the appropriate foreign currencies and because we were not
able to obtain such loans during verification, we used currency-specific
"Lending Rates" from private creditors, as published in the International
Financial Statistics as the benchmark for SAIL's foreign currency loans.
Our approach on this matter is consistent with our approach in the CTL
Plate from India, 64 FR at 73133.
Regarding Essar, during verification, we learned that the company-
specific loans included in Essar's long-term fixed-rate benchmark interest
rate included loans whose interest rates had been revised subsequent to
the loans' issuance. When determining the benchmark interest rate for long-
term loans, our goal is to use a comparable commercial loan the "terms of
which were established during or immediately before the year in which the
terms of the government provided loan were established." See19 CFR
351.505(a)(2)(iii) (2000). Thus, based on our findings at verification, we
have derived the weighted-average of Essar's long-term benchmark interest
rate using the interest rates in effect during the year of receipt of the
commercial loans rather than using the revised interest rates that were
applied to the commercial loans in later years. For further information,
see page 5 of the July 3, 2001 Memorandum to Melissa G. Skinner, Director,
Office of AD/CVD Enforcement VI, from Eric B. Greynolds and Darla Brown,
Case Analysts, Office of AD/CVD Enforcement VI, "Verification of the
Questionnaire Responses Submitted by Essar Steel, Limited (Essar)" (Essar
Verification Report), a public document on file in Room B-099 of the CAU.
Matters pertaining to benchmark interest rates are further discussed in
comments 11, 19, and 22.
III. Program-Wide Changes
Respondents argue that, pursuant to section 351.526 of the CVD
regulations, the Department should take into account program-wide changes
involving countervailable programs that were eliminated by the GOI
subsequent to the POI but before the Preliminary Determination when
determining the final cash deposit rate for this investigation.
Specifically, respondents argue that the Department should determine that
no residual benefits continue to be bestowed from the Pre-Export Duty
Entitlement Passbook Scheme (DEPS), the Exemption of Export Credit from
Interest Tax program, the Special Import License (SIL) program, and the
sale of Advance Licenses and, thus, should calculate the final cash
deposit rate accordingly.
As discussed in more detail in comment 7 of the "Analysis of Comments"
section of this Decision Memorandum, we determine that the facts on the
record of this investigation warrant a finding of program-wide changes
with respect only to the Exemption of Export Credit from Interest Tax
program and the SIL program. Thus, the net subsidy rates that we have
calculated for these programs will not be included in any final cash
deposit rates issued by the Department.
Analysis of Programs
I. Programs Conferring Subsidies
A. 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 upon 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
either in Indian rupees or in foreign currency.
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 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.
Under the Foreign Exchange Management Act of 1999, exporters are required
to realize export proceeds within 180 days from the date of shipment,
which is monitored by the RBI. Post-shipment financing is, therefore, a
working capital program used to finance export receivables. This financing
is normally denominated either in rupees or in foreign currency, except in
those instances when an exporter uses foreign currency pre-shipment
financing and is then restricted to post-shipment export financing
denominated in the same foreign currency.
In the Preliminary Determination, we found that the Pre- and Post-
Shipment Export Financing programs conferred countervailable subsidies on
the subject merchandise because 1) receipt of export financing was
contingent upon export performance and 2) the interest rates under the
program were lower than commercially available rates. See 66 FR at 20243.
No new information, evidence of changed circumstances or comments from
interested parties were presented in this investigation to warrant any
reconsideration of these findings.
However, information collected during verification as well as comments
from interested parties have led us to revise the manner in which we
calculated the net subsidy rate under the Pre- and Post-Shipment Export
Financing program for certain producers of subject merchandise. For
further information, see comment 10 and 25 in the "Analysis of Comments"
section of this Decision Memorandum.
Accordingly, the net subsidy rate under the Pre-Shipment Export Financing
program is 0.60 percent ad valorem for Essar, 1.19 percent ad valorem for
Ispat, 0.47 percent ad valorem for SAIL, and 1.32 percent ad valorem for
TISCO.
The net subsidy rate under the Post-Shipment Export Financing program is
0.09 percent ad valorem for Ispat, 0.01 percent ad valorem for SAIL, and
0.74 percent ad valorem for TISCO.
B. Duty Entitlement Passbook Scheme
India's DEPS was enacted on April 1, 1997, as a successor to the Passbook
Scheme (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
manufacturers/exporters that have exported for a three-year period prior
to applying for the program. The amount of pre-export DEPS credits that
could be earned during the POI was ten percent of the average of total
export performance of the applicant during the preceding three years. Pre-
export DEPS credits are not transferable.
All exporters are eligible to earn DEPS credits on a post-export basis,
provided that the exported product is listed in the GOI's Standard Input
and Output Norms (SIONs). 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 were eligible to earn credits equal to 14 percent of the f.o.b.
value of their export shipments during the fiscal year ending March 31,
2000. During the POI, SAIL, Essar, Ispat, and TISCO all earned post-export
DEPS credits.
In the Preliminary Determination, we found that the DEPS conferred
countervailable subsidies on subject merchandise because the program
failed to meet the standards set forth in section 351.519 of the CVD
regulations. See 66 FR at 20244. No new information, evidence of changed
circumstances or comments from interested parties were presented in this
investigation to warrant any reconsideration of these findings. See
comments 6, 16, and 23 in the "Analysis of Comments" section of this
memorandum.
Accordingly, the net subsidy rate under the DEPS is 6.06 percent ad
valorem for Essar, 13.98 percent ad valorem for Ispat, 10.73 percent ad
valorem for SAIL, and 5.17 percent ad valorem for TISCO.
C. Advance Licenses
Under India's Duty Exemption Scheme, exporters 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 basic customs duty. Advance intermediate
licenses and special imprest licenses are also used to import inputs duty-
free. The GOI reported that advance intermediate licenses and special
imprest licenses are not related to exports. During the POI, Essar and
TISCO used advance licences and Essar and TISCO also sold some advance
licenses.
In the Preliminary Determination, based on prior decisions, we found that
the Advance Licenses program conferred countervailable subsidies on
subject merchandise because the program failed to meet the standards set
forth in section 351.519 of the CVD regulations. See 66 FR at 20245.
However, as explained below in Comment 5 of the "Analysis of Comments"
section of this memorandum, changes in the program itself, information
collected at verification, and comments from interested parties have led
us to revise our approach to this program. Specifically we determine that,
with respect to the Advance License program, the GOI has in place and
applies a system to confirm which inputs are consumed in the production of
the exported products and in what amounts, and, thus, is a reasonable and
effective system for the purposes intended. Thus, duty drawback under this
program is countervailable only to the extent that the advance licenses
result in an over-rebate of duties on imports not consumed in the
production process. Regarding the sale of advances, we have altered our
approach in the Preliminary Determination and determine that the sale of
quantity-based advanced licenses is not countervailable. See Comment 5 of
the "Analysis of Comments" section of this memorandum
Accordingly, the net subsidy rate under the Advance License program is
0.24 percent ad valorem for Essar.
D. Special Import Licenses (SILs)
During the POI, producers/exporters of subject merchandise sold through
public auction two 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 the IS0 9000 (series) and ISO 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.
Under the program, the SILs do not exempt or reduce the amount of import
duties paid by the importer.
In the Preliminary Determination, we found that the SIL program conferred
countervailable subsidies on subject merchandise because the companies
receive these licenses based on their status as exporters. See 66 FR at
20246. No new information, evidence of changed circumstances or comments
from interested parties were presented in this investigation to warrant
any reconsideration of these findings.
However information collected at verification has led us to revise the
manner in which have calculated the net subsidy rate under this program.
This program is further discussed in comment 12 of the "Analysis of
Comments" section of this Decision Memorandum.
Accordingly, the net subsidy rate under the SIL program is 0.06 percent
ad valorem for Essar, 0.15 percent ad valorem for SAIL, and 0.01 percent
ad valorem for TISCO.
E. Export Promotion Of 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 five
times the value of the capital goods within a period of 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 Preliminary Determination, we found that the EPCGS conferred
countervailable subsidies on subject merchandise because it is based on
export performance. See 66 FR at 20246. See also Final Negative
Countervailing Duty Determination: Elastic Rubber Tape From India, 64 FR
19125, 19129 (April 19, 1999) (Elastic Rubber Tape from India). No new
information, evidence of changed circumstances or comments from interested
parties were presented in this investigation to warrant any
reconsideration of these findings.
However information collected at verification and comments from
interested parties has led us to revise the manner in which have
calculated the net subsidy rate under this program for certain producers
of subject merchandise. See comments 11, 14, 17, 20, and 24 of the
"Analysis of Comments" section of this Decision Memorandum.
Accordingly, the net subsidy rate under the EPCGS is 1.35 percent ad
valorem for Essar, 16.63 percent ad valorem for Ispat, 0.29 percent ad
valorem for SAIL, and 0.95 percent ad valorem for TISCO.
F. Loans from the Steel Development Fund (SDF) Fund
The SDF was established in 1978 during a time when the steel sector in
India was subject to price and distribution controls. From 1978 through
1994, India's integrated steel producers, SAIL, TISCO, Rashtriya Ispat
Nigam Limited (RINL), and India Iron & Steel Company Limited (IISCO), were
mandated by the GOI to increase the prices for the products they sold. The
proceeds from the price increases were remitted to the SDF. Under the SDF
program, companies that contributed to the fund are eligible to take out
long-term loans at advantageous rates.
The issuance and administration of loans under the SDF program are
supervised by the Joint Planning Commission (JPC). However, according to
the GOI, all of the SDF's lending decisions are subject to the review and
approval of the SDF Managing Committee, whose membership is comprised
entirely of GOI officials.
In the Preliminary Determination, we found that the loans from the SDF
conferred countervailable subsidies on subject merchandise because of the
GOI's substantial control over the operation of the Fund. See 66 FR at
20247-48. No new information, evidence of changed circumstances or
comments from interested parties were presented in this investigation to
warrant any reconsideration of these findings. See comment 1 of the
"Analysis of Comments" section of this Decision Memorandum.
However information collected at verification and comments from
interested parties has led us to revise the manner in which have
calculated the net subsidy rate under this program for certain companies.
See comments 1, 2, 4, 21, and 26 of the "Analysis of Comments" section of
this Decision Memorandum.
Accordingly, the net subsidy rate under the SDF loan program is 0.03
percent ad valorem for SAIL and 0.99 percent ad valorem for TISCO.
G. The GOI's Forgiveness of SDF Loans Issued to SAIL
In October of 1998, SAIL, which was facing financial problems, proposed a
turnaround plan to the GOI, through the SDF Managing Committee, in which
it outlined its financial and business restructuring. The goals of the
restructuring plan were to restore the profitability and competitiveness
of the company. In order to achieve these goals, SAIL included in its
proposal to the GOI provisions for the forgiveness of portions of its
outstanding SDF debt. As SAIL's principal shareholder, the GOI reviewed
and approved SAIL's overall restructuring plan. However, the approval for
the actual forgiveness of SAIL's SDF loans lay with the SDF Managing
Committee. The SDF Managing Committee issued a resolution during the POI
in which it waived Rs. 50.73 billion of SAIL's SDF debt. In addition, SAIL
indicated that it received from the GOI three other waivers on its SDF
loans in the years immediately preceding the POI.
In the Preliminary Determination, we found that the GOI's forgiveness of
SDF loans issued to SAIL conferred countervailable subsidies on subject
merchandise. See 66 FR at 20248. No new information, evidence of changed
circumstances or comments from interested parties (see comments 1 and 2 of
the "Analysis of Comments" section) were presented in this investigation
to warrant any reconsideration of these findings.
Accordingly, the net subsidy rate for SAIL under this program is 6.06
percent ad valorem.
H. GOI Forgiveness of Other Loans Issued to SAIL
In the 1970s, IISCO, a subsidiary of SAIL, was an ailing private sector
company, the management of which was assumed by SAIL in the early 1970s at
the direction of the GOI. According to the GOI, pursuant to a 1978 Act of
Parliament, IISCO was made a wholly-owned subsidiary of SAIL. However,
IISCO continued to incur losses, and, in order to meet its capital
expenditures and to finance its debts, the GOI issued loans to the company
in the late 1980s and early 1990s. The GOI eventually forgave these loans
as part of SAIL's financial restructuring package.
In the Preliminary Determination, we found that the GOI's forgiveness of
additional loans issued to SAIL conferred countervailable subsidies on
subject merchandise. See 66 FR at 20249. No new information, evidence of
changed circumstances or comments from interested parties (see comment 3
of the "Analysis of Comments" section) were presented in this
investigation to warrant any reconsideration of these findings.
Accordingly, the net subsidy rate for SAIL under this program is 0.44
percent ad valorem.
I. Loan Guarantees from the GOI
The GOI has stated that it normally extends loan guarantees to "Public
Sector Companies" in particular industrial sectors. SAIL was the only
producer/exporter of subject merchandise that reported loans outstanding
during the POI on which it had received GOI loan guarantees. These long-
term loans were denominated in several foreign currencies.
In the Preliminary Determination, we found that GOI guarantees on loans
provided to SAIL from commercial banks conferred countervailable benefits.
See 66 FR 20240 at 20249. No new information, evidence of changed
circumstances or comments from interested parties were presented in this
investigation to warrant any reconsideration of these findings. In the
Preliminary Determination, we also determined not to countervaile GOI
guarantees on loans provided to SAIL from international lending
institutions. However, based on record evidence and on comments received
from interested parties, we have determined that guarantees provided by
the GOI on loans issued by international lending institutions are
countervailable. See comment 18 of the "Analysis of Comments" section.
Accordingly, the net subsidy rate for this program is 0.19 percent ad
valorem for SAIL.
J. Exemption of Export Credit from Interest Taxes
Under the Interest Tax Act of 1974, a tax is levied on the chargeable
interest accruing to a credit institution in a given year. Under Section
28 of the Act, the GOI may exempt any credit institution or class of
credit institutions, or the interest on any category of loan or advances
from the levy of the interest tax. Pursuant to this section of the Act,
the GOI has exempted working capital loans taken from banks for supporting
exports from the interest tax. Loans obtained by producers/exporters of
subject merchandise from banks under the pre- and post-shipment export
financing program are covered by this exemption. All producers/exporters
of subject merchandise used this program.
In the Preliminary Determination, we found that this program conferred
countervailable subsidies on subject merchandise. See 66 FR at 20248. No
new information, evidence of changed circumstances or comments from
interested parties (see comment 13) were presented in this investigation
to warrant any reconsideration of these findings.
Accordingly, we determine the net subsidy rate to be 0.01 percent ad
valorem for Essar, 0.05 percent ad valorem for Ispat, 0.01 percent ad
valorem for SAIL, and 0.08 percent ad valorem for TISCO. These net subsidy
rates remain unchanged from the Preliminary Determination.
II. Programs Determined To Be Not Used
A. Income Tax Deductions Under Section 80 H.C.
B. Grant-in-Aid Reported on SAIL's Annual Reports
III. Total Ad Valorem Rate
The net subsidy rate for producers/exporters of subject merchandise are
as follows:
Producer/Exporter Net Subsidy Rate
Essar Steel Limited (Essar) 8.32 percent ad valorem
Ispat Industries Limited (Ispat) 31.94 percent ad valorem
Steel Authority of India Limited (SAIL) 18.38 percent ad valorem
Tata Iron and Steel Company Limited (TISCO) 9.26 percent ad valorem
All Others Rate 16.17 percent ad valorem
IV. Cash Deposit Rates
Under section 351.526 of the CVD regulations, the Department can adjust
cash deposit rates to account for program-wide changes. During this
investigation, the Department verified that two programs have been
terminated subsequent to the POI. Therefore, we are adjusting the cash
deposit rates to take into account these program-wide changes. Thus, in
determining the cash deposit rates listed below, we have deducted the ad
valorem subsidies found for these two programs from the overall subsidy
rate calculated for the investigated companies.
Producer/Exporter Cash Deposit Rate
Essar Steel Limited (Essar) 8.25 percent ad valorem
Ispat Industries Limited (Ispat) 31.89 percent ad valorem
Steel Authority of India Limited (SAIL) 18.22 percent ad valorem
Tata Iron and Steel Company Limited (TISCO) 9.17 percent ad valorem
All Others Rate 16.08 percent ad valorem
V. Analysis of Comments
Comment 1: Steel Development Loans and Loan Forgiveness
Respondents contend that the Department erred in the Preliminary
Determination when it countervailed the loans received by SAIL and TISCO
under the SDF program. Respondents further argue that the Department
incorrectly countervailed the GOI's forgiveness of loans SAIL received
through the Steel Development Fund (SDF).
Respondents argue that the record evidence does not indicate that the GOI
had a controlling interest in the SDF such that it was able to "entrust or
direct" the SDF to provide a financial contribution within the meaning of
section 771(5)(B)(iii) of the Act. Respondents contend that the Joint
Planning Committee (JPC) is not an entity subject to GOI control because
the JPC's membership is dominated by representatives of the integrated
steel companies themselves, not the GOI, and mere membership of the
Secretary of the Ministry of Steel on the JPC cannot be equated with the
GOI itself acting through the JPC. Rather, respondents claim that the JPC
acts independently with minimal input from the GOI through the membership
of the Secretary. In addition, respondents claim that the SDF does not
involve the high degree of interaction between the government and an
intermediate entity that is necessary for the Department to conclude that
a government's actions are sufficiently invasive such that it can be said
to "entrust or direct" the intermediate entity to make a financial
contribution to another party within the meaning of section 771(5)(B)(iii)
of the Act. See, e.g., Final Negative Countervailing Duty Determination:
Stainless Steel Plate in Coils From the Republic of Korea, 64 FR 15530,
15532 (March 31, 1999).
In addition, respondents contend that the Department overlooked the fact
that the "entrusts or direct" language in section 771(5)(B)(iii) of the
Act requires that the alleged financial contribution "would normally be
vested in the government" and that "the practice does not differ in
substance from practices normally followed by governments." Respondents
assert that, where an industry group, such as Indian integrated steel
producers, contributes money to a jointly-administered fund and
distributes loans from that fund back to contributing members, this is not
inherently a government practice and, thus, does not satisfy the
requirements enumerated by the statute.
Respondents further argue that, although the GOI established the SDF and
the JPC and that it authorized the JPC to determine the prices at which
steel products could be sold by the integrated steel producers, the
Department has never equated the mere establishment by a government of an
entity with the conferral of a countervailable subsidy. Respondents also
argue that finding the SDF loans and forgiveness of SDF loans
countervailable would contradict the Department's precedent in other cases
in which it found that loans from a pool of funds administered by an
industry association, including those with government involvement, do not
constitute countervailable subsidies. In support of their contention,
respondents cite to, among other cases, Final Affirmative Countervailing
Duty Determination: Steel Wire Rod From Germany, 62 FR 54990, 54993
(October 22, 1997), in which they claim that the Department found that
benefits received by producers from financial pools created from
contributions of the producer's own funds under the European Coal and
Steel Community (ECSC) program are not countervailable. In further support
of their argument, respondents cite to Final Affirmative Countervailing
Duty Determinations; Certain Steel Products From Belgium, 47 FR 39304,
39326 (September 7, 1982), in which the Department found that a program
benefitting the steel industry which is financed exclusively by ECC
levies and levy-generated funds do not confer a countervailable benefit on
steel production since it merely returns to companies funds which they
originally paid in.
In addition, respondents take issue with the Department's application of
the "entrusts or directs" provision of the Act to the SDF because they
claim the contributions to the SDF were comprised entirely of the
companies' own money and, thus, any countervailable finding results in the
absurd conclusion of a private entity subsidizing itself. Respondents
assert that the entire corpus of the SDF consists of contributions from a
portion of the sales receipts generated by the four integrated steel
producers that contributed to the fund, the repayment of loans against the
SDF by those producers, and interest earned. They claim that, in the case
of the SDF, no subsidy can be conferred because the lack of any GOI funds
makes the finding of a government financial contribution and benefit, as
defined by section 771(5)(B) of the Act, impossible. Respondents state the
Department acknowledges this point, apparently without recognition, when
it stated in the Preliminary Determination that
Steel producers collected the price increase, which was paid
by steel consumers in India, and these additional funds were
then placed into the SDF as a source of concessional financing
for the Indian steel industry.
66 FR at 20248.
Respondents claim that the Department attempts to avoid this conclusion
by pointing to the GOI's control over the mechanism by which the SDF funds
were collected from its members. However, they assert, that irrespective
of the level of the GOI's involvement in the creation and maintenance of
the SDF, such involvement cannot serve as a basis to consider the SDF
loans, which came from the member companies' own funds, to be subsidies.
Respondents further argue that no benefit was conferred on companies'
participation in SDF because the overall impact of the GOI's steel price
controls was to reduce their income. Respondents contend that the purpose
of the GOI price controls imposed by the GOI was to support the
development of steel-consuming industries in India by reducing the prices
at which steel would be provided to them at levels that would obtain an
unfettered market. They state that this policy adversely affected the
steel producers subject to the price controls, as indicated by record
evidence that demonstrates that the prices charged by Indian steel
producers were below those charged for the same products on the open
market. In light of this adverse effect that the GOI price controls had on
Indian steel producers, respondents argue that it should be self-evident
that government policies that reduce the income of companies that are
subject to those practices cannot be a subsidy in any coherent definition
of the statutory term because no financial contribution has been provided
and no benefit has been conferred. Respondents argue that the loan program
under the SDF is no different from if the GOI simply had removed the price
controls that were adversely affecting the subject companies. They argue
that, with the SDF, the GOI merely allowed the integrated steel producers
to recoup through the SDF levy some of the funds they lost through the
price controls.
Petitioners contend that the SDF program is countervailable. Petitioners
argue that the record overwhelmingly establishes government action and,
thus, provides sufficient evidence that the GOI controlled and/or directed
the SDF within the meaning of section 771(5)(B)(iii) of the Act. In
support of their contention, petitioners cite to page three of the July
17, 2001, Memorandum to Melissa G. Skinner, "Verification of the
Questionnaire Responses Submitted by the Government of India," the public
version of which is on file in room B-099 of the CAU (GOI Verification
Report), which states that "all four members of the SDF Managing Committee
are members of the GOI." They note that the GOI Verification Report goes
on to state that,
The Secretary of the Ministry of Steel, which is one level removed from
the Minister, is the Chairman of the SDF Managing Committee. The other
three members are the Secretary of Expenditure, the Secretary of Planning
Commission, and the Development Commissioner for Iron and Steel."
Id. at 3. Petitioners further note that the Department learned at
verification that the SDF Managing Committee "considers and grants the
ultimate approval of the proposals put forth by the Joint Planning
Committee . . . {and} handles all decisions regarding the issuance, terms,
and waivers of SDF loans. Id. at 3. Citing to information submitted on the
record prior to the Preliminary Determination, petitioners point out that,
with respect to the GOI's control over the SDF, the India's Supreme Court
recently reached the same conclusion as the Department did in its
Preliminary Determination: "it is the Central government, which exercises
control over the SDF. . ." Petitioners also claim that the India's Supreme
Court found that the GOI itself had stated in an affidavit filed by the JP
that "funds out of the SDF were disbursed . . .by the SDF Managing
Committee as per directions issued by the Central government from time to
time." Petitioners assert that in light of the evidence collected by the
Department at verification, the GOI had a substantial and direct
involvement in the SDF, involvement, which they argue, certainly "entrusts
or directs" the SDF to carry out the GOI's policies as regards the SDF.
Petitioners also state that the level of GOI control does indeed rise to
a level that is equal if not greater than the level of government control
found in other cases in involving the "entrusts or directs" language of
the statute. See, e.g., Final Affirmative Countervailing Duty
Determination: Cut-to-Length Carbon Quality Steel Plate from the Republic
of Korea, 64 FR at 73184-85 (December 29, 1999).
Petitioners argue that the SDF loans and forgiveness of SDF loans
provided under the SDF program are de jure and de facto within the meaning
of section 771(5A) of the Act because the program was limited to a
specific group of integrated steel producers pursuant to GOI policy
objectives.
Petitioners further contend that respondents' notion that the SDF has
been funded by the integrated steel producers' own monies in the form of
revenues on the sale of their products is flawed. Petitioners claim that,
contrary to respondents' arguments, the SDF was funded through GOI-
mandated levies in which an extra element was added over and above the ex-
works prices for steel. They claim these additional levies were paid by
steel consumers, remitted to the JPC, and collected solely for use as a
source of funds for the SDF.
Petitioners also point out that the manner in which the SDF imposes the
levies is distinct from collection procedures under the ECSC program.
Petitioners argue that the cases cited by respondents involved ECSC
programs that were funded by levies on the producers themselves and,
therefore, came from pools of the producers' own funds. See, e.g., Final
Affirmative Countervailing Duty Determination: Steel Wire Rod from
Germany, 62 FR 54990, 54993 (October 22, 1997). They claim that with the
SDF program, the situation is different because the program is funded by
consumer levies and, therefore, come from public funds analogous to tax
revenues.
Petitioners also disagree with respondents' contention that the SDF
program did not confer a benefit on participating companies because the
SDF program and the consumer levies paid as part of the program were
established within the GOI's overall price control structure that
purportedly had the overall effect of suppressing the prices at which the
integrated steel producers could sell their products. Petitioners argue
that respondents' arguments on this matter ignore the bedrock principle
that the Department may not consider the effect of a subsidy in
determining whether that subsidy is countervailable. They point out that
section 771(5)(C) of the Act specifically provides for the Department not
to consider the effect of the subsidy in determining whether a subsidy
exists and that section 351.503(c) of the CVD regulations similarly
provides that in determining whether a benefit is conferred by a subsidy,
the Department is not to consider the effect of the government action on
the recipient firm's performance, including its prices or output, or how
the firm's behavior is otherwise altered.
Department's Position: As discussed in the Preliminary Determination and
in more detail below, the Department has determined in this proceeding
that the SDF Management Committee is a government body. In CTL Plate from
India, we determined, based on information available to the Department at
that time, that the SDF was financed solely by producer levies and other
non-GOI sources. See 64 FR at 73138. We further determined that there was
no information on the record to indicate that the GOI contributed tax
revenues, either directly or indirectly to the fund, or that the GOI
exerted any control over the fund. Id. On this basis, we determined that
loans under the SDF were not countervailable. Id. at 73134.
However, new information on the record of this investigation led us to
reverse in the Preliminary Determination the non-countervailable finding
we made in CTL Plate from India. We based our decision to countervail the
loans issued under the SDF program and the GOI's forgiveness of loans
under the SDF program in the Preliminary Determination on record evidence
that indicated that the levies contributed to the fund originated from
producer price increases that were mandated and determined by the JPC,
which was itself subject to GOI control. See 66 FR at 20248. We concluded
that the JPC was subject to GOI control because information submitted by
respondents and the GOI indicated that high level government officials,
namely the Secretary of the Ministry of Steel, had major leadership roles
in the JPC and the SDF Managing Committee, the bodies that issue and
administer the loans under the SDF. Id. at 20248. Accordingly, we found in
the Preliminary Determination that the GOI directed the contribution of
funds for the SDF within the meaning of section 771(5)(B) of the Act and
that the loans and loan forgiveness received under the SDF were specific
subsidies that constituted a government financial contribution and
conferred a benefit under section 771(5) of the Act.
During verification we examined the SDF program, and the information we
collected during verification supports a determination that the SDF
program is countervailable. For example, during verification we learned
that although the JPC, which is chaired by the Secretary of the Ministry
of Steel, manages the day-to-day affairs of the SDF, the SDF Managing
Committee handles all decisions regarding the issuance, terms, and waivers
of SDF loans, which included the decision to accept or reject the waiver
of SAIL's SDF loans. GOI Verification Report at 3. Moreover, we learned
that the Secretary of the Ministry of Steel, an official one level removed
from the Minister of Steel, is the Chairman of the SDF Managing Committee.
We further learned that the other three members on the SDF Managing
Committee consist of the following GOI officials: the Secretary of
Expenditure, the Secretary of the Planning Commission, and the Development
Commissioner for Iron and Steel. In addition, during verification we
reviewed numerous notes and minutes from SDF Management Committee
meetings. The documents from the meetings demonstrate the SDF Management
Committee's ability to control and direct loan approvals, interest
payments on SDF loans, and SDF loan waivers. See page 5 and Exhibits 11
and 12 of the GOI Verification Report. Therefore, based on the evidence on
the record of this proceeding, we determine that the SDF operates as a
government entity, that all lending decisions are decisions ultimately
made by the GOI, and that the decision to forgive SDF loans is also a
decision made by the GOI.
In addition, we do not agree with respondents' contention that the SDF
levies, much like the ECSC program, represented the integrated steel
producers' own money and, thus, cannot constitute a government financial
contribution. Under the ECSC program, producers make voluntary
contributions to a pool of money using their own funds. Under the SDF
program steel consumers were compelled by the GOI to pay a levy, the
proceeds of which were channeled back to a select group of steel
producers. Thus, rather than constituting the steel producers' own funds,
the SDF levies, as noted by petitioners, are analogous to tax revenues
collected from consumers as mandated by the GOI. On this basis, we
continue to find that the loans and loan forgiveness provided to steel
producers under this program constituted a financial contribution and
conferred a benefit within the meaning of section 771(5)(D)(i) and (E)(ii)
of the Act, respectively.
In addition, we disagree with respondents' assertion that the SDF program
did not confer a benefit upon participating companies because the SDF
program and the consumer levies paid as part of the program were
established within the GOI's overall policy of price controls, a policy
that adversely affected Indian steel producers. We note that section
351.503(c) of the CVD regulations states that in determining whether a
benefit is conferred:
the Secretary is not required to consider the effect of the
government action on the firm's performance, including its
prices or output, or how the firm's behavior otherwise is altered.
The Preamble to the CVD Regulations elaborates on this point with the
following illustration:
. . .assume that a government puts in place new environmental
restrictions that require a firm to purchase new equipment to
adapt its facilities. Assume also that the government provides
the firm with subsidies to purchase that new equipment, but the
subsidies do not fully offset the total increase in the firm's
cost - that is, the net effect of the new environmental
requirements and the subsidies leaves the firm with costs that
are higher than they previously were.
In this situation, section 771(5B)(D) of the Act, which deals
with one form of non-countervailable subsidy, makes clear that
a subsidy exists. Section 771(5B)(D) of the Act treats the
imposition of new environmental requirements and the subsidization
of compliance with those requirements as two separate actions.
[A subsidy that reduces a firms cost of compliance remains a
subsidy (subject, of course, to the statute's remaining tests
for countervail ability), even though the overall effect of
the two government actions, taken together, may leave the firm
with higher costs] (emphasis added).
Preamble to the CVD Regulations, 63 FR at 65361.
Thus, as our CVD Regulations make clear, our decision to countervail a
particular government program begins and ends with the provision of a
subsidy, as defined by the statute, and does not extend to the net effect
that a government's involvement, beyond that of the provision of the
subsidy under examination, may have on the subsidy recipient in question.
Comment 2: Attribution of the GOI's Waiver of SAIL's SDF Loans
Respondents argue that a substantial portion of the SDF loan waivers
granted to SAIL, RS. 1566 Crores, (1) was, in fact, provided for the
purpose of writing off loans and advances provided to the Indian Iron and
Steel Company (CISCO), a subsidiary of SAIL that does not produce or
export subject merchandise. Respondents further argue that another portion
of the SDF loan waivers, 506 crores, was for the purpose of writing back
interest waived on loans provided to IISCO. In support of its contention,
respondents cite to SAIL's annual report for the POI which states that "as
part of the financial restructuring, SAIL has written-off loans and
advances (including interest receivable) from own sources of IISCO of RS.
1566 cores against waiver of SDF loans." In addition, respondents claim
that the RS.1566 figure is reflected in IISCO's books and, thus, is
further evidence that the waivers were tied to IISCO.
Respondents claim that this scenario falls within the purview of the
Department's regulation regarding the attribution of subsidies in a
situation involving corporations with cross-ownership. They cite to
section 351.525(b)(6)(iii) of the CVD regulations which states:
If the firm that received the subsidy is a holding company,
including a parent company with its own operations, the
Secretary will attribute the subsidy to the consolidated
sales of the holding company and its subsidiaries. However,
if the Secretary finds that the holding company merely served
as a conduit for the transfer of the subsidy from the government
to a subsidiary of the holding company, the Secretary will
attribute the subsidy to products sold by the subsidiary.
Respondents claim that SAIL served as a "conduit," within the meaning of
the Department's CVD Regulations, for the transfer of financial relief
and, thus, any benefit that may have been received from this portion of
the loan waiver is attributable to IISCO and not SAIL.
Respondents argue that the Department's precedent on the matter of
attribution compels the Department to tie debt relief to a specific
product or market when the facts of a particular case allow it do so.
Specifically, they cite to the Final Affirmative Countervailing Duty
Determination: Certain Steel Products from Austria, 58 FR 37217 (July 9,
1993) (Certain Steel from Austria). They explain that although the
Department determined in Certain Steel from Austria that the debt
forgiveness in question benefitted the company and its wholly-owned
subsidiary, the Department went on to state that, ". . . if the agency
determines that benefits were tied to the production or sale of a
particular product or products . . . it will allocate benefits to the sale
of those products." 58 FR at 37272. Respondents also cite to the Final
Affirmative Countervailing Duty Determination: Grain-Oriented Electrical
Steel from Italy, 59 FR 18357, 18365 (April 18, 1994) (GOES from Italy) as
further evidence that, in a situation in which the targeted subsidies
apply only to a subsidiary company that produces subject merchandise, the
Department's position is that it will attribute subsidies only to that
subsidiary and not to the corporate group.
Petitioners argue that the Department should reject respondents' argument
that a portion of the SDF loan waivers did not provide a countervailable
benefit to SAIL. Petitioners claim that no new evidence could possibly
warrant a change from the Department's approach in the Preliminary
Determination. Rather, petitioners contend that the evidence continues to
demonstrate that the SAIL benefitted from the entire amount of the RS.
5073 crore SDF loan forgiveness. Petitioners state that the record
evidence clearly establishes that SAIL, and only SAIL, was the obligor on
the SDF loan that were forgiven by the GOI and, thus, was the party
ultimately responsible for the repayment of those loans. They argue that
any forgiveness of those loans provided SAIL with a direct financial
contribution and benefit in the form of relieving it of its financial
obligations.
Petitioners point out that providing SAIL with a benefit, through relief
of SAIL's financial obligations, was the central point of the SDF loan
forgiveness. They argue that if SAIL had not been responsible for the
repayment of the loans, SAIL would not have asked and the GOI would not
have waived the SDF debt. Petitioners argue that the GOI conceded this
point when it stated in its questionnaire responses that the loan
forgiveness was provided as a part of SAIL's business and financial
restructuring to increase its competitiveness and improve its financial
health. Therefore, petitioners assert that the benefit to SAIL from the
debt forgiveness is obvious.
Petitioners further argue that as the Department found in the Preliminary
Determination that "absent government involvement, SAIL would have borne
the burden of IISCO's inability to repay its debts." See 66 FR at 20249.
Thus, rather than suffering a loss, SAIL benefitted in having its own
financial obligations to the SDF waived. Therefore, petitioners claim
that, contrary to respondents' arguments, the SDF loan forgiveness did not
target IISCO, it benefitted the entire corporate entity of SAIL.
Petitioners also argue that the RS. 506 crore in SDF loan forgiveness
that was designated for SAIL to "write back" interest it had previously
written off on loans that it had given to IISCO is even more obviously
beneficial to SAIL alone. Petitioners argue that whereas SAIL previously
had received no interest income and had no prospects of receiving interest
income on its loans to IISCO, the "write back" of the interest provided
SAIL with net income of RS. 506 crores on the loans. Petitioners point out
that respondents themselves acknowledge that the RS. 506 crores in
interest was written back as profit to SAIL's profit and loss account in
its financial statements. They further argue that conversely, there was no
benefit to IISCO and no effect on its books from the RS. 506 in SDF loan
forgiveness.
Petitioners argue that respondents are incorrect in asserting that,
pursuant to section 351.525(b)(6)(iii) of the CVD regulations, SAIL merely
served as a "conduit" for a substantial portion of the SDF loan waivers
and, thus, received no benefit from that portion of the waivers.
Petitioners claim that this assertion is flatly refuted by the Preamble to
the Department's CVD Regulations. Petitioners state that the Preamble
unequivocally states that the Department:
. . .considers certain subsidies, such as payments for plant
closures, equity infusions, debt forgiveness, and debt-to-equity
conversions, to be untied because they benefit all production.
Preamble to the CVD regulations, 63 FR at 65400.
Petitioners claim that, based on the Preamble to the CVD regulations,
the Department must determine that SAIL's SDF loan forgiveness benefitted
all of its production and cannot be attributed only to sales of particular
products.
Petitioners also take issue with respondents' reliance on Certain Steel
from Austria and GOES from Italy. Petitioners state rather than support
respondents' argument on the attribution issue, these cases refute it.
Petitioners state that in Certain Steel from Austria, the Department
determined that debt forgiveness provided to NZS Development, the wholly-
owned subsidiary of New Zealand Steel (NZS), "by definition" benefitted
NZS as a whole and should be allocated over the total sales of that
corporate entity. See 58 FR at 37227. Regarding respondents' citation to
GOES from Italy, petitioners claim that the Department determined to focus
on the subsidies provided only to the producer of subject merchandise
because the "extremely complex" nature of the restructuring of the
companies in question required such an analysis. See GOES from Italy, 59
FR at 18366.
Department's Position: We disagree with respondents' contention that a
substantial portion of the SDF loan forgiveness (i.e., the RS. 1566 plus
RS. 506 crores) is attributable to IISCO rather than to SAIL. We note that
Exhibit 11 of the SAIL's January, 26, 2001 questionnaire response lists
SAIL as the recipient of SDF loan waivers of RS. 5073 crore. In addition,
during verification GOI officials explained that SAIL's waiver of SDF
loans in the amount of RS. 5073 crore would be "set off," in other words,
contingent upon several actions, which included "loans and advances from
SAIL to IISCO" (i.e., the RS. 1566 crore) as well as a waiver of loans
owed by IISCO to SAIL (i.e., the 506 crore). See page 8 July 3, 2001
memorandum to Melissa G. Skinner, Director, Office of AD/CVD Enforcement
VI, from Eric B. Greynolds, Robert Copyak, Michael Grossman, and Darla
Brown, Case Analysts, of which the public is on file in Room B-099 of the
CRU in the Main Commerce Building (SAIL Verification Report). The SAIL
Verification Report further states that, with respect to the RS. 1566
crore of the SDF Forgiveness
. . . the GOI wanted to ensure the survival of IISCO. Thus,
pursuant to {SAIL's} restructuring package, IISCO's responsibility
to repay SAIL was abolished in lieu of SAIL receiving a waiver of
its SDF loans in an equal amount. SAIL officials explained that
this arrangement not only relieved the liability faced by IISCO
but also the receivable from SAIL.
We do not deny that IISCO benefitted as a result of this arrangement.
However, we also find that the record evidence clearly demonstrates that
SAIL also benefitted directly from its arrangement with the GOI. Prior to
its financial restructuring, SAIL owed RS. 5073 crore in SDF loans. Upon
undertaking several actions that were required by the GOI, which included
a waiver of RS. 2072 crores in loans owed to it by IISCO (i.e., the RS.
1566 and RS. 506 crore in question), SAIL's obligation to repay the RS.
5073 crore in SDF loans was waived. Therefore, we find that the entire
amount of the GOI's forgiveness of SAIL's SDF loans (i.e., the RS. 5073
crores) constituted a government financial contribution and have
attributed this benefit over SAIL's consolidated sales.
Comment 3: The Attribution of GOI Debt Forgiveness
Respondents contend that the Department erred in the Preliminary
Determination when it found that the GOI's waiver of 381 crore solely
benefitted SAIL. They argue that the waiver of the GOI loans is fully
attributable to IISCO and, thus, did not benefit SAIL.
Respondents contend that the record is replete with evidence that the
forgiveness of the GOI loans was for the benefit of IISCO, rather than
SAIL itself. For example, they cite to previous questionnaire responses
from the GOI which state that, "in order to provide relief to IISCO, the
GOI approved the waiver of loans and interest thereon, aggregating RS. 381
crore to SAIL, and immediately thereafter SAIL in turn waived the loan
liability of the same amount owed by IISCO to SAIL." Respondents further
claim that SAIL's annual report for the POI indicates that the GOI
"routed" the write-off of the GOI loans through SAIL. See, Exhibit 7 of
SAIL's January 26, 2001 questionnaire response. They also state that the
write-off of GOI loans is also reflected in IISCO's own annual report for
the POI: "based on the Financial Restructuring of SAIL (Holding Company)
as approved by the Central Government, the Holding Company has waived
Loans, Interest on Loans and Current Liabilities" totaling to RS. 381
crore. Id. at 74.
Respondents also assert that the information collected by the Department
at verification further supports the notion that the waiver of the RS. 381
crore in GOI loans was tied to IISCO. They claim that the loan documents
for the GOI loans in question indicate that the loans were designated
either for IISCO's modernization or to cover IISCO's cash losses. See,
SAIL Verification Report at Exhibit 10. Respondents further contend that
at verification the GOI adequately explained that the "routing" of
financing for a subsidiary through its parent or holding company is
required by Indian law. GOI Verification Report at 4. They also contend
that the "back-to-back" nature or "routing" of the loans was noted by the
Department when it stated in the GOI Verification Report that, ". . .{in}
SAIL's books, these loans appear as liabilities and as receivables from
IISCO. In addition, they appear as liabilities in IISCO's books." Id. at 4.
Respondents also argue that the repayment of the GOI loans was the sole
responsibility of IISCO and that SAIL confirmed this point at verification
when SAIL officials explained that,
". . . repayments on the loan from June of 1990 were contingent upon
IISCO generating cash
. . .IISCO never generated cash and, as a result, no payments were ever
made." SAIL Verification Report at 8. Respondents claim that when the
modernization of IISCO failed to generate the necessary funds to make the
repayments, SAIL was not required to, and did not, step in to cover non-
repayment by IISCO. The fact that SAIL was not obligated to cover IISCO's
non-payment demonstrates that the responsibility for repayment and,
therefore, any benefits stemming from the forgiveness of that repayment
lies with IISCO.
Respondents assert that the forgiveness of the RS. 381 crores clearly
falls within the purview of section 351.525(b)(6)(iii) of the CVD
regulations, regarding the attribution of subsidies in a situation
involving corporations with cross-ownership. Because SAIL merely served as
a "conduit" for IISCO's debt relief, there is no question that section
351.525(b)(6)(iii) of the CVD regulations applies with the result that
none of the RS. 381 crore should be attributed to SAIL.
Petitioners claim that the waiver of the RS. 381 crore of GOI loans is
fully attributable to SAIL. Petitioners point out that information
collected at verification indicates that SAIL was the only obligor on the
GOI loans. Specifically, they point out that the loan agreements
themselves identify SAIL as the party "to whom {the loans were}
sanctioned." See GOI Verification Report at 4. They further argue that the
statements made by GOI officials at verification confirm this point.
Citing to the GOI Verification Report, petitioners explain that when GOI
officials were asked at verification to identify the party ultimately
responsible for repayment of the loans, "they stated that SAIL would have
been responsible for repaying the loans." Id. at 4.
Petitioners argue that the waiver of the GOI loans was provided as a
vital part of SAIL's business and financial restructuring for the GOI's
debt forgiveness would not have been necessary and would not have been
included as part of the restructuring if SAIL was not responsible for
repaying the loans. Also, petitioners claim that the GOI's own statements
in its questionnaire response indicate that "SAIL was burdened with loans
with no prospect of their recovery," thereby admitting that SAIL was
responsible for the loans. See page II-45 of the GOI's January 26, 2001
questionnaire response.
Lastly, petitioners argue that the fact that the original loan agreements
mention that their purpose was to improve the financial condition or
assist in the modernization of IISCO in no way indicates that the
repayment of the loans was the sole responsibility of IISCO, thus making
the benefit from the waiver of such loans somehow tied to IISCO.
Department's Position: In the Preliminary Determination, we found that,
"absent the involvement of the GOI, IISCO would not have been able to
repay the loans it owed to SAIL" and that the waiver of the loans "enabled
SAIL to avoid bad debt expenses." See 66 FR at 20249. On that basis, we
found that the RS. 381 crore in GOI loans waivers benefitted SAIL. Id.
Information on the record of this investigation, including information
collected at verification, fully supports our finding in the Preliminary
Determination.
For example, GOI documents approving the waiver of SAIL's loans identify
SAIL as the recipient of the GOI loan waivers. See February 18, 2000
letter from the Ministry of Steel that was included as Exhibit 11 of
SAIL's January 26, 2001 questionnaire response. We further note that the
loan agreements themselves list SAIL as the "party to whom {the loans
were} sanctioned" and identify SAIL as the party to which the amount was
"debitable." See GOI Verification Report at 4. Furthermore, as noted by
petitioners, GOI officials stated that SAIL was the party ultimately
responsible for the repayment of the loans and that the GOI "waived the
RS. 3.81 billion to SAIL so that SAIL could waive loans to IISCO in the
same amount." Id. at 4. Also, information in the proposal that SAIL
submitted to the GOI regarding its restructuring indicates that the waiver
of the GOI's loans would improve SAIL's financial standing. See Articles
8.1 and 8.2 of Exhibit 11 of SAIL's January 26, 2001 questionnaire
response.
Thus, in light of the fact that record evidence indicates that, among
other things, SAIL was the recipient of the GOI loans, SAIL was the party
to which the loans were "debitable," SAIL was the party ultimately
responsible for repaying the loans, and that SAIL itself admits that the
waiver of such loans would benefit its financial position, we continue to
find that SAIL benefitted from the waiver of RS. 381 crore in GOI loans.
Regarding respondents' and petitioners arguments on section
351.525(b)(6)(iii) of the CVD regulations regarding attribution, we note
that the subsidy in question involved the forgiveness of loans, loans that
were provided directly to SAIL by the GOI and that SAIL subsequently
relent to IISCO. Thus, when the GOI waived the loans, two parties
benefitted. IISCO was no longer obligated to repay SAIL, and, more
importantly for purposes of this investigation, SAIL no longer faced the
prospects of incurring bad debt expenses on the loan and no longer bore
the obligation to repay the loans to the GOI. For these reasons, we have
allocated the benefit for this program over SAIL's consolidated sales.
Comment 4: Suspension of Interest Payments Due on SAIL's SDF Loans During
the POI
Petitioners explain that in the Preliminary Determination, the Department
found that SAIL "had no outstanding SDF loans with interest payments due
during the POI" and that, therefore, "these loans did not provide a
benefit to SAIL during the POI." See 66 FR at 20248. Petitioners claim
that the Department discovered new information during verification
indicating that SAIL did, in fact, owe interest payments on some of its
SDF debt during the POI. However, petitioners explain that the Department
learned at verification that SAIL did not pay any of the interest that was
owed on those SDF loans. Petitioners argue that since SAIL did not pay
interest that was due, SAIL received a countervailable benefit under the
SDF program in the form of interest-free loans. Petitioners cite to the
Department's decision to countervail suspended loan payments in the Final
Affirmative Countervailing Duty Determination: Structural Steel Beams from
the Republic of Korea, 65 FR 41051 (July 3, 2001) (Steel Beams from Korea)
as evidence that it is the Department's practice to find such interest
payment suspension countervailable.
Petitioners suggest the Department multiply the interest payments that
should have been paid by SAIL's short-term benchmark interest rate in
order to capture the benefit from the suspended interest payments.
Respondents do not agree. They argue that, for the reasons explained
above, none of the SDF loans issued to SAIL conferred a countervailable
benefit. Second, respondents argue that SAIL has applied to the SDF
Managing Committee to have the interest converted into a new loan. Third,
respondents contend that if the Department were to decide that the SDF
loans and SAIL's non-payment of its SDF interest are countervailable, the
Department should calculate any benefit received by SAIL on a monthly,
rather than annual, basis.
Department's Position: We agree with petitioners that the suspension of
SAIL's interest obligations conferred a countervailable benefit upon SAIL
in the form of an interest-free loan. During verification, we learned that
although RS. 5073 crore of SAIL's SDF loans had been waived, a portion of
interest remained outstanding. See SAIL Verification Report at 11. We also
learned that some of this outstanding interest came due during the POI but
that SAIL had not paid any of this interest. Id. at 11. Instead it
petitioned the SDF Managing Committee to convert this outstanding interest
into a new SDF loan. Id. at 11. Thus, the information collected at
verification indicates that SAIL avoided having to make interest payments
that were otherwise due, thereby providing the company with a benefit in
the form of an interest-free loan.
To calculate the benefit under this program, we first determined the
amount of interest that would have otherwise been paid by SAIL on the SDF
loans at the company's long-term benchmark interest rate during the POI.
As respondents correctly point out, the interest that was due on these SDF
loans accrued on a monthly basis. Therefore, we calculated that amount of
interest that would have otherwise been due based on those monthly
accruals. We then multiplied the benchmark interest payment that would
have otherwise been due by SAIL's company-specific, short-term benchmark
interest rate for the POI.
To calculate the total net subsidy rate under this program, we divided
the total benefit by SAIL's total consolidated sales for the POI.
Comment 5: Countervailability of Advance Licenses
Respondents argue that India's advance license program is not
countervailable. They argue that, during the POI, the advance license
program functioned as a legitimate duty drawback scheme that is non-
countervailable under sections 351.519(a)(2) and 351.519(a)(4) of the CVD
regulations. Respondents disagree with the Department's determination in
CTL Plate from India that the use of advance licenses is countervailable
and that the sale of advance licenses is countervailable. They state that
the Department's determination in CTL Plate from India is erroneous and
immaterial and contend that an important change in the program
differentiates the advance licenses used in the current investigation from
those used in CTL Plate from India. According to respondents, these
changes have made the program even more clearly an acceptable form of
drawback under the Department's regulations. Specifically, during the
period 1992-1997, advance licenses measured the units of authorized
imports in terms of either their value, or their quantity, and SAIL, the
only respondent in the CTL Plate from India investigation, used the value-
based licensing system during the POI of that investigation. Respondents
argue that the GOI changed the program so that, as of April 1, 1997, the
advance license program is now a quantity-based as well as a value-based
system. They contend that inputs imported under the quantity-based advance
licensing program are subject to strict controls to ensure that the
quantity of manufactured goods exported is sufficient to account for all
the imported inputs. They argue that the GOI has changed its SION system
by itemizing the inputs and corresponding duty amounts rather than
"broadbanding" them by grouping inputs and duty amounts together.
Petitioners argue that the advance license program is not a permissible
duty drawback program and that the changes to the advance license program
do not warrant a reversal of the Department's determination in CTL Plate
from India. They contend that the use of the SIONs allow the GOI only to
estimate the type and quantity of the inputs consumed in the production of
a product and does not provide the verification system necessary for the
program to constitute a permissible duty drawback or substitution drawback
program. They also contend that the practice of "broadbanding" inputs in
the SIONs continues to contribute to the inability to calculate accurate
quantities of inputs consumed in the production of the exported product
under the Advance Licenses scheme. In addition, they take issue with the
fact there are no restrictions on the use of inputs imported using advance
licenses. Arguing that the sale of advance licenses is countervailable,
petitioners. state that the sale of an advance license that a company has
obtained for exports produced using domestic inputs effectively allows the
company selling the license to obtain a "refund" of import duties that it
has never paid.
Department's Position: In order for the Department to consider a drawback
program to be not countervailable, the government must have in place and
apply a reasonable system or procedure to confirm which inputs are
consumed in the production of the exported products and in what amounts.
In CTL Plate from India, the Department determined that advance licenses
were countervailable because the GOI did not base the licenses it issued
on the amount of import duties that were payable on the imported items
that were consumed in the production of the exported merchandise. In
addition, the Department took issue with the fact that the licenses
specified ranges (rather than actual amounts) of quantities to be
imported, and that the GOI did not carry out examinations of actual
imports involved. In the Preliminary Determination, we again found the
advance licenses to be countervailable for the same general reasons as
those in CTL Plate from India. However, in the Preliminary Determination
we stated that, at verification, we would examine respondents' claims that
there have been changes in the advance license program that would warrant
a reconsideration of the program's countervailability.
The information on the record and the explanations provided by company
and government officials at verification support a finding that there have
been significant changes to the advance license program since CTL Plate
from India. Notably, prior to 1997, advance licenses were value-based. The
amount of duty exemptions a company could receive was based on the value
of its imported inputs rather than the quantity of the inputs actually
used. This was the type of license used by the respondent in CTL Plate
from India. Conversely, the type of licenses used in the POI by the
respondents in this investigation are quantity-based.
Moreover, we found at verification that this new type of advance license
program has a built-in monitoring system by virtue of the application
process and the manner in which the amount of duty exemption to be granted
is limited by the quantity stipulated in the license. The GOI now grants
an advance license only for items listed on the SION for that industry.
When a company applies for a license, it must list the specific items and
quantities which it intends to import. The GOI will grant the license for
the requested items and quantities only if the items and amounts requested
are listed on the SION for the product. Due to this change, the GOI is
able to base the duties to be exempted (when those imports are made using
the license) on the amounts of imported inputs necessary for producing the
product. The items specified in the advance licenses as items to be
imported are item that used in the production of the relevant exported
merchandise.
Therefore, we conclude, based on the record facts in this investigation,
the GOI has in place and applies a system to confirm which inputs are
consumed in the production of the exported products and in what amounts,
and this system is reasonable and effective for the purposes intended.
However, we note that under this system the GOI allows for drawback of
duty on certain items (e.g., rolls for rolling mills) that, though used in
the production of subject merchandise, are not consumed in the production
process. Therefore, we have found that a portion of the advance licenses
attributable to these items constitute an over-rebate of duties because
the amount drawn-back exceeds the amount of import charges on imported
inputs that are consumed in the production of the exported product. As
discussed above in the summary of this program, we find this over-rebate
to be a countervailable subsidy.
We also determine that sales of quantity-based advance licenses are not
countervailable. The application process and the manner in which the
amount of duty exemption to be granted is limited by the quantity
stipulated in the license acts as a built-in system for monitoring that
the amount of duty exemption ultimately granted to the importer who uses
the licenses is commensurate with the quantity of the input used to
produce the exported product. Whether the license ultimately is used by
the original applicant of license or a purchaser of a license does not
change the amount of duty exemption that can be claimed. That is, because
the amount of exemption granted is determined at the time of import and is
based on the type and quantity of a specific good used in the production
of exported product, the amount of duty exemption ultimately granted need
not be claimed by the original licensee.
In light of the fact that over the years the GOI has made numerous
changes to the advance license program and its other licensing programs,
we will continue to examine this program in any subsequent administrative
review or in any new proceeding.
Comment 6: Countervailability of DEPS
Ispat, SAIL, and TISCO used post-export DEPS licenses during the POI, and
Essar used both pre-export and post-export DEPS licenses during the POI.
Respondents argue that the Department should reverse its preliminary
determination and find DEPS program to be a valid, non-countervailable
substitution drawback program under section 351.519(a)(2) of the
Department's regulations. They argue that the GOI has a system and
procedures to confirm which imported inputs are consumed in the production
of hot rolled carbon steel and in what amounts, and that this system and
procedures are reasonable, effective for the purpose intended, and based
on generally accepted commercial practices in India. Specifically, they
argue that the GOI system meets the substitution drawback provisions
through the establishment and review of the SIONs, by compiling extensive
information on the imported inputs and exported products from evidence
such as bills of entry and shipping bills, and through annual reviews and
even revisions of the DEPS rates. They contend that, in setting the DEPS
rate, the GOI carefully reviews each respondent's total customs duty
incidence on imported inputs and the value of its exported hot rolled
steel. In addition, respondents contend that use of the inflation of the
denominator of the DEPS rate calculation through the incorporation of the
"value-added" component is an important mechanism to ensure that the DEPS
rate does not result in the excessive drawback. Respondents' Case Brief at
62. Respondents also refer to Ball Bearings from Thailand and Textile
Products from Colombia as instances in which the Department has determined
that the use of standard norms to facilitate fixed rate drawback programs
is reasonable.
Petitioners argue that the DEPS is not a permissible drawback or
substitution scheme. They argue that the Department has reached this
conclusion in several cases and found the program countervailable. See,
e.g., CTL Plate from India, 64 FR 73131 at 73134. They further argue that
even more recently Canada and the European Commission have both determined
likewise. Petitioners assert that respondents have not demonstrated that
the GOI has changed the DEPS in a manner that could possibly warrant a
different result in this investigation.
Petitioners claim that India's system is incapable of verifying which
inputs are consumed in the production of exported products and in what
amounts and, therefore, does not satisfy the requirements for a
verification system under the Department's regulations. For example,
petitioners argue that the SIONs do not measure the quantity, quality, or
characteristics of the inputs that are actually used in an exported
product. In addition, petitioners claim that the SIONs collected at
verification cover several steel products and more than one steel company
and, thus, contrary to respondents' claim, are not specific to particular
products and production processes. Petitioners argue that the fact that
the GOI granted a single DEPS rate of 14 percent during the POI for all
producers of subject merchandise, regardless of their respective
production processes further belies respondents' claims that the SION is
part of a viable drawback/substitution system. Petitioners also argue that
record evidence refutes the claim that the SIONs control the inputs that
may be imported using DEPS. They claim that evidence indicates that TISCO
imported inputs under the DEPS that, according to its SION, are not
included in TISCO's production process.
In addition to not providing a sufficient verification system,
petitioners claim that the SIONs clearly allow respondent companies to
obtain DEPS credits in excess of the duties for imported inputs that are
consumed in the production of their products. Petitioners explain that
SIONs allow for the importation of inputs that can be used multiple times
in the production of their products and that this allowance is a violation
of the Department's requirements for drawback programs. Petitioners
further argue that there is record evidence indicating that even for
inputs consumed in the production of the exported product, the respondent
companies actually received excessive duty drawback under the DEPS during
the POI. In support of this contention, petitioners provide sample
calculations, based on information submitted by Essar, which, they claim,
demonstrates that Essar received excessive duty drawback.
Petitioners argue that the bulk of the GOI's monitoring of the DEPS
program takes place through its review of the SIONs and DEPS rate
applicable to particular products. However, petitioners point out that
this review only occurs when a company is applying for a change in the
SION or DEPS credit, and such a review cannot and does not show what
companies actually do or which inputs they actually use in the production
of their exported product.
Petitioners also argue against respondents' claim that the "value added"
component used by the GOI in calculating the DEPS rate effectively reduces
the rate ultimately calculated. Petitioners claim that the "value added"
component instead highlights the inaccuracies of the GOI's system.
Petitioners claim these inaccuracies are inherent in the GIO's system in
that the companies themselves seek to inflate the "value added" component
of the DEPS calculation while the GOI arbitrarily sets its own "value
added" component.
Petitioners also argue that the DEPS fails as a substitution drawback
program. Petitioners claim that at verification, GOI officials
acknowledged that the GOI was only able to determine whether the
quantities of substituted domestic inputs and imported inputs are
"similar" and not "identical" as required for a permissible substitution
drawback program. Regarding the issue of whether the quality of
substituted domestic inputs and imported inputs are identical, petitioners
claim that GOI officials admitted that they essentially rely on the
companies themselves to make the determination, as opposed to the GOI
monitoring this aspect of the program on its own. See GOI Verification
Report at 8. On this issue, petitioners further argue that the fact that
post-export DEPS are freely transferable provides additional evidence that
a recipient company may obtain a benefit from the sale of the credits
without importing any inputs whatsoever.
Department's Position: The criteria regarding the remission, exemption or
drawback of import duties is set forth in 19 CFR 351.519. Pursuant to this
provision, the entire amount of an import duty exemption is
countervailable if the government does not have in place and apply a
reasonable system or procedure to confirm which inputs are consumed in the
production of the exported products and in what amounts.
Upon reviewing the information on the record and the explanations of
company and government officials at verification, we now have a more
complete understanding of how this program operates. Under our traditional
approach, the Department analyzes whether a particular duty drawback
system is reasonable and effective in the context of the actual experience
of particular companies. In this investigation, we found that this
standard has not been met. At verification we noted that the DEPS rates
are not always tied to a company's actual import experience. We identified
at least one company that receives DEPS credits at the full rate set by
the GOI even though the company does not import the inputs upon which the
credit rate is based. In addition, record evidence shows that TISCO
applied for a change in the DEPS rate based on a good it does not import.
Therefore, it appears that the DEPS rate of credit is not reflective of
imports of the producers which it is intended to represent.
Moreover, we have identified several problems with the DEPS program even
when analyzed on an aggregate basis (i.e., whether the program, as a
whole, results in excessive duty drawback). The GOI is not able to ensure
that, in the aggregate, duty drawback claimed on exportation does not
exceed duties paid on importation. The DEPS rates are calculated based on
the value of those imports and not the quantity of the imports. Thus,
there is no reliable method for the GOI to monitor whether the value of
credits given is commensurate with the value of credits claimed.
Thus, whether examined under a company-specific or aggregate approach, we
find that, with regard to the DEPS program, the GOI does not have in place
and does not apply a system to confirm which inputs are consumed in the
production of the exported products and in what amounts that is reasonable
and effective for the purposes intended. Therefore, consistent with 19 CFR
351.519(a)(4), we find that the entire amount of duty drawback confers a
benefit to the recipient companies.
Comment 7: Program-Wide Changes
Respondents argue that the Department should take into account several
program-wide changes and adjust the cash deposit rate accordingly.
Specifically, respondents argue that program-wide changes have been made
to four programs: pre-export DEPS, exemption from interest tax, SILs, and
advance licenses. Respondents state that the pre-export DEPS was
eliminated effective April 1, 2000, and the last date on which Indian
companies could receive benefits under this program was March 31, 2001.
Respondents also argue that the GOI abolished the interest tax effective
April 1, 2000, thus also abolishing the exemption from interest tax
granted to pre- and post-shipment export financing. In addition,
respondents state that SILs have been eliminated as of April 1, 2000, and
that although SILs could be redeemed through March 31, 2001 for exports
made prior to April 1, 2000, as of March 31, 2001, all SILs have no value
and, thus, could not have conferred a benefit. Finally, respondents state
that advance licenses issued after March 31, 2000 are no longer
transferrable.
Petitioners contend that respondents have not provided sufficient
evidence of program-wide changes to satisfy the requirements set out in
the Department's regulations. Specifically, petitioners argue that other
than a policy circular, respondents have not provided documentation in the
form of an official act demonstrating that the pre-export DEPS program has
been abolished. Moreover, petitioners argue that the fact that the GOI did
not respond directly when asked in the original questionnaire to indicate
the last date a company could apply for or receive benefits under this
program provides evidence that the program has not been terminated. For
those reasons, petitioners recommend rejecting respondents' argument that
the pre-export DEPS program has been abolished.
Petitioners also rebut respondents' argument that advance licenses are no
longer transferrable. Petitioners maintain that respondents have provided
no evidence beyond Article 7.4 of the GOI's Export Import Policy Handbook
to support their declaration that this program has changed. Moreover,
petitioners argue that Article 7.4 does not limit all advance licenses to
actual user conditions (i.e., not transferrable). Petitioners assert that
a close reading of Article 7.4 reveals that exporters holding advance
licenses that are subject to actual user conditions may claim exemption
from additional duties and antidumping duties in addition to the exemption
from basic customs duty, while exporters holding transferrable advance
licenses may not. Therefore, petitioners argue that the Department should
reject the respondents' allegation that advance licenses are no longer
transferrable.
Department's Position: With respect to the interest tax exemption and SIL
programs, we agree with respondents that program-wide changes have taken
place. As stated above, petitioners urge the Department to reject
respondents' claim that program-wide changes should be taken into
consideration and the deposit rate adjusted accordingly. Petitioners
assert that a GOI policy circular is not an adequate basis to warrant the
finding of program-wide changes. We note that in Certain Iron-Metal
Castings from India: Final Results of Countervailing Duty Administrative
Review, 55 FR 50747, 50750 (December 10, 1990) (Iron-Metal Castings from
India), petitioners made a similar argument asserting that the lack of an
official act, statute, regulation, or decree rendered nullified
respondents' claim of program-wide changes. In that proceeding, the
Department determined that a decree issued by the Engineering Export
Promotion Council, a decree verified by the Department, along with
verified information indicating that the producer of subject merchandise
did not use the program, constituted evidence that warranted the
application of a program-wide change. Id.
We determine that there is a similar fact pattern in this investigation.
During verification, the Department examined policy circulars and sections
of the GOI's Ex-Im Policy Handbook that indicated that the exemption from
interest tax and SIL programs had been abolished by the GOI. Because these
programs were implemented through amendments in the GOI's Ex-Im Policy
Handbook, their termination may also be made through the same government
documents. Moreover, no other evidence was found either at the GOI or the
respondent companies to suggest that these program had not undergone the
changes described by the GOI. Therefore, we find that there is sufficient
evidence on the record of this investigation to warrant the application of
program-wide changes with respect to the interest tax exemption and SILs.
With respect to the pre-export DEPS and advance license programs, we
determine that the programs themselves still exist, and, therefore, no
program-wide change has occurred. Regarding the DEPS program, only one
aspect of the program (i.e., the pre-export DEPS) has been eliminated, not
the entire DEPS program. Therefore, we determine that there is not
sufficient evidence on the record to warrant a program-wide change. With
respect to the advance license program, again, the entire program has not
been terminated, only the transferability of advance licenses. These
programs differ from the interest tax exemption and SIL programs in that
the interest tax exemption and SIL programs no longer exist, as we
confirmed at verification.
Comment 8: Income Tax Deductions under Section 80HHC of the Indian Tax Act
Respondents state that the Department properly determined in its
Preliminary Determination that none of the respondents obtained income tax
deductions under section 80HHC of the Indian Tax Act.
Department's Position: We agree with respondents. During verification, we
confirmed that none of the companies investigated claimed a deduction
under Section 80HHC (see Essar Verification Report at 12; Ispat
Verification Report at 10; SAIL Verification Report at 19; and TISCO
Verification Report at 8). Therefore, we determine that this program was
not used by any of the respondents.
Comment 9: Uncreditworthy Allegations
The Department determined that SAIL, Ispat, and Essar were creditworthy
during the fiscal years 1997 to 2000. See Preliminary Determination, 66 FR
at 20243. Petitioners allege that the Department erred in finding SAIL
creditworthy for fiscal years 1999 and 2000. Petitioners dispute the
Department's finding on two points: they question SAIL's ability to secure
long-term loans; and they argue that SAIL's relevant financial ratios are
weak
First, petitioners note that SAIL received no long-term loans during
fiscal year 2000, and cite various press reports that describe SAIL's
financial condition as poor. Moreover, while petitioners recognize that
SAIL did secure long-term loans during fiscal year 1999, they argue that
such loans were contingent on government intervention. Petitioners again
cite a press report that contends government "pressure" enabled companies
with uncompleted steel projects to secure private financing.
Second, petitioners claim that SAIL's financial ratios do not meet the
relevant standard of long-term financial health and solvency, citing
Certain Hot-Rolled Lead and Bismuth Carbon Steel Products from Brazil for
support. Petitioners suggest that any other standard, such as the ratios
for the U.S. steel industry, are irrelevant; nevertheless, petitioners
argue that if such a comparison is made, U.S. industry financial ratios
are favorable.
According to the standard of long-term financial health and solvency,
petitioners suggest that the appropriate ratios for SAIL - debt-to-equity,
total liabilities-to-net worth, fixed-assets-to-net worth, quick and
current- are so poor that "no prudent lender" would have offered long-term
loans to the company. The debt-to-equity ratio (which was dismissed in the
Preliminary Determination but, according to petitioners, considered quite
relevant in past cases) for SAIL increased from 182.39 to 312.17 percent
between fiscal years 1996 and 2000 (petitioners provide all ratio data
since fiscal year 1996). The total liabilities-to-net worth ratio, which
Dun & Bradstreet claims should generally remain below 100 percent,
likewise grew from 262.32 to 445.59 percent between fiscal years 1996 and
2000. SAIL's fixed assets-to-net-worth ratio has also risen from 217.37
percent for fiscal year 1996 to 364.06 percent for fiscal year 2000; Dun &
Bradstreet states that ratios above 75 percent should normally "be
examined with care." The current liabilities-to-net worth ratio for SAIL
was 63.01 percent for fiscal year 1996 and 129.07 percent for fiscal year
2000; Dun & Bradstreet provides a safe upper threshold ratio of 66.6
percent. Although petitioners claim that quick ratio data for SAIL is not
available, SAIL's current ratios ranged from 2.07 for fiscal year 1999 to
1.35 for fiscal year 2000; ratios of 2 or better are "considered good" by
Dun & Bradstreet. Nevertheless, petitioners argue that the bulk of
financial ratios for SAIL, as well as SAIL's purported inability to secure
long-term commercial loans, indicate financial distress. Therefore,
petitioners argue that the Department should find SAIL uncreditworthy for
fiscal years 1999 and 2000.
Respondents, in turn, support the Department's creditworthiness
determination for SAIL (as well as determinations for Ispat and Essar,
though these were not questioned by petitioners). Respondents note that
SAIL has successfully obtained long-term commercial loans throughout the
years at issue from both major Indian banking institutions and foreign
commercial banks. Often relying on different set of measures than
petitioners, respondents further argue that SAIL's financial information
between fiscal years 1997 and 2000 supports the company's
creditworthiness. SAIL's operating margin, for instance, varied between
7.4 percent for fiscal year 2000 to 17.4 percent for fiscal year 1997,
which respondents suggest is comparable to gross and net margins for U.S.
blast furnaces and steel mills. The operating flow-to-net sales ratio for
SAIL ranged from 14.4 percent for fiscal year 2000 to 22.5 percent for
fiscal year 1998; respondents claim that these ratios indicate SAIL's
ability to pay interest on its debt, purchase capital goods, and pay
dividends. Respondents also provide quick ratio data for SAIL (which
petitioners claimed were not available), which vary from 1.0 in 1998 to
0.6 in 2000; they note that a ratio of 1.0 demonstrates a firm's ability
to meet current liabilities with liquid assets. Respondents also confirm
the current ratio figures reported by petitioners and argue that such
ratios indicate SAIL's ability to meet current financial obligations. For
these reasons, respondents advise the Department to maintain its
Preliminary Determination finding that SAIL was creditworthy for fiscal
years 1999 and 2000.
Department's Position: We disagree with petitioners. As explained in our
April 13, 2001, creditworthiness memorandum to Melissa G. Skinner,
Director of the Office of AD/CVD Enforcement VI, a public document on file
in the CRU (Preliminary Creditworthiness Memorandum), in the Preliminary
Determination, we found SAIL creditworthy during fiscal years 1999 and
2000 based on the company's financial ratios for the POI and the fact that
SAIL was able to secure commercial financing during fiscal years 1999 and
2000 without the aid of GOI guarantees. Moreover, during verification, we
verified that SAIL had audited financial statements, confirming the
validity of the ratios on which we based our preliminary creditworthy
determination (see SAIL verification report at 9). We note that at
verification we specifically examined a commercial bond that SAIL issued
immediately preceding the POI. We note that the commercial bond was used
as the basis for our long-term benchmark interest rate for the POI.
Furthermore, at verification, we traced the information that SAIL had
provided regarding this commercial loan to its corresponding source
documents and found no discrepancies.
Therefore, on the basis of the findings of the Preliminary
Creditworthiness Memorandum, the information reviewed during verification,
and pursuant to section 351.505(a)(4)(ii) of the CVD regulations, we
determine that SAIL was creditworthy during the POI.
Comment 10: Denominator to be Used for SAIL and Essar's Pre-shipment
Export Financing
To calculate the ad valorem benefit for SAIL and Essar from the pre-
shipment export financing program and the exemption of pre-shipment export
credit from the interest tax, petitioners claim the Department divided the
benefits obtained by each company by the company's total exports.
Petitioners state that the Department chose this approach because the two
companies claimed they were unable to tie pre-shipment export credits to
specific shipments. However, petitioners argue that the Department has now
verified that SAIL and Essar are able to tie pre-shipment export credits
to particular shipments. For that reason, petitioners advise the
Department to revise the denominator for each company's ad valorem benefit
under both programs to include only exports of the subject merchandise to
the United States.
Respondents contend that the exemption of export financing from interest
tax is not an export subsidy and is not specific. However, respondents
contend that if the Department continues to determine that the interest
tax exemption is countervailable, it is unnecessary to quantify it
separately. To do so, respondents argue, would be to double count the
benefit conferred because the short-term benchmark loans reported by
respondents are all subject to the interest tax. Thus, if the short-term
benchmark interest rate (inclusive of the interest tax) is compared with
the interest rate on pre- and post-shipment export financing (exclusive of
the interest tax), the benefit would include the value of the interest tax
exemption. Moreover, respondents point out that the interest tax was
abolished, effective April 1, 2000. Thus, respondents argue that the
Department should treat the elimination of the interest tax, and the
corresponding elimination of the exemption, as a program-wide change and
adjust the cash deposit rate accordingly.
Department's Position: Regarding the denominator to be used when
calculating the benefit for Essar and SAIL's pre-shipment export
financing, we agree with petitioners. We confirmed at verification that
SAIL is able to tie its pre-shipment export financing to sales of subject
merchandise to the United States. (see SAIL Verification Report at 18).
Essar also stated at verification that it is able to tie pre-shipment
export financing to specific shipments, i.e., to the United States, via
the corresponding letter of credit (see Essar Verification Report at 6).
Therefore, we determine that Essar and SAIL are able to tie their pre-
shipment export financing to sales of subject merchandise to the Unite
States, and, thus, to calculate the total net subsidy rate under this
program, we divided the total benefit for each SAIL and Essar by each
company's respective exports of subject merchandise to the United States
for the POI.
We agree with respondents that the interest tax exemption was abolished
(see Comment 7 above), and thus constitutes a program-wide change.
Comment 11: Long-term Interest Rate Benchmark for Calculating the Benefit
to Essar from the Export Promotion Capital Goods Scheme
Petitioners state that the Department determined the countervailable
benefit to Essar from the export promotion capital goods scheme ("EPCGS"),
a import duty reduction and exemption program, by calculating the interest
that Essar would have otherwise paid during the POI had the company
borrowed the value of the duty reduction at the time of import. Essar
provided the Department with an original and revised set of rupee-
denominated long-term benchmark loan interest rates. Petitioners argue
that the Department should use the original set of interest rates for its
calculation, as Essar revised its benchmark loan rates subsequent to the
POI and thus these rates were prospective only. Petitioners claim the
import duty reductions served as interest-free loans for Essar, and citing
section 351.505(c)(2) of the CVD regulations, petitioners further claim
that the Department must determine benefits from interest-free loans based
on benchmark loans rates during the same period as the POI. Therefore,
petitioners state that the Department must rely on the original set of
rupee-denominated long-term interest rates.
Department's Position: We agree with petitioners that the original rupee-
denominated long-term interest rates should be used when calculating
Essar's benefit from the EPCGS program. Pursuant to section 351.505(c)(2)
of the CVD regulations, to calculate the benefit for interest-free loans
we will take the difference between interest payments made by the company
and the interest payments the company would have made on the benchmark
loan in the same time period. In other words, the interest rates reported
by Essar in their original repayment schedule were the rates in effect
during the POI, and, thus, are the rates that we used to calculate Essar's
benefit under the EPCGS program.
Comment 12: Sales Tax Obtained from the Sales of Special Import Licenses
Respondents argue that the Department erred in the Preliminary
Determination by including in the benefit the value of the sales taxes
that SAIL and TISCO obtained in the sales of special import licenses
(SILs).
Respondents state that inclusion of sales taxes in the value of the
benefit conferred by the sale of SILs is improper since those taxes do not
confer a benefit to the company that has made the sale. They argue that
the sales taxes are simply passed through the seller and ultimately
remitted to the GOI, and therefore, no benefit is conferred from the
receipt of sales tax upon the companies selling the SILs. Respondents
argue that the Department should exclude the amount of sales taxes from
the value of the benefit conferred.
Respondents further state that if the Department includes the sales taxes
in the value of the benefit, the Department should not double count the
sales tax obtained from sales of SILs made by TISCO. They argue that the
Department double counted the sales tax in the Preliminary Determination
by adding the value in the "Revenue from sale" column in Exhibit 14 of
TISCO's January 26, 2001 questionnaire response to the value in the "Taxes
paid" column also in Exhibit 14. Respondent contends that sales taxes are
already included in the "Revenue from sale" values reported and that the
value of the taxes should be subtracted to avoid double counting.
Petitioners counter that the sales taxes obtained from sales of SILs were
properly included in the benefit for SAIL and TISCO in the Preliminary
Determination. Petitioners state that section 771(6) of the Act sets forth
the items the Department may deduct from the gross countervailable subsidy
received by a company, and that sales taxes obtained in those sales are
not included. Petitioners state that the Court of International Trade
(CIT) has ruled that deductions other than those in section 771(6) are
prohibited. (2)
Petitioners also assert that this very same argument made by respondents
in the current investigation was dismissed by the Department in CTL Plate.
Department's Position: As was stated in our determination in CTL Plate,
the only adjustments which can be made to a subsidy benefit are those that
fall within section 771(6) of the Act. Under section 771(6)(A), the
Department is only authorized to adjust the benefit from a subsidy by (A)
any application fee, deposit, or similar payment paid in order to qualify
for, or to receive, the benefit of the countervailable subsidy, (B) any
loss in the value of the countervailable subsidy resulting from its
deferred receipt, if the deferral is mandated by Government order, and (C)
export taxes, duties, or other charges levied on the export of merchandise
to the United States specifically intended to offset the countervailable
subsidy received.
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 SAIL and TISCO on its special import licenses is the
countervailable benefit under this program. No other offsets or
adjustments to that benefit, such as taxes, are authorized under the Act.
With regard to the double-counting of sales tax from TISCO's sale of
SILs, we agree with respondents and have corrected the countervailable
benefit for this final determination.
Comment 13: Exemption of Export Credit from Interest Tax
Respondents argue that the exemption of export credit from interest tax
is not countervailable because it is neither an export subsidy under 19
USC 1677(5A)(B), nor does it satisfy the specificity requirement under 19
USC 1677(5A)(D).
First, respondents state that petitioners are wrong to assert that the
interest tax exemption is contingent upon export. Respondents argue that
petitioners focus solely on the "notification" under the Interest Tax Act
governing the exemption of income on export credits from the interest tax.
Respondents cite to the Final Affirmative Countervailing Duty
Determination: Structural Steel Beams from the Republic of Korea
(Structural Steel Beams from Korea) and Certain Welded Pipes and Tubes and
Welded Carbon Steel Line Pipe from Turkey (Pipes and Tubes from Turkey) in
arguing that the enabling legislation determines the countervailability of
the program. Respondents state that when properly viewed as part of the
broader statutory scheme, the interest tax exemption cannot be seen as
dependent on export performance.
Second, respondents contend that the interest tax exemption is not
specific. They state that the legislation authorized the GOI to "exempt
any credit institution or any class of credit institutions or any interest
on any category of loans or advances from the levy of interest-tax."
Therefore, respondents maintain that the subsidy is not de jure specific.
Further, respondents argue that there is no evidence on the record to
suggest that the interest tax exemption is de facto specific. Respondents
argue that the exemption was initially offered to banks, which passed the
savings to their customers, possibly resulting in numerous recipients of
this benefit. Respondents contend that, since the benefit from this
program was imputed, it was not quantified on banks' or companies' balance
sheets and, therefore, it is difficult to determine whether a particular
enterprise or industry was a predominant user, or received a
disproportionate share of the benefits. Also, there is no evidence that
the manner in which the exemption was granted tended to favor one industry
over another and eligibility was not limited to enterprises or industries
within designated regions.
Petitioners state that no new information or evidence has been placed on
the record to warrant a reconsideration of the Department's Preliminary
Determination with respect to this program. Further, petitioners argue
that the interest tax exemption is tied to actual exportation and is
therefore an export subsidy under section 771(5A) of the Act. Petitioners
state that, even assuming that the exemption is not an export subsidy, it
is still specific under section 771(5A). The GOI did not provide
information regarding the companies and industries that have benefitted
from the exemption. However, petitioners argue that the other areas for
which the exemption purportedly has been granted are limited in scope as
to the number of companies or industries that could benefit, thereby
proving that the interest tax exemption is specific in fact.
Petitioners counter respondents' assertion that the enabling legislation
determines countervailability by stating that a subsidy is an export
subsidy when it is in law, or in fact, contingent upon export performance.
Petitioners state that in Structural Steel Beams from Korea, the
Department did not focus solely on the enabling legislation in determining
specificity of the subsidy at issue, and in Pipes and Tubes from Turkey,
in contrast to this case, whether the program was an export subsidy was
not at issue. Rather, the program in question was a domestic subsidy and
the Department considered different factors from those it is considering
in this investigation. As a result, petitioners argue that Pipes and Tubes
from Turkey is irrelevant to the issue at hand. Further, in contrast to
what was provided in this case by the GOI, petitioners contend that the
Turkish government provided extensive information on the companies and
industries that benefitted from the subsidy.
Respondents state that, should the Department continue to find the
exemption of export financing from interest tax countervailable, it should
not quantify the benefit separately because double counting occurs. The
short-term benchmark loans are all subject to the interest tax. When the
short-term benchmark, inclusive of interest tax, is compared with the
interest rate on pre- and post-shipment export financing (which is exempt
from the interest tax), the benefit quantified will include the value of
the interest tax exemption.
Petitioners again point to Section 771(6) of the Act, which provides an
exclusive list of the offsets that may be deducted from the amount of a
gross subsidy to yield the net subsidy. The list does not include interest
taxes. Consequently, petitioners contend that the Department properly did
not make a deduction for the interest tax in calculating the benefit to
the respondents under the pre- and post-shipment export financing
programs. If the Department were to accept petitioners' argument and not
calculate a separate subsidy rate for the exemption, the effect would be
as if the Department had deducted the interest tax from the benefit under
the export financing programs, which would be contrary to the law.
Further, petitioners state that the exemption of export credit from
interest tax is itself a distinct countervailable subsidy and should be
treated as such.
Department's Position: Under section 351.514(a) of the CVD regulations,
the Department will consider a subsidy to be an export subsidy if
"eligibility for, approval of, or the amount of, a subsidy is contingent
upon export performance." In our Preliminary Determination, we found,
based on direct statements made by respondents in questionnaire responses,
that receipt of the interest tax exemption is contingent upon export
performance, and is therefore an export subsidy under section 771(5A)(B)
of the Act. Because no new information or evidence has been presented
since the Preliminary Determination to change our ruling that the
exemption of export credit from interest tax is an export subsidy, we
continue to find it as such.
Respondents also argue that a separate calculation to capture the benefit
of the interest tax exemption would result in double counting, since the
benefit from the interest tax exemption is included in the benefit from
the pre- and post-shipment export financing when the benchmark interest
rate is inclusive of the interest tax.
While the cash credit loans are reported to have been subject to the
interest tax during the POI, record evidence does not show that the
interest tax was actually applied to the short-term cash credit loans used
as benchmark interest rates for SAIL or Essar. With regard to TISCO,
Verification Exhibit TISCO-2 provides an example of a loan included in
TISCO's short-term benchmark that specifically excludes the interest tax
from the reported interest rate. Therefore, for SAIL, Essar and TISCO, we
determine that the benefit from the exemption of export credit from the
interest tax is a separate program, as we found in the Preliminary
Determination, and should be calculated separately from the pre- and post-
shipment export financing programs. Further, since the record does not
indicate that the benchmark rate is inclusive of the interest tax for
those respondent companies, we have not adjusted the benchmark interest
rate used to compare to the rates for pre- and post-shipment export
financing.
Ispat, on the other hand, has demonstrated that its benchmark interest
rate is inclusive of the interest tax. Therefore, in order to avoid double
counting the benefit from the exemption of export credit from the interest
tax, we have deducted the interest tax from Ispat's reported benchmark
interest rate when using that rate to compare to contractual interest
rates under the pre- and post-shipment export financing programs.
Comment 14: Ispat's Uninstalled and Common Capital Equipment under the
EPCGS
In the Preliminary Determination, the Department determined that one
element of the countervailable benefit under the EPCGS involved the import
duty reduction that producers/exporters received on the imports of capital
equipment for which they had not yet met their export requirements.
Because these are contingent liabilities in that duties not paid at the
time of the importation of the capital equipment will have to be paid to
the GOI in the event their export requirements are not met, the Department
treats the balance on the liability as an interest-free loan in valuing
the benefit. Respondents state that much of Ispat's imported capital
equipment on which duties were tentatively waived under the EPCGS were
debonded from warehouse prior to the end of the POI, but had not yet been
installed and put to use. Ispat expects to commission the second and final
phase of its hot rolling mill by April, 2002 at the earliest. Concerning
Ispat's uninstalled capital assets, respondents state that there is no
countervailable subsidy with respect to the "manufacture, production or
exportation of a class or kind of merchandise imported into the United
States," as is required under 19 USC 1671(a)(1). Respondents cite to Live
Swine From Canada; Final Results of Countervailing Duty Administrative
Review, 56 FR 28531, 28536 (June 21, 1991) and Final Affirmative
Countervailing Duty Determination; Porcelain-on-Steel Cooking Ware From
Mexico, 51 FR 36447, 36449 (October 10, 1986), in support of their
argument that no subsidy exists if there is no benefit to the
"manufacture, production, or exportation" of the subject merchandise.
Respondents argue that equipment not yet installed cannot possibly have
been used in the "production or export" of the subject merchandise and,
therefore, no benefit is conferred.
Furthermore, respondents point out that many of the capital goods
imported under the EPCGS are common to both phases of the hot-rolling
mill, but since the second phase has not yet been commissioned, these
assets can only be used up to 50 percent of capacity. Respondents argue
that since only 50 percent of these assets can be used in the
"manufacture, production and export" of subject merchandise, only 50
percent of the value of the duty exemptions should be treated as a
countervailable subsidy.
Petitioners argue that, under 19 USC 1677(5)(C), the Department is not
permitted to consider the effects of a subsidy in determining whether a
subsidy exists. Further, the contingent liability for Ispat's unmet export
requirements is treated as an interest-free loan and, under 19 USC
1677(5)(E)(ii), the statute establishes that "a benefit shall normally be
treated as conferred where there is a benefit to the recipient,
including...in the case of a loan, if there is a difference between the
amount the recipient of the loan pays on the loan and the amount the
recipient would pay on a comparable commercial loan...."
Petitioners maintain that the CIT, in British Steel Corp. v. United
States, rejected British Steel's assertion that subsidies related to
unused capital assets are not countervailable since such assets do not
benefit the "manufacture, production, or export" of subject merchandise.
Petitioners state that the CIT determined that even if an asset does not
provide a benefit to the firm, "the competitive benefit of funds used to
acquire assets...continues to contribute to the firm's manufacture,
production, or exportation of products accomplished by the firm's
remaining assets." Petitioners state that this determination is
particularly true in the current investigation since Ispat's subsidy is
treated as an interest-free loan that benefits all of Ispat's
manufacturing and exporting operations.
Lastly, petitioners note that the CIT also emphasized in British Steel
Corp. v. United States that subsidies for the purchase of capital goods
bestow a benefit to a recipient firm by relieving it of costs normally
incurred in acquiring such assets and freeing up those funds for other
uses. In the instant case, petitioners argue that Ispat did not incur
import duties that it otherwise would have had to pay upon importing the
capital goods, and that the resulting cost savings benefitted all of
Ispat's production and export operations.
Department's Position: Section 771(5)(C) of the Act expressly states that
the Department "is not required to consider the effect of the subsidy in
determining whether the subsidy exists..." Further, section 351.503(c) of
the CVD regulations states that "{i}n determining whether a benefit is
conferred, the Secretary is not required to consider the effect of the
government action on the firm's performance, including its prices or
output, or how the firm's behavior otherwise is altered." Because the
Department does not consider the effects of a countervailable subsidy in
determining whether the subsidy exists, we do not examine whether the
imported capital goods have been put to productive use, when looking at
the case in hand. Ispat receives a countervailable subsidy in the sense
that the company, in effect, has received an interest free loan due to the
waiver of import duties, contingent upon Ispat meeting future export
requirements. Whether the imported assets have been put to use, or to what
extent, cannot be considered when determining whether Ispat would have
been liable for duties that it otherwise would have been required to pay
absent the EPCGS.
Comment 15: Ispat's Corrected FOB Sales Values
During verification, Ispat officials presented to the Department
corrections it made in preparing for verification to explain how Ispat
originally reported its export sales values. Respondents argue that the
Department, to the extent it uses export FOB values as a denominator for
countervailable subsidies, should use these corrected values.
Department's Position: The Department has used, where necessary,
corrected FOB sales values in determining the ad valorem rates of certain
subsidies.
Comment 16: Value of DEPS Benefits Conferred on Ispat
Respondents state that the Department's Preliminary Determination
calculated a benefit under the DEPS program of 14.02 percent ad valorem,
which must be incorrect in that it exceeds the amount of the benefit (14
percent) for which Ispat was eligible. Respondents argue that the
discrepancy arises from the fact that, to determine the gross amount of
DEPS benefits obtained by Ispat, the Department took 14 percent of the FOB
value of Ispat's sales as recorded in rupees by the GOI. In calculating
DEPS benefits, the GOI converts the FOB value of the sales from U.S.
dollars into rupees using the exchange rate in effect on the date of the
bank realization certificate. In booking its sales to the United States,
however, Ispat uses the exchange rate difference between the amount of
DEPS credit to which it is entitled. Ispat books the exchange rate
difference between the amount of DEPS calculated by the GOI and the amount
of DEPS recorded in its ledger as a foreign exchange gain/loss. Thus,
respondents argue the Department's method of calculating the net
countervailable subsidy in the Preliminary Determination treated as
countervailable the exchange rate differential between the methods by
which the GOI and Ispat book the FOB sales values. Respondents state that
the Department should correct this by dividing the total gross amount of
the DEPS benefits received by Ispat, net of application fees, by the FOB
value for Ispat's sales as recorded by the GOI. Respondents state that, if
the Department uses the same methodology as in the Preliminary
Determination, the Department should use the revised FOB sales value
reported at the onset of verification.
Petitioners argue that any error in the calculation of Ispat's subsidy
rate for the DEPS is due solely to the failure of Ispat to report its
correct sales figure for use in the denominator in calculating that rate.
Petitioners state that the Department followed the correct methodology in
calculating the subsidy rate and that documentation collected by the
Department at verification proves this. Further, petitioners argue that,
when using as the denominator the revised export sales of subject
merchandise figure discovered at verification, Ispat's subsidy rate is
exactly what respondents propose as the rate "in the event that the
Department decides to use the same methodology as in the Preliminary
Determination..." Petitioners further note, however, that the Department,
during verification, discovered that the application fee paid to obtain
DEPS credits is "0.5 percent of the total DEPS entitlement claimed, not
0.5 percent of the FOB value of exports..." As a result, petitioners
stress that the Department should revise what was done in the Preliminary
Determination with respect to application fees paid to account for the
information discovered at verification.
Department's Position: While the Department verified the corrected sales
figures submitted by Ispat during verification, we did not examine the
alleged exchange rate differentials between the methods by which the GOI
and Ispat book the sales value for FOB sales. Therefore, as our
denominator in calculating the ad valorem rate for this program, we are
using the corrected export sales of subject merchandise to the United
States that we confirmed during verification. We note that respondents'
argument, that the benefit from the DEPS program in the Preliminary
Determination must have been incorrect since the ad valorem rate of the
program was greater than the DEPS benefit for which Ispat was eligible, is
not an issue for this final determination. This is because, upon using
Ispat's corrected sales figure reported at verification, the ad valorem
rate for this program is not greater than the 14 percent rate for which
Ispat was eligible.
With respect to application fees, we have deducted application fees under
the DEPS program in the amount of 0.5 percent of the total DEPS
entitlement claimed, thereby revising our benefit calculation from the
Preliminary Determination and incorporating the information we gathered
during verification.
Comment 17: Petitioners' Allegation of Errors in the Calculation of
Ispat's Subsidy Rate
Petitioners contend that the Department inadvertently failed to calculate
the benefit to Ispat of one particular import under the EPCGS. Ispat paid
no duties that otherwise would have been due absent the EPCGS.
Additionally, petitioners argue that the Department understated the
benefit of another import by applying an incorrect duty rate that would
have been due absent the EPCGS.
Department's Position: We agree with petitioners that, in the Preliminary
Determination, we inadvertently omitted the benefit from one imported good
and calculated the wrong benefit for another. We have corrected the
benefit amounts for this final determination.
Comment 18: Guarantee Fees Charged by the GOI for Loans Obtained by SAIL
from International Lending Institutions
As explained above, SAIL received GOI guarantees on loans issued by
international lending institutions. Respondents argue that these loan
guarantees did not provide a subsidy to SAIL because the international
lending institutions required that SAIL obtain guarantees from the GOI as
a prerequisite to obtaining the funding.
They further argue that the Department has previously concluded that loan
guarantees obtained pursuant to requirements imposed upon the borrower by
international lending institutions are not countervailable because they
are the result of policy requirements of these lending institutions. See,
e.g., Carbon Steel Wire Rod From Spain; Final Affirmative Countervailing
Duty Determination, 49 FR 19551, 19553 (May 8, 1984) (Wire Rope from
Spain) and Preliminary Affirmative Countervailing Duty Determination; Oil
Country Tubular Goods For Austria, 50 FR 23334, 23337 (June 3, 1985) (OCTG
from Austria).
Petitioners disagree. They argue that respondents' citations refer to
determinations from the mid-1980s, which no longer serve as valid
precedent. They further argue that the Department determined in 1991 that
although loans made by international institutions are not countervailable,
government-issued loan guarantees related to those loans - even if they
are required by the lenders as a condition of the loan - are
countervailable to the extent that they are provided on terms inconsistent
with commercial considerations. See Oil Country Tubular Goods From
Argentina, Final Results of Countervailing Duty Administrative Review, 56
FR 64493, 64495-96 (December 10, 1991) (OCTG from Argentina). Petitioners
explain that in OCTG from Argentina, the respondent company, Siderca S.A.
(Siderca), received a reduced-fee loan guarantee from the state-owned
National Development Bank (BANADE), accompanied by a counterguarantee from
the Argentine Ministry of France, for loans from the Inter-American
Development Bank (IADB). Petitioners claim that the counterguarantee was
required by the IADB as a prerequisite to the loans. See OCTG from
Argentina, 56 FR at 64495-96. Petitioners explain that in that
investigation, Siderca invoked the very same precedent cited by the
respondents in the instant investigation, i.e., Wire Rope from Spain and
OCTG from Austria, and made the very same argument - that "loan guarantees
obtained because they are required by international lending institutions
are not countervailable". Id.
Petitioners claim that the Department rejected this argument, stating:
{W}hile the Department does not consider loans provided by international
lending institutions to be countervailable under U.S. countervailing duty
law. . ., we do consider the government action taken in connection with
such loans is within the purview of U.S. countervailing duty law.
Id. at 64496.
They explain that the Department reaffirmed its decision to countervail
the loan guarantee in the 1997 administrative review of the order. See Oil
Country Tubular Goods From Argentina; Preliminary Results of
Countervailing Duty Administrative Review, 62 FR 32307, 32308 (June 13,
1997) (Preliminary Determination); Oil Country Tubular Goods From
Argentina; Final Results of Countervailing Duty Administrative Review, 62
FR 55589, 55590 (October 27, 1997) (final determination).
Department's Position: We disagree with respondents that the guarantee
provided by the GOI did not provide a countervailable benefit. Under
section 771(5)(D)(i) of the Act, a government loan guarantee is defined as
a financial contribution. Therefore, because the GOI guaranteed a loan to
SAIL under this program, the GOI has provided a financial contribution to
SAIL under the CVD law. With respect to specificity, as explained in the
Preliminary Determination, the loan guarantees under this program are
specific within the meaning of section 771(5A)(D)(iii)(II) of the Act
because they were limited to certain companies selected by the GOI on an
ad hoc basis. See 66 FR at 20249. In addition, these loans confer a
countervailable benefit to the extent that the total amount a firm pays
for the loan with a government-provided guarantee is less than the total
amount a firm would pay for a comparable commercial loan that the firm
could actually obtain on the market, absent the government-provided
guarantee. In calculating the benefit, we followed the same methodology
and used the same benchmark interest rates employed on the other loans on
which SAIL received GOI guarantees.
Comment 19: Calculation of TISCO's Long-term Benchmark Interest Rate
Respondents argue that the Department should correct its calculations of
TISCO's long-term benchmark interest rates for fiscal years 1995, 1999,
and 2000. They argue that the Department should use these corrected rates
in the calculations for the EPCGS program and, if the Department
determines that the SDF loan program is countervailable, in the
calculations for TISCO's SDF loans. Respondents argue that the benchmark
interest rate calculated for fiscal year 1995 is based on the interest
rates obtained in fiscal year 1994. They also argue that the Department
should recalculate the fiscal year 1999 benchmark interest rate as the
weighted average of the long-term loans that TISCO obtained during the
entire fiscal year rather than weighted-average of the loans obtained in
the first quarter of calendar year 1999. Similarly, they argue that the
Department should recalculate the benchmark interest rate for fiscal year
2000 as the weighted-average of the long-term loans TISCO obtained during
fiscal year 2000.
Respondents argue that the Department should correct its calculations for
the EPCGS program with respect the various imports the company made with
an EPCGS license during fiscal year 1999 and fiscal year 2000. They
contend that the Department should use the weighted- average of the
interest rate on the long-term loans TISCO obtained during fiscal year
1999 as the benchmark for the first nine imports made under this license
during fiscal year 1999. Similarly, they argue that the Department should
use the weighted-average of the interest rates on the long-term loans
TISCO obtained during fiscal year 2000 as the benchmark for the all
imports made under this license during fiscal year 2000.
Department's Position: We agree with respondents. During verification, we
collected revised information concerning these benchmark loans. See
TISCO's May 14, 2001 submission. Accordingly, we have recalculated TISCO's
long-term benchmark interest rates using this revised information.
With respect to the EPCGS program, we have used these revised long-term
benchmark interest rates in the calculation of TISCO's benefits under this
program, as requested by respondents. Specifically, we calculated the
benefit using the fiscal year 1999 long-term benchmark interest rate for
imports made during fiscal year 1999 and the fiscal year 2000 long-term
benchmark interest rate for imports made during fiscal year 2000.
We have also used the revised long-term benchmark interest rate for
fiscal year 1999, the POI, in the calculations for TISCO's SDF loans.
Comment 20: Calculation of Duty and Application Fees Actually Paid by
TISCO Under the EPCGS Program
Respondents argue that the Department should correct is calculations with
regard to the amount of duty actually paid on shipments made against one
of its EPCGS licenses. They also contend the Department should account for
the application fee that TISCO paid for that same license.
Department's Position: We agree with respondents and have corrected our
calculations accordingly. We reduced the benefit by subtracting the amount
of application fee that TISCO paid from the amount of duty forgone that
was calculated for that license.
Comment 21: Calculation of TISCO's SDF Loan Repayments
Respondents argue that, in calculating the benefit from the fifth tranche
of TISCO's SDF loan number 3, the Department inadvertently added an extra
zero to the repayment figure used to calculate the outstanding loan
balance at the beginning of the POI.
Department's Position: We agree with respondents and have corrected the
formula used for calculating the outstanding balance at the beginning of
the POI for tranche 5 of TISCO's SDF loan number 3. We reduced the
repayment figure in formula used in the spreadsheet by a factor of ten.
Comment 22: Calculation of TISCO's Short-Term Rupee-Denominated Benchmark
Interest Rate
Petitioners argue the Department should recalculate TISCO's short-term
rupee-denominated benchmark interest rate for the POI using the revised
cash credit loan information provided by respondent immediately prior to
verification. This corrected information is contained in Exhibit TISCO-1
of the Department's August 6, 2001, verification report for TISCO.
Department's Position: We agree with petitioners and have recalculated
TISCO's short-term rupee-denominated benchmark interest rate for the POI.
Comment 23: Calculation of DEPS Program Rate for TISCO
Petitioners argue that the Department made a ministerial error in the
calculation of the DEPS program rate for TISCO. They contend that the
Department intended to divide the benefit calculated for the program by
the value of subject merchandise exports to the United States but
inadvertently calculated the program using the figure for TISCO's total
exports to all destinations as the denominator.
Department's Position: We agree with petitioners and have adjusted the
calculation of the DEPS program for TISCO accordingly. Information
contained in several of TISCO's submissions clearly indicate that all of
the licenses reported were earned during the POI on exports of subject
merchandise to the United States.
Comment 24: Benefit to TISCO Under the EPCGS Program
Respondents argue that, in determining the benefit conferred on TISCO by
the EPCGS program, the Department should not include the amounts of
"additional duty" that were exempted. They contend that, in the EPCGS
calculations, the Department should subtract the total value of the
additional duty from the total duty TISCO owed absent the program.
Respondents state that this duty is commonly referred to as a
"countervailing duty" and is designed to "countervail" the competitive
advantage imported goods would otherwise have vis-a-vis domestically-
produced goods, which are subject an excise tax. They state that this
"additional" or "countervailing" duty is the functional equivalent of an
excise tax collected on domestic sales. They argue that the exemption from
additional duties does not confer a countervailable benefit because, even
if a company were to pay the additional duty on capital goods, it would
receive a credit in the amount of additional duties paid. They argue that
the GOI grants a credit for additional duties/excises duties because they
are a tax on consumers and are not intended to burden manufacturers.
Respondents also argue that the Department determined that this very duty
exemption was determined to be not countervailable in Elastic Rubber Tape
from India.
Department Position: We agree with respondents. In Elastic Rubber Tape
From India, the Department determined that the excise duty portion of the
EPCGS was similar to value added taxes that are passed on to customers
and, thus, did not confer a benefit. See Elastic Rubber Tape from India,
64 FR at 19130. Critical to the Department's determination is the fact
that the respondent company did not bear the ultimate financial
responsibility for the excise duty. In CTL Plate from India, we again
determined that the excise exemption was not countervailable. See CTL
Plate from India, 64 FR at 73135. In this case, there is no new
information to warrant a change in the Department's position.
Comment 25: Denominator for TISCO's Post-Shipment Export Financing Program
Petitioners raise a concern regarding a specific statement on page 8 of
in the verification report for TISCO. They point out that the company
officials explained that TISCO does not record its post-shipment loans in
a destination-specific manner and that there was no way to tally the total
interest payment for post-shipment loans pertaining to shipments of
subject merchandise to the United states. Petitioners argue that the
information on the record clearly indicates that TISCO's post-shipment
loan information pertains to exports of subject merchandise to the United
States. Therefore, Petitioners argue that the Department should continue
to use TISCO's sale of subject merchandise to the United States as the
denominator in its calculations regarding TISCO's post-shipment loans.
Department's Position: We agree with petitioners. The specific statement
in the verification report refers to the way respondents record data in
their books, not the manner in which TISCO's post-export financing was
reported to the Department. For purposes of the calculations regarding the
post-shipment loans, we continue to use TISCO's sales of subject
merchandise to the United States as the denominator.
Comment 26: Calculation of TISCO's SDF Loans
Petitioners argue that the Department should correct its calculations
with regard to three of TISCO's SDF loans. Specifically, petitioners argue
that the Department inadvertently miscalculated the principal balances for
the POI for tranche 5 of SDF loan control number 5, loan control number 6,
and loan control number 7.
Department's Position: We agree with petitioners and have corrected the
calculations accordingly. The details of these calculations are business
proprietary. Further information regarding the nature of these corrections
is contained in TISCO's Final Calculation Memorandum, the public version
of which is on file in the CRU.
VI. 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 the determination in the Federal Register.
__________ __________
Agree Disagree
______________________
Faryar Shirzad
Assistant Secretary
for Import Administration
______________________
Date
______________________________________________________________________
footnotes:
1. A crore is equal to Rs. 10,000,000
2. See British Steel plc v. United States, 879 F. Supp. 1254, 1309 (Ct.
Int'l Trade 1995), aff'd in part and rev'd in part on other grounds, 127
F.3d 1471 (Fed. Cir. 1997)