71 FR 45034, August 8, 2006
C-533-844
Investigation
POI: 04/01/2004 - 03-31/2005
Public Document
Operations, Office 3: RC, MJ, JC
July 31, 2006
MEMORANDUM TO: David M. Spooner
Assistant Secretary
Import Administration
FROM: Stephen J. Claeys
Deputy Assistant Secretary
Import Administration
RE: Countervailing Duty Investigation of Certain Lined Paper Products
from India
SUBJECT: Issues and Decision Memorandum for Final Determination
I. Summary
We have analyzed the case briefs and rebuttal comments of interested parties in the
above-referenced countervailing duty (CVD) investigation covering April 1, 2004 through March
31, 2005. After analyzing the comments, we have made certain modifications to the Notice of
Preliminary Determination and Preliminary Negative Critical Circumstances Determination:
Certain Lined Paper Products from India, 71 FR 7916 (February 15, 2006) (Preliminary
Determination). The “Subsidies Valuation Information” and “Analysis of Programs” sections
below describe the methodology followed in this review with respect to Aero Exports (Aero),
Kejriwal Paper Limited (Kejriwal), and Navneet Publications (Navneet), the producers/exporters
covered by this CVD investigation. Also below is the “Analysis of Comments” section, which
contains the Department of Commerce’s (Department’s) response to the issues raised in the
briefs.
Below is a complete list of the issues in this investigation for which we received
comments and rebuttal comments from interested parties:
A. General Comments
Comment 1. Treatment of Contingent Liability Benefits Under the Export Promotion Capital
Goods Scheme (EPCGS)
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Comment 2. Valuation of DEPS Benefits
B. Navneet
Comment 3: Benchmark Used Under the EPCGS Program
Comment 4: Benchmark Used for Navneet Under the Pre-Shipment Export Financing Program
Comment 5: Navneet’s Use of the 80 HHC Income Tax Exemption
Comment 6: Denominator Used to Calculate Navneet’s Net Subsidy Rate Under the Pre-
Shipment Export Financing Program
Comment 7: Denominator Used to Calculate Navneet’s Net Subsidy Rate Under the Duty-Free
Replenishment Certificate (DFRC) Scheme
C. Kejriwal
Comment 8: Benchmark Used to Calculate Countervailable Benefits Received by Kejriwal
under the Post-Shipment Export Financing Program
Comment 9: Fulfillment of Export Obligation Under the EPCGS
D. Aero
Comment 10: Countervailability of the Advance License Program (ALP)
Comment 11: Program-Wide Changes With Respect to the ALP
Comment 12: Attribution of Subsidies Aero Received under the Post-Shipment Export
Financing Program
II. SUBSIDIES VALUATION INFORMATION
A. Benchmark for Short-Term Loans
Where possible, we used an annual average of the interest rates on comparable,
commercial, short-term loans obtained by the company during the year in which the governmentprovided
loan was taken out, weighted by the principal amount of each loan. See 19 CFR
351.505(a)(2)(iv). Where such loan data were not available and because appropriate benchmark
information was not provided by the Government of India (GOI), we used a national average
short-term interest rate for India, as reported in the International Monetary Fund’s (IMF)
International Financial Statistics. We received comments from interested parties regarding the
use of short-term benchmarks. See Comments 4 and 8.
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B. Benchmark for Long-Term Loans Issued
Where possible, we used the interest rates of comparable commercial long-term loans
obtained by the company, the terms of which were established during or immediately before the
year in which the terms of the government-provided loan were established, pursuant to 19 CFR
351.505(a)(2)(iii). Where such company-specific loan data were not available and because
appropriate benchmark information was not provided by the GOI, we used comparable, national
average interest rates for short- to medium-term financing from private creditors, as reported in
the IMF’s International Financial Statistics. We received comments from interested parties
regarding the use of long-term benchmarks. See Comment 3.
III. Critical Circumstances
Section 703(e)(1) of the Act, as amended, (the Act), provides that the Department, upon
receipt of a timely allegation of critical circumstances, will determine whether there is a
reasonable basis to believe or suspect that:
(A) the alleged countervailable subsidy is inconsistent with the Subsidies Agreement;
and
(B) there have been massive imports of the subject merchandise over a relatively short
period.
In the Preliminary Determination, the Department determined that, pursuant to section
703(e)(1) of the Act, and 19 CFR 351.206, critical circumstances did not exist with regard to
imports of certain lined paper products (subject merchandise) from India covered by the abovereferenced
countervailing duty (CVD) investigation. See 71 FR at 7917; see also the
Memorandum to Stephen J. Claeys, Deputy Assistant Secretary for Import Administration, from
Melissa G. Skinner, Director, Operations, Office 3, “Preliminary Negative Determination of
Critical Circumstances” February 6, 2006, which is on file in the Central Records Unit (CRU),
Room B-099, of the main Commerce building.
Based on the information on the record of this investigation, we continue to find that
critical circumstances do not exist with regard to subject merchandise from India. As explained
below, we have found that several GOI programs constitute countervailable export subsidies and,
thus, petitioners’ critical circumstances allegation fulfills the criterion described under section
703(e)(1)(A) of Act. However, because the available import data indicate that shipments of
subject merchandise from India were not “massive” during the comparison period, as defined
under section 703(e)(1)(B) of the Act and 19 CFR 351.206(h)(2), we find that critical
circumstances do not exist. See the Memorandum to the Stephen J. Claeys, Deputy Assistant
Secretary for Import Administration, from Melissa G. Skinner, Director, Office 3, Operations,
“Final Negative Determination of Critical Circumstances” (July 31, 2006), of which the public
version is on file in the CRU.
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1 During verification, we learned that Aero booked in its export sales accounts transactions (Form-H sales) that were
subsequently exported by unaffiliated parties. At verification, we collected the relevant source documents and
established that the goods in question were shipped outside of India and confirmed that these were booked as export
sales. See Memorandum to the File from Eric B. Greynolds, Program M anager, Office 3, Operations, and John
Conniff, Case Analyst, Office 3, Operations, “Verification of the Questionnaire Responses Submitted by Aero
Exports,” at page 4 and Exhibit VE-2 (May 30, 2006) (Aero Verification Report), of which the public version is filed
in the CRU. For the final determination, we have included the Form-H sales in Aero’s total export sales
denominator, which was used to calculate the net subsidy rate for the pre-shipment export financing, Export
Promotion Capital Goods Scheme, and Advance License programs.
IV. ANALYSIS OF PROGRAMS
A. Programs Determined to Confer Subsidies
1. Pre- and Post-Shipment Export Financing
In the Preliminary Determination, we found that the pre- and post-shipment export
financing loan programs conferred a countervailable subsidy on respondents. See 71 FR at 7918.
We determined that the GOI’s issuance of financing at preferential rates constituted a financial
contribution pursuant to section 771(5)(D)(i) of the Act and that the interest savings under these
programs conferred a benefit within the meaning of section 771(5)(E)(ii) of the Act. Further, we
determined that because receipt of the loans are contingent upon exports, the programs were
specific pursuant to section 771(5A)(B) of the Act. See 71 FR at 7919; see also Preliminary
Results of Countervailing Duty Administrative Review: Certain Hot-Rolled Carbon Steel Flat
Products from India, 69 FR 907, 910 (January 7, 2004) (unchanged in final results). No
comments have been submitted warranting reconsideration of this determination; therefore, we
continue to find that the pre- and post-shipment export financing programs are countervailable.
Aero, Kejriwal and Navneet had pre-shipment export financing loans outstanding during the
period of investigation (POI). Aero and Kejriwal had post-shipment financing loans outstanding
during the POI.
To calculate the benefit conferred by these loans, we compared the actual interest paid on
the loan with the amount of interest that would have been paid at the benchmark interest rate.
Where the benchmark interest exceeds the actual interest paid, the difference constitutes the
benefit.
In the Preliminary Determination, for the pre-shipment loans, we divided the benefit
received by each company by that company’s total exports during the POI.1 Id. We have
continued this approach in the final determination.
Because post-shipment loans are granted for particular shipments, our practice is to treat
the loans, where possible, as being tied to particular markets and products within the meaning of
19 CFR 351.525(b)(4) and (5). Accordingly, for Kejriwal, we have attributed the benefit to
Kejriwal’s sales of subject merchandise to the United States during the POI. Regarding Aero, in
the Preliminary Determination, we explained that it appeared to have reported its post-shipment
loans for all shipments to all destinations. Therefore, in the Preliminary Determination, we
divided all of Aero’s benefits under the post-shipment export financing loan program by its total
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exports sales to all markets. Id. However, due to information collected at verification indicating
that Aero differentiated benefits received under the program between subject and non-subject
merchandise, we have revised the manner in which we have attributed subsidies received by
Aero under the program. Based on this new information, we have attributed Aero’s subsidies
under the program to sales of subject merchandise to the United States. For further discussion of
the pre- and post-shipment export financing programs, see Comments 4, 6, 8, and 12.
On this basis, we determine the net subsidy rate under the pre-shipment export financing
program to be 0.85 percent ad valorem for Aero, 0.03 percent ad valorem for Kejriwal, and 0.63
percent ad valorem for Navneet. We determine the net subsidy rate under the post-shipment
financing program to be 0.17 ad valorem for Aero, and 0.24 percent ad valorem for Kejriwal.
2. Export Promotion Capital Goods Scheme (EPCGS)
In the Preliminary Determination, we determined that import duty reductions under the
EPCGS constituted a countervailable export subsidy. We found that the GOI provides a financial
contribution pursuant to section 771(5)(D)(ii) of the Act, in the form of revenue forgone that
otherwise would have been due, and conferred a benefit, as defined by section 771(5)(E) of the
Act. We further found that the EPCGS is specific under section 771(5A)(B) of the Act, as it is
contingent upon export performance. Id.; see also Final Results of Countervailing Duty
Administrative Review: Certain Hot-Rolled Carbon Steel Flat Products from India, 69 FR 26549
(May 13, 2004) (Final Results of 1st HRC Review) and the “EPCGS” section of the
accompanying Issues and Decision Memorandum (Final Results of 1st HRC Review Decision
Memorandum); and Final Affirmative Countervailing Duty Determination: Polyethylene
Terephthalate Film, Sheet, and Strip from India, 67 FR 34905 (May 16, 2002) (PET Film
Investigation), and the “EPCGS” section of the accompanying Issues and Decision Memorandum
(PET Film Investigation Decision Memorandum). Aero, Kejriwal, and Navneet received benefits
under the EPCGS.
As explained in the Preliminary Determination, under the Department’s approach, there
are two types of benefits under the EPCGS. The first benefit is the amount of unpaid import
duties that would have to be paid to the GOI if accompanying export obligations are not met.
The repayment of this liability is contingent on subsequent events, and in such instances, it is the
Department’s practice to treat any balance on an unpaid liability as an interest-free loan. Id. The
second benefit is the waiver of duty on imports of capital equipment covered by those EPCGS
licenses for which the export requirement has already been met. For those licenses for which
companies demonstrate that they have completed their export obligations, we treat the import
duty savings as grants received in the year in which the GOI waived the contingent liability on
the import duty exemption. See Preliminary Determination, 71 FR at 7920.
To calculate the net subsidy rate under this program, we continued to divided the benefit
by each company’s total export sales during the POI.
We received comments regarding the calculation methodology we utilized for the
EPCGS. We have made certain revisions to our benefit calculation from the Preliminary
Determination. For further discussion of the EPCGS program, see Comments 1, 3, and 9.
Therefore, we determine the net subsidy rate for the EPCGS to be 0.05 percent ad valorem for
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Aero, 0.05 percent ad valorem for Kejriwal, and 0.86 percent ad valorem for Navneet.
3. Duty Entitlement Passbook Scheme (DEPS)
Under the DEPS, exporting companies may earn import duty exemptions in the form of
passbook credits rather than cash. DEPS credits can be used for any subsequent imports
regardless of whether they are consumed in the production of an export product. They are also
transferable. In the Preliminary Determination, the Department determined that the DEPS
conferred countervailable subsidies on the respondents. We found that a financial contribution,
as defined under section 771(5)(D)(ii) of the Act, is provided under the program, as the GOI
provides the respondents with credits for the future payment of import duties. Further, since the
GOI does not have in place and does not apply a system to confirm which inputs, and in what
amounts, are consumed in the production of the exported products that is reasonable and
effective for the purposes intended under 19 CFR 351.519(a)(4), the entire amount of import
duty exemption earned by the respondents during the POI constitutes a benefit pursuant to
section 771(5)(E) of the Act. Because the DEPS can only be used by exporters, we found that it
is specific under section 771(5A)(B) of the Act. See Preliminary Determination, 71 FR at 7920;
see also the “DEPS” section of the PET Film Investigation Decision Memorandum.
Both Aero and Navneet reported earning duty exemption credits under the DEPS during
the POI. As explained in the Preliminary Determination, in accordance with past practice and
pursuant to 19 CFR 351.519(b)(2), we find that benefits from the DEPS are conferred as of the
date of exportation of the shipment for which the pertinent DEPS credits are earned. We
determined to calculate the benefit on an “as-earned” basis upon export because the DEPS credits
are provided as a percentage of the value of the exported merchandise on a shipment-byshipment
basis and, as such, it is at this point that recipients know the exact amount of the benefit
(e.g., the duty exemption). See Preliminary Determination, 71 FR at 7920; see also Final
Affirmative Countervailing Duty Determination: Certain Cut-to-Length Carbon-Quality Steel
Plate from India, 64 FR 73131, 73134 (December 29, 1999) (CTL Plate) at Comment 4.
Because DEPS credits are earned on a shipment-by-shipment basis, we normally calculate
the net subsidy rate by dividing the benefit earned on subject merchandise exported to the United
States by total exports of subject merchandise to the United States during the POI. See, e.g.,
CTL Plate, 64 FR at 73134. In the case of Aero, we have followed this calculation methodology.
However, Navneet was unable to separately report its subject and non-subject sales of lined paper
to the United States, and, thus, we have calculated the net subsidy rate by dividing the benefit
Navneet earned during the POI on subject and non-subject paper shipments to the United States
by its total exports sales to the United States during the POI. In the case of both companies, we
treated any application fees as an allowable offset, in accordance with section 771(6)(A) of the
Act. We received comments from interested parties concerning our treatment of the DEPS in the
Preliminary Determination. See Comment 2. However, no new information or comments from
interested parties warrant reconsideration of our approach. Therefore, we determine the net
countervailable subsidy from this program to be 0.34 percent ad valorem for Aero and 5.88
percent ad valorem for Navneet.
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2 In the final results of the second PET film review, the Department affirmed its decision to find the ALP
countervailable. See Final Results of Countervailing Duty Administrative Review: Polyethylene Terephthalate Film,
Sheet, and Strip from India, 71 FR 7534 (February 13, 2006) (Final Results of 2nd PET Film Review), and the
accompanying Issues and Decision Memorandum at “Advance License Program” section and Comment 1 (Final
Results of 2nd PET Film Review Decision Memorandum).
4. Duty Free Replenishment Certificate (DFRC) Scheme
In the Preliminary Determination, we determined that the sales of DFRC licenses by
Aero, Navneet, and Kejriwal constitute a financial contribution in the form of revenue forgone
and that the sales proceeds confer a benefit within the meaning of sections 771(5)(D)(ii) and
771(5)(E) of the Act, respectively. Because the receipt of DFRC licenses are contingent upon
exports, we determined that the DFRC program is specific within the meaning of section
771(5A)(B) of the Act. See Preliminary Determination, 71 FR at 7922. For purposes of this
final determination, we continue to find that the sales of DFRC licenses confer countervailable
export subsidies.
We received comments regarding our method for calculating the benefit and net subsidy
rate under the DFRC. See Comment 7. However, comments from interested parties did not
result in a change in the approach utilized in the Preliminary Determination. Thus, to calculate
the countervailable benefits conferred to Aero, Navneet, and Kejriwal under the program, we
identified the proceeds the three companies each realized from sales of DFRC licenses (net of
fees) earned against U.S. sales. To calculate the net subsidy rate, we divided the benefit by each
companies’ respective export sales to the United States. On this basis, we determine the net
subsidy rate to be 3.09 percent ad valorem for Aero, 0.13 percent ad valorem for Navneet, and
1.35 percent ad valorem for Kejriwal.
5. Advance License Program (ALP)
In the Preliminary Determination, we found that, with respect to the ALP, the systemic
deficiencies found in the preliminary results of the second PET Film review continue to exist
and, thus, we determined that the GOI does not have in place and does not apply a system that is
reasonable and effective for purposes intended under 19 CFR 351.519(a)(4) to confirm which
inputs, and in what amounts, are consumed in the exported products. See Preliminary Results
and Rescission in Part of Countervailing Duty Administrative Review: Polyethylene
Terephthalate Film, Sheet and Strip from India, 70 FR 46483, 46486 - 46487 (August 10, 2005)
(Preliminary Results of 2nd PET Film Review) (unchanged in the final results);2 and Preliminary
Determination, 71 FR at 7922. As a result, we determined that the entire amount of import duty
exemptions earned by Aero (the only respondent that used the program during the POI)
constitutes a financial contribution in the form of revenue forgone and a benefit within the
meaning of sections 771(5)(D)(ii) and 771(5)(E) of the Act, respectively. Because the ALP is
contingent upon exports, we found that this program is specific within the meaning of section
771(5A)(B) of the Act. See Preliminary Determination, 71 FR at 7922. We received comments
from interested parties regarding the Department’s decision in the Preliminary Determination to
countervail the ALP. See Comments 10 and 11. However, we continue to find that the ALP is
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countervailable.
As stated above, we find the benefit under the ALP is equal to the duty exemptions
received by Aero during the POI. To calculate the net benefit, we subtracted the total amount of
exempted duties under the ALP during the POI from the actual amount of application fees paid
for each license in accordance with section 771(6) of the Act. We then calculated the net subsidy
rate by dividing the net benefit by Aero’s total value of exports of during the POI. On this basis,
we determine the net subsidy rate for Aero to be 2.55 percent ad valorem.
6. Income Tax Exemption Scheme under 80HHC (80HHC)
Under section 80HHC of the Income Tax Act, the GOI allows exporters to deduct profits
derived from the export of merchandise from taxable income. In prior CVD proceedings, the
Department has found this program to be an export subsidy, and thus countervailable, because
receipt of the benefit is contingent upon export performance. See, e.g., Certain Iron-Metal
Castings from India: Final Results of Countervailing Duty Administrative Review, 65 FR 31515
(May 18, 2000), and the “Income Tax Deductions Under Section 80 HHC” section of the
accompanying Issues and Decision Memorandum. No new information or evidence of changed
circumstances has been submitted in this proceeding to warrant reconsideration of this finding.
Therefore, in accordance with sections 771(5)(D) and (E) of the Act, we find this program
countervailable because it results in a financial contribution by the government in the form of tax
revenue not collected, which also constitutes a benefit. Moreover, because receipt of the tax
deduction is contingent upon export performance, we continue to find the program to be an
export subsidy under section 771(5A)(B) of the Act.
In the Preliminary Determination, we found that this program was not used. However,
during the verification of the questionnaire responses submitted by Navneet, verifiers from the
Department discovered that Navneet claimed the 80 HHC income tax deduction on the tax return
filed during the POI. See Memorandum to Eric B. Greynolds, Program Manager, Office 3,
Operations, from Robert Copyak and Preeti Tolani, Case Analysts, “Verification of the
Questionnaire Responses Submitted by Navneet Publications Ltd. (“Navneet”)” (Navneet
Verification Report), at page 16 and pages 8 through 10 of Exhibit 21 (February 16, 2006), of
which the public version is on file in the CRU. Thus, pursuant to 19 CFR 351.509(b)(1), we find
that the benefit under the 80 HHC program was received in the year in which Navneet filed its
income tax return (e.g., the POI). We received comments from interested parties concerning
Navneet’s use of the 80 HHC program. See Comment 5.
To calculate the benefit Navneet received under section 80HHC, we subtracted the total
amount of income tax the company actually paid during the investigation period from the amount
of tax the company otherwise would have paid had it not claimed a deduction under section
80HHC. We then divided this difference by the value of Aero's total exports. On this basis, we
determine the net subsidy rate for Navneet to be 2.74 percent ad valorem.
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B. Programs Determined Not to be Used
1. Export Processing Zones (EPZ) and Export Oriented Units (EOU)
2. Income Tax Exemption Scheme (Sections 10A and 10B)
3. Market Development Assistance (MDA)
4. Status Certificate Program
5. Market Access Initiative
6. State of Gujarat Sales Tax Incentives
7. State of Maharashtra Sales Tax Incentives
V. TOTAL AD VALOREM RATES
The total net subsidy rate for Aero is 7.05 percent ad valorem for the period April 1,
2004, through March 31, 2005. The total net subsidy rate for Kejriwal is 1.67 percent ad valorem
for the period April 1, 2004, through March 31, 2005. The total net subsidy rate for Navneet is
10.24 percent ad valorem for the period April 1, 2004, through March 31, 2005. The total “all
others” rate for the period April 1, 2004, through March 31, 2005 is 9.42 percent ad valorem.
VI. ANALYSIS OF COMMENTS
A. General Comments
Comment 1. Treatment of Contingent Liability Benefits Under the EPCGS
In the Preliminary Results, the Department treated as interest-free, contingent liability
loans duty exemptions that Navneet made against EPCGS licenses for which it had yet to fulfill
its export obligation. Navneet argues that the Department’s treatment of such duty exemptions
under the EPCGS overstates the benefit. According to Navneet, failure to fulfill an export
obligation under the EPCGS results in exporters being required to pay customs duties as well as
penalty interest. Thus, argues Navneet, the Department has overvalued the benefits accruing to
Navneet based on a presumption of noncompliance concerning a future event that is unsupported
by the record.
Petitioners argue that where the export obligation under the EPCGS is unfulfilled, an
immediate benefit in the form of reduced duties and taxes is realized by recipient companies.
Petitioners also contend that any long range penalty referenced by respondents does not eliminate
the immediate benefit received in the waiver of duties. Petitioners also point out that
respondents provide no evidence that any of the respondents have been required to pay penalties
for failure to meet their export obligations. On this basis, petitioners urge the Department to
continue to treat as interest-free, contingent liabilities duty exemptions made against EPCGS
licenses for which respondents have yet to fulfill their export obligations.
Petitioners also contend that the Department should continue to treat duty reductions
under the EPCGS as grants where Navneet has met its export obligations. Petitioners further
argue that the Department should continue to treat an export obligation as fulfilled only after the
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GOI has issued a discharge letter. Absent an official discharge letter from the GOI, petitioners
assert that the Department should continue to treat duty reductions as interest-free, contingent
liabilities.
Department’s Position: It is the Department’s long-standing practice to treat unpaid customs
duties under the EPCGS as interest-free, long-term loans until the GOI issues a formal waiver
stating that the entire export commitment has been met. See, e.g., Final Results of 1st HRC
Review Decision Memorandum at the “Export Promotion Capital Goods Scheme” section; see
also, Final Results of Countervailing Duty Administrative Review: Polyethylene Terephthalate
Film, Sheet, and Strip from India, 69 FR 51063 (August 17, 2004) (Final Results of 1st PET Film
Review) and accompanying Issues and Decision Memorandum at Comment 5 (Final Results of
1st PET Film Review Decision Memorandum). While companies that fail to meet their export
obligations may be subject to payment of the duty reductions as well as penalty interest, such
potential payments do not negate the immediate benefit realized by exporters in the form of an
interest-free, contingent liability loan.
On this basis, we have continued to treat the unpaid customs duties under the EPCGS as
grants in those instances in which the GOI has issued a formal waiver stating that the entire
export commitment has been bet. Absent such notification from the GOI, we have continued to
treat the unpaid customs duties as interest-free, long-term, contingent liabilities.
Comment 2: Valuation of DEPS Benefits
Respondents claim that the Department’s reliance on its regulations, and the Preamble to
the regulations, to value benefits received by respondents under the DEPS at face value upon
export, rather than the amount received by the companies after the sale of the DEPS licenses,
conflicts with the facts of this case and the Department’s broader mandate to accurately
countervail grants and the benefit thereby received. Respondents cite the Preamble of the
Department’s regulations as directing the Department to focus on the enhanced value received by
Navneet and Aero from the sale of their DEPS licenses, not the theoretical value. See
Countervailing Duties; Final Rule, 63 FR 65348, 65361 (November 25, 1998). Respondents
argue that the Department has the actual benefit conferred from the sale of the DEPS licenses and
should use this amount to measure any subsidy thereby conferred as it does with respect to other
subsidies in this investigation (i.e., as under the DFRC where the Department deems benefits
received when companies use their DFRC licenses to import inputs duty-free or sell them).
Respondents further argue that to measure the benefit Navneet and Aero received from the DEPS
licenses using a value other than the sales value would violate the United States’ commitments
under the World Trade Organization’s Agreement on Subsidies and Countervailing Measures
(SCM Agreement) and precedent under Rhone Poulenc v. United States, 899 F. 2d 1185, 1191
(Fed. Cir. 1990).
Petitioners argue that the Department should continue with the methodology used in the
Preliminary Determination, as it follows the Department’s consistent practice. Petitioners claim
that respondents’ proposed approach would result in the Department considering the effect of the
receipt of the subsidy, which the Department is not required to do under 19 CFR 351.503(c).
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Department’s Position: The Department’s practice has been to treat benefits received under
DEPS as conferred as of the date of exportation of the shipment for which the relevant DEPS
credits are earned because it is at this point where the amount of the benefit in the form of an
exemption is known. See e.g., Final Results of 1st HRC Review Decision Memorandum at
Comment 2, CTL Plate, 64 FR at 73140; and Certain Welded Carbon Steel Pipe and Tube and
Welded Carbon Steel Line Pipe from Turkey, 63 FR 18885, 18888 (April 16, 1998) at Comment
1, in which the Department explained that:
it is the Department's long-standing practice to countervail an export subsidy on the date
of export on an "earned basis" rather than on the date the benefit is received where it is
provided as a percentage of the value of the exported merchandise on a shipment-byshipment
basis, and the exact amount of the countervailable subsidy is known at the time
of export.
Further, this approach was recently affirmed by the Court of International Trade (CIT). See Essar
Steel Ltd. v. United States, 395 F. Supp. 2d 1275, 1278 (CIT 2005) (Essar Steel) where the Court
found:
Commerce correctly determined that because Essar earned DEPS credits by processing its
shipment of the subject merchandise to the United States under this program, it obtained a
financial contribution. Additionally, because Commerce acted within its discretion to
calculate the benefit earned from this financial contribution on an “as earned” basis,
Commerce correctly determined that Essar obtained a benefit.
Furthermore, calculating benefits under the DEPS on an as-earned basis is consistent with the
Department’s long standing practice of not tracing what companies do with the subsidies they
have received. See 19 CFR 351.503(c). Although the facts of this investigation differ slightly
with respect to disposition of the DEPS license in Essar Steel - Essar retained the license it
earned during the POR while respondents in the instant proceeding sold licenses that were earned
during the POI - the Court’s affirmation of countervailing DEPS licenses on an as-earned basis is
still applicable. Specifically, in the case of benefits received under the DEPS, once the
Department is able to ascertain the value of benefits received under the program, as defined by
the date on which they are earned, the Department does not continue its benefit analysis by
examining whether the licenses are somehow discounted due to a subsequent sale.
We note that respondents’ argument urging the Department to apply an as-used benefit
methodology, as it has done under the DFRC, is not convincing. As we stated in the Preliminary
Determination, the DEPS provides value-based licenses. As such, the recipients of DEPS credits
know the value of the credits at the time they are received, which corresponds to the time when
the credits are earned. See 71 FR at 7920. In contrast, the DFRC licenses are quantity-based
licenses in which the recipients will only know the total value of the duty credits when they use
the licenses or choose the sell them. See 71 FR at 7921. In both the DEPS and the DFRC
programs, the Department determines the benefits are received when the actual value of the
benefit is known.
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We disagree with respondents’ claim that the Department’s methodology for valuing the
benefit under the DEPS violates the Department’s regulations and the legislative history behind
the regulations. We note that in Essar Steel, the CIT dismissed similar claims that the
Department’s methodology of valuing DEPS credits on an as-earned basis violated the U.S.’s
commitments under the SCM Agreement. See Essar Steel, 395 F. Supp. 2d at 1279.
On this basis, we are continuing the approach we have taken in prior cases and the
Preliminary Determination and have calculated the benefit under the DEPS on an as-earned”
basis at the time of export.
B. Navneet
Comment 3: Benchmark Used Under the EPCGS Program
Navneet argues that the benchmark interest rate the Department used to measure the
benefit of interest-free, contingent liability loans under the EPCGS program is improper.
Navneet argues that, due to a lack of need, it does not have any outstanding long-term,
commercial loans and that this fact is indicative of Navneet’s extremely high credit rating. As
such, it contends that the interest rates for short- and medium-term loans published in the IMF
publication, “International Financial Statistics,” are not representative of Navneet’s financial
situation. Navneet argues that the Department should instead use actual interest rates obtained by
the company as the best information concerning the commercial rate that would have been
applicable to Navneet. Specifically, Navneet argues that the Department should use a short-term
interest rate from a commercial loan it received from the Reserve Bank of India, which Navneet
submitted in its supplemental questionnaire. See Navneet Supplemental Questionnaire Response
at Exhibit S-7 (January 23, 2006).
Petitioners disagree with Navneet’s claim that the Department used the wrong benchmark
interest rate for calculating the benefit received by Navneet under the EPCGS program.
Petitioners reference the Department’s regulations as explicitly requiring the Department to apply
a long-term interest rate benchmark if the contingency exceeds one year. According to
petitioners, the Department’s regulations require the Department to use a national average
interest rate in the case where a respondent has no long-term loans outstanding during the POI.
Petitioners argue that the Department correctly applied its regulations by using a national average
long-term loan benchmark (i.e., the rupee-denominated interest rates in International Financial
Statistics) and should continue this approach for the final determination. Alternatively,
petitioners argue that the Department could use the long-term commercial benchmark rate
calculated for Aero as a proxy for Navneet’s long-term benchmark.
Navneet counters petitioners’ argument that the Department should use Aero’s long-term
interest rate as a benchmark for Navneet. Navneet argues that there is no meaningful comparison
between Navneet and Aero or the two companies’ creditworthiness. Navneet reiterates its
contention that the Department should use the interest rate it obtained from the Reserve Bank of
India as the benchmark for EPCGS duty exemptions treated as long-term, interest-free contingent
liabilities.
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Department’s Position: To determine whether a government loan program confers a benefit,
the Department compares the interest paid on the government loan to the interest that would have
been paid on a comparable, commercial loan. See 19 CFR 351.505(a)(1). Under 19 CFR
351.505(a)(2), in selecting a loan that is “comparable,” the Department places primary emphasis
on similarities in the structure, currency of the loan, and the maturity of the loan. Because the
duration of the contingent liability under the EPCGS is longer than one year, we are directed to
treat the duty exemptions as long-term, interest-free loans. Thus, pursuant to 19 CFR
351.505(a)(2), it is not appropriate to measure the benefit on these long-term, interest-free loans
using a short-term benchmark interest rate.
Under 19 CFR 351.505(a)(3)(ii), where the firm has no comparable commercial loans, the
Department may use a national average interest rate. As explained in the Preliminary
Determination, information on long-term publicly available interest rates in India were not
available. We therefore used national average interest rates for short- and medium-term, rupeedenominated
financing from private creditors, as published in the IMF’s International Financial
Statistics. See 71 FR at 7918. This approach is consistent with the Department’s practice. See
e.g., the PET Film Investigation Decision Memorandum at the “Benchmark for Loans and
Discount Rate” section; Final Affirmative Countervailing Duty Determination: Certain Hot-
Rolled Carbon Steel Flat Products from India, 66 FR 49635 (September 28, 2001) (HRC
Investigation), and the accompanying Issues and Decision Memorandum at the “Benchmark for
Loans and Discount Rate” section (HRC Investigation Decision Memorandum); Preliminary
Results of 2nd PET Film Review, 70 FR at 46485 (unchanged in the Final Results of 2nd PET
Film Review); Final Results of 1st PET Film Review Decision Memorandum at the “Benchmarks
for Loans and Discount Rate” section; and the Final Affirmative Countervailing Duty
Determination of Bottle-Grade Polyethylene Terephthalate (PET) Resin from India, 70 FR 13460
(March 21, 2005), and accompanying Issues and Decisions Memorandum at the “Loan
Benchmarks” section in which the Department stated:
. . .for programs requiring a rupee-denominated interest rate as a benchmark or discount
rate, we used national average interest rates for the years in which the respondents did not
report company-specific interest rates on comparable, commercial loans in accordance
with section 351.505(a)(3)(ii) of the Department’s regulations. For these years, we relied
on a rupee-denominated, short- to medium-term benchmark interest rate that provides a
reasonable representation of long-term interest rates in India. In this case we based these
national average interest rates on short- to medium-term, rupee-denominated financing
from private creditors, as published in the International Monetary Fund’s International
Financial Statistics.
We acknowledge that the interest rates from International Financial Statistics include short-term
rates. However, in keeping with the Department’s practice, we find the publication also includes
medium-term loans and, thus, its interest rates adhere more closely to the comparability criteria
enumerated under 19 CFR 351.505(a)(2). On this basis, in our benefit calculations for Navneet
under the EPCGS program, we have continued to base the benchmark on the interest rate
information published in the IMF’s International Financial Statistics.
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Comment 4: Benchmark Used for Navneet Under the Pre-Shipment Export Financing
Program
Navneet claims that the Department should not have rejected the dollar-denominated
commercial benchmark it supplied for the pre-shipment export financing program. Navneet
argues that the Department verified the pre-shipment interest rate provided in its questionnaire
response and should use this interest rate when calculating the benefit on dollar-denominated
loans under the pre-shipment export financing program.
Petitioners did not comment on this issue.
Department’s Position: In the Preliminary Determination, the Department rejected the shortterm,
dollar-denominated benchmark interest rate provided by Navneet for the pre-shipment
program. We rejected Navneet’s benchmark rate because it was derived from loans offered by a
government-owned special purpose bank and, therefore, was not usable under 19 CFR
351.505(a)(2)(ii). See Preliminary Determination, 71 FR at 7918. However, at verification,
Navneet reported that during its preparations for verification, it had discovered a short-term,
dollar-denominated working capital line of credit that was outstanding during the POI. See
Navneet Verification Report at pages 2 through 3.
We have examined this line of credit and find that it constitutes a comparable commercial
benchmark within the meaning of 19 CFR 351.505(a)(2). First, the commercial loan in question
is of the same currency and has a comparable duration and structure as the government loan.
Second, information obtained at verification indicates that the loan in question was issued to
Navneet by a commercial lending institution, as opposed to a special purpose bank. Lastly,
during verification, we were able to confirm that the benchmark loan information constituted all
of Navneet’s comparable, commercial, short-term debt outstanding during the POI, thereby
allowing the Department to calculate a representative, annual weighted-average benchmark
interest rate, as provided under 19 CFR 351.505(a)(2)(iv).
Comment 5: Navneet’s Use of the 80 HHC Income Tax Exemption
Navneet asserts that it did not use the 80HHC Income Tax Exemption Scheme because
the amounts received under this program relate to a period prior to the POI. Navneet argues that
the tax return it submitted in October 2004 pertained to the period ending March 31, 2004, and
therefore, the Department should not include this program in the final determination.
Petitioners did not comment on this issue.
Department’s Position: Under 19 CFR 351.509(b), in the case of a full or partial exemption or
remission of a direct tax, the Department will consider the benefit as having been received on the
date on which the recipient firm would otherwise have had to pay the taxes associated with the
exemption or remission. Sub-paragraph (b) further states that, normally, this date will be the date
on which the firm filed its tax return. At verification, the Department found that the tax return
Navneet filed in October 2004, a date that falls within the POI, included an exemption under the
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80 HHC Income Tax Exemption program. Given the Department’s long-standing practice to link
the receipt of benefits under the 80 HHC program to the tax return filed during the period of
investigation or review, we find there is no basis for the Department to deviate from the standard
practice described under sub-paragraph (b). See e.g. Certain Iron-Metal Castings From India:
Preliminary Results and Partial Rescission of Countervailing Duty Administrative Review, 64
FR 61592 (November 12, 1999) (unchanged in the final results).
Therefore, to calculate the benefit Navneet received under the 80HHC program, we
subtracted the total amount of income tax the company actually paid during the POI from the
amount of tax the company otherwise would have paid during the POI had it not claimed a
deduction under section 80HHC. Because this program is contingent upon export performance,
we divided the benefit by the f.o.b. value of the Navneet’s total exports.
Comment 6: Denominator Used to Calculate Navneet’s Net Subsidy Rate Under the Pre-
Shipment Export Financing Program
Petitioners argue that the Department should apply adverse facts available and, thus,
assume that all of Navneet’s pre-shipment export financing is tied to sales of subject merchandise
to the United States. According to petitioners, the Department‘s verification demonstrated that
Navneet, contrary to its pre-verification submissions, can determine which orders were tied to
which loans as well as determine what proportion of each loan was tied to sales of subject
merchandise to the United States during the POI.
Respondents argue that Navneet has not declined to provide any information; instead, the
arbitrarily designed scope has made it difficult for Navneet to reconcile the information as it was
exactly requested. Navneet further claims that it has demonstrated the difficulty it has with
providing its worldwide exports of subject merchandise. Navneet also cites the Department’s
verification report as evidence that Navneet’s system is not capable of tying a pre-shipment loan
to a particular order. As a result, Navneet argues that the Department should continue to
calculate an allocated pre-shipment credit for Navneet’s U.S. sales.
Department’s Position: The Department’s practice is to use a respondent’s total exports as the
denominator as this program is contingent upon export. See PET Film Investigation Decision
Memorandum at the “Pre-Shipment and Post-Shipment Export Financing” section and Comment
8. Further, we find there is no evidence on the record of this investigation to support petitioners’
claim that Navneet can tie benefits under the program to specific shipments. See page 9 of the
Navneet Verification Report where it states that Navneet uses the pre-shipment export financing
program for “large bundles of shipments rather than shipment-by-shipment.” On this basis, we
have continued to calculate the net subsidy rate calculated under this program by dividing the
benefit by Navneet’s total export sales.
Comment 7: Denominator Used to Calculate Navneet’s Net Subsidy Rate Under the
DFRC
Petitioners argue that the Department should continue its methodology for calculating the
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net subsidy Navneet received under the DFRC. Petitioners contend that since Navneet provided
no information on the exports that would enable the Department to differentiate between DFRC
credits tied to subject and non-subject merchandise, the Department should continue to divide the
total amount of the sale of the DFRC credits by its total exports to the U.S.
Respondents argue that the Department’s preliminary calculations for the DFRC program
are overstated because the Department based the calculations on the total amount of benefits
received and total exports. They argue that using information obtained at verification, the
Department should, wherever possible, base it calculations on benefits received for exports of
subject merchandise to the United States.
Department’s Position: Our verification report indicates that Navneet is unable to differentiate
between sales of subject and non-subject merchandise on the DFRC license(s) sold. See Exhibits
VE-23 and VE-24 of the Navneet Verification Report. Therefore, we find it appropriate to
continue our methodology adopted in the Preliminary Results and attribute subsidies under this
program to Navneet’s total exports to the United States. Similarly, the information on the record
regarding the DFRC license(s) sold by Aero and Kejriwal do not allow us to make such a
differentiation. Therefore, we have continued to attribute subsidies under this program to the
companies’ respective total exports to the United States during the POI.
C. Kejriwal
Comment 8: Benchmark Used to Calculate Countervailable Benefits Received by Kejriwal
under the Post-shipment Export Financing Program
Kejriwal argues that the Department should base the benchmark used to calculate the
benefit under the post-shipment export financing program on company-specific loan information
the Department obtained at verification. Kejriwal argues that the information the Department
obtained during verification is more representative than the national average interest rate
obtained from International Financial Statistics that the Department used in the Preliminary
Determination.
Petitioners also argue that the Department should replace the national average benchmark
interest rate used in the Preliminary Determination with company-specific loan information
obtained during the verification of Kejriwal. However, petitioners argue that the Department
should use a different set of loan information, showing a higher interest rate, for purposes of
calculating the benchmark under the post-shipment export financing program.
Department’s Position: Kejriwal failed to report all of its benchmark loan information to the
Department. Therefore, the Department could not calculate an annual, weighted-average interest
rate as contemplated by 19 CFR 351.505(a)(2)(iii). Therefore, we have determined to continue
to use for benchmark purposes the national average interest rates published in the IMF’s
International Financial Statistics to calculate the benefit Kejriwal received under the GOI’s postshipment
export financing program. We find that this interest rate constitutes the most
appropriate interest rate available. Further, the use of interest rate information from the
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International Financial Statistics publication for benchmark purposes is consistent with the
Department’s practice. See e.g., HRC Investigation Decision Memorandum at the “Benchmarks
for Loans and Discount Rate” section.
The comments we received from interested parties and the Department’s position
regarding this issue involve the discussion of business proprietary information. See
Memorandum to the File Through Eric B. Greynolds, Program Manager, Office 3, Operations,
from Robert Copyak, Case Analyst, “Proprietary Comment Concerning the Benchmark Used to
Calculate Countervailable Benefits Received by Kejriwal Under the Post-shipment Export
Financing Program” (July 31, 2006), of which the public version of this memorandum is
available in the CRU.
Comment 9: Whether Documentation from Kejriwal Indicates That it Fufilled its Export
Obligation Under the EPCGS
Petitioners argue that the Department should be suspicious of the “completion letters”
from the GOI that were obtained at verification. They argue that although Kejriwal’s initial
questionnaire response was dated after the date of the two completion letters, Kejriwal never
stated that it had received the documents and did not provide the letters in any subsequent
questionnaire responses or factual submissions. Petitioners argue that Kejriwal had ample time
to file such completion letters and, thus, the Department should not accept them in this
investigation. Lacking evidence that Kejriwal’s fulfilled its export obligation under the EPCGS,
petitioners contend that, for purposes of calculating the benefit, the Department should follow its
practice and treat the unpaid import duties as long-term, interest-free loans.
Petitioners add that should the Department accept the letters as evidence that Kejriwal
completed its export obligation under the EPCGS, the Department should treat the deferred
amounts as grants. They argue that the Department should use in its calculations the higher
excise duty rate and required duty collection rate that were found at verification, not the rates
originally reported by Kejriwal.
Kejriwal rebuts that there is no basis to question the thoroughness and credibility of
Kejriwal’s submissions and no basis to reject credible verified information. Kejriwal argues that
the Department reviewed the program at verification and that, as company officials explained,
the differences in the excise duty rate and the duty collection rate were due to an education
surcharge that is not part of the EPCGS program.
Department’s Position: It is the Department’s practice to rely on verification to corroborate
information provided by respondents in the their questionnaires responses. In its December 19,
2005, questionnaire response, Kejriwal reported that it had fulfilled the export obligations but
was awaiting the recognition letters from the GOI. At verification, we reviewed and collected
copies of the EPCGS licenses and supporting documents. Among these documents are letters
from the GOI regarding Kejriwal’s export obligations. See Memorandum to Eric B. Greynolds,
Program Manager, Office 3, Operations, from Robert Copyak and Preeti Tolani, Case Analysts,
Office 3, Operations, “Verification of the Questionnaire Responses Submitted by Kejriwal Paper
Limited (Kejriwal)” at page 5 (June 2, 2006) (Kejriwal Verification Report), of which the public
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version is on file in the CRU.
Although Kejriwal stated in its questionnaire response that it has completed its export
requirements, the letters from the GOI obtained at verification discussing Kejriwal’s export
obligations under the EPCGS are dated after the POI. Thus, there is no evidence on the record
indicating that Kejriwal’s duties were waived prior to the end of the POI. Therefore, we have not
calculated a benefit using our grant methodology. Consistent with our practice, we continue to
calculate the benefit under the program by treating the unpaid customs duties outstanding during
the POI as long-term, interest-free loans. See, e.g., Final Results of 2nd PET Film Review
Decision Memorandum at Comment 6.
It is the Department’s practice to calculate the benefit by subtracting the amount the
company actually paid from the amount that the company would have paid absent the program.
Therefore, we agree with petitioners and have made an adjustment to the benefit calculation to
account for the Department’s finding at verification that rates otherwise due absent the program
and actually paid by Kejriwal were slightly higher than what the company originally reported. In
other words, in our calculations we have used the higher excise duty rate and required duty
collection rate that were found at verification, not the rates originally reported by Kejriwal. See
Kejriwal Verification Report at pages 13 through 16 of Exhibit VE-15.
D. Aero
Comment 10: Whether to find the ALP Countervailable
Aero explains that in the Final Results of 2nd PET Film Review the Department held that,
with regard to the ALP, the GOI did not have in place and did not apply a system that was
reasonable and effective for the purposes intended as required by U.S. law. Aero notes the
Department’s decision to countervail the ALP in the Final Results of 2nd PET Film Review was
based on its finding that (a) the GOI lacked an effective implementation and monitoring scheme;
(b) the GOI could not demonstrate how the PET Film Standard Input Output Norms (SION) used
to determine the duty exemptions were calculated or that the SIONs for PET Film had been
updated; and (c) the ALP program permits exporting companies to meet their export
requirements through deemed exports.
Aero argues that since the Department’s ruling in the Final Results of 2nd PET Film
Review, there have been improvements and changes to the ALP Program to address the
deficiencies noted by the Department. Aero, the sole user of the ALP during the POI, asserts that
there have been three significant changes to the program since the implementation of the Final
Results of 2nd PET Film Review. First, Aero argues that pursuant to regulatory changes enacted
under the ALP in April 2003, the manufacturing unit of the advance licence holder must maintain
a register for all inputs imported/procured duty-free under the ALP. Aero claims that under this
requirement, the licensing authority maintains a record indicating the starting and closing dates of
the obligation period for exports. Aero asserts that the Department confirmed this change to the
ALP during the verification of the GOI’s questionnaire response.
Second, Aero claims that the GOI carefully monitors companies’ use of the program and
has revamped the system for reviewing the SION’s utilized by the lined paper industry under the
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ALP. Aero claims that the Ministry of Commerce, in conjunction with export promotion
councils and various industries and associations, appoints a technical committee to fix the SIONs
for a given product. Aero further argues that the Commerce Ministry periodically updates SIONs
used in the ALP. It notes that, in the case of the lined paper industry, the SION was revised as
recently as June 2005. Aero argues that the Department confirmed these these facts concerning
the development of the SION during verification.
Third, Aero asserts that that the GOI is able to monitor use of the ALP through its control
of the ports of entry, record keeping system, and mechanisms that track imports and exports.
Further, Aero contends that the GOI monitors the completion of the export obligation under the
ALP and sanctions companies for non-compliance.
Petitioners note that Aero was the only Indian producer to use the ALP during the POI
and that in the Preliminary Determination the Department found that (1) the Indian government
could not demonstrate that the program was implemented and monitored effectively; (2)
participants could meet their export requirements through “deemed exports”; and (3) the Indian
government could not show how the SIONs used to determine duty exemptions were calculated.
See 71 FR at 7922.
Petitioners claim that the Department’s verification of Aero confirms the correctness of
the Department’s preliminary decision. At verification, the Indian government was not able to
provide the source documents upon which the SION for the lined paper industry was based.
Thus, argue petitioners, the Department cannot determine how the SION for the lined paper
industry was calculated. Nor, petitioners contend, is there any indication on the record of the
investigation that the GOI has eliminated under the ALP the ability of companies to earn duty
exemptions on inputs that are subsequently incorporated into “deemed” exports.
Aero rebuts that since it had no domestic sales during the POI, the issue of deemed
exports is moot in this particular investigation.
Department’s Position: In the Final Results of 2nd PET Film Review, the Department changed
its previous policy on the ALP. In that proceeding, the Department determined that the GOI had
changed its guidelines from the 1997-2002 program that the Department had earlier not found
countervailable. There, the Department examined the 2002-2007 Export/Import Policy
Guidelines underlying the ALP and found the program to be countervailable, in accordance with
19 CFR 351.519(a)(4). See Final Results of 2nd PET Film Review Decision Memorandum at
“Advance License Program” section and Comment 1.
In the Final Results of 2nd PET Film Review, the Department identified a number of
systemic deficiencies that led to the Department’s determination that respondents failed to
demonstrate that the ALP was monitored and regulated effectively, as evidenced by the lack of
information related to verification or implementation of extension or penalties. The GOI could
not identify the number of companies during the POR that either failed to meet export
commitments under the ALP, were penalized for failing to meet the export requirements under
the ALP, or were penalized for claiming excessive credits. Moreover, the Department noted that
if the GOI had carried out an examination that might demonstrate monitoring of the ALP, it
should identify when the examination took place and the results of the examination. Despite the
Department’s request, the GOI did not cite any specific examination or verification of a producer
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in any industry. See Final Results of 2nd PET Film Review Decision Memorandum, at Comment
1.
In addition, the Department noted that the system allows for the availability of ALP
benefits for a broad category of “deemed” exports that are not limited to the actual exportation of
the subject merchandise, and provides for government discretion to bestow benefits under the
program even more broadly. Id.
Further, in the Final Results of 2nd PET Film Review, the GOI could not provide the
SION calculations for the PET industry or any documentation demonstrating that the process
outlined in its regulations was actually applied in calculating the PET film SION.
In this investigation, Aero and the GOI placed information on the record indicating
certain revisions to aspects of the ALP. At verification, we reviewed how inputs and exports
were tracked by the GOI through its Directorate General for Foreign Trade (“DFGT”) and the
Government of India Customs house (“GOI Customs”), all within an 18-month period. See
Memorandum to the File from Eric B. Greynolds, Program Manager, Office 3, Operations, and
John Conniff, Case Analyst, Office 3, Operations, “Verification of the Questionnaire Responses
Submitted by the Government of India,” at pages 4 and 6 (May 17, 2006) (GOI Verification
Report), of which the public version is on file in room B-099 of the Central Records Unit of the
main Commerce building; see also Aero Verification Report at page 10. Further, at verification
we learned that a company can continue to bring in more materials under the ALP program by
applying for an amendment, which then increases the corresponding export requirements. See
Aero Verification Report at page 11.
Further, the GOI enters information from companies’ bills of entry into a customs
database that it uses to track the inputs imported duty-free under the ALP. In this manner, the
GOI is able to maintain a running tally regarding the amount of inputs companies are allowed to
import against a given SION. See GOI Verification Report, at page 4.
In addition, under the ALP registration process, companies must provide, among other
things, a copy of the license, indicate the CIF and FOB value of the license, and the amount of
the bank guarantee that accompanies their license. GOI officials explained that Customs then
enters the license number and date, company name, bank guarantee number, bond amount, and
due date of the bank guarantee (which corresponds with the due date of the export obligation)
into what is referred as a Duty Exemption Entitlement Certificate (“DEEC book”). GOI officials
explained that they use the DEEC book to track the date on which companies must fulfill their
export obligation. GOI officials explained that Customs will cash the bank guarantee of those
companies that fail to meet their export obligation. See GOI Verification Report, at page 4 and
pages 7 and 8 of VE-7A, which discusses a letter from GOI to a company that failed to meet its
export obligation as well as worksheet indicating how Customs calculated the total amount owed
by the company.
However, in spite of the procedures that the Department observed at verification,
systematic issues continue to exist that demonstrate that the GOI lacks a system or procedure 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, as required under 19 CFR
351.519. Neither the GOI nor Aero placed information on the record demonstrating changes to
the ALP 2002-2007 Guidelines affecting many of the other specific deficiencies enumerated in
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the Final Results of 2nd PET Film Review. For example, the GOI is still unable to document how
it developed the underlying SION in effect for the lined paper. While the Department confirmed
at verification that the GOI has recently updated the SION for the lined paper industry, the GOI
was unable to provide source documents concerning the initial formation and subsequent revision
of the SION used for the lined paper industry, including the SION in effect during the POI.. See
GOI Verification Report, at pages 2 through 4.
In the instant investigation, neither respondents nor the GOI demonstrated that a
mechanism existed during the POI to systematically evaluate the underlying SIONs to determine
whether they remain reasonable over time. Aero was unable to provide information
demonstrating that there was a requirement that the GOI review the SIONs during the POI.
Additionally, no information was placed on the record of this investigation on the ALP
Guidelines allowing for companies applying to create a SION to use their own untested SIONs if
the GOI fails to review them within four months, or with respect to extensions of time to meet
export obligations.
Finally, although Aero argues that it did not use “deemed exports” to earn duty
exemptions under the ALP during the POR, neither Aero nor the GOI have claimed that the laws
and procedures underlying the ALP have changed with respect to the issue of “deemed exports”
during the POI. Therefore, because Aero failed to provide information demonstrating that the
ALP was implemented and monitored effectively during the POI, as evidenced by the
information listed above, we continue to find that the GOI has not demonstrated that it has
carried out an examination of actual inputs involved to confirm which inputs are consumed in the
production of the exported product, and in what amounts or that the ALP was reasonable and
effective for the purposes intended. Thus, in accordance with 19 CFR 351.519(a)(4), we have
considered the entire amount of the duty exemptions Aero received under the ALP to confer a
benefit.
Comment 11: Whether Sufficient Evidence Exists to Warrant Finding Programwide
Changes Have Occurred with Respect to the Advance License
Program
Aero notes that if a subsidy program has been changed, and if such a program-wide
change is not limited to individuals or firms but is more in the nature of an institutional change
and provided that such a change is measurable, the Department may reduce the cash deposit rate
accordingly in accordance with 19 CFR 351.526. Aero asserts that a program-wide change under
19 CFR 351.526 can be brought about through an amendment to a law by a foreign government
that has the effect of removing the countervailable elements of its laws. In support of its
contention, Aero cites to the HRC Investigation in which it claims the Department agreed that
significant changes had been made to the ALP such that it found the program countervailable
only to the extent that the advance licenses resulted in an over-rebate of duties on imports not
consumed in the production process. See HRC Investigation Decision Memorandum at the
“Advance License” section. Aero claims that in the HRC Investigation, the Department verified
the use of the ALP and concluded that it utilized a built-in monitoring system by virtue of the
application process and the manner in which the amount of duty exemption to be granted was
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limited by the quantity stipulated in the license. Id. Aero argues that the Department should
draw a similar conclusion in this investigation and, thus, set the cash deposit rate to zero with
respect to the ALP.
In addition to the aspects of the ALP discussed above, Aero argues that there have been
significant changes to the ALP subsequent to the POI that merit consideration as a program-wide
change. In particular, Aero notes that subsequent to the POI, manufacturing units of advance
license holders who import/procure the duty-free inputs under the ALP must maintain
documentation that is certified by a chartered, public accountant concerning the usage of such
imports towards exports. Thus, Aero argues that for the final determination, the department
should find that the GOI’s revisions to the ALP during and after the POI warrant a finding of a
program-wide change and, thus, the Department should establish a net subsidy rate of zero for
the ALP for cash deposit purposes.
Petitioners note that Aero was the only Indian producer to use the ALP during the POI
and that in its Preliminary Determination the Department found that (1) the Indian government
could not demonstrate that the program was implemented and monitored effectively; (2)
participants could meet their export requirements through “deemed exports”; and (3) the Indian
government could not show how the SIONs used to determine duty exemptions were calculated.
Petitioners claim that the Department’s verification of Aero confirms the correctness of
the Department’s decision. At verification, the Indian government was unable to provide the
documents upon which the SION was based, so the Department could not determine how the
SION was calculated, nor was there any indication that the GOI had eliminated “deemed” exports
from eligibility for the ALP.
Department’s Position: Aero has requested that the Department take program-wide changes
into account for the ALP pursuant to 19 CFR 351.526. However, as noted above in the
Department’s position in Comment 10, systemic issues continue to exist that bring into question
whether the GOI was able to effectively monitor and regulate the program during the POR.
Further, there is no information that these systemic issues have been resolved subsequent to the
POI, as required under 19 CFR 351.519. On this basis, we find there is no basis to invoke the
program-wide changes regulation, as defined by 19 CFR 351.526, when calculating the cash
deposit rate applicable to companies that benefitted under the ALP during the POI.
Comment 12: Attribution of Subsidies Aero Received under the Post-shipment Export
Financing Program
Petitioners note that in the Preliminary Determination, Aero was unable to segregate out
benefits from the post-shipment export financing program that were tied solely to non-subject
merchandise. As a result, to calculate the benefit under this program the Department divided the
total benefits under this program by the value of Aero’s total exports. Petitioners assert that,
because Aero was unable to demonstrate at verification that it could, in fact, separate out the
benefits from the post-export financing program tied solely to subject merchandise, in the final
determination the Department should attribute Aero’s benefits under this program to exports of
subject merchandise to the United States.
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Aero did not comment on this issue.
Department’s Position: During the Department’s verification of the questionnaire responses
submitted by Aero, we observed and verified Aero’s method of allocating loan amounts
specifically to the subject merchandise. Aero used information from its invoice numbers to
explain how it reported information on the post-shipment loan program for subject merchandise
shipped to the United States. See Aero Verification Report at page 6. Thus, we agree with
petitioners and have attributed the benefits to Aero’s exports of subject merchandise to the
United States under the post-shipment export financing program to its total exports of subject
merchandise to the United States during the POI.
VII. Recommendation
Based on our analysis of the comments received, we recommend adopting the above
positions. If these recommendations are accepted, we will publish the final results of the
investigation in the Federal Register.
__________ Agree __________ Disagree
_________________________
David M. Spooner
Assistant Secretary
for Import Administration
_________________________
Date