DEPARTMENT OF COMMERCE International Trade Administration 19 CFR Part 355 Certain Fasteners From India; Final Countervailing Duty Determination and Countervailing Duty Order Monday, July 21, 1980 *48607 AGENCY: International Trade Administration, U.S. Department of Commerce. ACTION: Final Countervailing Duty Determination and Countervailing Duty Order. SUMMARY: This notice is to advise the public that the Department of Commerce has determined that the Government of India confers benefits upon the production or export of certain fasteners which constitute subsidies within the meaning of the countervailing duty law. Future imports of this merchandise will be subject to the payment of countervailing duties. EFFECTIVE DATE: July 21, 1980. FOR FURTHER INFORMATION CONTACT: Mary S. Clapp, Supervisory Import Administration Specialist, Office of Investigations, International Trade Administration, Department of Commerce, Washington, D.C. 20230 (202-377-5496). SUPPLEMENTARY INFORMATION: Background On January 30, 1980, the Department of Commerce received a petition in satisfactory form on behalf of domestic producers of certain industrial fasteners, alleging that bounties or grants (subsidies) are being provided on the manufacture, production, or exportation of certain industrial fasteners from India. A 'Notice of Initiation of Countervailing Duty Investigation' was published in the Federal Register on February 25, 1980 (45 FR 12277). A notice of 'Preliminary Affirmative Countervailing Duty Determination' was published in the Federal Register on April 30, 1980 (45 FR 28786). On January 1, 1980, Title I of the Trade Agreements Act of 1979 (93 Stat. 150) (the TAA) went into effect. The TAA added Title VII to the Tariff Act of 1930, (the Act) which superseded section 303 of the Tariff Act of 1930 for any country determined to be a 'country under the Agreement', as defined in section 701(b) of the Act (19 Stat. 151, 19 U.S.C. 1671(b)). Title I also amended section 303 of the Act (13 U.S.C. 1303) for those countries determined not to be a 'country under the Agreement'. Subsidy investigations under section 303 are to be conducted in accordance with the provisions of Title VII, with a few exceptions. The only exception of interest in this case is that investigations under section 303 are not to include injury determinations by the International Trade Commission. India is not presently a 'country under the Agreement.' This case is, therefore, governed by section 303 of the Act. Accordingly, we will not refer this case to the International Trade Commission for a determination of material injury. The industrial fasteners covered by this Determination enter the United States under the following item numbers of the Tariff Schedules of the United States (TSUS)--646.49, 646.54, 646.56, 646.58, 646.60, and 646.63. Nature of Industry The Indian fastener industry is made up primarily of small firms which produce only fasteners. A few firms do produce other similar items. Fastener production is labor intensive. The materials used are, for the most, supplied locally rather than being imported. Many of the fastener producers export their total production. All exporters of industrial fasteners are required to belong to the Export Engineering Promotion Council (EEPC). Many of the manufacturers also belong to the Trade Development Authority (TDA). Both of these organizations assist in export promotion. Programs Investigated The petitioner has alleged that Indian exports of industrial fasteners to the United States receive a variety of subsidies, most of which are direct export subsidies. The major program involved is a system of cash compensatory supports for exports. Representatives of the Indian exporters have argued that this program should be considered a rebate of indirect taxes which are not otherwise rebated to exporters and, therefore, payments made under it should not be considered subsidies. The other programs investigated are, in terms of the benefit to the exporter, far less significant. Since the preliminary determination in this case, counsel for the petitioner has requested that the investigation be expanded to cover raw material subsidies, preferential freight rates and a proposed export promotion program. Information presented concerning the alleged raw material subsidies and the proposed export promotion program did not provide a sufficient basis upon which to expand the investigation. If additional information is furnished, we could investigate these programs. We have, however, obtained evidence that preferential freight rates are not available to exporters of fasteners. Programs Found to be Subsidies Of the programs investigated, we have determined that the following constitute subsidies within the meaning of the countervailing duty law: 1. Cash Compensatory Support on Export (CCS)--The CCS program was introduced in 1966 and, since then, has been revised periodically. The Government of India has stated that the primary--but no exclusive--purpose of the CCS program is to compensate exporters for various indirect taxes paid, and not otherwise rebated, on export. CCS payments are designed to support exports in a manner consistent with the competitive need of Indian producers. The CCS rate varies depending upon the product exported. It is determined after taking into account the incidence of indirect taxes paid by producers of a particular product and not otherwise refunded, the existence of other disincentives to exports, and the competitive need of the producers. There is no 'right' to CCS payments; none are granted even where there are indirect taxes not otherwise rebated if the Government of India decides that the competitive need of a particular industry does not warrant CCS payments. In the case of fasteners, the CCS rate was established, effective April 1, 1979, at 17.5% of the f.o.b. value of the exported merchandise. In October, 1978, the Ministry of Commerce had requested all Export Promotion Councils, including the EEPC (which represents the fastener industry), to submit updated information on the indirect taxes levied on specific products. The Ministry stated that this information was needed to determine revised CCS payment levels. The CCS rate for fasteners was established after the data on the incidence of indirect tax levels paid by fasteners exporters has been reviewed. The issue presented by the CCS program is clear-cut. Can CCS payments to exporters of fasteners reasonably be considered non-excessive rebates of indirect taxes not otherwise rebated on export? If so, they are not subsidies within the meaning of the countervailing duty law; if not, they are subsidies. The non-excessive refund of indirect taxes levied on exported products and *48608 their components is not a subsidy under rules of General Agreement on Tariffs and Trade (GATT) or the U.S. countervailing duty law. While the TAA limited the use of indirect taxes not rebated on export as offsets against the amount of any subsidy found, it did not intend this limitation on the use of offsets to: 'prohibit the administering authority from determining that export payments are not subsidies if those payments are reasonably calculated, are specifically provided as non-excessive rebates of indirect taxes within the meaning of Annex A of the (Agreement on the Interpretation and Application of Articles VI, XVI, and XXIII of the GATT) and are directly related to the merchandise exported'. (Senate Rept. No. 96-249, July 17, 1979 at 84-85). Thus in determining whether the CCS program is a subsidy, the primary considerations are (1) whether the CCS program operates for the purpose of rebating indirect taxes, (2) whether there is a clear link between eligibility for CCS payments and payment of indirect taxes, and (3) whether the government has reasonably calculated and documented the actual indirect tax incidence borne by exported fasteners and has demonstrated a clear link between such tax incidence and the amount of the CCS payments. We will not accept ex post facto rationalizations of subsidy programs designed to meet these criteria. In this case, the actions of the Indian Government affecting the structure of the CCS program were taken well before the filing of the countervailing duty petition. Accordingly, we have determined that the explanation advanced on behalf of the Indian producers is not an ex post facto rationalization of a pre-existing subsidy program. Counsel for petitioner has argued that a number of factors require the conclusion that, by its very structure, the CCS program cannot be considered a rebate of indirect taxes. Counsel has pointed out that the program is designed to serve objectives other than the rebate of indirect taxes, that CCS payments are not available by right to Indian producers, and that the Ministry which operates the program is not the taxing authority. We do not believe that any of these points is decisive. What the Indian Government may or may not hope to accomplish from the CCS payments does not determine the nature of the payments. There is nothing contradictory about rebating indirect taxes for the purpose of strengthening export performance. Similarly, the fact that the Government of India reserves the right not to grant CCS payments has no bearing on whether, when made, the payments are or are not indirect tax rebates. Finally, we do not believe that it is appropriate for the Department to determine the character of CCS payments because they are made by one government agency as opposed to another. The question is not how the funds are distributed but whether the payments constitute bona fide rebates of indirect taxes. Our determination in this case turns not on such general arguments, but rather on specific analysis of the relationship between the CCS payments and the incidence of indirect taxes borne by fastener exports. The link between the indirect tax incidence and the CCS payments has not been satisfactorily demonstrated. We have reviewed data on the actual indirect taxes paid by five producers which export to the United States and which provided the Indian Government with information for purposes of fixing the level of CCS payments. For all but one, the total indirect taxes paid were less than 17.5% of the value of the merchandise. Moreover, these tax calculations included several payments (i.e., payments to an import pool fund, a development surcharge, an engineering goods export assistance fund, a port trust fund, port congestion charges and taxes on electricity and fuel) that we would not consider indirect taxes which may be rebated on export. Thus the CCS program, as it is applied to exporters of industrial fasteners, does not appear to involve indirect tax rebates as much as it does a general export payment which, while undoubtedly compensating in some measure for indirect taxes which were not otherwise rebated, goes well beyond this purpose. In addition to the difference in incidence of indirect taxes and the level of CCS payments, the manner in which the information on the tax levels was submitted to the Government of India and relied on raises, of itself, certain problems. The Commerce Ministry required the Export Promotion Council governing the fastener sector to submit information relating to its indirect tax burden. Some individual company experiences were provided by the Ministry without an appropriate aggregation (except for one category of fasteners) showing the weighted average tax incidence for the sector as a whole. In order to satisfy the question of whether export payments are made to remit indirect taxes, we would require evidence demonstrating that the tax incidence of any given product sector had been determined quite precisely. In this case, there is no such satisfactory evidence. Since the Government of India has not satisfactorily demonstrated the requisite linkage between the indirect tax incidence and the level of CCS payments, nor has shown that the actual indirect tax incidence has been reasonably calculated and documented, we have concluded that, in this case, the CCS payments must be considered a subsidy program and have found the amount of subsidy to be 17.5% of the f.o.b. value of the exported merchandise. 2. Preferential Export Financing--Packing credit loans are available to exporters of industrial fasteners. These loans have a sliding scale interest rate which varies with the duration of the loan. The interest rate ranges from 11% to 17%. Normal credit terms range from 11% to 18%, with an average interest rate of approximately 15%. In this case, the Government of India (through the Reserve Bank of India) apparently underwriters the lower interest rate by paying the lending bank an additional 1.5% interest rate without any charge to the exporter. There is a direct transfer of funds to support the loan from the Central Bank to the lending bank. Accordingly, we have found that packing credit loans involve a subsidy of 0.4% of the f.o.b. value of the exported merchandise. 3. Tax Deductions--The GOI has a program which allows for a special income tax deduction for export market development. The Export Markets Development Allowance provides for a tax deduction of 133% of certain specific expenses. These include expenses incurred both before and after sale. However, commissions normally are not an allowable deduction unless they are tied to other specific expenses. The claims made by the manufacturers for this special deduction normally exceed the amount eventually allowed for deduction by the tax authorities. Final settlement of tax returns normally takes 2 to 3 years. Since the expenses allowed under the special deduction would normally be deductible in full, the benefit to the manufacturers would be 33 percent of the allowed amount applied to the corporate tax rate. On this basis, we have determined that exporters of fasteners receive a subsidy under this program in the amount of 0.1% of the f.o.b. value of the exported merchandise. Programs Not Used by the Exporters 1. Import Permits--Indian exporters of galvanized fasteners are eligible to receive automatically permits to import *48609 goods used in the manufacture of such fasteners. The amount which may be imported under a permit is calculated with reference to a fixed percentage of the f.o.b. value of the exported fasteners. The purpose of the program is to allow manufacturers/ exporters to replenish their stock of imported inputs. The permits are negotiable. To extent they have a market value, they could confer a special benefit upon the manufacturer/exporter. However, we have found that the permits obtained by the fasteners manufacturers are not resold and thus do not constitute a subsidy within the meaning of section 303 of the Act. 2. Kandla Free Trade Zone--The petition alleged that benefits were received by manufacturers or exporters of industrial fasteners based on their location within the Kandla Free Trade Zone. Information has been provided which shows that one company has been given a license to locate in the zone but to date has not produced or exported fasterners from the zone. Thus, there is no question of any benefit that would constitute a subsidy within the meaning of the countervailing duty law. Programs Found Not to be Subsidies 1. Tax Deductions for Capital Equipment and New Industrial Undertakings--The Government of India allows income tax deductions for purchases of new capital equipment and establishment of new industrial enterprises. We have found that these deductions are generally available (i.e., they are not industry or enterprise specific) and therefore have concluded that they are not subsidies as defined in section 771(5) of the Act. 2. Market Development Assistance--Under the Market Development Assistance program grants have been provided for export promotion to the Engineering Export Promotion Council (EEPC) and the Trade Development Authority (TDA). These grants have been used by the EEPC and the TDA to operate overseas offices and organize exhibits designed to promote Indian exports generally. Firms which belong to these organizations pay dues which exceed any specific benefits they derive from EEPC and TDA activities. In addition, the firms are billed for all special services such as participation in trade shows, listing in directories, etc. We have, accordingly, decided that such market development assistance does not amount to a subsidy under the countervailing duty law. Verification Staff in our Office of Investigations verified the information relied upon in reaching this determination through examination of Government documents, discussions with Government, trade organization, and corporate officials, and corporate books and records. Examples of the type of documents examined include an official report published by the Ministry of Commerce, announcements of Government programs, letters from banks, ledger sheets, and income tax reports. Determination I hereby determine that the Government of India provides bounties or grants (subsidies) within the meaning of section 303 of the Act and that the estimated aggregate net amount of these benefits equals 18.0% of the f.o.b. value of the exported merchandise. The Department has afforded interested parties an opportunity to present oral views in accordance with § 355.35, Commerce Regulations (19 CFR 353.35, 45 FR 4946). In addition, written views and oral views have been received in accordance with § 355.34(a), Commerce Regulations (19 CFR 355.34(a), 45 FR 4946). Customs officiers are hereby directed to assess within 6 months after the date on which the Secretary of Commerce receives satisfactory information on which the assessment may be based, but in no event later than 12 months after the end of the annual reporting period of the manufacturer or exporter within which the merchandise is entered or withdrawn from warehouse for consumption, countervailing duties on entries of certain fasteners from India on which liquidation was suspended, equal to the amount of the net subsidy determined or estimated to exist. Those entries for which liquidation was previously suspended should be liquidated within six months of publication of this notice. Effective on the date of publication of this notice in the Federal Register and until further notice, deposit of estimated countervailing duties shall be required at the time of entry, or withdrawal from warehouse, for consumption. The amount to be deposited in 18.0% of the f.o.b. value of the merchandise. Annex III part 353 of the Department of Commerce regulations (19 CFR Part 355) is amended by inserting after the last entry for India the words 'certain fasteners', in the column headed 'commodity' the Federal Register citation of this notice in the column headed 'Treasury Decision' and the words 'Net Subsidy Declared--Rate' in the column headed 'Action.' This notice is published pursuant to sections 303 and 706 of the Act (19 U.S.C. 1303, 1671(e)), and § 355.36 of the Department of Commerce regulations (19 CFR 355.36). Robert E. Herzstein, Under Secretary for International Trade. [FR Doc. 80-21807 Filed 7-18-80; 8:45 am] BILLING CODE 3510-25-M