NOTICES
DEPARTMENT OF COMMERCE
[C-533-063]
Certain Iron-Metal Castings From India; Final Results of Countervailing Duty
Administrative Review
Monday, December 22, 1986
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AGENCY: International Trade Administration, Import Administration,
Commerce.
ACTION: Notice of Final Results of Countervailing Duty Administrative Review.
SUMMARY: On October 7, 1986, the Department of Commerce published the
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preliminary results of its administrative review of the countervailing duty order on
certain iron-metal castings from India. The review covers the period January 1, 1984
through December 31, 1984 and ten programs.
We gave interested parties an opportunity to comment on the preliminary results. After
reviewing all of the comments received, we have determined the net subsidy for the period
of review to be 8.08 percent ad valorem.
EFFECTIVE DATE: December 22, 1986.
FOR FURTHER INFORMATION CONTACT:Susan Silver or Paul McGarr, Office of
Compliance, International Trade Administration, U.S. Department of Commerce,
Washington, DC 20230; telephone: (202) 377-2786.
SUPPLEMENTARY INFORMATION:
Background
On October 7, 1986, the Department of Commerce ("the Department") published in the
Federal Register (51 FR 35676) the preliminary results of its administrative review of the
countervailing duty order on certain iron-metal castings from India (October 16, 1980,
46 FR 16921). We have now completed the administrative review in accordance with
section 751 of the Tariff Act of 1930 ("the Tariff Act").
Scope of Review
Imports covered by the review are shipments of Indian manhole covers and frames,
clean-out covers and frames, and catch basin grates and frames. Such merchandise is
currently classifiable under items 657.0950 and 657.0990 of the Tariff Schedules of the
United States Annotated.
The review covers the period January 1, 1984 through December 31, 1984 and ten
programs: (1) The International Price Reimbursement Scheme ("IPRS"); (2) a rebate upon
export of indirect taxes under the Cash Compensatory Support program ("CCS"); (3)
pre-shipment export loans; (4) income tax deductions; (5) grants through the Market
Development Assistance program; (6) the sale of Import Replenishment Licenses; (7)
extension of the free trade zones; (8) supply of raw materials at preferential prices; (9)
preferential freight rates; and (10) import duty exemptions available to 100 percent
export- oriented units.
Analysis of Comments Received
We gave interested parties an opportunity to comment on the preliminary results. At the
request of the petitioner, Pinkerton Foundry, Inc., and other domestic producers of certain
iron metal castings ("the domestic industry"), and the responding exporters, RSI (India)
Pvt., Ltd., Kajaria Castings Pvt., Ltd., Kejriwal Iron & Steel Works, Serampore Industries
Pvt., Ltd., Uma Iron & Steel Co., Commex Corp., Govind Steel Co., and East Coast
Manufacturing & Marketing Pvt., Ltd. ("the exporters"), we held a public hearing on
November 6, 1986.
Comment 1: The exporters argue that the IPRS program is not a subsidy because: (1) The
program is the functional equivalent of a duty drawback system and does not distort the
market process "by artificially increasing revenues or decreasing costs," part of the
definition of a countervailable subsidy described in "Identifying and Measuring Subsidies
Under the Countervailing Duty Law" (from the publication the Commerce Department
Speaks on Import Administration and Export Administration 1984, PLI 1984 at 315); (2)
the IPRS is consistent with the substance, if not the letter, of item (d) of the Illustrative List
of Export Subsidies annexed to the Agreement on Interpretation and Application of Articles
VI, XVI, and XXIII of the General Agreement on Tariffs and Trade ("the Subsidies Code") and
the precedents established in Certain Steel Wire Nails from Korea, (47 FR 39549, September
8, 1982) and Oil Country Tubular Goods from Taiwan (51 FR 19583; May 30, 1986); (3) the
Illustrative List cannot be disregarded in the context of countervailing duty cases since
there is no distinction between countervailing duty and dispute settlement provisions in
the Subsidies Code, and because section 771(5) of the Tariff Act incorporates the Ilustrative
List into its definition of subsidies; and (4) the GATT (General Agreement on Tariffs and
Trade) draft panel report on pasta, which concerned restitution payments under the
Common Agricultural Policy ("CAP") of the European Community, is inapposite because the
CAP is a comprehensive, market regulating system that functions differently from the IPRS.
Department's Position: We disagree. Given the facts of how the IPRS program operates, we
cannot conclude that the IPRS rebates only the difference between domestic and
international prices for pig iron consumed in castings exports. The international price used
to calculate the rebate is based on a government contract purchase price for pig iron from
an earlier period, and we do not know to what extent it reflects current international prices
for pig iron. In addition, the rebate formula is based on a standard factor of 70 percent of
the exported castings by weight (110 percent during the latter part of the review period),
i.e., the rebate was calculated as if pig iron constituted 70 percent of the total volume of pig
iron and scrap consumed in the manufacture of castings. Among the exporters we verified,
however, we found that the actual consumption of pig iron was significantly lower than this
standard factor.
In the precedents concerning exports from Korea and Taiwan cited by the exporters, we
determined that the two-tier pricing policies of producers of the relevant input (depending
on whether the input was used for domestic or export sale) were commercial responses to
segmented markets and the price differentials were a direct function of the amount of
import duties on the input. In India, the Joint Plant Committee, a government-directed
organization comprised largely of pig iron and steel producers, regulates the domestic pig
iron price and determines the rate of rebate, with no apparent relationship existing between
the amount of rebate and the actual consumption of pig iron.
Because of these difficulties, we cannot determine whether the IPRS is non-distortive of
market forces, a functional equivalent of duty drawback, or consistent with item (d) of the
Illustrative List.
Therefore, we have determined that the IPRS rebate is a direct export subsidy and
countervailable in its entirety.
Comment 2: The domestic industry maintains that, because the exporters submitted a
deficient response, the Department should use the best information available with respect
to the IPRS program. In particular, the domestic industry (citing examples from the
verification report) noted that: (1) The questionnaire response did not include the value of
all IPRS rebates received as well as the date of application, receipt and use of those rebates
(e.g., RSI failed to report a claim received during 1984, and Govind failed to report any
claims or payments made during 1984); (2) merchant exporters failed to provide complete
information regarding the IPRS benefits received by both manufacturer and exporter,
which led to the underreporting of such countervailable benefits (e.g., Kajaria did not
report the IPRS benefits received by its supplier; Commex failed to report the benefits it
received from Uma, its manufacturer; and East Coast reported no benefits at all); (3) the
exporters failed to establish any correlation between the date that IPRS payments are
received and the date that castings
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are exported, without which the Department
cannot be sure it has complete information with regard to the total amount of IPRS benefits
received. Failure to use the best information available under these circumstances would
reward the exporters for lack of cooperation and incomplete questionnaire responses.
The exporters claim that, if the Department considers the IPRS to be a subsidy, it should
revise its calculations for three companies because their reported IPRS benefits were based
on their total castings exports, not just the castings subject to the order. Since the exporters
raised this issue for the first time at the hearing, the domestic industry objects to such a
revision because it would be based on untimely and inverified information.
Department's Postion: We consider the data we received sufficient with respect to the IPRS
program and are, therefore, not resorting to the best information othewise available in
calculating the country-wide rate. With the excepton of the IPRS benefits received by
Kajaria's supplier, the deficiencies in the response were corrected during verification.
We were able to determine at verification all of RSI's IPRS receipts during 1984. We also
verified that Govind did not receive any IPRS payments in 1984. The merchant exporter,
Uma, Commex' supplier, reported the benefits it had received, and Commex was able to
demonstrate the amount it received from Uma. We considered the IPRS benefits received
by both Uma and Commex in the calculation of the country-wide IPRS benefit for the review
period. Because Kajaria was unable to provide information concerning the IPRS benefit
received by its supplier, we have increased the amount attributed to castings exported by
Kajaria. We based this adjustment on the average differential between the domestic and
"international" prices for pig iron that were used when calculating the IPRS benefit. We
multiplied this differential by 70 percent of the total tonnage of castings exported to the
United States by Kajaria and divided the result in half, since this was the average percentage
of the benefit passed from manufacturer to exporter that we verified with other
suppliers/exporters. We also revised the calculations for Serampore by allocating the IPRS
benefits over its total exports of castings because we verified that this was the basis used for
reporting the company's benefits. In calculating the benefit from the IPRS program, we
weighted each company's ad valorem benefit by its share of exports to the United States,
excluding East Coast (see explanation in the response to Comment 10), and we now find the
1984 benefit from the IPRS program to be 7.31 percent ad valorem.
Comment 3: The exporters argue that the benefit from the IPRS program is overstated,
claiming that it should be offset by the cost of the Rs. 75/metric ton for the Engineering
Goods Export Assistance Fund ("EGEAF") levy collected on purchases of pig iron.
Department's Position: We disagree. The EGEAF levy is a tax paid by all consumers of pig
iron, not just exporters. It is not a payment required to qualify for the IPRS benefit and,
therefore, does not constitute an offset to the IPRS benefit as defined in section 771(6) of
the Tariff Act.
Comment 4: The domestic industry claims that, in calculating the permissible amount of the
indirect tax rebate in its determination on the CCS program, the Department overstated the
average indirect tax incidence per metric ton of finished castings by using the gross price of
pig iron. Since the IPRS rebate effectively lowers the price of pig iron, the Department
should use the net price of pig iron, after the IPRS payments have been deducted, when
calculating the indirect tax incidence on castings.
Department's Position: We disagree. We verified that exporters paid indirect taxes on the
published (gross) price of pig iron, not on the net price. Therefore, the basis for our
calculation of indirect tax incidence is correct.
Comment 5: The domestic industry argues that the administrative record does not show
that castings exporters paid the Freight Equalization Fund ("FEF") levy during the review
period. Therefore, the Department should not include the levy as an allowable indirect tax
in its CCS rebate calculations.
The Department verified that the EGEAF levy was not collected between April 1982 and
June 1984. Since the FEF levy and excise duties are, along with the EGEAF levy, elements
included in the pig iron price, it is probable that they were not collected as well. Therefore,
these taxes should not be considered an allowable part of the CCS rebate to castings
exporters during calendar year 1984.
Department's Position: We disagree. The domestic industry has erroneously assumed that,
because EGEAG levies were not collected through June 1984, the FEF levies were also not
collected for the same period. The FEF lelvy was included in the price of pig iron, and we
have correctly included the FEF levy as an allowable tax in the CCS rebate.
Comment 6: The exporters claim that the Department overstated the benefit from the
pre-shipment financing program by using an incorrect commercial benchmark of 18
percent to calculate the benefit. The commercial rate which the Department verified varied
between 16.5 percent and 18 percent during 1984, depending on the level of borrowing.
Using the maximum rate penalizes the exporters for no reason, and the Department should
instead have used an average rate of 17.25 percent.
Department's Position: We chose a commerical benchmark of 18 percent because we were
not able to verify with any accuracy a national average interest rate for short-term
commercial loans. Information obtained from commercial banks indicates that rates on
non-preferential loans ranged between 16.5 and 18 percent, depending on the size of the
loan. We chose the high end of the range for short-term financing because we could not
know what the rate would be to the exporters.
Comment 7: The exporters argue that the Department should deduct the cost of export
credit insurance from the benefit received under pre-shipment financing because the cost
to credit insurance is mandatory in order to receive the pre-shipment financing.
Department's Position: We disagree. The cost of export credit insurance is not an offset to a
benefit as defined by section 771(6)(A) of the Tariff Act. Credit insurance is part of the cost
of obtaining pre-shipment financing and, as such, would be part of the calculation of the
effective interest on these loans. However, we lack sufficient information to determine an
effective interest rate benchmark. Therefore, we can only compare a nominal interest rate
benchmark to a nominal preferential interest rate.
Comment 8: The domestic industry claims that the Department erroneously determined
that the exporters did not use Market Development Assistance ("MDA') grants during 1984.
The domestic industry had specifically requested that the Department verify the receipt of a
grant by S-K Iron Foundry & Engineering Company received in 1983, yet the Department
failed to verify this company.
Department's Position: We received questionnaire responses from exporters that covered
over 85 percent of exports of the merchandise covered by the order, but S-K Iron Foundry
& Engineering Company was not among the respondents. None of the
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respondents
reported receipt of an MDA grant in 1984, and we verified that this was accurate. We also
reviewed a statement issued by the Indian Ministry of Commerce that no exporters of this
merchandise received MDA grants during 1984.
Comment 9: The domestic industry argues that the Department should establish
company-specific rates, rather than a weighted-average country-wide rate, and cites Phillip
Brothers, Inc. v. United States, 10 CIT, Slip Op. 86-16 at 11 (February 14, 1986), in which
the Court required company-specific rates if the company rates were materially different.
The exporters argue that the request for company-specific rates should be denied because it
runs counter to the Department's stated policy in setting a country-wide rate. Contrary to
the domestic industry's claim, Phillip Brothers, Inc. v. United States actually supports
country-wide rates and allows company-specific rates only if the differential between the
company-rate and the weighted-average rate was significant, a test not met in this case. The
Court held that the purpose of the company-specific provision was to allow importers to
obtain lower company-specific rates if they bought from less subsidized suppliers, not to
allow a U.S. industry to request company-specific rates at its discretion.
Department's Position: We only establish company-specific rates under section 706(a)(2) of
the Tariff Act if the rates between companies are significantly different. After recalculating
the rates for individual exporters, we find that the rates are not significantly different and
will apply countervailing duties on a country-wide basis.
Comment 10: The domestic industry asserts that the responses from Kajaria, Govind, and
East Coast are insufficient and contends that, if the Department calculates a
weighted-average country-wide rate, the exports from other companies to the United States
should not be included in calculating that average.
Department's Position: We used the information from Kajaria and Govind because we
remedied the deficiencies at verification. Since we did not verify the response from the East
Coast and consider that response inadequate, we have not used the information in that
response for calculating the benefits from any of the programs.
Final Results of Review
After considering all of the comments received, we determine that net subsidy for the
period January 1, 1984 through December 31, 1984 to be 8.08 percent ad valorem.
The Department will instruct the Customs Service to assess countervailing duties of
8.08 percent of the f.o.b. invoice price on all shipments of this merchandise exported on or
after January 1, 1984, and on or before December 31, 1984.
The Department will also instruct the Customs Service to collect cash deposits of estimated
countervailing duties, as provided by section 751(a)(1) of the Tariff Act, of 8.08 percent
of the f.o.b. invoice price on all shipments of this merchandise entered, or withdrawn from
warehouse, for consumption on or after the date of this notice. This deposit requirement
shall remain in effect until publication of the final results of the next administrative review.
This administrative review and notice are in accordance with section 751(a)(1) of the Tariff
Act (19 U.S.C. 1675(a)(1)) and § 355.10 of the Commerce Regulations (19 CFR 355.10).
Dated: December 16, 1986.
Gilbert B. Kaplan,
Deputy Assistant Secretary, Import Administration.
[FR Doc. 86-28657 Filed 12-19-86; 8:45 am]
BILLING CODE 3510-DS-M