NOTICES
DEPARTMENT OF COMMERCE
[C-533-063]
Final Results of Countervailing Duty Administrative Review: Certain Iron-Metal
Castings From India
Monday, October 21, 1991
*52521
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: October 21, 1991.
FOR FURTHER INFORMATION CONTACT:Paulo F. Mendes, Office of Countervailing
Investigations, Import Administration, International Trade Administration, U.S.
Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC
20230 at (202) 377-5050.
FINAL RESULTS: We determine that net subsidies within the meaning of section 701 of the
Tariff Act of 1930, as amended (the Act), are being provided to manufacturers or exporters
in India of certain iron-metal castings (referred to in this notice as ''subject castings" or
''subject merchandise"). This review covers the period January 1, 1989 through December
31, 1989 and the following programs:
- Pre-Shipment Export Loans
- Post-Shipment Export Loans
- Income Tax Deduction Under Section 80HHC
- International Price Reimbursement Scheme (IPRS)
- Sale of Replenishment Licenses
- Sale of Additional Licenses
- Cash Compensatory Support Scheme
- Use of Advance Licenses
- Market Development Assistance Grants
- Preferential Freight Rates
- Import Duty Exemptions Available to 100 Percent Export-Oriented Units
- Benefits under the Falta Free Trade Zone or other Free Trade Zones
The weighted-average net subsidies are shown in the "Final Results of Administrative
Review" section of this notice.
Case History
On October 16, 1980, the Department published a countervailing duty order on castings
from India (45 FR 68650). On August 22, 1991, the Department published the final results
of its most recently completed review for the period of January 1, 1987 through December
31, 1987 (56 FR 41658).
Since the preliminary results of review in this case (56 FR 41650) the following events have
occurred. On September 11, 1991, the Department requested further information from
certain Indian exporters regarding sales of additional licenses, sales of replenishment
licenses and income tax deductions under section 80HHC. A response was received on
September 20, 1991. Unsolicited submissions containing factual information also were
received, but subsequently were returned to the respective parties. This issue is discussed
in more detail in the comments below. Case briefs and rebuttal briefs were filed September
23, and September 27, 1991 respectively. A public hearing was held on October 4, 19091.
Scope of the Review
Imports covered by this review are shipments of Indian manhole covers and frames,
clean-out covers and frames, and catch basin grates and frames. These articles are
commonly called municipal or public works castings and are used for access or drainage for
*52522
public utility, water, and sanitary systems. During the review period. this
merchandise was classifiable under Harmonized Tariff Schedule (HTS) item numbers
7325.10.0010 and 7325.10.0050. Although the HTS subheadings are provided for
convenience and customs purposes, our written description of the scope of this proceeding
is dispositive.
Analysis of Comments Received
We afforded interested parties an opportunity to comment on the preliminary results. We
received comments from a group of Indian exporters, Raghunath Prasad Phoolchand Ltd
(Raghunath), Govind Steel Co., Ltd. and Tirupati International (P) Ltd. (Govind Steel Co.,
Ltd. and Tirupati International (P) Ltd. (Govind and Tirupati), two groups of U.S. Importers,
and the petitioners.
The issues raised by the parties with respect to the IPRS program in the case and rebuttal
briefs were basically identical to those raised by the parties in their briefs for the 1987
review. The information on the record and the Department's position with respect to these
comments have not changed. Therefore, we have generally restated here the comments and
"Department Positions" from the 1987 review. (See Final Results of Countervailing Duty
Administrative Review: Certain Iron-Metal Castings From India (56 FR 41658, August 22,
1991).)
Comment 1: The petitioners argue that the Department should use in its calculation of
Serampore's subsidy rate for the sales of additional licenses, the ratio of historical export
shipments of subject and non-subject merchandise. The petitioners argue that Serampore's
September 20, 1991 response regarding the value associated with the additional licenses
sold is not consistent with Serampore's historical ratio of export shipments of subject and
non-subject merchandise, implying that the additional licenses sold should have been
primarily tied to the exports of subject merchandise to the United States, given that
Serampore has historically exported a higher volume of subject merchandise.
Conversely, the exporters argue that the Department should use the information on the sale
of additional licenses provided by Serampore because there is no indication that
Serampore's response is incorrect. In addition, the exporters state that using information
from prior reviews to calculate the benefit associated with the sale of the licenses would be
inappropriate and a departure from the Department's practices.
Department's Position: We disagree with petitioners. Based on our analysis of the additional
information submitted by Serampore on September 20, 1991, we have no reason to believe
it is inaccurate.
Additional licenses are issued based on 10 percent of the net foreign exchange (NFE). The
NFE is calculated by subtracting from the f.o.b. value of exports, the c.i.f. value of import
licenses (i.e., advance licenses and replenishment licenses). Serampore indicated in its
questionnaire response that the receipt of its advance license was linked to exports of
subject merchandise to the United States. Consequently, because the value of the advance
license was deducted in computing the amount of the additional licenses, only that portion
of the additional licenses corresponding to the value added to the subject merchandise is
countervailable. Given the way the value of additional licenses is calculated, there is no
reason to assume any relationship between the ratio of export shipments of subject
merchandise to the United States and non-subject merchandise and the portion of the value
of an additional license that is linked to the exports of subject merchandise to the United
States. To do so would be to assume that all export shipments relay equally on inputs
imported under advance and replenishment licenses, and we have no reason to make this
assumption.
Comment 2: The petitioners suggest that the Department should use the best information
available (BIA) to calculate Uma's benefits from the section 80HHC program and from the
sales of additional licenses due to the company's failure to respond to the Department's
September 11, 1991 questionnaire.
The exporters argue that Uma is a very small company that has always had problems
understanding and responding to the Department's questionnaires. They further point out
that Uma has attempted to respond to the Department's supplemental questionnaire by
sending telefaxes to its counsel.
Department's Position: Because Uma failed to respond to the Department's September 11,
1991 questionnaire in which clarification was requested on the benefits received from
section 80HHC and from the sale of additional licenses, and also because Uma did not
properly address the 80HHC program in the responses to both of the Department's
questionnaires presented to Uma before the preliminary results were published, we are
assigning Uma the highest rate found in this review for any company using the 80HHC
program.
Regarding the sale of additional licenses, we are using, as BIA, the rate calculated for the
preliminary results. After issuing the preliminary results, we sent a supplemental
questionnaire to certain respondents requesting specific information relating to import
licenses sold during the period of review in order to refine the calculations used in the
preliminary results. A timely and accurate response from Uma to this questionnaire likely
would have resulted in a more accurate subsidy rate for this program because the rate then
would have been associated only with that portion of the license attributable to exports of
subject merchandise to the United States. The methodology used now, and in the
preliminary results, to calculate the subsidy rate for this program is analogous to the one
repeatedly used by the Department to calculate subsidy rates associated with the pre- and
post-shipment financing programs where the Department allocates the benefit depending
upon how much such specific detail is provided about the utilization of such programs (e.g.,
exports of subject merchandise to the United States, total exports of subject merchandise,
total exports). Consequently, because Uma failed to respond to the Department's September
11, 1991 questionnaire requesting information that would enable us to refine our
calculations for purposes of the final results, and the methodology used in the preliminary
results is consistent with the Department's practice, we have decided to retain the
calculation used in the preliminary results.
Comment 3: The petitioners argue that in order to calculate Kejriwal's benefit from
post-shipment financing, the Department should use the interest rates provided in the July
15, 1991 response.
Department's Position: Upon review of Kejriwal's original questionnaire response on
post-shipment financing, the Department requested further clarification. As a result of this
request, Kejriwal submitted a revised response clarifying previously submitted information
on post-shipment financing. Consistent with our general practice of using the most recent
timely submission, we have used the revised response to calculate the benefits received
under the post-shipment financing program.
Comment 4: The petitioners argue that Agarwalla's section 80HHC benefit was incorrectly
calculated. In its questionnaire response, Agarwalla indicated that the tax amount shown in
the return filed during the review period
*52523
was incorrect. The petitioners suggest
that the Department use the corrected amount reported by Agarwalla, rather than the
alleged "incorrect" tax amount used in the company's income tax return, to calculate the
benefit.
Department's Position: The 80HHC benefit actually received by Agarwalla is reflected on the
tax return filed in the review period. Using any figure other than the one on the tax return
would not capture the actual benefit associated with 80HHC. Therefore, we have used
information from the tax return filed during the review period to calculate the benefit.
Comment 5: The petitioners request that the Department correct a clerical error made
calculating Crescent's benefits from sales of replenishment licenses. The petitioners state
that because Crescent's August 5, 1991 submission reported the value of the licenses that
were related to the exports of the subject merchandise, the Department should calculate the
benefit by summing the premium amounts related to the sale of the licenses associated with
exports of subject merchandise and dividing this sum by Crescent's total exports of subject
merchandise.
Department's Position: We agree and have corrected out calculations accordingly.
Comment 6: The petitioners request that the Department include benefits to Prudential
arising from the sales of its import licenses.
Department's Position: Prudential stated in its August 1, 1991 response that the receipt of
such licenses was linked to exports of non-subject merchandise. Therefore, the premiums
received by Prudential for the sale of these licenses are not related to the subject
merchandise and have not been included in the calculation of the subsidy rate.
Comment 7: The Indian exporters and a group of U.S. importers argue that Serampore's
benefit under section 80HHC is overstated. Because the income reported was based on a tax
return covering a period of 21 months, the calculation of the subsidy using such income
grossly overstates the subsidy since the denominator used in the calculation only covers
exports for 12 months.
Department's Position: Except when benefits are allocated over time, it is the Department's
practice to determine benefits from subsidies on the basis of payments received, not
accrued, by a firm during the review period, and to apply them to the appropriate sales
figure for the same period. This receipts methodology is the same used to calculate benefits
under the IPRS program, where in prior reviews we summed all IPRS receipts during the
review period, despite the fact that such receipts might have been associated with exports
that covered more than 12 months. Accordingly, we are not changing the calculation
methodology used in the preliminary results, which is based upon section 80HHC benefits
received during the review period.
Comment 8: The Indian exporters argue that Carnation's benefit under section 80HHC is
overstated. As a result of changing its accounting basis from a cash basis to an accrual basis,
Carnation's profit was unusually high. The Indian exporters request that the Department
factor out of the cash deposit rate the amount of profit that resulted from the change in
Carnation's accounting basis.
The petitioners contend that the Department should not calculate the benefit based on a
theoretical profit amount and that the Department should continue to calculate Carnation's
tax benefit amount based on its actual profit and resulting tax amount reported in the
company's tax return. In addition, the petitioners state that Carnation has failed to provide
justification for the Department to calculate a different cash deposit rate than a liquidation
rate.
Department's Position: It would not be appropriate to calculate the benefit based on a
theoretical figure which does not correspond to the actual benefit received. Carnation's
actual benefit received is reflected on the tax return filed during the review period and
therefore has been used as the basis for the subsidy calculation. Further, because there is
not a program-wide change, the Department has no basis to change the calculation of the
cash deposit rate.
Comment 9: The Indian exporters and a group of U.S. importers argue that the calculation
of the benefit from pre-shipment financing is incorrect in that the Department failed to take
into account premium payments made to the Export Credit Guarantee Corporation (ECGC)
in order to obtain such financing. Respondents claim that in order to obtain such financing,
exporters are required to purchase insurance coverage from the ECGC, even for U.S. sales.
The petitioners indicate that because the Department previously has verified that ECGC
insurance is not required in order for a company to borrow under the pre-shipment
financing program, the Department has correctly disallowed the offset adjustment for the
cost of the insurance.
Department's Position: In the 1987 Administrative Review (see, Final Results of
Countervailing Duty Administrative Review: Certain Iron-Metal Castings from India
(56 FR 41658, August 22, 1991)), we verified that exporters are not required to purchase
insurance coverage from the ECGC in order to receive pre- shipment financing. No
information has been placed on the record to the contrary or demonstrating a different
interpretation. Therefore, we continue to determine that the cost of export credit insurance
is not a permissible offset as defined by section 771(6)(A) of the Act.
Comment 10: Govind and Tirupati request that the Department reconsider its September
17, 1991 decision to return Tirupati's questionnaire response and also that the Department
request the Government of India to resubmit the questionnaire responses so that Tirupati's
company-specific information can be considered for purposes of the final determination.
Govind and Tirupati allege that the prohibition against accepting questionnaire responses
after the date of the preliminary determination is limited to unsolicited questionnaire
responses. Their questionnaire responses, while untimely, was submitted in response to the
Department's initial questionnaire.
Govind and Tirupati explain that Tirupati did not respond in time because Govind (Tirupati
and Govind are closely related and their records are kept at Govind's factories) was affected
by a strike that lasted from March 9, 1991 to August 12, 1991. The striking workers
obstructed movement to the factories where Tirupati's records for the review period were
stored. Hence, Govind and Tirupati contend that the delay in Tirupati's response was due to
circumstances beyond their control.
Petitioners argue that the Department correctly rejected factual information submitted by
respondents after the Department's deadline. The petitioners refer to several past decisions
by the Department and the Court of International Trade (CIT) which show that it is the
Department's policy not to accept new information after the preliminary determination.
Department's Position: Tirupati attempted to submit its questionnaire responses only after
the preliminary determination had been published. The company made no effort to notify
the Department of the problems created by the labor strike before the publication of the
preliminary determination. Nor did the company request an extension prior to the
publication of the preliminary results. Had Tirupati explained the
*52524
problems caused
by the strike, the Department might have been able to take such arguments into account
and been able to grant the companies an extension.
Under § 355.31(b)(2) of the Department's regulations, "* * * in no event will the Secretary
consider unsolicited questionnaire responses submitted after the date of publication of the
Secretary's preliminary determination." Once the preliminary determination had passed,
Tirupati's questionnaire response essentially became an unsolicited questionnaire
response. Accordingly, the Department did not accept Tirupati's response.
Comment 11: Govind and Tirupati argue that the Department incorrectly assumed in its
preliminary determination that Govind exported subject merchandise to the United States
in 1989 and point to an August 30, 1991 amendment to the Engineering Export Promotion
Council (EEPC) questionnaire response which requested the Department to delete Govind
from the list of companies that exported subject castings to the United States in 1989. In
addition, Govind and Tirupati argue that even though the EEPC's amendment and Tirupati's
questionnaire response were submitted outside the time period established by the
Department, Tirupati's failure to submit a timely response was due to the labor strikes
mentioned above and not a deliberate attempt to control the outcome of the proceedings
through partial and selective submission of information, and Govind did not export subject
merchandise during the review period. Therefore, Govind and Tirupati request they receive
the "all other" rate as a deposit rate.
Raghunath also requests the Department to assign the company the "all others" rate.
Raghunath explains that 1989 was the first year it exported to the United States, and that
the value of its exports was minuscule. Consequently, when the company received the
Department's questionnaire, it believed that the United States would not be concerned with
its export sales, and only submitted a letter to the EEPC providing its export figures and
information on the subsidies received during the review period. Finally, Raghunath states
that it did not intentionally refuse to respond to the Department's questionnaire or impede
the review.
The petitioners contend that the Department correctly rejected as untimely the amended
response of the EEPC referring to several past decisions by the Department and the CIT. In
addition, the petitioners assert that when a respondent refuses to provide information
requested by the Secretary or otherwise impedes the review, it is the Department's
responsibility, and not respondents', to determine what is the best information available.
The petitioners argue that the Department was reasonable in its use of the sum of the highest
subsidy rates due to Tirupati's failure to provide the requested information in the
questionnaire to the Department before its deadline. The petitioners also note that the
Department consistently has applied the highest BIA rates to companies not responding to
the Department's request for information, citing several past determinations by the
Department.
The petitioners also argue that because Raghunath only attempted to submit its
questionnaire response after the preliminary determination, the Department correctly
rejected this submission. In addition, the petitioners state that the Department has properly
assigned as BIA the sum of the highest subsidy rates found for each program due to
Raghunath's failure to provide the information requested in the questionnaire before the
Department's deadline.
Department's Position: We agree with the petitioners. We must establish BIA subsidy rate
for Tirupati and Raghunath due to their failure to supply timely responses to the
Department's questionnaire and to Govind because the EEPC listed Govind as an exporter of
subject castings to the United States in its July 15, 1991 questionnaire response. After
publication of the preliminary determination, the EEPC attempted to submit an amended
response, and Tirupati and Raghuanth attempted to submit their responses which were
rejected by the Department as untimely. Section 355.31(b)(2) of the Department's
regulations does not allow for the unsolicited submission of factual information after the
date of publication of the preliminary results. Therefore, we believe it is reasonable to draw
adverse inferences and assign as BIA the sum of the highest subsidy rates found for each
program for these three companies.
Comment 12: The two groups of U.S. importers state that the Department should only
countervail proceeds from sales of additional and replenishment licenses that were tied to
the export of subject merchandise to the United States. Where the Department cannot
determine whether the proceeds are tied to exports of subject or non-subject merchandise,
the Department should continue the methodology used in its preliminary determination,
i.e., dividing the proceeds by all exports.
The petitioners argue that to the extent that the Department is unable to tie license
proceeds to specific merchandise, it should allocate the proceeds over exports of the
subject merchandise to the United States.
Department's Position: When respondents have clearly indicated the portion of the license
attributable to exports of the subject merchandise to the United States, we have
countervailed only the sales proceeds related to that portion of the license and allocated
the benefits to sales of the subject merchandise to the United States. Where the response
was not clear in stating whether the benefits were attributable to exports of the subject
merchandise to the United States, we have used the exports of subject merchandise to the
United States as the denominator because this was the specific information requested in the
September 11, 1991 supplemental questionnaire.
Comment 13: The Indian exporters and the U.S. importers argue that IPRS payments are
not countervailable subsidies. In intent and practice, the IPRS refunds to exporters of
castings the difference between the price they must pay for certain raw materials purchase
from government-owned Indian producers and the price they would otherwise pay on the
world market. The program was operated in a manner consistent with 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 Illustrative List) which states:
The delivery by governments of their agencies of imported or domestic products or
services for use in the production of exported goods, on terms or conditions more
favorable than for delivery of like or directly competitive products or services for use in the
production of goods for domestic consumption, if (in the case of products) such terms or
conditions are more favorable than those commercially available on world markets to their
exporters (emphasis added).
Item (d) of the List is thus explicit that the provision of raw materials at world market prices
to exporters is not a subsidy. The Department recognized this in previous countervailing
duty cases. Namely, in Final Negative Countervailing Duty Determination; Certain Steel
Wire Nails from the Republic of Korea (47 FR 39549; September 8, 1982) (Korea Nails), the
Department held that "price preferences for inputs to be used in the production of export
goods constitute a subsidy only if the preference lowers the price of that
*52525
input
below that which the input purchaser would pay on world markets." Similarly, in Final
Negative Countervailing Duty Determination; Oil Country Tubular Goods from Taiwan
(51 FR 19583; May 30, 1986) (Taiwanese OCTG), the Department stated that:
Based on an examination of China Steel's second-tier prices for hot-rolled coil used in the
production of OCTG, and of the world market prices for such coil, we found that China Steel's
prices were at world market levels; therefore, we determine that China Steels' tow-tiered
pricing policy does not confer a countervailable benefit within the meaning of the
countervailing duty law.
The exporters also argue that the IPRS benefits not the exporter of castings, but rather the
Indian pig iron producers. Castings exporters can import gig iron or purchase domestic pig
iron at the relatively high price that is set by the Indian government and receive IPRS
rebates. The net effects of these two alternatives are the same.
In addition, importers argue that the Department is attempting to use an unauthorized
interpretation of U.S. law to find the Indian IPRS program countervailable. In Certain
Cotton Yarn Products from Brazil; Final Results of Countervailing Duty Administrative
Review (55 FR 3442; February 1, 1990) (Cotton Yarn), the Department determined as
countervailable a similar Brazilian dual pricing scheme, the Price Equalization Program
(PEP). In Cotton Yarn, the Department advanced the theory that the List is not controlling
on the identification of subsidies: "It is irrelevant whether the PEP is consistent with item (d)
or whether Cotton Yarn exporters cold have imported raw cotton at world market prices.
We are concerned with the alternative price commercially available in the domestic market"
(55 FR 3446). Importers argue that such a theory is untenable because Congress
incorporated the List into U.S. countervailing duty law and the Department has no
authority to claim item (d) as "irrelevant." The CIT has acknowledged the adoption of the
List in U.S. law in its decision in Fabricas El Carmen, S.A. de C.V., et al v. United States, 672
F. Supp. 1465 (CIT October 7, 1987), as did the U.S. Court of Appeals in its decision of the
1984 review of this countervailing duty order (see, RSI (India) Pvt., Ltd. v. United
States, 876 F.2d 1571 (Fed. Cir. 1989)). The legislative history confirms that the sole
reservation expressed by Congress in adopting the List was that it not be regarded as a
permanent, exhaustive listing of all export subsidies countervailable under U.S. law. The
Department is empowered only to supplement or expand the existing List, not alter or
ignore established principles of the List. Consequently, in the case of item (d), U.S. law
specifically excludes from countervailability any such programs which do not result in the
provision of inputes on terms more favorable than those obtainable on world markets.
Furthermore, the Department's failure to observe the principle of the statutory language
and item (d) also directly conflicts with its efforts to codify item (d) in its own regulations.
The Department's proposed Regulation 355.44(h) in 19 CFR part 355 Countervailing
Duties; Notice of Proposed Rulemaking and Request for Public Comments (54 FR 23366;
May 31, 1989) clearly states that price preferences for inputs used in the production of
goods for export are subsidies only if they are provided on terms or conditions that "are
more favorable than those commercially available on world markets to their exporters."
Conversely, petitioners argue that the exception to an item (d) subsidy is inapplicable in
this administrative review because the Government of India did not provide pig iron for
use in the production of exported castings at the world market price. Petitioner maintains
that the Department's interpretation of item (d) has alway been a narrow one, i.e., the
exception in item (d) applies only to inputs, not monetary payments. Such an interpretation
of item (d) is consistent with a panel report of the General Agreement on Tariffs and Trade
(GATT) Committee on Subsidies and Countervailing Measures that examined item (d) in
conjunction with an investigation of European Community pasta export payments. See
GATT Panel Report on EEC Subsidies on Export Pasta Products, SCM/433 (May 19, 1983).
The Department's determination in Cotton Yarn, that the Brazilian PEP program is
countervailable, is consistent with past Department determinations that reflect a narrow
interpretation of the exception in item (d). The Department's preliminary determination
that IPRS payments are countervailable implicitly recognizes that the exception in item (d)
does not apply because item (d) clearly encompasses the IPRS within its definition of an
export subsidy.
Department's Position: The Indian government's decisions to insulate its pig iron producers
from foreign competition placed users of domestic pig iron at a disadvantage vis-a-vis
competitors abroad by raising the price of domestic pig iron. Indian castings exporters
could have overcome this competitive disadvantage in two ways: Duty drawback and the
IPRS. Imported pig iron in India is subject to normal customs duties. Had Indian castings
exporters imported foreign pig iron for use as an input and processed it into castings for
export, they could have been exempted from the normal customs duties on pig iron by
using duty drawback, a practice acceptable under U.S. countervailing duty law and the
GATT. Alternatively, under the IPRS, the Indian government created a benchmark price for
pig iron and made cash payments to exporters based on the difference between the
benchmark price and the domestic price. These cash payments were made exclusively to
castings exporters, with the net effect being a reduction in the price of pig iron to a level
well below the price commercially available in the domestic market. The IPRS was an
instrument used by the Indian government to ameliorate the deleterious effects of
high-priced pig iron on a specific group of downstream users.
The circumstances in both Korean Nails and Taiwanese OCTG differ from those in this case.
In Korean Nails, the Korean producers of nails for export had access to wire rod from
foreign and domestic sources at comparable prices. Although afforded the opportunity
through tariff protection to charge high prices for wire rod used in the manufacture of
products sold domestically, POSCO (an integrated steel producer which is largely
government-owned) and other Korean producers of wire rod chose to lower their prices to
exporters of nails and compete with foreign-sourced wire rod purchased under duty
drawback. We concluded that "different prices for purchasers do not arise from a scheme to
subsidize exports, but rather are a commercial response to a segmented market, one
segment being protected and the other fully open to foreign competition." We further stated
that "this dual pricing system reflects strictly economic motivations [of the wire rod
producers] rather than a desire of the Government of Korea (the owners of POSCO) to
subsidize nail exports" (47 FR 39552).
We noted in addition that our conclusion regarding the dual pricing system was consistent
with the principle contained in item (d). However, our decision not to countervail the
Korean pricing scheme was based principally on a determined that POSCO was acting in a
commercially reasonable fashion by instituting a dual-pricing system. As support for this,
we stated that two privately-owned Korean wire rod producers also had dual-pricing
systems in place. These facts led us to conclude
*52526
that the Korean government was
not acting to subsidize exports.
Similarly, in Taiwanese OCTG, we found that China Steel, a state-owned corporation and a
supplier of pipe and tube inputs, maintained a two-tiered pricing policy. Accordingly, in
determining whether China Steel's prices were preferential, we compared not only the
actual prices FEMCO (an OCTG producer) paid China Steel to the actual prices FEMCO paid
for imported coil, but we also compared the prices FEMCO paid China Steel to generally
available world market prices for coil. In doing so, we found that China Steel's prices were at
world market levels. Once again, our decision was based on a determination that China Steel
was acting in a commercially reasonable manner.
In this case, the fact pattern is different. The Steel Authority of India, Ltd. (SAIL), an
Indian government entity that supplied all of the pig iron used by the casting exporters, did
not institute a dual-pricing scheme for pig iron. Instead, the Indian government intervened
to ensure that Indian castings exporters could continued to use domestically-sourced pig
iron while pig iron producers continued to enjoy the full benefits of tariff protection. Thus,
the Indian government's decision to establish the IPRS and make cash payments to castings
producers made possible exports that otherwise would not have occurred. Without this
direct government action, castings exporters would have had to pay the high domestic
price for Indian pig iron.
The fact that the Illustrative List is incorporated into U.S. law has no bearing on our
decision. In determining whether item (d) is applicable to the identification and
measurement of an export subsidy from this type of program, we have examined the law
and its legislative history. Section 771(5) of the Tariff Act states, in relevant part: "The term
'subsidy' has the same meaning as the term 'bounty or grant' as that term is used in section
303 * * *, and includes, but is not limited to, the following: (i) Any export subsidy described
in Annex A to the Agreement (relating to the illustrative list of export subsidies) * * *"
(emphasis added). While Congress incorporated the Illustrative List into the statute, it did
not limit the definition of export subsidy to the practices outlined in the List. The legislative
history of the Trade Agreements Act of 1979 (TAA) explains, "The reference to specific
subsidies in the definition is not all inclusive, but rather is illustrative of practices which are
subsidies within the meaning of the word as used in the bill. The administering authority
may expand upon the list of specified subsidies consistent with the basic definition." S. Rep.
No. 96-249, 96th Cong., 1st Sess. 85 (1979). See also Trade Agreements Act of 1979:
Statements of Administrative Action, H.R. Doc. No. 96-153, Pt. II, 96th Cong., 1st Sess. 432
(1979). The Illustrative List is not, therefore, controlling of the identification and
measurement of export subsidies, but must be considered along with other provisions of
the statute and its legislative history, administrative practice and judicial precedent. In
light of the foregoing reasons, the inclusion of proposed regulation 355.44(h), which
corresponds to item (d) on the list, in no way supports the importer's position.
We consider a government program that results in the provision of an input to exporters at
a price lower than to producers of domestically-sold products to confer a subsidy within the
meaning of section 771(5) of the Tariff Act. It is irrelevant whether the IPRS is consistent
with item (d) because we are not concerned with world market prices but with the
alternative price of pig iron commercially available in the domestic market. Thus, we
determined the IPRS program to be countervailable.
An analogy to the IPRS program is the case of the export loans. In the case, as in many
others, we have determined that export loans at preferential interest rates constitute a
subsidy. In measuring the subsidy, we do not concern ourselves with whether firms could
have borrowed money at commercial rates in international credit markets. The fact that, as
a result of a government program, they borrowed from domestic sources at rates below
those commercially available in the domestic market leads us to determine that a subsidy is
bestowed.
Comment 14: The U.S. importers argue that the Department recognized the principle of item
(d) in the 1984 administrative review of this case. Further, the U.S. importers state that the
Department has not identified any valid distinction between the IPRS program and other
import substitution programs that have previously been found to be not countervailable. In
particular, the importers argue that the Department only distinguished the IPRS from the
programs in Korean Nails and Taiwanese OCTG on the basis that the IPRS results in a price
rebate while the other programs results in a price reduction.
Department's Position: The importers mischaracterize the Department's decision in the
1984 administrative review of this case. In the 1984 review the Department was unable to
confirm that the amount of the IPRS rebate was purely a function of the difference between
the domestic and international price of pig iron. Therefore, the Department never reached
the question of the applicability of the item (d).
The Department did not distinguish the programs in Korean Nails and Taiwanese OCTG
simply on the basis that they offered price reductions rather that price rebates as provided
under the IPRS. As we stated in the 1985 administrative review, we found that the dual
pricing schemes examined in Korean Nails and Taiwanese OCTG were strictly commercial
responses to segmented markets and not the product of a government desire to subsidize
exports while continuing to offer input suppliers the full benefits of tariff protection.
Comment 15: The U.S. importers argue that although the Department has the authority to
expand or supplement the Illustrative List it must strictly adhere to the precise standards of
the Illustrative List in identifying export subsidies. Specifically, the importers state that the
Department does not have the authority to interpret the Illustrative List so as to negate the
world market price exception in item (d).
Department's Position: It is very clear from the legislative history of the Trade Agreements
Act of 1979 that Congress intended to define subsidy very broadly. This was made clear in
the course of the Congressional debate of the 1979 Act. For example, Senator Heinz stated
that; "The point * * * is to define subsidy broadly also as to catch within the scope of our law
as many unfair trading practices as we can * * * Better to define the term broadly as it ought
to be defined, and then use the injury test as it is intended to be used." 125 Cong. Rec. 20167
(July 23, 1979) (emphasis added). Nowhere in the statue is an exhaustive list of subsidy
practices and their definitions provided. Rather, Congress merely set out certain
descriptive examples of unfair trading practices. Therefore, it is beyond dispute that the
Department was given wide discretion to determined what constitutes a subsidy within the
meaning of section 771(5) of the Act.
We believe that we have the authority to countervail export subsidy practices which cause
injury to a domestic industry, and that it is not limited by the adoption of the Illustrative
List into U.S. law. It is clear from the legislative history that the incorporation of the
Illustrative List was merely intended to provide examples of potential subsidy
*52527
practices. It is unquestionable that, with respect to the administration of the
countervailing duty law up until 1979, Congress was not concerned that an excessive
number of foreign government practices were being found countervailable. Instead,
Congress was troubled by the number of foreign government practices which were not
being countervailed. Therefore, we do not believe that Congress intended the Department's
authority to countervail injurious export subsidy practices to be restricted by a mechanical
interpretation of the language used to describe an example of one type of subsidy practice.
To Congress, the Illustrative List was just that--illustrative. The incorporation of the
Illustrative List into U.S. law has no relevance to the Department's determination that the
IPRS program was a subsidy within the meaning of 771(5) of the Act because we are
properly concerned with the fact that the Indian government made cash payments to
castings producers, the receipt of which was contingent upon export performance. We
believe that we have the authority to countervail these payments; we believe it to be
inconceivable that the Congress would have us do otherwise.
Comment 16: The importers argue that the Department has not taken into account a past
Treasury Department decision involving Uruguayan leather apparel (see, Final
Countervailing Duty Determination; Leather Wearing Apparel from Uruguay (43 FR
3974; January 30, 1978)), where a world market price exception similar to the one noted in
item (d) was relied on. Moreover, in its final results of the 1985 administrative review of this
case the Department misread the finding in Uruguayan Leather Apparel when distinguishing
it from the IPRS.
Department's Position: We have explained our rationale for countervailing the IPRS in the
previous comments. While this rationale may appear to be inconsistent with previous
Treasury determinations, we do not believe we are necessarily bound by previous Treasury
decisions regarding practices which were not defined as subsidies. As explained above, our
determination with respect to the IPRS is based upon our interpretation of the 1979 statute
and its legislative history. To the extent that we have refined our analysis, we believe that
we have articulated a rational basis for doing so.
Comment 17: The Indian exporters argue that it is inappropriate to calculate IPRS benefits
based on when benefits are received because, even though payment is not received for
months after shipment, the program provides known payments on a sale-by-sale basis. The
Department should calculate the benefit from the IPRS using payments claimed during the
review period, rather than payments received during the review period.
Conversely, the petitioners argue that the Department should be consistent from one
review to the next and continue to use the total amount of IPRS payments received during
the review period in calculating the benefit from this program.
Department's Position: It has been our general practice to compute benefits received by a
firm during the review period (in this case the 1989 calendar year), and apply them to the
relevant value of exports for the same period. This is because the company's cash flow is not
affected until the payment is received. There are a few exceptions to this practice, such as
when a benefit is earned on a shipment-by-shipment basis and the exact amount of the
benefit is known at the time of export (see e.g., Final Affirmative Countervailing Duty
Determination and Countervailing Duty Order; Certain Steel Wire Nails from New
Zealand (52 FR 37196; October 5, 1987)). In the case of IPRS benefits, however, the exact
amount of the benefit is not known at the time of export because there is always a lag
between the time an export is made and the time the EEPC announces the international
price it will use in its calculation of the IPRS payment. Even if we were to consider the IPRS
such an exception, the exporters did not make such a claim when we first determined in the
1984 review of this order that the IPRS provided a countervailable subsidy. In that review,
we calculated the subsidy from the IPRS program by allocating receipts over exports. A
shift in methodology at this time would result in a substantial gap in the measurement of
subsidies from this program.
Comment 18: The exporters argue that the benefit from the IPRS program is overstated,
claiming that it should be offset by the Engineering Goods Export Assistance Fund (EGEAF)
and Freight Equalization Fee (FEF) levies which are included in the price of pig iron.
Because IPRS payments include the refund of both the EGEAF and the FEF, the amounts
paid for these two levies should be deducted from IPRS receipts to determine the net
subsidy from this program.
Conversely, petitioners argue that the EGEAF and the FEF levies are not allowable offsets
under section 771(6) of the Tariff Act. These levies are included in the price of pig iron and
are paid regardless of whether the castings produced from the purchased pig iron is sold
domestically or exported.
Department's Position: Section 771(6)(A) of the Tariff Act states that to determine the net
subsidy the Department may subtract from the gross subsidy the amount of "any
application fee, deposit, or similar payment paid in order to qualify for, or to receive, the
benefit of the subsidy * * *." Both levies are paid by all consumers of Indian pig iron, not just
exporters. Payment of the levies is not in the nature of an IPRS application fee. Therefore,
they do not constitute offsets, as defined in the statute, to the IPRS benefit.
Comment 19: The petitioners argue that the Department incorrectly determined that the
benefit from the IPRS program is zero for purposes of the cash deposit of estimated
countervailing duties. While it is the Department's policy to adjust the deposit rate if a
program-wide change has taken place since the review period but prior to publication of the
preliminary results of the administrative review, the exporters' renunciation of IPRS
payments on exports of the subject merchandise to the United States does not constitute a
program- wide change because it was not effectuated by an official act, statute, regulation or
decree, and the exporters could resume receiving IPRS payments if they chose. The
exporters state that the Department determined that the EEPC stopped accepting IPRS
claims filed on shipments exported to the United States after June 30, 1987. Moreover,
because the Department verified that this program-wide change was implemented prior to
the issuance of the preliminary determination in this administrative review, the Department
should exclude IPRS payments from the estimated countervailing duty assessment rate.
Such a determination is consistent with the final results of the 1985, 1986 and 1987
administrative reviews.
Department's Position: We verified in the 1985 and 1987 reviews, that in April 1987 the
EEPC directed the castings producers not to make IPRS claims on exports of the subject
merchandise. More importantly, however, we verified in the 1987 review that the
Government of India officially terminated the IPRS program with respect to exports of the
subject merchandise to the United States. We verified this fact by examining a Ministry of
Commerce circular which stated that IPRS claims
*52528
are not to be made on exports of
the subject merchandise to the United States. Therefore, we have determined that the
termination of the IPRS program with respect to exports of the subject merchandise to the
United States meets the Department's program-wide change criteria.
Final Results of Review
After reviewing all of the comments received, we determine that the following net subsidies
exist for the period of January 1, 1989 through December 21, 1989:
-----------------------------------------------------------------------
Manufacturer/exporter Net ad valorem subsidy (percent)
-----------------------------------------------------------------------
Carnation Enterprise .................. 16.10 percent.
Uma Iron & Steel Company .............. 16.22 percent.
Govind Steel Co. Ltd .................. 21.27 percent.
Tirupati International ................ 21.27 percent.
Raghunath Prasad Phoolchand ........... 21.27 percent.
All Other Manufacturers or Exporters .. 2.66 percent.
-----------------------------------------------------------------------
In calculating the benefits received during the review period, we followed the methodology
described in the preamble to 19 CFR 355.20(d) (53 FR 52325, December 27, 1988). The
Department will instruct the Customs Service to assess countervailing duties at the
above percentages of the f.o.b. invoice price on shipments of the subject merchandise
exported on or after January 1, 1989, and on or before December 31, 1989.
As a result of the termination of benefits attributable to the IPRS program, the Department
will also instruct the Customs Service to collect a cash deposit of estimated
countervailing duties in the amount of 20.21 percent ad valorem for Govind, Tirupati
and Raghunath; 16.22 percent ad valorem for Uma; 16.10 percent ad valorem for Carnation
Enterprise Pvt. Ltd.; and 2.48 percent ad valorem for all other manufacturers and exporters
on shipments of the subject merchandise entered, or withdrawn from warehouse, for
consumption on or after the date of publication of these final results of administrative
review.
This administrative review and notice are in accordance with section 751(a)(1) of the Tariff
Act and 19 CFR 355.22(c)(5).
Dated: October 11, 1991.
Francis J. Sailer,
Acting Assistant Secretary for Import Administration.
[FR Doc. 91-25311 Filed 10-18-91; 8:45 am]
BILLING CODE 3510-DS-M