NOTICES
DEPARTMENT OF COMMERCE
[C-533-812]
Final Affirmative Countervailing Duty Determination: Certain Carbon Steel Butt-
Weld Pipe Fittings From India
Monday, February 27, 1995
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AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: February 27, 1995.
FOR FURTHER INFORMATION CONTACT: Susan M. Strumbel, Office of
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Countervailing Investigations, Import Administration, U.S. Department of Commerce,
Room 3099, 14th Street and Constitution Avenue, N.W., Washington, D.C. 20230;
telephone (202) 482-1442.
Final Determination
The Department of Commerce ("the Department") determines that benefits which constitute
subsidies within the meaning of section 701 of the Tariff Act of 1930, as amended ("the
Act"), are being provided to manufacturers, producers, or exporters in India of certain
carbon steel butt-weld pipe fittings. For information on the estimated net subsidies, please
see the Suspension of Liquidation section of this notice.
Case History
Since the publication of the preliminary determination in the Federal Register, 59 FR 28337
(June 1, 1994), the following events have occurred.
On June 27, 1994, at petitioner's request, we extended the final determination in this
investigation to coincide with the final determination in the companion antidumping
investigation (59 FR 32955).
On June 30, 1994, petitioner requested that the Department postpone its preliminary
determination in the antidumping investigation. Therefore, on July 26, 1994, the
Department published in the Federal Register a notice postponing the preliminary
antidumping determination and, therefore, also the final countervailing duty
determination (59 FR 37961).
On October 5, 1994, respondents requested that the Department postpone the final
antidumping and countervailing duty determinations. Therefore, on November 14,
1994, the Department published in the Federal Register a notice postponing the final
antidumping and countervailing duty determinations until no later than February 16,
1995 (59 FR 56461).
We conducted verification of the responses submitted on behalf of the Government of
India (GOI), Karmen Steels of India (Karmen) and Sivanandha Pipe Fittings Ltd.
(Sivanandha) from November 4 through November 7, 1994. We received case briefs on
January 24 from petitioner and respondents, and received rebuttal briefs from petitioner
on January 31, 1995.
Scope of Investigation
The products covered by this investigation are certain carbon steel butt-weld pipe fittings
("pipe fittings") having an inside diameter of less than fourteen inches (355 millimeters),
imported in either finished or unfinished condition. Pipe fittings are formed or forged steel
products used to join pipe sections in piping systems where conditions require permanent
welded connections, as distinguished from fittings based on other methods of fastening
(e.g., threaded, grooved, or bolted fittings). Butt-weld fittings come in a variety of shapes
which include "elbows," "tees," "caps," and "reducers." The edges of finished pipe fittings are
beveled, so that when a fitting is placed against the end of a pipe (the ends of which have
also been beveled), a shallow channel is created to accommodate the "bead" of the weld
which joins the fitting to the pipe. These pipe fittings are currently classifiable under
subheading 7307.93.3000 of the Harmonized Tariff Schedule of the United States
("HTSUS").
Although the HTSUS subheading is provided for convenience and customs purposes, our
written description of the scope of this proceeding is dispositive.
Applicable Statue and Regulations
Unless otherwise indicated, all citations to the statute and to the Department's regulations
are references to the provisions as they existed on December 31, 1994. References to the
Countervailing Duties: Notice of Proposed Rulemaking and Request for Public
Comments, 54 FR 23366 (May 31, 1989) (Proposed Regulations), are provided solely for
further explanation of the Department's CVD practice. Although the Department has
withdrawn the particular rulemaking proceeding pursuant to which the Proposed
Regulations were issued, the subject matter of these regulations is being considered in
connection with an ongoing rulemaking proceeding which, among other things, is intended
to conform the Department's regulations to the Uruguay Round Agreements Act. See 60 FR
80 (January 3, 1995).
Injury Test
Because India is a "country under the Agreement" within the meaning of section 701(b) of
the Act, the U.S. International Trade Commission ("ITC") is required to determine whether
imports of pipe fittings from India materially injure, or threaten material injury to, a U.S.
industry. On April 20, 1994, the ITC preliminarily determined that there is a reasonable
indication that an industry in the United States is being materially injured or threatened
with material injury by reason of imports from India of the subject merchandise (59 FR
18825).
Period of Investigation
For purposes of this final determination, the period for which we are measuring subsidies
(the period of investigation ("POI")) is the respondents' fiscal year: April 1, 1993 to March
31, 1994.
Non-Responding Company
Since Tata did not respond to our countervailing duty questionnaire, we have used best
information available ("BIA") in accordance with section 355.37(a) of the Department's
regulations. As BIA, we have used information provided in the petition except where we
have calculated a rate for a given program in a previous countervailing duty
investigation or administrative review for India which is higher than that provided in the
petition. We did not include in the BIA subsidy rate for Tata programs for which we have no
basis to calculate a benefit (i.e., programs for which rates are not calculated in the petition,
programs not previously investigated, or programs previously found not used). Based on
this approach, we calculated a BIA rate for Tata of 61.56 percent ad valorem.
Calculation of Country-Wide Rate
In determining the benefits to the subject merchandise from the various programs
described below, we used the following calculation methodology. We first calculated a
country-wide rate for each program. This rate comprised the ad valorem benefit received
by each firm weighted by each firm's share of exports of the subject merchandise to the
United States. The program rates were then added together to arrive at the country-wide
rate.
Pursuant to 19 CFR 355.20(d) of the Department's regulations, we compared the total ad
valorem benefit received by each firm to the country-wide rate for all programs. The rates
for Karmen, Sivanandha and Tata were significantly different from the country-wide rate.
Therefore, all three companies received company-specific rates. The country-wide rate will
be assigned to all other manufacturers, producers and exporters.
Karmen's Exports of Refurbished Pipe Fittings
Karmen has an arrangement with a Singaporean company, under which the Singaporean
company supplies Karmen with rusty pipe fittings. Karmen reconditions and refurbishes
these pipe fittings and ships them directly to the Singaporean company's U.S. customer. For
purposes of the preliminary determination, we considered this refurbished merchandise to
be covered by this proceeding. However, we stated
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that we would seek additional
information concerning: (1) The nature and extent of the processing operation, and (2) the
extent to which the refurbished pipe fittings are being subsidized.
For purposes of this final determination, we are treating the "sales" of Singaporean pipe as
outside of the scope of our investigation and, hence, not subject to any potential
countervailing duty order on butt-weld pipe fittings from India. Karmen essentially
performs a tolling service for its Singaporean customer. Moreover, Karmen does not
"substantially transform" these pipe fittings. Substantial transformation generally refers to a
degree of processing or manufacturing resulting in a new and different article. Through that
transformation, the new article becomes a product of the country in which it was processed
or manufactured. See Cold-Rolled Steel from Argentina, 58 FR 37062, 37065 (1993)
(Appendix I). The Department makes these determinations on a case-by-case-basis. See,
e.g., Certain Fresh Cut Flowers from Colombia, 55 FR 20491, 20299 (1990); Limousines
from Canada, 55 FR 11036, 11040 (1990).
In determining whether Karmen substantially transformed these pipe fittings, we examined
whether the degree of processing or manufacturing resulted in a new and different article.
Karmen receives rusty pipe fittings from Singapore, it removes the rust, paints the fitting,
and forwards it to the Singaporean company's customer. We do not consider this
refurbishing process as substantially transforming the subject merchandise because it
remains a pipe fitting after refurbishment. Therefore, because Karmen does not
substantially transform the merchandise, we do not consider it as falling within the scope of
this investigation.
However, we have also determined that the benefits received by Karmen under two of the
countervailable export subsidy programs discussed below (pre- shipment financing and
income tax deductions under 80HHC) cannot be limited exclusively to Karmen's export
sales of new pipe fittings (i.e., all Karmen's export sales excluding the Singaporean
transactions). In neither instance is there any indication that Karmen is precluded from
receiving these benefits on its refurbishing operations. Therefore, we have included the fee
Karmen receives for refurbishing the Singaporean pipe fittings as part of the denominator
for calculating the ad valorem subsidy rate. This is consistent with past practice. When we
cannot specifically tie the receipt of an export subsidy to a subset of export sales, such as
exports of the subject merchandise, we divide the total value of the export subsidy received
by the total value of exports. (See, e.g., Final Results of Countervailing Duty
Administrative Review: Certain Iron-Metal Castings from India, 56 FR 52521, (October 21,
1991), Final Affirmative Countervailing Duty Determination; Certain Electrical
Conductor Aluminum Redraw Rod from Venezuela, 53 FR 24763, 24767 (June 30, 1988)
(Redraw Rod)). (For a further discussion of this issue, please refer to the Interested Party
Comments section of this notice).
Analysis of Programs
Based upon our analysis of the petition, the responses to our questionnaires, verification
and comments made by interested parties, we determine the following:
A. Programs Determined To Be Countervailable
1. Preferential Pre-Shipment Financing
Pre-shipment financing is extended to exporters prior to shipment as working capital for
purchasing raw materials, processing, packing, warehousing, transporting and shipping.
Any exporter showing a confirmed export order or a letter of credit is eligible for this
program. Generally, the loans are extended for 180 days. We verified that both Karmen and
Sivanandha had loans on which interest was paid during the POI under this program.
Because only exporters are eligible for loans under this program, we determine that they
are countervailable to the extent they are provided at a preferential interest rate. See, e.g.,
Redraw Rod. As our commercial benchmark interest rate, we used 16.50 percent, which is
the rate reported by the GOI as the annual average commercial interest rate on short-term
financing during the POI. We compared this benchmark rate to the interest rate charged on
pre- shipment loans and found that the interest rate charged was lower than the benchmark
rate. Therefore, we determine that loans provided under this program are countervailable.
To calculate the benefit, we followed the short-term loan methodology which has been
applied consistently in our past determinations and is described in more detail in the
Subsidies Appendix accompanying Cold-Rolled Carbon Steel Flat-Rolled Products from
Argentina: Final Affirmative Countervailing Duty Determination and Countervailing
Duty Order, 49 FR 18006 (April 26, 1984); see also, Alhambra Foundry v. United States,
626 F. Supp. 402 (CIT 1985).
We compared the amount of interest paid during the POI to the amount of interest that
would have been paid at the benchmark rate. The difference between these two amounts is
the benefit. We then divided the benefit by total exports. On this basis, we determine the
estimated net subsidy from this program to be 0.47 percent ad valorem for Karmen, 0.44
percent ad valorem for Sivanandha and 5.27 percent ad valorem for Tata.
2. Income Tax Deductions Under Section 80HHC
Income tax benefits are available to exporters in India under Section 80HHC of the
Income Tax Act of 1961. This program allows exporters to reduce their taxable income by
the profits or export subsidies earned on exports. Both Karmen and Sivanandha claimed
deductions under this program on their income tax returns filed in the POI.
Since tax deductions under Section 80HHC are available only to exporters, we determine
that this program is countervailable. To calculate the benefit, we multiplied the amount of
the deduction claimed by each company by the corporate income tax rate and divided the
result by total exports. On this basis, we determine the estimated net subsidy from this
program to be 2.10 percent ad valorem for Karmen, 2.73 percent ad valorem Sivanandha
and 15.82 percent ad valorem for Tata.
3. International Price Reimbursement Scheme
The International Price Reimbursement Scheme ("IPRS") was established to compensate
Indian exporters for the difference between the domestic price of inputs and their world
market price. We verified that, as of April 1, 1993, the input product used in the production
of pipe fittings (seamless carbon steel pipe), was no longer eligible for IPRS benefits.
However, residual benefits could be received after that date and, in fact, Karmen received
residual benefits under this program during the POI for exports of pipe fittings shipped
prior to the POI.
Respondents maintain that the IPRS program is permissible within the framework of Item
(d) of the Illustrative List of Export Subsidies annexed to the Agreement on the
Interpretation and Application of Article VI, XVI and XXIII of the General Agreement on
Tariffs and Trade (Subsidies Code), (1979). Pursuant to the remand determination in Final
Results of Redetermination Pursuant to Court Remand, Creswell Trading Company, Inc., et
al. v. United
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States, Slip. Op. 94-65 (Creswell Trading), the IPRS program must be
examined in light of Item (d).
To conduct the analysis with respect to Item (d) of the Illustrative List, we examined
whether the IPRS program involves a consistently applied calculation methodology for
determining the difference between the higher domestic and lower international price of a
product available to exporters and whether the pricing and other data used in this
methodology are regularly updated to reflect accurately the price differential at the time of
the purchase of the product.
We verified that India's IPRS program utilizes a clearly defined and consistently applied
methodology for calculating the difference between the higher domestic and lower
international price of seamless carbon steel pipe available to their exporters. We also
verified that the price schedules for both domestic and international prices are updated
periodically. Therefore, we determine that the basic terms and conditions of the provision
of carbon steel pipe under the IPRS program are not "more favourable than those
commercially available on world markets" to Indian exporters. However, we have also
determined that the IPRS rebate is "excessive," because the government failed to include
ocean freight in its calculation of the world market price.
Item (d) is concerned with the government's provision of goods to exporters on terms more
favorable than those "commercially available on world markets to their exporters." Indian
exporters who purchase seamless carbon steel pipe on the world market would necessarily
also incur the cost of delivering the pipe to India. Therefore, the commercially available
alternative is the price of seamless carbon steel pipe itself, from sources outside of India,
plus a delivery charge to India.
The international prices used by the GOI in its calculations of IPRS rebates are stated in
F.O.B. (port of origination) terms and, thus, do not reflect the delivery of foreign seamless
carbon steel pipe to India. Consequently, we added delivery costs to the price of
foreign-sourced seamless carbon steel pipe and compared the delivered domestic price to a
delivered world market price. On this basis, we determine that the IPRS rebates received by
the Indian pipe fittings producers are excessive in the amount of the delivery charges
necessary to transport carbon steel pipe to India. The excess amount is a countervailable
subsidy because the rebate enabled the pipe fittings exporters to pay a lower price for
carbon steel pipe than that commercially available on world markets.
To calculate Karmen's benefit, we divided the amount of ocean freight necessary to ship
seamless carbon steel pipe to India by Karmen's total exports of pipe fittings. We did not
include in the denominator the fees Karmen receives for refurbishing Singaporean pipe
because refurbished pipe fittings are not eligible for the IPRS. On this basis, we determine
the estimated net subsidy from this program to be 7.05 percent ad valorem for Karmen,
0.00 percent ad valorem for Sivanandha and 32.66 percent ad valorem for Tata.
B. Programs Determined not to Provide Benefits During the POI Advance Licenses and
Advance Customs Clearance Permits ("ACCP's")
Under the GOI's Duty Exemption Scheme, inputs used in the production of exports may
enter the country duty-free. Two mechanisms under the Duty Exemption Scheme are
Advance Licenses and Advance Custom Clearance Permits ("ACCPs"). Sivanandha used
Advance Licenses to import seamless carbon steel pipes in the POI. Advance Licenses
permit the importation of goods duty free provided that the imports are used in the
production of merchandise subsequently exported.
Karmen used ACCPs during the POI. ACCPs allow exporters to import merchandise duty
free for the purpose of jobbing, restoration, reconditioning and other servicing, provided
that such merchandise is re-exported. Karmen used its ACCPs to import the aforementioned
pipe fittings from Singapore.
We consider the use of Advance Licenses and ACCP's to be the equivalent of a
duty-drawback program (see Final Affirmative Countervailing Duty Determination:
Steel Wire Rope from India, 56 FR 46292 (September 11, 1991)). Under § 355.44(i)(4)(1) of
the Department's proposed regulations (see Countervailing Duties; Notice of Proposed
Rulemaking and Request for Public Comments, 54 FR 23366 (May 31, 1989), the
non-excessive drawback of import duties is not countervailable if the imported products
are physically incorporated into exported products. According to the questionnaire
responses and verification, the products imported under Advance Licenses are physically
incorporated into pipe fittings which are subsequently re-exported. The products imported
under the ACCP's were refurbished and also re-exported. Therefore, we determine that
Advance Licenses and ACCP's did not provide a countervailable benefit in the POI.
C. Programs Determined To Be Not Used
We established at verification that the following programs were not used during the POI.
A. Preferential Post-Shipment Financing
B. Additional and Replenishment Licenses
C. Market Development Assistance
D. Export Promotion, Capital Goods Scheme
E. Benefits for 100 Percent Export-Oriented Units
F. Benefits Provided to Export Processing Zones
Interested Party Comments
Comment 1: Karmen argues that it would be inappropriate to subtract the fees received for
its refurbishing operations from the denominator but to leave the subsidies resulting from
the refurbishing in the numerator. Karmen argues that the job-working fees received for the
Singaporean transactions must be included in the denominator to calculate its subsidy rate.
Karmen contends that the benefits from the two subsidies we preliminarily found
countervailable, the 80HHC tax program and the pre-shipment export financing, resulted
significantly from the transactions involving Singaporean pipe.
Petitioner argues that the transactions involving the refurbished pipe fittings do not
constitute a sale for the purposes of this investigation. Furthermore, petitioner disagrees
that the refurbished pipe fittings contributed to Karmen's benefits under either of the
above-mentioned programs.
DOC's Position: As noted above, we have determined that the benefits from the
pre-shipment export financing and 80HHC programs cannot be tied solely to Karmen's
export sales, exclusive of the income received for refurbishing Singaporean pipe. During
verification, we were told by Karmen officials that they did not use pre-shipment export
financing for shipments of refurbished pipe fittings, but based on our analysis of the
information submitted regarding this program, there is no reason to believe that Karmen
could not have used the financing for these shipments. We do not typically narrow our
export subsidy denominator to less than total exports unless the benefits provided can be
exclusively linked to a smaller subset of export sales. Therefore, consistent with our past
practice, we divided the benefit amount by the value of Karmen's total exports, including
the fees it received for refurbishing.
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With respect to the 80HHC program, our past practice has been to divide the value
of the benefits by total exports in the POI. Pursuant to our general tax methodology, we
consider tax benefits to be "received" when a company files the return. Consequently, the
benefit used in our calculation usually relates to sales activity in the year prior to the POI.
As a result, the sales denominator we use in our subsidy calculation is rarely, if ever, the
sales from the same fiscal year covered by the tax return. The only basis to exclude sales
from the denominator is to determine that they are incapable of generating the tax benefit
in question. The only issue then, in this investigation, is whether the fees Karmen receives
for its refurbishing operations can generate 80HHC benefits.
The 80HHC benefits Karmen claimed on the tax return filed during the POI (covering a
pre-POI period) were not generated by Karmen's refurbishing operations because Karmen
did not refurbish any Singaporean pipe during the fiscal year covered by the tax return.
However, we verified that the fees received by Karmen for its refurbishing operations
during the POI did generate 80HHC benefits on the tax return which covers the POI. It is
clear that the refurbishing fees received by Karmen qualify for 80HHC benefits. The only
reason 80HHC benefits generated by the refurbishing operations are not in the 80HHC
subsidy calculation in this investigation is the Department's tax methodology which
mandates the use of the tax return filed during the POI.
Comment 2: Respondents argue that the benchmark interest rate of 16.5 percent used in the
Department's preliminary determination is the appropriate benchmark rate and should also
be used in the Department's final determination. They state that this interest rate is the
national average commercial rate for comparable loans. They contend that the 18.75
percent interest rate listed in the Department's verification reports is a company-specific
rate and therefore should not be used. They further state that the 18.75 percent interest
rate is for a loan that has a one year term while pre-shipment financing has a much shorter
term. Finally, they argue that pre-shipment export financing is a low risk form of credit
because the exporter has to show a purchase order prior to receiving financing.
DOC's Position: We agree that the 18.75 percent interest rate is a company-specific rate.
When selecting a short-term interest rate benchmark the Department's first choice is a
national average rate rather than a company- specific rate. See, Subsidies Appendix. The
questionnaire response of the GOI stated that the annual average interest rate on
short-term financing in India during the POI was 16.5 percent. According to the Reserve
Bank of India, the minimum commercial short-term rate on loans above 200,000 rupees
in India during the POI was 15.00 percent. Information from the May 1994 edition of
International Financial Statistics indicates that the average short- and medium-term
interest rate in India during the POI was approximately 15.59 percent. Given the
information on the record, we used as our benchmark the rate provided by the GOI.
Comment 3: Respondents argue that the Department should uphold its preliminary finding
that the IPRS program is non-countervailable.
DOC's Position: Based on verification and the recent remand determination in Creswell
Trading, we have determined that the IPRS program provided a countervailable benefit
during the POI.
Verification
In accordance with section 776(b) of the Act, we verified the information used in making
our final determination. We followed standard verification procedures, including meeting
with government and company officials, examination of relevant accounting records and
examination of original source documents. Our verification results are outlined in detail in
the public versions of the verification reports, which are on file in the Central Records Unit
(Room B-99 of the Main Commerce Building).
Suspension of Liquidation
In accordance with our affirmative preliminary determination, we instructed the U.S.
Customs Service to suspend liquidation of all entries of butt-weld pipe fittings from India,
which were entered or withdrawn from warehouse for consumption, on or after June 1,
1994, the date our preliminary determination was published in the Federal Register.
After the preliminary determination, this final countervailing duty determination was
aligned with the final antidumping duty determination on certain carbon steel butt-weld
pipe fittings from India, pursuant to section 606 of the Trade and Tariff Act of 1984
(section 705(a)(1) of the Act).
Under article 5, paragraph 3 of the Subsidies Code, provisional measures cannot be
imposed for more than 120 days without final affirmative determinations of subsidization
and injury. Therefore, we instructed the U.S. Customs Service to discontinue the suspension
of liquidation on the subject merchandise on or after September 30, 1994, but to continue
the suspension of liquidation of all entries, or withdrawals from warehouse, for
consumption of the subject merchandise entered between June 1, 1994, and September 29,
1994. We will reinstate the suspension of liquidation, under section 703(d) of the Act, if the
ITC issues a final affirmative injury determination, and will require a cash deposit of
estimated countervailing duties in the amounts indicated below:
Karmen Steels of India: 9.62 percent ad valorem
Sivanandha Pipe Fittings Ltd.: 3.16 percent ad valorem
Tata Iron & Steel Limited: 61.56 percent ad valorem
All-Others: 29.40 percent ad valorem
ITC Notification
In accordance with section 705(d) of the Act, we will notify the ITC of our determination. In
addition, pursuant to section 705(c) we are making available to the ITC all nonprivileged
and nonproprietary information relating to this investigation. We will allow the ITC access
to all privileged and business proprietary information in our files, provided the ITC
confirms that it will not disclose such information, either publicly or under an
administrative protective order, without the written consent of the Deputy Assistant
Secretary for Investigations, Import Administration.
If the ITC determines that material injury, or threat of material injury, does not exist, these
proceedings will be terminated and all estimated duties deposited or securities posted as a
result of the suspension of liquidation will be refunded or cancelled. If, however, the ITC
determines that such injury does exist, we will issue a countervailing duty order
directing Customs officers to assess countervailing duties on butt-weld pipe fittings
from India.
Return of Destruction of Proprietary Information
This notice serves as the only reminder to parties subject to Administrative Protective
Order (APO) of their responsibility concerning the return or destruction of proprietary
information disclosed under APO in accordance with 19 CFR 355.34(d). Failure to comply is
a violation of the APO.
This determination is published pursuant to section 705(d) of the Act and 19 CFR
355.20(a)(4).
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Dated: February 16, 1995.
Barbara S. Stafford,
Acting Assistant Secretary for Import Administration.
[FR Doc. 95-4721 Filed 2-24-95; 8:45 am]
BILLING CODE 3510-DS-P