98-b18

NOTICES

DEPARTMENT OF COMMERCE

International Trade Administration

[C-533-063]

Certain Iron-Metal Castings From India; Final Results and Partial Rescission of
Countervailing Duty Administrative Review

Wednesday, November 18, 1998

*64050

AGENCY: Import Administration, International Trade Administration,
Department of Commerce.

ACTION: Notice of final results of countervailing duty administrative review.

SUMMARY: On July 13, 1998, the Department of Commerce published in the Federal
Register its preliminary results of administrative review of the countervailing duty
order on certain iron-metal castings from India for the period January 1, 1996 through
December 31, 1996 (63 FR 37534). The Department has now completed this administrative
review in accordance with section 751(a) of the Tariff Act of 1930, as amended. For
information on the net subsidy for each reviewed company, and for all non-reviewed
companies, see the Final Results of Review section of this notice. We will instruct the U.S.
Customs Service to assess countervailing duties as detailed in the Final Results of
Review section of this notice.

EFFECTIVE DATE: November 18, 1998.

FOR FURTHER INFORMATION CONTACT: Kristen Johnson or Christopher Cassel, Office of
CVD/AD Enforcement VI, Import Administration, International Trade
Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue,
NW, Room 4012, Washington, D.C. 20230; telephone: (202) 482-2786.

SUPPLEMENTARY INFORMATION:

Background

Pursuant to 19 CFR 351.213(b), this review covers only those producers/exporters of the
subject merchandise for which a review was specifically requested. The
producers/exporters of the subject merchandise for which this review was requested are:
Calcutta Ferrous Ltd.,
Carnation Industries Ltd.,
Commex Corporation,
Crescent Foundry Co. Pvt. Ltd.,
Delta Enterprises,
Dinesh Brothers (P) Ltd.,
Kajaria Iron Castings Pvt. Ltd.,
Kejriwal Iron & Steel Works Pvt. Ltd.,
Metflow Corporation,
Nandikeshwari Iron Foundry Pvt. Ltd.,
Orissa Metal Industries,
Overseas Iron Foundry,
R.B. Agarwalla & Company,
R.B. Agarwalla & Co. Pvt. Ltd.,
RSI Limited,
Seramapore Industries Pvt. Ltd.,
Shree Rama Enterprise,
Shree Uma Foundries,
Siko Exports,
SSL Exports,
Super Iron Foundry,
Uma Iron & Steel, and
Victory Castings Ltd.
Delta Enterprises, Metflow Corporation, Orissa Metal Industries, R.B. Agarwalla & Co. Pvt.
Ltd., Shree Uma Foundries, Siko Exports, and SSL Exports reported, through company
certifications submitted on the record, that they did not export the subject merchandise to
the United States during the period of review. Therefore, in accordance with section
351.213(d)(3) of the Department's regulations, we are rescinding the review with respect to
these companies. This review also covers 19 programs.
In the notice of preliminary results, we invited interested parties to comment on the
preliminary results (63 FR 37534, July 13, 1998). On August 12, 1998, case briefs were
submitted by the Engineering Export Promotion Council of India and the exporters of
certain iron-metal castings from India (respondents), and the Municipal Castings Fair
Trade Council and its members (petitioners). On August 19, 1998, rebuttal briefs were
submitted by the respondents and petitioners.

Applicable Statute

Unless otherwise indicated, all citations to the statute are references to the provisions of the
Tariff Act of 1930, as amended by the Uruguay Round Agreements Act (URAA) effective
January 1, 1995 (the Act). The Department of Commerce (Department) is conducting this
administrative review in accordance with section 751(a) of the Act. All citations to the
Department's regulations reference 19 CFR part 351 (1998).

Scope of the Review

Imports covered by this administrative 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
public utility, water, and sanitary systems. During the review period, such merchandise was
classifiable under the Harmonized Tariff Schedule (HTS) item numbers 7325.10.0010 and
7325.10.0050. The HTS item numbers are provided for convenience and Customs
purposes. The written description remains dispositive.

Verification

As provided in section 782(i) of the Act, we verified information submitted by the
Government of India (GOI) and certain producers/exporters of the subject merchandise.
We followed standard verification procedures, including meeting with government and
company officials and examining relevant accounting and financial records and other
original source documents. Our verification results are outlined in the public versions of the
verification reports, which are on file in the Central Records Unit, Room B-099 of the Main
Commerce Building.

Analysis of Programs

Based upon the responses to our questionnaires, the results of verification, and written
comments from the interested parties, we determine the following:

I. Programs Conferring Subsidies

A. Pre-Shipment Export Financing

In the preliminary results, we found that this program conferred countervailable subsidies
on the subject merchandise. Our review of the record and our analysis of the comments
submitted by the interested parties, summarized below, has led us to modify our findings
from the preliminary results for Dinesh Brothers (Dinesh). See Comment 1 below. Our
findings for the other companies have not changed as a result of our review of the record
and our analysis of the comments submitted by the interested parties. Accordingly, the net
subsidies for this program are as follows:

----------------------------------------------------------------
Net subsidies--producer/exporter Net subsidy rate--percent
----------------------------------------------------------------
Calcutta Ferrous Ltd ...................................... 0.20
Commex Corporation ........................................ 0.13
Crescent Foundry Co. Pvt. Ltd ............................. 0.08
Dinesh Brothers Pvt. Ltd .................................. 1.04
Kajaria Iron Castings Pvt. Ltd ............................ 0.33
Nandikeshwari Iron Foundry Pvt. Ltd ....................... 0.22
R.B. Agarwalla & Company .................................. 0.34
RSI Limited ............................................... 0.37
Seramapore Industries Pvt. Ltd ............................ 0.53
Super Iron Foundry ........................................ 1.11
Uma Iron & Steel .......................................... 0.34
Victory Castings Ltd ...................................... 0.30
----------------------------------------------------------------

B. Post-Shipment Export Financing

In the preliminary results, we found that this program conferred countervailable subsidies
on the subject

*64051

merchandise. Our review of the record and our analysis of the
comments submitted by the interested parties, summarized below, has led us to modify our
findings from the preliminary results for Calcutta Ferrous (Calcutta) and Dinesh. See
Comment 1 below for Dinesh and the Memo to the File regarding the Calculations for the
Final Results of the Review dated November 10, 1998 (public version) on file in the Central
Records Unit of the Department of Commerce (Room B-099) (Calculation Memo) for
Calcutta. Our findings for the other companies have not changed as a result of our review of
the record and our analysis of the comments submitted by the interested parties.
Accordingly, the net subsidies for this program are as follows:

----------------------------------------------------------------
Net subsidies--producer/exporter Net subsidy rate--percent
----------------------------------------------------------------
Calcutta Ferrous Ltd ...................................... 0.29
Carnation Industries Ltd ................................. 0.03
Commex Corporation ........................................ 0.35
Crescent Foundry Co. Pvt. Ltd ............................. 0.31
Dinesh Brothers Pvt. Ltd .................................. 0.23
Kajaria Iron Castings Pvt. Ltd ............................ 0.42
Nandikeshwari Iron Foundry Pvt. Ltd ....................... 0.27
R.B. Agarwalla & Company .................................. 0.35
RSI Limited ............................................... 0.20
Seramapore Industries Pvt. Ltd ............................ 0.05
Super Iron Foundry ........................................ 0.12
Uma Iron & Steel .......................................... 0.53
Victory Castings Ltd ...................................... 0.40
----------------------------------------------------------------

C. Post-Shipment Export Credit in Foreign Currency (PSCFC)

In the preliminary results, we found that this program conferred countervailable subsidies
on the subject merchandise. Our review of the record and our analysis of the comments
submitted by the interested parties, summarized below, has led us to modify our findings
from the preliminary results for Calcutta and Dinesh. See Comment 1 below for Dinesh and
the Calculation Memo for Calcutta. Our findings for the other companies have not changed
as a result of our review of the record and our analysis of the comments submitted by the
interested parties. Accordingly, the net subsidies for this program are as follows:

D. Income Tax Deduction Under §80 HHC

In the preliminary results, we found that this program conferred countervailable subsidies
on the subject merchandise. Our review of the record and our analysis of the comments
submitted by the interested parties, summarized below, has led us to modify our findings
from the preliminary results for Dinesh. See Comment 1 below. Our findings for the other
companies have not changed as as result of our review of the record and our analysis of the
comments submitted by the interested parties. Accordingly, the net subsidies for this
program are as follows:

-------------------------------------------------------------------
Net subsidies--producer/exporter Net subsidy rate--percent
-------------------------------------------------------------------
Calcutta Ferrous Ltd.......................................... 2.91
Carnation Industries Ltd...................................... 2.92
Commex Corporation ........................................... 4.79
Crescent Foundry Co. Pvt. Ltd................................. 4.53
Dinesh Brothers Pvt. Ltd...................................... 1.82
Kejriwal Iron & Steel Works Pvt. Ltd......................... 11.76
Nandikeshwari Iron Foundry Pvt. Ltd........................... 3.71
Overseas Iron Foundry ........................................ 3.74
R.B. Agarwalla & Company ..................................... 2.73
RSI Limited .................................................. 2.73
Seramapore Industries Pvt. Ltd................................ 4.16
Shree Rama Enterprise ....................................... 10.85
Super Iron Foundry ........................................... 1.93
Uma Iron & Steel ............................................. 0.40
Victory Castings Ltd.......................................... 2.17
-------------------------------------------------------------------

E. Import Mechanisms (Sale of Licenses)

In the preliminary results, we found that this program conferred countervailable subsidies
on the subject merchandise. Our review of the record and our analysis of the comments
submitted by the interested parties, summarized below, have not led us to change our
preliminary findings. Accordingly, the net subsidies for this program are as follows:

-------------------------------------------------------------
Net subsidies--producer/exporter Net subsidy rate--percent
-------------------------------------------------------------
Carnation Industries Ltd................................ 0.24
Kajaria Iron Castings Pvt. Ltd.......................... 0.68
Kejriwal Iron & Steel Works ............................ 1.00
RSI Limited ............................................ 0.03
Seramapore Industries Pvt. Ltd.......................... 0.73
-------------------------------------------------------------

F. Exemption of Export Credit From Interest Taxes

In the preliminary results, we found that this program conferred countervailable subsidies
on the subject merchandise. Our review of the record and our analysis of the comments
submitted by the interested parties, summarized below, has led us to modify our findings
from the preliminary results for Calcutta and Dinesh. See Comment 1 below for Dinesh and
the Calculation Memo for Calcutta. Our findings for the other companies have not changed
as a result of our review of the record and our analysis of the comments submitted by the
interested parties. Accordingly, the net subsidies for this program are as follows:

------------------------------------------------------------------
Net subsidies--producer/exporter Net subsidy rate--percent
------------------------------------------------------------------
Calcutta Ferrous Ltd......................................... 0.06
Carnation Industries Ltd..................................... 0.13
Commex Corporation .......................................... 0.06
Crescent Foundry Co. Pvt. Ltd................................ 0.06
Dinesh Brothers Pvt. Ltd..................................... 0.13
Kajaria Iron Castings Pvt. Ltd............................... 0.26
Nandikeshwari Iron Foundry Pvt. Ltd.......................... 0.13
R.B. Agarwalla & Company .................................... 0.11
RSI Limited ................................................. 0.22
Seramapore Industries Pvt. Ltd............................... 0.07
Super Iron Foundry .......................................... 0.16
Uma Iron & Steel ............................................ 0.11
Victory Castings Ltd......................................... 0.18
------------------------------------------------------------------

II. Programs Found To Be Not Used

In the preliminary results, we found that the producers/exporters of the subject
merchandise did not apply for or receive benefits under the following programs:
1. Market Development Assistance (MDA)
2. Rediscounting of Export Bills Abroad (EBR)
3. International Price Reimbursement Scheme (IPRS)
4. Cash Compensatory Support Program (CCS)
5. Programs Operated by the Small Industries Development Bank of India (SIDBI)
6. Export Promotion Replenishment Scheme (EPRS) (IPRS Replacement)
7. Export Promotion Capital Goods Scheme
8. Benefits for Export Oriented Units and Export Processing Zones
9. Special Imprest Licenses
10. Special Benefits
11. Duty Drawback on Excise Taxes
12. Payment of Premium Against Advance Licenses
13. Pre-Shipment Export Financing in Foreign Currency (PCFC)
We did not receive any comments on these programs from the interested parties, and our
review of the record has not led us to change our findings from the preliminary
results.

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Analysis of Comments

Comment 1: Use of Denominator for Dinesh

Respondents state that the Department misread Dinesh Brothers' (Dinesh) sales information
and consequently used the wrong 1996 f.o.b. values to calculate the company's ad valorem
subsidy rates. As a result of this error, the Department's calculations overstate the
countervailing duty applicable to the company for the period of review.
Petitioners counter stating that the sales values used in the Department's calculations are
consistent with the information provided in the company's response. They argue that the
burden is on respondents to provide clear, complete responses to the Department's
inquires.
Petitioners state that even if the Department has erred and used the wrong values, this issue
highlights a continuing problem with respect to this order. That is, respondents often
supply vague information in their questionnaire responses and then clarify the information
only if the Department requests a further explanation or the respondents explain the
information at verification. In this case, petitioners argue the Department did not feel it was
necessary for Dinesh to explain the reporting of its sales values and the company was not
verified. For these reasons, petitioners urge the Department to affirm its use of the sales
values used in determining Dinesh's program benefits in the preliminary calculations.

Department's Position

Though we agree with petitioners that Dinesh's sales values were not clearly presented in
the company's questionnaire response, after a further examination of the record, we agree
with respondents that we did not use the correct f.o.b. values to calculate Dinesh's program
benefits. In conducting our preliminary calculations, we incorrectly read Dinesh's sales
chart and thus used the wrong 1996 f.o.b. values to calculate the company's ad valorem
subsidy rates. Therefore, we have recalculated the ad valorem subsidies under each
program using the correct f.o.b. values as our denominators. The program rates reported
above and the final subsidy rate and cash deposit rate for Dinesh listed below reflect the use
of the correct sales values.

Comment 2: Sale of Import License by Carnation

When calculating the benefit which Carnation Industries Ltd. (Carnation) received from the
sale of an import license, respondents state that the Department mistakenly used an
overstated revenue figure as the numerator in its calculation. They argue that the
Department incorrectly used the amount of revenue Carnation earned on the sale as
reported in the company's financial statements. Respondents state that this amount is
inclusive of the sales price plus the tax which Carnation paid to the State of West Bengal.
They state that Carnation did not receive the tax, and therefore, the correct amount of the
benefit to Carnation is the sales price minus the tax.
Petitioners state that the respondents' argument must be rejected because the Department's
regulations clearly state that: "(i)n calculating the amount of a benefit, the Secretary will not
consider the secondary tax consequences of the benefit." See Countervailing Duties:
Proposed Rule, 62 FR 8818, 8856 (February 26, 1997). Petitioners further state that the
Department's policy is clear from previous cases and has been upheld by the courts. See,
e.g., Certain Steel Products from Belgium; Final Affirmative Countervailing Duty
Determinations, 58 FR 37273, 37275 (July 9, 1993); Geneva Steel v. United States, 914 F.
Supp. 563, 609-610 (CIT 1996); Ipsco, Inc. v. United States, 687 F. Supp. 614, 621-22 (CIT
1988); and Michelin Tire Corp. v. United States, 6 CIT 320, 328 (1983), vacated on other
grounds, 9 CIT 38 (1985) (Michelin Tire).
In this review, petitioners state that the record clearly establishes that the benefit received
from the sale of the license was the amount reported in the company's financial statements.
Carnation's claim that it initially received something less than that amount is not supported
by record evidence. Moreover, whether Carnation was obligated to pay taxes on the
revenue earned is inconsequential to the Department's analysis. Therefore, the Department
should affirm its preliminary results in this matter.

Department's Position

We agree with petitioners. Not only is the Department's long-standing policy to disregard
secondary tax consequences of countervailable benefits, but also the statute is clear in
regard to permissible offsets to subsidies. Section 771(6) of the Act provides an exclusive
list of offsets which may be deducted from the amount of a gross subsidy, and an offset for
income tax payments is not included in that list. For purposes of determining the net
subsidy, the Department, pursuant to section 771(6), may subtract from the gross
countervailable subsidy the amount of:
(A) Any application fee, deposit, or similar payment paid in order to qualify for, or to
receive, the benefit of the countervailable subsidy,
(B) Any loss in the value of the countervailable subsidy resulting from its deferred receipt, if
the deferral is mandated by Government order, and
(C) Export taxes, duties, or other charges levied on the export of merchandise to the United
States specifically intended to offset the countervailable subsidy received.
In Michelin Tire, the court upheld the Department's policy of disregarding secondary tax
consequences, rejecting a claim that after-tax considerations should be included in the
calculation of a subsidy. In its decision the court stated that: "[T]hese effects [secondary tax
effects] are too uncertain to be considered a necessary part of a subsidy calculation in these
circumstances." See 6 CIT 320, 328 (1983), vacated on other grounds, 9 CIT 38 (1985).
Therefore, based on the statute, case precedent, and the Department's policy to disregard
secondary tax effects on subsidies, we have not altered our calculation of the subsidy which
Carnation received from the sale of an import license during the review period.

Comment 3: Use of a Rupee-Loan Interest Rate Benchmark

Respondents contest the Department's use of a rupee-loan interest rate, rather than a
dollar-denominated interest rate, to calculate the benefit on PSCFC loans. Respondents note
that the Department has determined that PSCFC loans are denominated in dollars and that
the discount rate is based on a dollar interest rate. Therefore, the Department should have
used as its benchmark to determine the benefit conferred by PSCFC loans, a dollar-related
interest rate. Respondents assert that since the Indian banks offering PSCFC financing could
themselves borrow dollars at a rate linked to the London Interbank Offering Interest Rate (
LIBOR), the appropriate benchmark to determine the subsidy element of the loans, if any,
would be a LIBOR-linked rate.
Respondents contend that the Department's use of a benchmark, other than a LIBOR-linked
rate, is inconsistent with item (k) of the "Illustrative List of Export Subsidies," Annex I to the
Agreement on Subsidies and Countervailing Measures (Illustrative List). Item (k) provides
that an "export credit" is a subsidy only if governments or government-controlled banks
provide "export credits at rates below those which they actually have to pay for the funds so
employed." Respondents assert

*64053

that PSCFC loans should not be viewed as subsidies
so long as they are not provided at rates that are below the rates at which the banks
themselves could borrow U.S. dollars. Accordingly, PSCFC loans should not be considered
beneficial to the extent that they are provided at rates above the appropriate benchmark--a
LIBOR-linked rate.
Petitioners argue that respondents are erroneously confusing the terms "export credit" and
"packing credit," the type of financing provided to castings exporters, when discussing item
(k). Petitioners note that the Department has consistently interpreted the term "export
credit" to refer to medium- and long- term loans and therefore, item (k) does not apply to
the short-term export loans which are under review.
Additionally, petitioners assert that the Department has consistently rejected the
cost-to-government" methodology of item (k). In support of their argument, petitioners cite
to the Department's determinations in Extruded Rubber Thread from Malaysia; Final
Results of Countervailing Duty Administrative Review, 60 FR 17515, 17517 (April 6,
1995) and Certain Textile Mill Products from Mexico; Final Results of Countervailing
Duty Administrative Review, 56 FR 12175, 12177 (March 22, 1991). Petitioners also cite to
the 1989 final results of Certain Textile Mill Products from Mexico, in which the Department
stated:
When we have cited the Illustrative List as a source for benchmarks to identify and measure
export subsidies, those benchmarks have been consistent with our long-standing practice of
using commercial benchmarks to measure the benefit to a recipient of a subsidy program.
The cost-to-government standard in item (k) of the Illustrative List does not fully capture
the benefits provided to recipients of FOMEX financing. Therefore, we must [sic] use a
commercial benchmark to calculate the benefit from a subsidy, consistent with the full
definition of "subsidy" in the statute.
54 FR 36841, 36843 (September 5, 1989). Petitioners further point out that the Department
upheld its repudiation of the "cost-to-government" standard contemplated in item (k) in the
Statement of Administrative Action: Agreement on Subsidies and Countervailing Measures
(SAA). The SAA states that "* * * the Illustrative List has no direct application to the CVD
portion of the Subsidies Agreement, and items (k) and (l) of the Illustrative List use a
cost-to-the- government standard which is inappropriate for CVD purposes." See H.R. Doc.
No. 103-316, Vol. 1, 927-928 (1994). The petitioners assert that this language restates the
Department's long-standing practice that the "cost-to-government" approach contemplated
in item (k) does not adequately capture the benefits provided under short-term export
financing programs. Therefore, the Department should reject respondents' argument and
continue using a non-preferential interest rate based on comparable, rupee-based financing
as a benchmark.

Department's Position

We disagree with respondents that the Department should use a LIBOR-linked interest rate
as the benchmark in measuring the benefits conferred by the PSCFC program. In examining
whether a short-term export loan confers countervailable benefits, the Department must
determine whether "there is a difference between the amount the recipient of the loan pays
on the loan and the amount the recipient would pay on a comparable commercial loan that
the recipient could actually obtain on the market." See Section 771(5)(E)(ii) of the Act.
In determining whether there is a difference between the amount the companies paid on the
PSCFC loans and the amount they would have paid on a comparable commercial loan, we
used, as our benchmark, where available, a company-specific interest rate for
rupee-denominated short-term working capital loans obtained on the market during the
review period. In the absence of a company-specific rate, we used the "cash credit" interest
rate which is for domestic working capital finance and is comparable to pre- and
post-shipment export finance. See Certain Iron-Metal Castings From India; Preliminary
Results of Countervailing Duty Administrative Review, 61 FR 64669, 64671 (December
6, 1996) (1994 Castings Prelim). In accordance with section 771(5)(E)(ii) of the Act,
because the interest rate on PSCFC loans is less than what a company would have to pay on
a comparable short-term commercial loan, we determined that PSCFC loans confer
countervailable benefits.
We have also determined that PSCFC loans are limited to exporters, and only exporters
have access to LIBOR-linked interest rates. Because we found that PSCFC loans are limited
to exporters and that non-exporters do not have access to these low-cost financing rates,
loans with interest rates linked to LIBOR clearly do not represent the "comparable
commercial loan that the recipient could actually obtain on the market." The fact that
commercial banks may borrow at LIBOR-linked rates is, therefore, irrelevant to our finding.
Petitioners correctly note that the Department has consistently rejected the
"cost-to-government" standard of item (k) of the Illustrative List. The SAA specifically states
that "* * * the Illustrative List has no direct application to the CVD portion of the Subsidies
Agreement, and items (k) and (l) of the Illustrative List use a cost-to-the-government
standard which is inappropriate for CVD purposes." See0 H.R. Doc. No. 103-316, Vol. 1,
927-928 (1994). For these reasons, we maintain that the correct benchmark to use in
determining whether PSCFC loans confer countervailable benefits upon exports of the
subject merchandise to the United States, is the "comparable" commercial loan rate that the
Indian exporters would actually obtain on the market.

Comment 4: Double-Counting of Subsidies

Respondents state that, for purposes of the section 80 HHC tax program (80 HHC), earnings
from the sale of import licenses may be deducted from taxable income to determine the tax
payable by the exporter. Therefore, because revenue from the sale of licenses is also part of
the deductions under 80 HHC, to countervail this revenue once as a direct subsidy, and
then to countervail the tax deduction, which is made up of the same revenue, is to double
count the subsidy from the import license sales.
Respondents also contend that the Department is double-counting the subsidy from the
export financing programs. The financing programs reduce a company's expenses in
financing exports, which in turn increases the company's profits on export sales. Because
the 80 HHC deduction increases as export profits increase, the financing programs increase
the 80 HHC deduction. Therefore, according to respondents, to countervail the export
financing as a separate program from the 80 HHC, is to double-count the subsidies
conferred by the export financing programs.
Respondents note that they appealed this issue of double-counting to the Court of Appeals
for the Federal Circuit (CAFC) and in Kajaria Iron Castings Pvt. Ltd. v. United States, No.
97-1490 (Fed. Cir. September 8, 1988) (Kajaria), the CAFC ruled in favor of the
respondents. Accordingly, respondents assert that the Department should revise its
position on the issue double-counting for the final results of this review.
Petitioners respond that the Department has analyzed this issue of double- counting
extensively in prior proceedings. See, e.g., Certain Iron-Metal Castings from India; Final
Results of Countervailing Duty Administrative Review, 62 FR 32299-301 (June 13,

*64054

1997) (1994 Castings Final). Petitioners contend that the Department's prior
findings on this issue should be upheld in this administrative review on the basis of (1) The
facts on the record; (2) because the subsidies being countervailed are separate and distinct;
(3) because the Department has a consistent policy of not examining the tax consequences
of tax exemptions related to loans and grants; and (4) there is no reasonable way for the
Department to isolate the alleged effects on respondents' export tax liability. In addition,
petitioners argue that the Department has explained in earlier reviews that the 80 HHC
income tax exemption for export earnings is a countervailable subsidy that is separate and
distinct from the subsidies received from export financing programs and the sale of import
licenses, and therefore, each subsidy program should be separately countervailed.
Also, petitioners contend that it is not the Department's policy to examine the secondary
tax effects of subsidies. Petitioners indicate that the Department's determination to
separately countervail these different subsidies is supported by the courts' affirmance of the
agency's policy to disregard any secondary effect of a direct subsidy on a company's
financial performance. In support of this, petitioners cite Saarstahl AG v. United States, 78
F.3d 1539, 1543 (Fed. Cir. 1996). Petitioners assert that this approach is proper and
reasonable given the difficulties inherent in an effort to calculate secondary effects.
Petitioners cite to Michelin Tire Corp. v. United States, in which the court stated, "These
(secondary) effects are too uncertain to be considered a necessary part of a subsidy
calculation." See 6 CIT 320, 328 (1983), vacated on other grounds, 9 CIT 38 (1985).
Petitioners further note that the legislative history of the URAA also makes clear that in
determining whether a countervailable subsidy exists, the Department is not required to
consider the effect of the subsidy. SAA at 246, 926 (codified at 19 U.S.C. 1677(5)(C)). The
SAA explains that:
[T]he Administration wants to make clear its view that the new definition of subsidy does
not require that Commerce consider or analyze the effect (including whether there is any
effect at all) of a government action on the price or output of the class or kind of
merchandise under investigation or review.
Id. at 926. Petitioners state that when applied to the alleged double- counting issue, this
means that the Department does not have to consider whether subsidies in the form of
grants or loans have any effect on the 80 HHC tax program when determining whether
subsidies under 80 HHC are countervailable.
Petitioners further indicate that though respondents argue that the Department should
correct for the alleged double-counting issue by making adjustments to the 80 HHC subsidy
percentage, they do not provide any comment on how the Department should do this.
According to petitioners, the Department has acknowledged in earlier reviews that the
adjustments requested by the respondents cannot be accomplished due to the multiple
variables, which affect a company's costs, that would have to be isolated.

Department's Position

Respondents' argument that the subsidies provided under the export financing and import
licensing programs have been countervailed twice, by also countervailing the full amount of
the 80 HHC tax deduction, is incorrect. In Kajaria, the CAFC reviewed the Department's
decision to countervail that portion of the Cash Compensatory Support (CCS) rebates found
to be excessive, and to also countervail those over-rebates under the 80 HHC program.
Under the CCS program, the GOI rebated indirect taxes on inputs consumed in the
production an exported product. The CCS rebates were considered by the GOI to be export
income. Under the GOI's 80 HHC program only profit from export income is exempt from
tax liability. With respect to these particular facts, the CAFC in its decision concluded that
by first countervailing the CCS over- rebates, as a distinct program, and then countervailing
the same over-rebates again as tax exempt export income under the 80 HHC program, the
Department had improperly double-counted the over-rebates.
In its decision, the court stated:
* * * Commerce must avoid double-counting subsidies, i.e., countervailing both the full
amount of a subsidy and the non-taxation of that subsidy, when the party under
investigation provides documentation that allows Commerce to separate the tax deduction
based on the fully countervailed subsidy from the otherwise countervailable portion of the
tax deduction.
Kajaria, No. 97-1490 at 24-25. In the present review, neither the interest saved under the
export financing programs nor the proceeds earned on the sales of import licenses are
deemed to be export income. There is no evidence on the record which demonstrates a
direct link between these separate and distinct program subsidies and a specific tax
exemption subsidy program, i.e., the 80 HHC tax deduction. The respondents in this review
did not provide either income and tax statements, or government descriptions of the
subsidy programs which demonstrate that the export financing and import license subsidies
are considered by the GOI to be export income and that the profit derived from such
income is specifically exempt from tax liability under 80 HHC.
With respect to the export financing programs, the respondents stated that under these
schemes, the GOI provides exporters with short-term export lending to finance their
working capital requirements. The respondents' contention that as a result of such
financing, an exporter realizes a reduction of interest expenses which in turn increases
profits on export sales, is speculative. It is incorrect for respondents to assume that every
rupee saved on interest costs increases the profits of the company by one rupee and
therefore, the concessional financing programs increase the 80 HHC deduction since the
deduction increases as profits from exports increase. Thus, we find no basis for the
respondents' argument that, by countervailing the export financing programs and the 80
HHC deduction in full, the benefit to the exporter from the financing programs is being
countervailed twice.
In regard to the sale of import licenses, the record is void of any indication that the profit a
company realizes from the sale of an import license is exempt from tax liability. What
evidence respondents did put on the record shows, for example, that Carnation Industries
reported and documented on the record that the revenue it earned from the sale of an
import licence during the review period was taxed by the State of West Bengal. Therefore,
we find no basis for the respondents' argument that revenue earned from the sale of an
import license constitutes export income, the profits from which may be deducted from
taxable income under 80 HHC. Accordingly, we determine that the subsidy from the import
license sale is not being double-counted by also countervailing in full the 80 HHC tax
deduction.

Comment 5: Exclusion of Income Earned on Non-Subject Merchandise

According to respondents, where a company was able to break down revenues relating to
subject castings versus revenues relating to non-subject merchandise, the Department
should have calculated the 80 HHC subsidy based on revenues and profits relating to
subject castings only. Respondents assert that by not factoring out

*64055

incentives
received on sales of merchandise other than subject castings, the subsidies found to be
conferred by the 80 HHC program are greater than they ought to be. The respondents
submit that it is ultra vires to countervail income earned on merchandise other than subject
castings because only subject castings are covered by the order.
Respondents claim that two companies, Kejriwal Iron & Steel (Kejriwal) and R.B. Agarwalla
& Co. (R.B. Agarwalla) were able to break down revenues relating to subject castings versus
revenues relating to non-subject merchandise. Kejriwal submitted a calculation showing
export incentives received on sales of non-subject merchandise. The company factored out
these incentives when calculating the benefit the 80 HHC program provided to subject
castings. R.B. Agarwalla submitted an 80 HHC calculation demonstrating that a portion of
its income was directly related to non-subject merchandise, and subtracted out this income
in determining the benefit to subject castings provided by the tax program. Respondents
assert, for these companies, the Department should revise its 80 HHC calculations
countervailing only the income earned on subject castings.
Respondents note that the CAFC in Kajaria, stated that the Department improperly included
revenue received on non-subject castings in determining the countervailing duty to be
imposed on subject castings. See Kajaria, No. 97- 1490 at 25-27. Respondents state that
though the court's decision related to IPRS rebates received on non-subject castings, the
court's ruling on the non- countervailability of tax deductions relating to non-subject
castings applies to this review since the exporters received revenue on non-subject castings
during the period of review. Therefore, in keeping with the decision in Kajaria, the
Department should recalculate the 80 HHC benefit by deducting all revenues received on
non-subject castings for those companies which were able to break down revenues relating
to subject castings versus non-subject merchandise.
Petitioners note the respondents' argument has been rejected in prior reviews. Since the
facts of this review are no different from the prior reviews, the Department should continue
its policy of allocating the benefit from the 80 HHC program over total exports. The 80 HHC
program is an export subsidy and the benefits provided under this program are not tied to
the production or sale of a particular product or products. Petitioners assert that it does not
matter whether an exporter is able to separate its revenues between subject and
non-subject castings, because the 80 HHC program is an "untied" subsidy program.

Department's Position

We disagree with respondents that for the final results the Department should revise its
benefit calculations for the 80 HHC tax exemption program in light of Kajaria. The
circumstances and the record developed in this review are different from those in the case
of Kajaria. In Kajaria, the Court ruled that the record showed that the IPRS rebates for
non-subject merchandise were deemed by the GOI to be export income. Further, the Court
found that profits derived from that export income were specifically exempt from income
tax liability under the 80 HHC program. In short, rebates specifically identified as export
income under one program were directly linked to the exemption from tax liability of
profits derived from such export income under another subsidy program. It is clear from
the CAFC's opinion that its holding was limited to the particular circumstances in Kajaria.
The facts and record in this review are not the same as those in Kajaria. Thus, no revision to
the 80 HHC benefit calculation is warranted.
During this administrative review, no exporter submitted information for the record which
demonstrated that IPRS rebates were received for the sale of non-subject merchandise to
the United States. In fact, no exporter submitted information that demonstrated that any
alleged benefits received for non-subject merchandise were expressly denominated as
export income, and that the profits derived from such export income were expressly
exempt from tax liability under the 80 HHC program.
As mentioned above, respondents claim that the export incentives which Kejriwal received
on the sale of non-subject merchandise should be factored out of the Department's
calculation of the benefit to subject castings from the 80 HHC tax deduction. We disagree
with the respondents. Kejriwal provided no documentation on the record to support its
claim that the export incentives received were in fact export income earned on the sale of
non-subject merchandise. Further, nowhere on the record does Kejriwal or the GOI indicate
that export incentives are export income and that the section 80 HHC specifically exempts
profits derived from that export income. Because the record is void of such information, we
have not modified the 80 HHC benefit calculation for Kejriwal to exclude, from the
computation, these export incentives.
In like manner, R.B. Agarwalla did not provide any documentation to support its claim that
a portion of its income listed as duty drawback received on non- subject merchandise is
specifically denominated as export income by the GOI. There is no information on the
record which indicates that duty drawback is considered to be export income and that the
section 80 HHC specifically exempts the profits derived from that income. Therefore, we
have not made any adjustments to the 80 HHC benefit calculation for R.B. Agarwalla to take
into account the duty drawback the company received on non-subject merchandise.
The burden of creating an adequate record lies with respondents and not with the
Department. NTN Bearing Corp. of America v. United States, 997 F.2d 1453, 1458 (Fed. Cir.
1993), quoting Tianjin Mach. Import & Export Corp. v. United States, 806 F. Supp. 1008,
1015 (CIT 1992). In this review, neither Kejriwal nor R.B. Agarwalla developed such a
record with respect to the Kajaria-type adjustment they are requesting. Moreover, the
Department need not engage in any kind of subsidy tracing exercise. On this point, the CAFC
was very clear:
[W]e are mindful of the government's argument that Commerce does not engage in subsidy
tracing because of the burden involved in sorting the tax treatment of subsidies. Again, our
decision does not mean that in every review or investigation Commerce must trace the tax
treatment of subsidies on non-subject merchandise when a tax deduction results in a
countervailable subsidy to determine if the deduction is partially based on the subsidy on
non-subject merchandise.
Kajaria, No. 97-1490 at 27. Accordingly, the Department has not made any adjustment to
the 80 HHC calculations in the final results of this review to determine the subsidy bestowed
on exports of the subject merchandise. Because respondents did not provide to the
Department documentation with respect to export profits derived from export income
earned on non-subject merchandise which is specifically exempt under the 80 HHC, we
have continued to employ our "untied" benefit methodology to calculate the net subsidy
attributable to exports of the subject merchandise for those exporters which claimed the 80
HHC tax deduction during the period of review. It is the Department's consistent and
long-standing practice to attribute a benefit from an export subsidy that is not tied to a
particular product or

*64056

market to all products exported by a firm. See, e.g., Final
Affirmative Countervailing Duty Determination: Certain Pasta from Turkey, 61 FR
30366, 30370, (June 14, 1996) (Pasta from Turkey), and the 1994 Castings Final, 62 FR
32303.
When an exporter cannot demonstrate to the Department that a subsidy is tied to specific
merchandise, then the benefit is not tied to any specific product manufactured or exported
by a firm, and therefore, the benefit is "firm-wide." If a subsidy is firm-wide and not "tied" to
specific merchandise, then the benefit from that subsidy is allocated over the firm's total
exports, in the case of an export subsidy. By allocating the "untied" benefit provided under
the 80 HHC over a company's total exports, we are making an "apples-to- apples"
comparison. This "untied" benefit methodology accurately produces the net subsidy
attributable to exports of the subject merchandise and provides for fair results. For these
reasons, our calculation of the subsidy under section 80 HHC remains unchanged from the
preliminary results.
Even if Kejriwal and R.B. Agarwalla demonstrated to the Department that their respective
export incentives and duty drawback were in fact export income earned on non-subject
merchandise (with respect to duty drawback, documentation would also have to indicate
that imported pig iron was not incorporated into the subject merchandise) and that the 80
HHC specifically exempts profits derived from that export income, each company's net
program subsidy rate would remain essentially unchanged. By factoring out export income
attributable to non-subject merchandise from the 80 HHC deduction, we would adjust the
benefit (the numerator) to reflect the 80 HHC tax deduction attributable to subject
merchandise only. Because adjusting the benefit in this manner is contrary to the
Department's long-standing practice with regard to the attribution of subsidies and our
tying principles, we would then have to adjust the denominator. Since the numerator would
reflect only subject merchandise, we would follow our long-standing principles for
attribution, and divide the recalculated benefit only by exports of subject merchandise to
determine the net subsidy rate for each company. Once all income attributable to
non-subject merchandise is factored out of the calculation of the benefit, the amount that
remains would be attributable solely to subject merchandise. As noted, the adjustments
made would affect both the numerator and denominator and would result, in this
proceeding, in net subsidy rates identical to the rates obtained by the Department's current
methodology of considering the benefit of the 80 HHC program as "untied."

Comment 6: Penalty Interest Paid

According to respondents, in calculating the benefits received by castings exporters from
post-shipment export loans, the Department failed to take into account penalty interest
paid at interest rates higher than the benchmark. Respondents argue that where a company
paid interest on loans at rates both less than and greater than the benchmark rate, all
interest--including the overdue penalty interest paid at rates greater than the benchmark
rate--needs to be taken into account when determining the actual benefit to the company
from the loans. The respondents assert that the methodology employed by the Department
virtually eliminates the overdue penalty interest paid from the calculation of the benefit
from the post-shipment export loans.
The preliminary calculations demonstrate that where an export loan was initially taken at a
preferential rate, the Department calculated the interest paid at the preferential interest
rate and compared it to interest that would have been paid at the benchmark rate.
Respondents argue that this methodology does not take into account all the interest paid by
the exporter on the loan since it ignores overdue interest that the exporter may also have
paid on the loan.
Respondents assert that the Department should have adjusted the benefit on the
post-shipment export loans by the excess overdue interest paid by the company at the
penalty interest rate, because that rate is greater than the benchmark rate. Rather than
account for the excess interest paid on the loans, the Department calculated a zero benefit
where the interest rate on the portion of the loan overdue was higher than the benchmark
rate. The respondents argue that the Department should correct its methodology so as to
take into account the overdue penalty interest paid on the loans, because the benefit
received by an exporter on any particular loan is a function of both the interest paid at a
rate lower than the benchmark and the additional interest paid at a rate higher than the
benchmark.
Petitioners state that the Department should reject the respondents' methodology for
calculating the countervailable benefit under the export financing programs, because it
would permit a non-allowable offset to the countervailable benefit under the programs. In
addition, petitioners argue that respondents fail to explain why an offset for penalty interest
should be allowed when payment of that interest does not fall within the statute's list of
allowable offsets under section 771(6) of the Act.
The penalty interest, petitioners assert, merely assures that the terms of the program are
met. The costs associated with such penalty interest charges are, therefore, due to the
recipient's failure to comply with the terms of the loan. The penalty which is based on the
company's non-compliance with the terms of the program, represents nothing more than a
secondary economic effect. Petitioners note that the Department has previously
determined that a secondary economic effect should not be used as an offset to a program's
benefit. See, e.g., Oil Country Tubular Goods from Canada; Final Affirmative
Countervailing Duty Determination, 51 FR 15037 (April 22, 1986), Fabricas El Carmen,
S.A. v. United States, 672 F. Supp. 1465 (CIT 1987), vacated in part (on other grounds),
Fabricas El Carmen, S.A. v. United States, 680 F. Supp. 1577 (CIT 1988).
Petitioners further note that the Department has, in a comparable situation, refused to
offset preferential with non-preferential loans. See Oil Country Tubular Goods from
Argentina; Final Results of Countervailing Duty Administrative Reviews, 56 FR 38116,
38117 (August 12, 1991) (OCTG from Argentina). In that case, respondents claimed that a
loan-by-loan analysis overstated the benefit received and that, taken together, the loans
received by the company provided no preferential benefit. In rejecting this argument, the
Department asserted:
[I]t only examines loans received under programs that may potentially be counteravailable
[sic] if the interest rate is preferential when compared with the benchmark interest rate. We
do not consolidate these preferential loans with non-countervailable commercial loans to
examine whether the aggregate interest rate paid on a series of loans is preferential. It is not
the Department's practice to offset the less favorable terms of one loan as an offset to
another, preferential loan.
Id. Petitioners argue that, by extension, the Department cannot, under the terms of the
statute, offset the less favorable interest period of a loan (the period during which the loan
was overdue) with the period in which the loan was provided on preferential terms. This is
particularly the case, petitioners state, when the higher penalty interest was a result of the
company's failure to comply with the terms of the program.

*64057

Therefore, the
Department is correct in calculating a zero benefit during the period in which the penalty
rate exceeded the benchmark rate.

Department's Position

An adjustment to the benefit under the export financing programs in the form advocated by
respondents would be an impermissible offset to the benefit. In accordance with section
771(6) of the Act, the Department may subtract from the gross countervailable subsidy the
amount of:
(A) Any application fee, deposit, or similar payment paid in order to qualify for, or to
receive, the benefit of the countervailable subsidy,
(B) Any loss in the value of the countervailable subsidy resulting from its deferred receipt, if
the deferral is mandated by Government order, and
(C) Export taxes, duties, or other charges levied on the export of merchandise to the United
States specifically intended to offset the countervailable subsidy received.
As petitioners correctly note, penalty interest under the export financing programs does
not fall within this list of allowable offsets.
Additionally, in light of how the post-shipment export financing programs operate,
respondents' approach is inaccurate. As we explained in the preliminary results, exporters
discount their export bills with Indian commercial banks to finance their operations. See
Certain Iron Metal Castings from India; Preliminary Results of Administrative Review, 63
FR 37536 (July 13, 1998) (1996 Castings Prelim). By discounting an export bill, the
company receives payment from the bank in the amount of the export bill, net of interest
charges. The loan is considered "paid" once the foreign currency proceeds from an export
sale are received by the bank. If those proceeds are not paid within the negotiated period,
then the loan is considered "overdue." In essence, however, this overdue period is a new
loan, because the original "discounted loan period" is fully accounted for, that is, the
company has received payment from the bank and the interest on that payment has already
been deducted. For the overdue loan, the bank will charge the company interest on the
original amount of the loan at a higher interest rate. The overdue interest rate varies
depending on the period for which the loan is overdue. To determine whether interest
charged on the "overdue" loan confers a countervailable benefit, we compared the overdue
interest rate with the benchmark rate. If the overdue interest rate was higher than the
benchmark rate, we found no benefit. Therefore, the adjustment suggested by respondents
is inappropriate given the way in which the export financing programs operate.

Comment 7: Company-Specific Benchmarks

Respondents disagree with the Department's use of a company-specific benchmark interest
rate for determining the benefits which Calcutta Ferrous and Crescent Foundry respectively
received under the pre- and post-shipment export financing programs. Respondents note
that, for companies which did not have commercial short-term loans during the review
period, the Department used as its benchmark the "cash credit" short-term interest rate
which was provided by the GOI.
Respondents argue that since commercial loans were available to borrowers at the cash
credit rate during the review period, it was inappropriate to use a higher rate as a
benchmark for Calcutta Ferrous and Crescent Foundry merely because these companies
borrowed at rates higher than the cash credit rate on certain commercial loans. It is the
respondents' contention that, where a company borrows at a rate which is lower than the
common benchmark, it is appropriate to use the lower, company-specific rate. However,
where a company borrows at a rate higher than the common commercial rate, then the
higher rate should not be the benchmark used for that company. Respondents argue that
there is no reason to assume that a company, which happened to borrow at a higher rate,
could not have taken loans at the lower rate during the period of review, and therefore, the
Department should use the lower commercial rate. Thus, the Department should cap
Calcutta Ferrous' and Crescent Foundry's benchmark rate at the level of the cash credit
short-term interest rate which was found available to borrowers in India during the period
of review.
Petitioners state that the respondents' argument should be rejected as it is inconsistent with
the Department's preferred benchmark methodology. As directed by the Act, the
Department is to measure the benefit obtained through a loan program by finding the
"difference between the amount the recipient of the loan pays on the loan and the amount
the recipient would pay on a comparable commercial loan that the recipient could actually
obtain on the market." See section 771(5)(E)(ii) of the Act. In measuring the benefit, it is the
Department's preference to use company-specific rates where available and to use national
averages (such as the cash credit rate) only in the event that the investigated firm did not
take out any comparable commercial loans during the period. See Preamble to the
Proposed Regulations, 62 FR 8829, 8830 (February 26, 1997). By using a company-specific
benchmark rate for those companies which received, and paid interest on, short-term
working capital loans obtained on the market during the period of review, the Department
appropriately followed statutory and regulatory policy. For the remaining companies
which did not receive, and pay interest on, comparable commercial loans, the Department
used, as a benchmark, the next best rate, the national- average cash credit rate.
Petitioners further state that the respondents' argument is not in accordance with the
Department's statutory guidelines, since, in certain cases, respondents' methodology would
substitute the second best (i.e., a national average rate) when the first best alternative (i.e.,
a company-specific rate) is available. The respondents' proposed approach is simply a
results-oriented argument designed to lower the countervailing duty rate applied to
short-term, preferential loan programs. Moreover, it is mere speculation on the part of
respondents to claim that companies which borrow at rates above the national- average
rate could also borrow at the lower rate. Petitioners contend that it is this type of ambiguity
that the statute and regulations address and therefore, the Department must reject
respondents' proposed approach.

Department's Position

We disagree with the respondents' argument that the Department used inappropriately high
benchmarks to calculate the benefits from the pre- and post-shipment export financing
programs for Calcutta Ferrous and Crescent Foundry. As stated in section 771(5)(E)(ii) of
the Act, in the case of a loan, a benefit is conferred "if there is a difference between the
amount the recipient of the loan pays on the loan and the amount the recipient would pay
on a comparable commercial loan that the recipient could actually obtain on the market"
(emphasis added).
During the review period, four of the twelve respondent companies received, and paid
interest on, domestic working capital loans which were obtained in a commercial banking
market. Accordingly, for these four companies, we used as our benchmark in determining
the benefits each company received under the export financing programs, a
company-specific rate; this benchmark was a weight-averaged rate based on the interest
rates each company paid on its respective

*64058

commercial working capital loans. It is
the Department's policy to use a company-specific benchmark rate in determining the
benefit conferred by a government program. See, e.g., Industrial Phosphoric Acid from
Israel; Final Results of Countervailing Duty Administrative Review, 63 FR 13626, 13634
(comment 9) (March 9, 1998).
For all other respondent companies which did not receive, and pay interest on, comparable
commercial loans during the period of review, we used as our benchmark the next best
alternative--the national-average "cash credit" rate. In the 1994 administrative review of
this order, the Department determined that, in the absence of a company-specific
benchmark, the most "comparable" short-term benchmark to measure the benefit under the
export financing programs, is the cash credit interest rate. The cash credit interest rate is
for domestic working capital finance and thus, comparable to pre- and post- shipment
export financing.
Respondents argue that since commercial loans were available at the cash credit rate during
the review period, it was inappropriate for the Department to use higher benchmark rates
for Calcutta Ferrous and Crescent Foundry simply because these companies borrowed at
higher rates on certain loans. As noted above, it is the Department's policy to use, when
determining the benefit conferred by a loan provided under a government program, the
interest rate a company would have paid on a comparable loan obtained on the market.
During the review period, both Calcutta Ferrous and Crescent Foundry obtained
commercial loans on the market. The market determined the interest rates at which these
companies could borrow, and those rates were higher than the national-average cash credit
rate. Respondents state that the Department should not assume that a company which
happened to borrow at a rate higher than the national-average could not have taken loans at
the lower rate during the period, and therefore, the Department should use the lower
commercial rate. We find no basis for this argument. If Calcutta Ferrous and Crescent
Foundry actually could have borrowed at the national-average rate, then the interest rates
charged by the banks on the commercial loans would have reflected that. The fact that they
did not is an indication that they could not. It would be unreasonable to expect a company
to incur higher than necessary costs. Therefore, we disagree with respondents' argument
that the Department should cap Calcutta Ferrous' and Crescent Foundry's company-specific
benchmark rates at the level of the cash credit rate.

Comment 8: Countervailability of Advance Licenses

Petitioners argue that the Department improperly failed to countervail Advance Licenses
which, they contend, are export subsidies. According to petitioners, Advance Licenses
constitute a countervailable subsidy within the meaning of Item (a) of the Illustrative List,
which defines one type of export subsidy as "[t]he provision by governments of direct
subsidies to any firm or any industry contingent upon export performance." Because
Advance Licenses are issued to companies based on their status as exporters, and because
products imported under such licenses are duty-free, petitioners state these licenses
provide a subsidy based on the requirement that an export obligation be met.
Petitioners claim that the Department has in this, as in prior reviews, mistakenly confused
the nature of the Advance License program with a duty drawback program. For a duty
drawback program not to be countervailed, it must meet certain conditions as outlined in
Item (i) of the Illustrative List. Item (i) provides that "[t]he remission or drawback of import
charges [must not be] in excess of those levied on imported goods that are consumed in the
production of the exported products (making normal allowance for waste)." This condition,
according to petitioners, has not been met with respect to the Advance License program
because the GOI makes no attempt to determine the amount of the imported duty-free
material that is consumed in the production of the exported product.
According to petitioners, there is no evidence on which to base a conclusion that the
amount of raw materials imported was not excessive vis-a-vis the products exported. The
GOI's concern that a sufficient amount of value has been added to the exported products
does not regulate the amount of raw materials incorporated to the exports. Petitioners
argue that the yardstick used by the GOI for measuring compliance with the Advance
License program falls short of any determination of whether the amount of raw materials
imported was excessive in relation to the amount of raw materials found in the exported
castings.
Petitioners further argue that no evidence on the record demonstrates that the GOI
attempts to determine the grade of pig iron being imported or exported, and without
knowing this information, the amount of pig iron consumed in the production of exported
subject castings cannot be ascertained. Additionally, the GOI's system of fixing
"input/output norms" is hampered because exporters, who experience delays in the
delivery of raw material inputs imported under an Advance License, may purchase the
inputs on the domestic market. Thus, there is no way to ensure that the amount of raw
materials imported was not excessive in relation to the amount of raw materials found in
the exported castings.
Moreover, petitioners argue that an exporter's ability to transfer Advance Licenses to other
companies is further evidence that this program is not equivalent to a drawback program
because the licenses are not solely limited to the importation of duty-free materials. The
GOI permits Advance Licenses to be transferred between companies under certain
conditions and when transferring a license, an exporter would receive in return a monetary
payment. For this and the above-indicated reasons, petitioners state that the Department
should countervail in full the value of Advance Licenses received by the respondents during
the period of review.
Respondents explain that the purpose of the Advance License scheme is to allow for the
importation of raw materials duty free for the production of exported products. They state
that if Indian exporters did not have Advance Licenses, the exporters would simply import
the raw materials, pay duty, and then receive drawback upon export. Respondents argue
that just because Advance Licenses are slightly different from a duty drawback system, in
that they allow duty free imports rather than provide for remittance of duty upon
exportation, does not make them countervailable.
In response to the petitioners' claim that the GOI makes no attempt to determine the
amount of imported material that is consumed in the production of exported products,
respondents counter that the GOI does maintain such checks which have been verified by
the Department in prior reviews. Respondents note that in prior reviews the Department
has never found excessive imports, and this is one of the reasons why Advance Licenses
have not been found to be countervailable. See 1994 Castings Final.
Respondents refute petitioners' claim that the GOI is concerned only with ensuring that a
sufficient amount of value is added to exported products. According to respondents, the
question of value of exports arises only in determining whether an exporter is eligible to
receive an Advance License. Respondents also rebut petitioners'

*64059

claim that the
GOI does not attempt to determine the grade of pig iron imported or exported. They state if
more expensive grades of pig iron were imported than exported, and the pig iron was sold
for a premium in the domestic market instead of producing exported castings, then the
premium might be a subsidy. However, the respondent companies did not sell domestically
any imported pig iron, rather they used it to produce castings for export. Additionally,
respondents state that if a license was transferred for a fee during the review period, this
might be a subsidy. However, in this review, all the licenses were used to import pig iron
duty free for exported finished castings. Therefore, for these reasons, the Department
should reject the petitioners' arguments regarding the Advance License scheme, and once
again find the program to be a non-countervailable equivalent to duty drawback.

Department's Position

As we have discussed in prior reviews, petitioners have only pointed out the administrative
differences between a duty drawback system and the Advance License scheme used by
Indian exporters. See 1994 Castings Final. Such administrative differences can also be found
between a duty drawback system and a bonded warehouse. Each of these systems has the
same function: each exists so that exporters may import raw materials to be consumed in
the production of an exported product without the assessment of import duties.
The purpose of the Advance License program is to allow a company to import raw materials
used in the production of an exported product without first having to pay duty. Companies
importing under Advance Licenses are obligated to export the products made using the
duty-free imports. Item (i) of the Illustrative List specifies that the remission or drawback of
import duties levied on imported goods that are consumed in the production of an exported
product is not a countervailable subsidy, if the remission or drawback is not excessive.
In prior reviews, we have determined that Advance Licenses are equivalent to duty
drawback. The licenses allow companies to import, net of duty, raw materials which are
physically incorporated into the exported products. Further, we have found no evidence in
this review, or in a prior review, that imports under Advance Licenses have been excessive,
or that castings exporters have transferred such licenses. Accordingly, our determination
that the provision of Advance Licenses is not countervailable remains unchanged for this
review. However, if in a future review of this order, new information becomes available to
the Department in regard to the manner in which the Advance License program operates,
we will reevaluate at that time our determination of the program's non-countervailability.

Comment 9: Countervailability of the Duty Entitlement Passbook Scheme

Petitioners state the GOI has established during this review period the Duty Entitlement
Passbook Scheme (Passbook Scheme) which is related to the Advance Licence scheme.
Petitioners contend that this new scheme extends the export subsidies provided under the
Advance License program and therefore is similarly countervailable. The purpose of the
Passbook Scheme, which commenced in April 1996, is to widen the Advance License
program, giving exporters greater flexibility in paying import duties. See Memo to Barbara
Tillman: Verification of the Government of India's Questionnaire Response in the 1996
Administrative Review at 9, dated June 29, 1998, (public version) on file in the Central
Records Unit of the Department of Commerce (Room B-099) (GOI VR). Upon the
exportation of goods by a Passbook holder, the GOI "calculates, on the basis of standard
input/output norms, the deemed import content of the exports and determines the basic
customs duty payable on those imports." Id. at 8. The Passbook holder, upon receiving
credit for the equivalent amount of the customs duty from the GOI, can "pay the customs
duties on any imported goods," not just the duties on the imported goods from which the
credits were originally determined. Id. at 8.
Consequently, petitioners argue, just as with the Advance License program, the Passbook
Scheme lacks an adequate monitoring system to ensure that the credits provided to
Passbook holders are not excessive. No evidence on the record demonstrates that the GOI
attempts to determine the grade of pig iron either imported or exported in the finished
goods to ensure that the amount of input material exported equals the amount imported.
Moreover, the flexibility exporters have in using the Passbook credits to pay duties on any
imports highlights that the Passbook Scheme is very much unlike a traditional duty
drawback program. Therefore, petitioners assert that the Department should find the
Passbook Scheme countervailable.
Respondents state the Passbook Scheme, like the Advance License program, operates in a
manner equivalent to a duty drawback program allowing for imports of pig iron which is
consumed in the production of exported castings. Therefore, the Passbook Scheme, for the
same reasons as the Advance License program, is not a countervailable subsidy.
Respondents argue that simply because the Passbook Scheme has been referred to as an
"export incentive" does not make it a countervailable subsidy. Duty Drawback of Excise
Duty, the Advance License program, and the Passbook Scheme are all "export incentives"
because they are for exports; however, they are not, as the Department has previously
determined, countervailable subsidies unless they provide excessive rebates.
Respondents further state that if the castings exporters did, in fact, use their Passbook
credits to import products other than pig iron, a subsidy might exist; however, there is no
evidence on the record that this was done by any of the castings exporters. Therefore,
based on the reasons presented, the Department should find the Passbook Scheme, like the
Advance License program, to be a non-countervailable equivalent to the duty drawback
program.

Department's Position

Petitioners first alleged that the Passbook Scheme might be an export subsidy in their May
27, 1998 letter to the Department. See Letter in regard to Pre- verification Comments at 12,
dated May 27, 1998, public version of the letter is on file in the Central Records Unit of the
Department of Commerce (Room B- 099). In accordance with section 351.301(d)(4)(B) of
the Department's regulations, we found the petitioners' allegation of a new export subsidy to
be untimely. See Memo to the File: Untimely Allegations of New Subsidies, dated June 5,
1998 on file in the Central Records Unit of the Department of Commerce (Room B-099).
Because the allegation was untimely, we rejected petitioners' subsidy allegation with respect
to the Passbook Scheme in this review. During the June 1, 1998 verification meeting with
the GOI, the Passbook Scheme was discussed as an extension of the Department's inquiry of
the Advance License program. However, because the Passbook Scheme was not a program
under examination in this review, the Department did not obtain enough information to
analyze whether the scheme is, or is not, a countervailable subsidy. If a future review of this
order is requested by petitioners, we will

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examine whether to initiate on the
Passbook Scheme provided that petitioners file their allegation on a timely basis.

Comment 10: Kajaria's Long-Term Loans From the IDBI

Petitioners assert that the Department erred in the preliminary results of this review by not
addressing the long-term loan assistance which Kajaria Iron Castings (Kajaria) received
from the Industrial Development Bank of India (IDBI). Petitioners argue that the loan
assistance is countervailable because (1) it is provided by the government; (2) it is
export-oriented; (3) it allows a principal repayment holiday; and (4) it is likely provided on
preferential terms.
To begin with, petitioners state, according to the agency's substantive regulations, the
Department will investigate a loan provided by a government- owned bank only when the
"government-owned bank provided the loan at the direction of the government or with
funds provided by the government." See proposed 19 CFR 355.44(b)(9)(ii), 54 FR 23366,
23381 (May 31, 1989). Since the GOI owes 74 percent of the IDBI's shares and 10 out of the
16 IDBI board members are government employees, petitioners contend this criterion is
satisfied. See GOI VR at 10.
Petitioners further assert that evidence on the record demonstrates that the long-term loan
was export-oriented. Petitioners note that during verification Kajaria officials stated that
the company exports all of its merchandise. See Memo to Barbara Tillman: Verification of
Kajaria Iron Castings Ltd.'s Questionnaire Response in the 1996 Administrative Review at 2,
dated June 29, 1998, (public version) on file in the Central Records Unit of the Department
of Commerce (Room B-099) (Kajaria VR).
Petitioners also argue that there is no evidence on the record to demonstrate that Kajaria's
principal repayment schedule is normal with respect to commercial, long-term lending. In
addition, petitioners state that both Kajaria and the GOI failed to demonstrate at
verification that the loan was provided on commercial terms. The GOI simply stated at
verification that "[t]here is no consistency in regard to the interest rates or terms and
conditions offered by banks on long-term financing." See GOI VR at 12. According to
petitioners, it is likely that alternative long-term rates were significantly higher than the
rate Kajaria received, as most of the short-term financing reported by the responding
companies ranged as high as 22 percent. For these reasons, petitioners urge the Department
to countervail the long-term loan assistance which Kajaria received from the IDBI.
Respondents contend that the loans received by Kajaria were not provided on terms
"inconsistent with commercial considerations," which is the criterion for finding such loans
countervailable. See proposed regulations 19 CFR 355.44(b)(9)(ii), 54 FR at 23381.
Respondents assert that a grace period before paying principal is consistent with
commercial, long-term loans. Many commercial loans permit a grace period for repayment
of principal until the facility, for which the loan was taken, is operational. This was, in fact,
the reason for the delayed payment of principal on Kajaria's loan.
With respect to petitioners' argument that there was an "additional benefit" owing to the
interest rate Kajaria paid on the loan, respondents state that short-term loans are more
often than not provided at rates higher than those on long-term loans. Long-term
construction loans are often secured by the facility being built, and this generally results in
lower, not higher rates. Respondents also note that the Reserve Bank of India stated at
verification that commercial long-term rates are "usually lower than both the prime lending
rate and the cash credit rate." See GOI VR at 12.
Further, respondents argue that petitioners' statement that Kajaria's export- orientation
had any bearing on the approval of the loan is pure speculation. Respondents argue that
there is nothing in the loan documents provided by Kajaria or in the company's verification
report to suggest that the loan was contingent upon exports or that Kajaria's
"export-orientation" was taken into account by the lenders. In fact, the IDBI specifically
stated at verification that "the project financing given to Kajaria was not tied to any
expectation of exports." Id. at 11. Therefore, the Department should reject petitioners'
arguments relating to Kajaria's long-term loans provided by the IDBI.

Department's Position

At our verification meeting with Kajaria officials, we inquired about the long-term loans
which the company received from the IDBI. The officials explained that these long-term
loans were received for the construction of a pig iron plant, which commenced production
in February 1998. However there was insufficient time remaining before the scheduled date
of the final results of this review to fully examine Kajaria's long-term financing. Therefore, in
accordance with section 351.311(c)(2) of the Department's regulations, we are deferring an
examination of Kajaria's long-term loans from the IDBI until a future administrative review
of the company is requested.

Final Results of Review

In accordance with 19 CFR 351.221(b)(4)(i), we calculated an individual subsidy rate for
each producer/exporter subject to this administrative review. For the period January 1,
1996 through December 31, 1996, we determine the net subsidy for the reviewed
companies to be as follows:

----------------------------------------------------------------------
Net subsidies--producer/exporter Net subsidy rate--percent
----------------------------------------------------------------------
Calcutta Ferrous Ltd ............................................ 3.48
Carnation Industries Ltd ........................................ 3.32
Commex Corporation .............................................. 5.33
Crescent Foundry Co. Pvt. Ltd ................................... 4.98
Dinesh Brothers Pvt. Ltd ........................................ 3.27
Kajaria Iron Castings Pvt. Ltd .................................. 1.69
Kejriwal Iron & Steel Works Pvt. Ltd ........................... 12.76
Nandikeshwari Iron Foundry Pvt. Ltd ............................. 4.41
Overseas Iron Foundry ........................................... 3.74
R.B. Agarwalla & Company Pvt. Ltd ............................... 3.64
RSI Limited ..................................................... 3.63
Seramapore Industries Pvt. Ltd .................................. 5.54
Shree Rama Enterprise .......................................... 10.85
Super Iron Foundry .............................................. 3.32
Uma Iron & Steel ................................................ 1.38
Victory Castings Ltd ............................................ 3.05
----------------------------------------------------------------------

We will instruct the U.S. Customs Service (Customs) to assess countervailing duties as
indicated above. The Department will also instruct Customs to collect cash deposits of
estimated countervailing duties in the percentages detailed below of the f.o.b. invoice
price on all shipments of the subject merchandise from reviewed companies, entered or
withdrawn from warehouse, for consumption on or after the date of publication of the final
results of this review. As discussed in the 1996 Castings Prelim, the GOI terminated the
PSCFC scheme effective February 8, 1996. All PSCFC loans received by respondents were
repaid in their entirety (principal and interest) during the period of review. We verified that
no residual benefits have been provided or received, and there is no evidence that a
substitute program has been established. Therefore, in determining the cash deposit rates
for the five castings producers/exporters which used the PSCFC program, we have not
included the subsidy conferred by this program during the review period. We

*64061

determine that the cash deposit rates for the reviewed companies are as follows:

----------------------------------------------------------------------
Net subsidies--producer/exporter Net subsidy rate--percent
----------------------------------------------------------------------
Calcutta Ferrous Ltd ............................................ 3.46
Carnation Industries Ltd ........................................ 3.32
Commex Corporation .............................................. 5.33
Crescent Foundry Co. Pvt. Ltd ................................... 4.98
Dinesh Brothers Pvt. Ltd ........................................ 3.22
Kajaria Iron Castings Pvt. Ltd .................................. 1.69
Kejriwal Iron & Steel Works Pvt. Ltd ........................... 12.76
Nandikeshwari Iron Foundry Pvt. Ltd ............................. 4.33
Overseas Iron Foundry ........................................... 3.74
R.B. Agarwalla & Company Pvt. Ltd ............................... 3.53
RSI Limited ..................................................... 3.55
Seramapore Industries Pvt. Ltd .................................. 5.54
Shree Rama Enterprise .......................................... 10.85
Super Iron Foundry .............................................. 3.32
Uma Iron & Steel ................................................ 1.38
Victory Castings Ltd ............................................ 3.05
----------------------------------------------------------------------

Because the URAA replaced the general rule in favor of a country-wide rate with a general
rule in favor of individual rates for investigated and reviewed companies, the procedures
for establishing countervailing duty rates, including those for non-reviewed companies,
are now essentially the same as those in antidumping cases, except as provided for in
section 777A(e)(2)(B) of the Act. The requested review will normally cover only those
companies specifically named. See 19 CFR 351.213(b). Pursuant to 19 CFR 351.212(c), for
all companies for which a review was not requested, duties must be assessed at the cash
deposit rate, and cash deposits must continue to be collected, at the rate previously
ordered. As such, the countervailing duty cash deposit rate applicable to a company can
no longer change, except pursuant to a request for a review of that company. See
Federal-Mogul Corporation and the Torrington Company v. United States, 822 F. Supp. 782
(CIT 1993) and Floral Trade Council v. United States, 822 F. Supp. 766 (CIT 1993)
(interpreting 19 CFR 353.22(e) (now 19 CFR 351.212(c)), the antidumping regulation on
automatic assessment, which is identical to 19 CFR 355.22(g)). Therefore, the cash deposit
rates for all companies, except those covered by this review, will be unchanged by the
results of this review.
We will instruct Customs to continue to collect cash deposits for non-reviewed companies
at the most recent company-specific or country-wide rate applicable to the company.
Accordingly, the cash deposit rates that will be applied to non-reviewed companies covered
by this order will be the rate for that company established in the most recently completed
administrative proceeding conducted under the URAA. See 1994 Castings Final. If such a
review has not been conducted, the rate established in the most recently completed
administrative proceeding pursuant to the statutory provisions that were in effect prior to
the URAA amendments is applicable. See Final Results of Countervailing Duty
Administrative Review: Certain Iron-Metal Castings From India, 61 FR 64676 (December
6, 1996) (1993 Castings Final). These rates shall apply to all non- reviewed companies,
including those companies for which the review is being rescinded, until a review of a
company assigned these rates is requested and completed. In addition, for the period
January 1, 1996 through December 31, 1996, the assessment rates applicable to all
non-reviewed companies covered by this order are the cash deposit rates in effect at the
time of entry.
This notice serves as a reminder to parties subject to administrative protective order (APO)
of their responsibility concerning the disposition of proprietary information disclosed
under APO in accordance with 19 CFR 355.34(d). Timely written notification of
return/destruction of APO materials or conversion to judicial protective order is hereby
requested. Failure to comply with the regulations and the terms of an APO is a sanctionable
violation.
This administrative review and notice are in accordance with section 751(a)(1) of the Act
(19 U.S.C. 1675(a)(1)).
Dated: November 10, 1998.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 98-30856 Filed 11-17-98; 8:45 am]

BILLING CODE 3510-DS-P