[Federal Register Volume 60, Number 38 (Monday, February 27, 1995)]
[Notices]
[Pages 10564-10569]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-4721]
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DEPARTMENT OF COMMERCE.
[C-533-812]
Final Affirmative Countervailing Duty Determination: Certain
Carbon Steel Butt-Weld Pipe Fittings From India
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: February 27, 1995.
FOR FURTHER INFORMATION CONTACT: Susan M. Strumbel, Office of
[[Page 10565]] 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
[[Page 10566]] 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 [[Page 10567]] 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 Sec. 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. [[Page 10568]]
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).
[[Page 10569]] 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