[Federal Register Volume 61, Number 236 (Friday, December 6, 1996)]
[Notices]
[Pages 64676-64687]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-31095]


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DEPARTMENT OF COMMERCE
[C-533-063]


Certain Iron-Metal Castings From India: Final Results of 
Countervailing Duty Administrative Review

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

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

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SUMMARY: On May 22, 1996, the Department of Commerce (the Department) 
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, 1993, through 
December 31, 1993. We have completed this administrative review and 
determine the net subsidy to be zero percent ad valorem for Delta 
Enterprises and Super Iron Foundry, and 5.45 percent ad valorem for all 
other companies. We will instruct the U.S. Customs Service to assess 
countervailing duties as indicated above.

EFFECTIVE DATE: December 6, 1996.

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

SUPPLEMENTARY INFORMATION:

Background

    On May 22, 1996, the Department published in the Federal Register 
(61 FR 25623) the preliminary results of its administrative review of 
the countervailing duty order on certain iron-metal castings from 
India. The Department has now completed this administrative review in 
accordance with section 751 of the Tariff Act of 1930, as amended (the 
Act).
    We invited interested parties to comment on the preliminary 
results. On June 21, 1996, case briefs were submitted by the 
Engineering Export Promotion Council of India (EEPC) and the exporters 
of certain iron-metal castings to the United States (respondents) 
during the period of review (POR), and the Municipal Castings Fair 
Trade Council and its members (petitioners). Company specific comments 
to the Department's preliminary determination were also submitted on 
June 21, 1996, by R.B. Agarwalla & Company, exporter of the subject 
merchandise to the United States during the POR. On June 28, 1996, 
rebuttal briefs were submitted by respondents and petitioners. The 
review covers the period January 1, 1993, through December 31, 1993, 
and involves 14 companies and twelve programs.

Applicable Statute and Regulations

    The Department is conducting this administrative review in 
accordance with section 751(a) of the Act. Unless otherwise indicated, 
all citations to the statute and to the Department's regulations are in 
reference to the provisions as they existed on December 31, 1994. 
However, references to the Department's 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 countervailing duty 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 (URAA). See 60 FR 80 (January 3, 1995).

Scope of the Review

    Imports covered by the 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 
provided by the Government of India, and six producers/exporters of the 
subject merchandise. We followed standard verification procedures, 
including meeting with government and company officials, and 
examination of relevant accounting and 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).

Calculation Methodology for Assessment and Cash Deposit Purposes

    In accordance with Ceramica Regiomontana, S.A. versus United 
States, 853 F. Supp. 431 (CIT 1994), we calculated the net subsidy on a 
country-wide basis by first calculating the subsidy rate for each 
company subject to the administrative review. We then weighed the rate 
received by each company using as the weight its share of total Indian 
exports to the United States of subject merchandise, including all 
companies, even those with de

[[Page 64677]]

minimis and zero rates. We then summed the individual companies' 
weighted rates to determine the weighted-average, country-wide subsidy 
rate from all programs benefitting exports of subject merchandise to 
the United States.
    Since the country-wide rate calculated using this methodology was 
above de minimis, as defined by 19 CFR 355.7 (1994), we proceeded to 
the next step and examined the net subsidy rate calculated for each 
company to determine whether individual company rates differed 
significantly from the weighted-average country-wide rate, pursuant to 
19 CFR 355.22(d)(3). Two companies had significantly different net 
subsidy rates during the review period pursuant to 19 CFR 355.22(d)(3). 
These companies are treated separately for assessment and cash deposit 
purposes. All other companies are assigned the country-wide rate.

Analysis of Programs

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

I. Programs Conferring Subsidies

A. Programs Previously Determined to Confer Subsidies

1. Pre-Shipment Export Financing
    In the preliminary results, we found that this program conferred 
countervailable benefits on the subject merchandise. Our review of the 
record and our analysis of the comments submitted by the interested 
parties, summarized below, has not led us to change our findings from 
the preliminary results. Accordingly, the net subsidies for this 
program remain unchanged from the preliminary results and are as 
follows:

------------------------------------------------------------------------
                     Manufacturer/exporter                       Rate % 
------------------------------------------------------------------------
Delta Enterprises.............................................      0.00
Super Iron Foundry............................................      0.00
Program Rate..................................................      0.13
------------------------------------------------------------------------

2. Post-Shipment Export Financing and Post-Shipment Credit Denominated 
in Foreign Currency (PSCFC)
    In the preliminary results, we found that this program conferred 
countervailable benefits on the subject merchandise. Our review of the 
record and our analysis of the comments submitted by the interested 
parties, summarized below, has not led us to change our findings from 
the preliminary results. Accordingly, the net subsidies for this 
program remain unchanged from the preliminary results and are as 
follows:

------------------------------------------------------------------------
                     Manufacturer/exporter                       Rate % 
------------------------------------------------------------------------
Delta Enterprises.............................................      0.00
Super Iron Foundry............................................      0.00
Program Rate..................................................      1.25
------------------------------------------------------------------------

3. Income Tax Deductions Under Section 80HHC
    In the preliminary results, we found that this program conferred 
countervailable benefits on the subject merchandise. Our review of the 
record and our analysis of the comments submitted by the interested 
parties, summarized below, has not led us to change our findings from 
the preliminary results. Accordingly, the net subsidies for this 
program remain unchanged from the preliminary results and are as 
follows:

------------------------------------------------------------------------
                     Manufacturer/exporter                       Rate % 
------------------------------------------------------------------------
Delta Enterprises.............................................      0.00
Super Iron Foundry............................................      0.00
Program Rate..................................................      3.64
------------------------------------------------------------------------

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

------------------------------------------------------------------------
                     Manufacturer/exporter                       Rate % 
------------------------------------------------------------------------
Delta Enterprises.............................................      0.00
Super Iron Foundry............................................      0.00
Program Rate..................................................      0.04
------------------------------------------------------------------------

B. New Programs Determined To Confer Subsidies

1. Exemption of Export Credit From Interest Taxes
    In the preliminary results, we found that this program conferred 
countervailable benefits on the subject merchandise. Our review of the 
record and our analysis of the comments submitted by the interested 
parties, summarized below, has not led us to change our findings from 
the preliminary results. Accordingly, the net subsidies for this 
program remain unchanged from the preliminary results and are as 
follows:

------------------------------------------------------------------------
                     Manufacturer/exporter                       Rate % 
------------------------------------------------------------------------
Delta Enterprises.............................................      0.00
Super Iron Foundry............................................      0.00
Program Rate..................................................      0.06
------------------------------------------------------------------------

2. Imports Made Under an Advance License Through the Liberalized 
Exchange Rate Management System (LERMS)
    In the preliminary results, we found that this program conferred 
countervailable benefits on the subject merchandise. Our review of the 
record and our analysis of the comments submitted by the interested 
parties, summarized below, has not led us to change our findings from 
the preliminary results. Accordingly, the net subsidies for this 
program remain unchanged from the preliminary results and are as 
follows:

------------------------------------------------------------------------
                     Manufacturer/exporter                       Rate % 
------------------------------------------------------------------------
Delta Enterprises.............................................      0.00
Super Iron Foundry............................................      0.00
Program Rate..................................................      0.33
------------------------------------------------------------------------

We verified that this program was terminated as of February 28, 1993, 
and that there were no residual benefits. See Certain Iron-Metal 
Castings from India: Preliminary Results of Countervailing Duty 
Administrative Review, 61 FR 25623, 25626 (May 22, 1996) (1993 Castings 
Prelim). Because this constituted a program-wide change, the cash 
deposit rate for this program will be zero. See Sec. 355.50 of the 
Proposed Regulations.

II. Programs Found Not To Confer Subsidies

Inward Exchange Remittances Under the Liberalized Exchange Rate 
Management System (LERMS)

    In the preliminary results, we found that this program did not 
confer subsidies during the POR. Our review of the record and our 
analysis of the comments submitted by the interested parties, 
summarized below, has not led us to change our findings from the 
preliminary results.

III. Programs Found To Be Not Used

    In the preliminary results, we found that the producers and/or 
exporters of the subject merchandise did not apply for or receive 
benefits under the following programs:

A. Market Development Assistance (MDA)
B. Rediscounting of Export Bills Abroad
C. International Price Reimbursement Scheme (IPRS)
D. Cash Compensatory Support Program (CCS)

[[Page 64678]]

E. Pre-Shipment Financing in Foreign Currency (PSFC)

Our analysis of the comments submitted by the interested parties, 
summarized below, has not led us to change our findings from the 
preliminary results.

Analysis of Comments

Comment 1

    Petitioners argue that the Department incorrectly used the small-
scale industry (SSI) short-term interest rate published in the Reserve 
Bank of India's (RBI) August 1994 Annual Report to calculate the 
benefit provided to castings exporters under the Pre- and Post-Shipment 
export financing programs. By using the SSI rate, the Department has 
underestimated the full benefit received by castings exporters under 
these programs.
    The SSI rate, petitioners claim, is a preferential loan rate 
regulated by the RBI. Therefore, the Department's benefit calculation 
is skewed, because one preferential lending rate (export financing) is 
being judged against another preferential rate (SSI). Petitioners 
contend that this type of comparison is ``unjust,'' irrespective of 
whether the benchmark rate is provided to a specific industry. 
Petitioners further contend that by relying on its finding in the 1991 
Castings Final Results, the Department again assumes that loans to the 
SSI sector are non-specific within that sector without having made such 
a determination based on record evidence and in accordance with section 
355.43(b)(2)(i) of the Proposed Regulations. According to petitioners, 
the Department's regulations do not permit a program to escape a 
specificity finding, merely because it ``appears'' not to be limited to 
a group of companies.
    Finally, petitioners assert that in selecting a benchmark rate, the 
Department is directed by Sec. 355.44(b)(3)(i) of the Proposed 
Regulations to rely on the predominant source of short-term financing 
in India. Petitioners also cite Royal Thai Government v. United States, 
850 F. Supp. 44, 49 (Ct. Int'l Trade 1994), for the proposition that 
because the rate must be ``representative'' of short-term commercial 
lending, it may not be unreasonably low in comparison to other 
commercial rates. According to petitioners, record evidence indicates 
that the SSI rate is not the predominant source of short-term financing 
in India. Rather, because RBI credit regulations require that 32 
percent of net bank credit to be targeted to priority sectors, 
including the SSI sector, the predominant type of financing appears to 
fall under the 68 percent of financing that is not provided on 
preferential terms.
    Accordingly, petitioners contend that the Department should use the 
``non-specific'' commercial borrowing rate in India as its benchmark in 
the Final Results, as published in the International Monetary Fund's 
International Financial Statistics Yearbook. In 1993 this rate was 
16.25 percent.
    Respondents claim that petitioners have not presented any new 
arguments that should propel the Department to depart from its prior 
findings. According to respondents, the information submitted by 
petitioners concerning the rate published in the IMF Yearbook 
constitutes new and untimely information, and should, therefore, be 
rejected. Respondents contend that statements made by Indian commercial 
bank officials concerning lending rates were ``imprecise,'' and not 
sufficient for setting the benchmark rate. Also, petitioners do not 
demonstrate that SSI loans are in fact specific, but merely indicate 
that the non-specific finding should not be adopted without additional 
investigation of the loans. With respect to statements by commercial 
bank officials that a percentage of net bank credit be targeted to 
certain industry sectors, respondents argue that this merely notes the 
minimum and not the actual amount that was lent to these sectors. 
Accordingly, the Department should reject petitioners arguments, and, 
consistent with its past practice, apply the SSI rate as the benchmark.

Department's Position

    While petitioners may argue that comparing one preferential rate 
against another is ``unjust,'' and that the SSI rate does not represent 
the ``predominant'' source of short-term financing in India, it has 
been the Department's practice to use as a short-term loan benchmark 
for small businesses, the interest rates provided to small businesses, 
even if that benchmark is lower than other commercial interest rates. 
See, e.g., the discussion of the benchmark used in the FOGAIN program 
in Bricks From Mexico, 49 FR 19564 (May 8, 1984). Because castings 
exporters qualify as small-scale industry firms, we have used the 
interest rate for small-scale industries as our benchmark. This has 
been our consistent practice for the export financing programs in this 
and past administrative reviews. See e.g., Final Results of 
Countervailing Duty Administrative Review: Certain Iron-Metal Castings 
from India, 56 FR 52515 (October 21, 1991) (1988 Castings Final), and 
Certain Iron-Metal Castings from India, 60 FR 44843 (August 29, 1995) 
(1991 Castings Final.)
    With respect to petitioners' argument that the Department must 
determine whether loans to the SSI sector are non-specific within that 
sector, it has been the Department's practice not to examine whether a 
program provided to small businesses is specific absent an allegation 
that the assistance under the program is limited to enterprises or 
industries within the universe of small businesses. See, e.g., 
Sec. 355.43(b)(7) of the Proposed Rules, and Textile Mill Products and 
Apparel from Singapore, 50 FR 9840 (March 12, 1985). We have found no 
evidence, and petitioners have not presented any information on the 
record of this review, that would lead us to examine the specificity of 
the SSI loans. As such, we continue to find that the SSI rate is an 
appropriate benchmark to use in the calculation of the benefit under 
the export financing programs. However, new allegations that we are 
investigating in the 1994 administrative review of this case (see 
Memorandum to the File Re: Petitioners' New Allegations (May 29, 1996) 
(public document on file in the public file of the Central Records 
Unit, Room B-099 of the Department of Commerce)) may lead us to 
reconsider the use of the SSI interest rates as the benchmark for the 
export financing programs in that review.

Comment 2

    Petitioners argue that in order to provide a more accurate measure 
of the level of subsidization under the export financing programs, the 
Department should adjust the benchmark interest rate to reflect the 
``effective'' cost of commercial financing in India. In particular, 
certain service charges that the Government of India (GOI) reported as 
adding to the normal cost of commercial borrowing should be added to 
the benchmark rate. This would also be in accordance with the Proposed 
Regulations, which express a preference for a comparison of effective 
interest rates.
    Respondents indicate that the service charges are also applicable 
to export financing. Therefore, if they were added to the benchmark, 
they should also be added to the preferential export financing rate. 
Because this would be a difficult exercise, the Department has always 
correctly used the nominal rates for both the benchmark and the export 
loan interest rates.

Department's Position

    We agree with respondents. There is no indication that the charges 
listed in

[[Page 64679]]

the GOI's questionnaire response are limited to export financing and do 
not apply to domestic commercial lending. According to the GOI, these 
service charges add ``to the cost of normal commercial borrowing'' 
(emphasis added). See GOI Original Questionnaire Response at 9 
(February 22, 1995) (public version on file in the public file of the 
Central Records Unit, Room B-099 of the Department of Commerce). 
Petitioners have not cited any record information that would lead us to 
conclude that the service charges are limited solely to non-export 
financing and that adding them to the cost of commercial borrowing 
would provide a more accurate measure of the level of subsidization 
under the export financing programs. Accordingly, the service charges 
will not be added to the benchmark interest rate.

Comment 3

    Petitioners cite statements made by commercial bank officials and 
other statements by the GOI to support their contention that exporter's 
``effective'' rate of interest under the PSCFC program is much lower 
than the ``nominal'' rate reported in the response and used by the 
Department in its preliminary calculations. Specifically, petitioners 
cite a statement by commercial bank officials that under the PSCFC, 
exporters could lower their cost of borrowing ``by selling the dollar 
value of the export bill at the forward rate to the bank [and] capture 
the forward dollar premium against the rupee.'' See Citibank 
Verification Report at 2 (October 30, 1995) (public version on file in 
the public file of the Central Records Unit, Room B-099 of the 
Department of Commerce). Petitioners argue that by comparing 
``nominal'' subsidized and benchmark interest rates for PSCFC loans, 
the Department is not capturing the full benefit received by castings 
exporters under this program.
    Respondents claim that the practice of booking forward exchange 
rates is not a subsidy. Rather, buying forward is an established 
commercial practice throughout the world and is one method used by 
exporters to hedge against fluctuations in exchange rates. Respondents 
also indicate that exporters may hedge their export bills without using 
the PSCFC program.

Department's Position

    Upon completing verification of the questionnaire responses in this 
administrative review, petitioners submitted comments on the 
verification reports and requested that the Department ask respondents 
to provide further information concerning the forward premium, as well 
as additional programs discussed at verification. See Review of 
Verification Reports in Countervailing Duty Administrative Review for 
1993 (November 29, 1995) (public document on file in the public file of 
the Central Records Unit, Room B-099 of the Department of Commerce). 
After analyzing petitioners' comments on the verification reports, we 
did not request further information from the respondents with respect 
to the forward booking option. We examined petitioners' arguments in 
light of the information on the record which consisted of statements 
made at verification by bank officials and respondent companies. These 
indicated that only one of the fourteen companies under review had 
exercised the forward booking option. In our view, at that time, the 
arguments made by petitioners were insufficient to send out new 
questionnaires and gather new information after verification. 
Accordingly, our preliminary results did not discuss or account for the 
forward premium.
    The comments that petitioners have filed for these final results 
are the same as those filed on the verification reports. Since no new 
factual information has been submitted since the preliminary results, a 
determination cannot be made based on the record evidence of this 
proceeding as to whether and to what extent Indian exporters received 
an even greater benefit under the PSCFC if the program interest rate is 
adjusted to take into account the forward premium.
    However, during the 1994 administrative review, which is ongoing, 
we received timely new subsidy allegations that we are investigating. 
Our investigation of these allegations has led us to reexamine the 
short-term lending practices in India, including how the option of 
booking forward exchange rates operates, and whether and to what extent 
this affects exporters' effective rate of borrowing under PSCFC.

Comment 4

    Petitioners argue that the Department must calculate a benefit for 
the RBI's refinancing practices that it preliminarily determined to be 
countervailable in the 1992 administrative review of this order. 
Petitioners indicate that the Department did not mention this program 
in its preliminary results for this review, although information on the 
record shows that the circumstances with respect to this program have 
not changed.
    According to petitioners, the GOI has, by encouraging private banks 
to lend to the export sector, provided exporters with access to 
preferential funds that they otherwise would not have had available to 
them. Domestic firms did not have access to these preferential funds, 
and the interest rates charged were more preferential than they might 
have been because the GOI's involvement created a greater differential 
between rates of interest available on the market to all Indian firms 
and rates available to the export sector.
    Petitioners cite Certain Steel Products from Korea (Steel), 58 FR 
37,338 (July 9, 1993) and Certain Stainless Steel Cooking Ware from the 
Republic of Korea (Cooking Ware), 51 FR 42,867, 42,868 (1986) as 
support for their contention. Petitioners state that, as the Department 
recognized in Steel and Cooking Ware, when a government encourages 
private banks to target a greater proportion of the finite amount of 
capital that is available to a certain industry (or export sector), 
this leaves fewer funds for the non-targeted sector to borrow. Thus, 
the GOI's provision of refinancing to banks, which encourages banks to 
make more funds available to the export sector than they otherwise 
would have provided, in turn making fewer funds available to the non-
export sector, has the effect of driving up the cost of financing for 
non-exporters. Accordingly, because the GOI's refinancing practices 
constitute an export subsidy, petitioners argue that the Department 
should calculate the benefit conferred by these practices and 
countervail the full amount of the benefit.
    Respondents argue that the Department was correct not to consider 
the GOI's refinancing practices in this administrative review. 
According to respondents, RBI refinancing is not a separate subsidy 
from the Post-Shipment Export Financing, but is, rather, what allows 
the banks to provide preferential post-shipment credit. If the 
Department were to countervail the refinancing, it would be 
countervailing the same subsidy twice. Therefore, the Department should 
find that these practices do not confer countervailable subsidies.

Department's Position

    We disagree with petitioners. Higher rediscount or refinancing 
ratios provided for export loans may indeed encourage commercial banks 
to provide export loans over domestic loans and drive up the cost of 
financing for non-exporters. In such cases, when we determine that a 
program provides a preference for lending to exporters rather than non-
exporters, we must

[[Page 64680]]

determine an appropriate way to measure that preference. Normally, we 
measure the preference by the difference between the interest rates 
charged on the export loans and the higher interest rates charged on 
domestic loans. See, e.g., Cooking Ware, 51 FR at 42868. We only seek 
alternative methodologies when we find that there is no difference 
between the benchmark interest rate on export loans and the interest 
rate on domestic loans. See, e.g., Certain Steel Products from Korea, 
58 FR at 37345. In the 1992 final results of this case, we found that 
the higher refinancing ratios provided on export loans are the 
mechanism that allows the banks to provide the preferential post-
shipment financing. We also agreed with respondents' assertion that 
countervailing the refinancing would result in double-counting the 
benefit from the program. Therefore, we measured the preference as the 
differential between the program interest rate and the benchmark 
interest rate. See Certain Iron-Metal Castings from India; Final 
Results of Administrative Review, (1992 Castings Final), being 
simultaneously published with this notice.
    Petitioners' cites to Steel and Cooking Ware are misplaced. In 
Cooking Ware, we stated that the different rediscount ratios for export 
and domestic loans results in the provision of export financing on 
preferential terms because ``* * * commercial banks have an incentive 
to channel more funds to finance those firms' export transactions and 
fewer funds to finance their domestic transactions.'' Cooking Ware, 51 
FR at 42868. This is consistent with our finding in the 1992 Castings 
Final that the higher refinancing ratios provided on export loans is 
the mechanism and incentive that allows the commercial banks to extend 
the preferential post-shipment financing. However, in Cooking Ware, we 
found that the interest rate on both export and domestic short-term 
loans provided by banks were the same. Therefore, to measure the 
preference for export over domestic loans, we compared the 10 percent 
rate for short-term export loans with a weighted average of short-term 
domestic credit, including credit provided outside the normal banking 
system. We considered this measure the best approximation of what firms 
would pay for export financing if there were not a preference within 
the banking system for providing loans for export transactions. See 
Cooking Ware, 51 FR at 42868. In Steel, we found that the GOK provided 
the steel industry with preferential access to medium- and long-term 
credit from government and commercial banking institutions. We 
determined that, absent the GOK's targeting of specific industries, all 
industries would compete on an equal footing for the scarce credit 
available on the favorable markets. However, because the GOK controlled 
long-term lending in Korea and placed ceilings on long-term interest 
rates, there was a limited amount of capital available, which would 
force companies to resort to less favorable markets. Therefore, we 
determined that the three-year corporate bond yield on the secondary 
market was the best approximation of the true market interest rate in 
Korea.
    In this case, we can measure the preference created by the export 
refinancing using the difference between the interest rates charged on 
export loans and the interest rates charged on domestic loans. This 
approach is consistent with our treatment of export loans provided by 
the Privileged Circuit Exporter Credits Program in Carbon Steel Wire 
Rod from Spain: Final Affirmative Countervailing Duty Determination, 49 
FR 19557 (May 8, 1984). The use of an alternative method for measuring 
the preference is not warranted in this case because the interest rates 
charged on export and domestic loans are not uniform within India. 
Therefore, we have used our standard short-term loan methodology, as 
described in Sec. 355.44(3)(b) of the Proposed Regulations, and have 
not calculated any additional benefit for the higher refinancing ratio 
provided for export loans.

Comment 5

    According to petitioners, there are miscellaneous calculation 
issues relating to respondents use of the export financing programs 
which conceal benefits under these programs. Petitioners cite the RSI 
and R.B. Agarwalla verification reports for their claim that the 
``quarterly billing'' approach for pre-shipment financing is likely to 
conceal interest costs that would otherwise be countervailed. 
Petitioners also contend that the Department must subtract all credits 
posted to company accounts to determine the total net post-shipment 
interest expense incurred during the POR.
    Respondents reject petitioners' argument that the quarterly billing 
approach under the pre-shipment financing program allows castings 
exporters to conceal interest charges. According to respondents, the 
Department has verified the questionnaire response of RSI, R.B. 
Agarwalla, and other castings exporters on numerous occasions and has 
never found that interest charges were being concealed under the pre-
shipment financing program. With respect to interest credits, 
respondents argue that petitioners have misunderstood how the post-
shipment financing program works and that if the credits were deducted 
as suggested by petitioners, the subsidy would be overstated.

Department's Position

    We disagree with petitioners that the quarterly billing method or 
running account facility allows exporters to conceal interest charges. 
Respondents correctly indicate that the Department's verification of 
the pre-shipment export financing program in this and past 
administrative reviews has not revealed that castings exporters are 
concealing interest charges under this program. In the instant review, 
for example, of the four companies that reported utilizing the running 
account facility for pre-shipment interest payments, the Department 
verified the accuracy of the information of three of these, Kajaria, 
R.B. Agarwalla and RSI. As the verification reports for these companies 
attest, we traced the reported interest payments to each company's 
general ledger, bank statements, payment vouchers and financial 
statements. We found that the companies paid the interest actually 
charged by the banks on these loans and that they accurately reported 
in the questionnaire responses the amount of interest paid to the bank.
    Moreover, information presented at verification indicates that the 
quarterly billing method is a normal banking practice afforded to those 
exporters that meet certain criteria. For example, RSI officials stated 
at verification that upon review of a company's creditworthiness, 
Indian commercial banks may establish a line of credit under the pre-
shipment financing program. To secure the loan, exporters must pledge 
their raw materials and works in progress as collateral. RSI officials 
also explained that interest is charged to the company by the bank on 
the last day of each quarter, based on the outstanding balance at the 
end of that period. See RSI Verification Report at 2 (October 30, 1995) 
(public version, on file in the public file of the Central Records 
Unit, Room B-099 of the Department of Commerce).
    With respect to the interest credits on post-shipment export 
financing, we disagree with petitioners. As we explained in the 
preliminary results, under post-shipment financing, commercial banks 
discount export bills for a period of up to 180 days. The interest 
amount, calculated at the

[[Page 64681]]

applicable foreign currency interest rate, is deducted from the total 
amount of the bill, and the exporter's account is credited for the 
rupee equivalent of the net foreign currency amount. If payment from 
the overseas customer is received prior to the due date of the loan, 
exporters will receive a credit in an amount equal to the interest 
calculated over the number of days early payment is made. Therefore, 
castings exporters have appropriately provided post-shipment interest 
payments net of all credits received due to early payment. To do 
otherwise would overstate the benefit received under this program, as 
the higher interest payment would yield a higher absolute benefit on 
those loans which were paid early. Accordingly, these credits have 
appropriately been subtracted by respondent companies.
    At verification, Commex Corporation officials explained that they 
had failed to subtract interest credits for early payment of post-
shipment loans in their questionnaire response. Therefore, after 
tracing the revised loan information through the company's records, and 
calculating the amount of the credit, we accepted these data showing 
interest payments net of all credits received. Post-shipment interest 
payments reported by R.B. Agarwalla, on the other hand, were already 
net of any credits received. See R.B. Agarwalla Verification Report at 
4 (October 30, 1995) (public version, on file in the public file of the 
Central Records Unit, Room B-099 of the Department of Commerce). 
Likewise, the public version of Calcutta Ferrous' post-shipment loan 
sheet indicates that the company subtracted all credits posted to its 
accounts for early payment. For the reasons stated above, we conclude 
that there are no miscellaneous calculation issues as claimed by 
petitioners.

Comment 6

    Petitioners state that the Department improperly failed to 
countervail the value of Advance Licenses, because Advance Licenses are 
export subsidies and not equivalent to duty drawback. According to 
petitioners, Advance Licenses constitute a countervailable subsidy 
within the meaning of Item (a) of the Illustrative List of Export 
Subsidies (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 a license are duty-free, 
petitioners state that such licenses provide a subsidy based on the 
requirement that an export commitment be met.
    Petitioners further claim that the Department has in this and 
previous reviews mistakenly confused the nature of the Advance License 
program with duty drawback programs. According to petitioners, for a 
duty drawback program not to be countervailed, it must meet certain 
conditions 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 physically 
incorporated (making normal allowance for waste) in the exported 
products.'' This condition, according to petitioners, has not been met 
with respect to the Advance License program, because the Indian 
government apparently has made no attempt to determine whether the 
amount of material that is imported duty-free under Advance Licenses is 
at least equal to the amount of pig iron contained in exported subject 
castings, i.e., ``physically incorporated in the exported products.''
    Moreover, petitioners argue that respondents' ability to transfer 
Advance Licenses to other companies under certain conditions is further 
evidence that this program is not the equivalent of a drawback program, 
because the licenses are not limited to use solely for the purpose of 
importing duty-free materials. For these reasons, petitioners state 
that the Department should countervail in full the value of Advance 
Licenses received by respondents during the POR.
    Respondents state that Advance Licenses allow importation of raw 
materials duty free for the purposes of producing export products. They 
state that if Indian exporters did not have Advance Licenses, the 
exporters would import the raw materials, pay duty, and then receive 
drawback upon export. Respondents argue that although Advance Licenses 
are slightly different from a duty drawback system, because they allow 
imports duty free rather than provide for remittance of duty upon 
exportation, this does not make them countervailable. Respondents also 
indicate that if a license had been transferred during the POR, then it 
might have been a subsidy; this did not occur, however.

Department's Position

    As we explained in the 1991 review (see 1991 Castings Final, 60 FR 
at 44846), petitioners have only pointed out the administrative 
differences between a duty drawback system and the Advance License 
scheme used by Indian exporters. Such administrative differences can 
also be found between a duty drawback system and an export trade zone 
or a bonded warehouse. Each of these systems has the same function: 
each exists so that exporters may import raw materials to be 
incorporated into an exported product without the assessment of import 
duties.
    The purpose of the Advance License is to allow an importer 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 
physically incorporated into an exported product is not a 
countervailable subsidy, if the remission or drawback is not excessive. 
We determined that respondents used Advance Licenses in a way that is 
equivalent to a duty drawback scheme. That is, they used the licenses 
in order to import, net of duty, raw materials which were physically 
incorporated into the exported products. Furthermore, we have never 
found that castings exporters have transferred an Advance License. 
Accordingly, our determination that the use of Advance Licenses is not 
countervailable remains unchanged.

Comment 7

    Petitioners claim that the Department has underestimated the 
benefit received by castings exporters under the program that exempts 
export credit from interest taxes. According to petitioners, certain 
companies have received additional export credit, either in the form of 
loans or advances from sources other than Pre- and Post-Shipment export 
financing. In support of their contention, petitioners cite the company 
verification reports and financial statements as well as a GOI 
verification report exhibit that allegedly details a range of export 
credit options available to castings exporters.
    Respondents argue that the information cited by petitioners from 
both the questionnaire responses and verification reports in no way 
indicates that castings exporters received tax exempt export financing 
other than that provided through the Pre- and Post-Shipment lending 
programs. With respect to other export credit options listed in the GOI 
verification report, respondents claim there is no record evidence 
showing that respondents companies used any of these programs during 
the POR.

[[Page 64682]]

Department's Position

    At verification, we traced each company's total interest payments 
listed in the general ledger to the financial statements. We found no 
discrepancies and no evidence that castings exporters had received any 
additional export financing or had utilized other export credit options 
as cited by petitioners. See, e.g., Commex Verification Report at 2 
(October 30, 1995) (public version, on file in the public file of the 
Central Records Unit, Room B-099 of the Department of Commerce). With 
respect to the ``Unsecured Loans'' reported by RSI, the company stated 
at verification that these were ``non-bank loans pertaining to their 
polymer products division.'' We confirmed that none of these were for 
exports of the subject merchandise. See RSI Verification Report at 3 
(October 30, 1995) (public version, on file in the public file of the 
Central Records Unit, Room B-099 of the Department of Commerce). 
Moreover, there is no indication that the short-term loans listed in 
RSI's February 22, 1995, questionnaire response were export-related 
loans. Again, we traced all export financing shown in RSI's general 
ledger to the company's financial statements at verification and found 
no discrepancies. Accordingly, because all export-related financing has 
been accounted for in the Department's calculations for this program, 
we determine that the benefit from the exemption for exporters from the 
tax on loan interest has not been underestimated.

Comment 8

    Petitioners argue that the Department has improperly failed to 
countervail IPRS benefits bestowed on non-subject castings. They state 
that the Department's failure to countervail such subsidies is at odds 
with the language and intent of the countervailing duty law, which 
applies to any bounty or grant whether bestowed directly or indirectly. 
Petitioners further contend that the statute requires Commerce to 
countervail indirect as well as direct subsidies because the benefit 
reduces a respondent's costs, regardless of whether it is paid 
(directly) upon the export of subject castings or (indirectly) upon the 
export of non-subject castings. In either event, petitioners claim, the 
company's costs are equally reduced, thereby conferring the 
countervailable benefit. In support of their contention, petitioners 
cite 19 U.S.C. 1303(a)(1) and Armco, Inc. v. United States, 733 F. 
Supp. 514 (Ct. Int'l Trade) (1990). Petitioners further assert that the 
URAA makes clear that U.S. law continues to countervail benefits that 
are conferred, regardless of ``whether the subsidy is provided directly 
or indirectly on the manufacture, production, or export of 
merchandise.''
    Petitioners further contend that castings exporters can easily 
avoid paying countervailable duties by making no claims for IPRS 
payments on the subject castings, but linking their claims on non-
subject castings. This is possible, according to petitioners, because 
eligibility for IPRS payments is based on the use of domestic pig iron, 
and pig iron is fungible.
    Respondents state that petitioners have misapplied the term 
``indirectly.'' They state that IPRS payments are not ``indirectly'' 
paid on subject castings merely because they are paid to the same 
producer. Respondents argue that there is no benefit--either direct or 
indirect--to the subject merchandise when benefits are paid on other 
products. Respondents state that petitioners are making the ``money is 
fungible'' argument which has never been accepted by the Department. 
They state the Department should not accept this argument now.
    Respondents also object to petitioners' contention that respondents 
are circumventing the countervailing duty law by linking their claims 
to exports of non-subject castings. According to respondents, 
petitioners provide no evidence in support of their assertions. In 
fact, the GOI and respondent companies have been verified numerous 
times, and the Department has never found any indication that claims 
for IPRS were paid on non-subject castings in a way that circumvents 
the countervailing duty law, as claimed by petitioners.

Department's Position

    As we stated in the 1992 Castings Final and the 1991 Castings 
Final, petitioners have misinterpreted the term ``indirect subsidy.'' 
According to petitioners, a reimbursement of costs incurred in the 
manufacture of product B may provide an indirect subsidy upon the 
manufacture of product A. As such, petitioners argue that grants tied 
to the production or export of product B, should also be countervailed 
as a benefit upon the production or export of product A. This is 
clearly at odds with established Department practice with respect to 
the treatment of subsidies, including indirect subsidies. The term 
``indirect subsidies'' as used by the Department refers to the manner 
of delivery of the benefit which is conferred upon the merchandise 
subject to an investigation or review. This is the point the court was 
making in Armco where it was concerned that subsidies not escape being 
countervailed because of certain parent/subsidiary relationships. The 
interpretation proposed by petitioners, that a benefit tied to one type 
of product also provides an indirect subsidy to another product, is not 
within the purview or intent of the statutory language under section 
771(5)(B)(ii).
    The Department's practice with respect to this issue is spelled out 
in our Proposed Regulations. These state that for countervailable 
benefits found to be ``tied to the production or sale of a particular 
product or products, the Secretary will allocate the benefit solely to 
that product or products. If the Secretary determines that a 
countervailable benefit is tied to a product other than the 
merchandise, the Secretary will not find a countervailable subsidy on 
the merchandise.'' Section 355.47(a) of the Proposed Regulations. Tying 
benefits to specific products is established Department practice in the 
administration of the countervailing duty law. See, e.g., Industrial 
Nitrocellulose from France, 52 FR 833 (January 9, 1987); Apparel from 
Thailand, 50 FR 9818 (March 12, 1985); and Extruded Rubber Thread from 
Malaysia, 60 FR 17515 (April 9, 1995). Moreover, we find no merit in 
petitioners' claim that castings exporters can avoid paying 
countervailing duties by shifting their claims for IPRS payments from 
subject to non-subject castings. When claims are filed for IPRS 
payments, the amount of the rebate determined by the GOI is based on 
the contention that 100 percent of the material used in the production 
of the exported good is domestic pig iron. This being the case, it is 
impossible to shift the claims from subject to non-subject merchandise 
because the IPRS payments are based upon 100 percent use of domestic 
pig iron regardless of the actual content of domestic pig iron, 
imported pig iron, or scrap used in the production of the exported 
good.

Comment 9

    According to petitioners, the Department should countervail 
benefits provided to castings exporters under numerous programs found 
during the course of this proceeding. Citing the GOI verification 
report, petitioners claim that the Duty Drawback Scheme (DDS) appears 
to be identical to the Cash Compensatory Support Scheme that the 
Department found countervailable in prior reviews. Given these 
similarities, petitioners state, respondents must prove that the 
drawback under this program is not excessive. According to petitioners, 
the

[[Page 64683]]

record does not establish that the allowable rebate for castings 
exporters is less than the applicable excise rates. Accordingly, the 
Department should calculate a benefit for this program.
    Petitioners further note that Commex Corporation and the GOI have 
not provided sufficient information to show that Commex's Export 
Development Rebate Reserve should not be countervailed. Therefore, 
petitioners contend, the Department should calculate a subsidy benefit 
for this program by dividing the amount listed in the financial 
statements by the company's total exports. If the Department decides 
not to countervail the export reserve, it should determine what it will 
do with this reserve if it is ``used'' in the future.
    Finally, petitioners note from RSI's verification report that the 
company's financial statement refers to a Deferred Export Market 
Development Expenditure and that respondents have not explained whether 
these expenditures are part of a GOI program. Lacking information to 
show affirmatively that this amount should not be countervailed, 
petitioners assert that the Department should calculate a benefit for 
this program. If the Department decides not to countervail the export 
reserve, it should determine what it will do with this reserve if it is 
``used'' in the future.
    With respect to the DDS, respondents argue that the Department long 
ago determined that this was not a subsidy. In support of their 
argument, respondents cite the Department's August 20, 1980, final 
countervailing duty determination. Respondents also claim that 
irrespective of whether Commex's Export Development Rebate Reserve was 
a subsidy, petitioners acknowledge that it was not used during the POR 
and, therefore, cannot be countervailed during the review period. 
Respondents make the same argument concerning RSI's Deferred Export 
Market Development Expenditure. In any case, the Department noted in 
RSI's verification report that the deferred expenditure was not related 
to subject castings, and, as such, cannot be a subsidy benefiting 
castings exported to the United States.

Department's Position

    We disagree with petitioners that there are additional programs 
that should be countervailed during this proceeding. First, with 
respect to the DDS, we noted in our May 14, 1996, Memorandum to the 
File Re: Duty Drawback of Excise Taxes Program (public document on file 
in the public file of the Central Records Unit, Room B-099 of the 
Department of Commerce) that this program had been examined during the 
investigation. At that time, we found that the rebate of excise taxes 
on domestically sourced pig and scrap iron consumed in the production 
of exported goods was non-excessive, and, therefore, did not confer 
countervailable benefits. During the verification of the questionnaire 
responses for this administrative review, we again found that the duty 
drawback claimed for excise taxes paid on domestically sourced pig iron 
was not excessive. See e.g., Commex Corporation Verification Report at 
3-4 (October 30, 1995) (public version on file in the public file of 
the Central Records Unit, Room B-099 of the Department of Commerce). 
Therefore, our original determination for this program has not changed.
    With respect to the Export Development Rebate Reserve and the 
Deferred Export Market Development Expenditure, we verified that these 
were not used during this POR and, accordingly, cannot be 
countervailed. See, e.g., RSI Verification Report at 4 (October 30, 
1995), and Commex Corporation Verification Report at 4 (October 30, 
1995) (public versions on file in the public file of the Central 
Records Unit, Room B-099 of the Department of Commerce).

Comment 10

    According to respondents, the Department incorrectly found that 
sales of import licenses by Kejriwal during the POR conferred 
countervailable benefits on exports of subject castings. Respondents' 
claim that Kejriwal's August 14, 1995, supplemental questionnaire 
response clearly indicates that the licenses sold by the company during 
the POR were earned on sales other than exports of the subject 
merchandise to the United States. Respondents argue that in the absence 
of verification of the company or other record evidence demonstrating 
that the licenses were tied to subject castings, the Department should 
not consider these licenses to have benefited Kejriwal's exports of the 
subject merchandise to the United States.
    Petitioners argue the respondents' claim should be rejected because 
the record does not demonstrate that the licenses sold by Kejriwal 
during the POR were received only in connection with non-subject 
merchandise. According to petitioners, respondents' argument that these 
licenses are tied to non-subject castings rests upon Kejriwal's 
ambiguous statement in its supplemental questionnaire response that 
``[t]he licenses sold * * * was [sic] obtained on total exports less 
exports of subject merchandise to the U.S.A.'' Petitioners claim that 
this statement is not only unsupported by record evidence but 
contradicts other evidence. In its original questionnaire response, 
Kejriwal stated that the licenses sold during the POR were Special 
Replenishment and Additional Licenses. The Department found in its 
preliminary determination of this administrative review that receipt of 
Special and Additional Licenses is based on a company's overall export 
performance and that these licenses cannot be tied to specific export 
shipments. Accordingly, respondents' claim that these licenses were 
tied to exports other than subject castings is inconsistent with the 
stated purpose of these licenses. Therefore, petitioners contend that 
record evidence fully support the Department's determination to 
countervail the licenses sold by Kejriwal during the POR.

Department's Position

    We disagree with respondents. In this and past administrative 
reviews of this order, we found that receipt of Additional and Special 
Licenses was based on a company's export performance for all exports 
and that these licenses could not be tied to specific sales. See, e.g., 
1991 Castings Final, 60 FR at 44843. Where a benefit is not tied to a 
particular product, it is the Department's practice to allocate the 
benefit to all products exported by a firm where the benefit received 
is pursuant to an export program. See Sec. 355.47(c) of the Proposed 
Regulations. Accordingly, where we have found that castings exporters 
sold licenses that could not be tied to specific sales, we determined 
that the sale benefited the company's entire export sales. During this 
administrative review, we verified that Additional and Special Licenses 
could be received only on the basis of a company's total export 
performance. Therefore, Kejriwal's statement that ``[t]he licenses sold 
* * * was [sic] obtained on total exports less exports of subject 
merchandise to the U.S.A.,'' does not constitute sufficient new 
evidence to overturn our earlier finding. Moreover, the mere fact that 
a company may choose not to include exports to the United States in 
applying for a license does not in any way demonstrate that the sale of 
such licenses cannot benefit exports to the United States. See, e.g., 
Extruded Rubber Thread from Malaysia; Final Results of Countervailing 
Duty Administrative Review, 61 FR 55272, 55276 (October 25, 1996). 
Therefore, our determination that the sale of these licenses benefits 
Kajaria's total export

[[Page 64684]]

sales, including the subject merchandise, remains unchanged.

Comment 11

    Respondents contest the Department's use of a rupee-loan interest 
rate, adjusted for exchange rate changes, as the benchmark to calculate 
the benefit on PSCFC loans. According to respondents, this is 
inconsistent with item (k) of the ``Illustrative List of Export 
Subsidies,'' annexed to the GATT Subsidies Code. Item (k) provides that 
an ``export credit'' is a subsidy only if those credits are granted by 
governments at interest rates below the cost of funds to the 
government. Because the Indian commercial banks providing PSCFC loans 
could themselves borrow at LIBOR-linked rates, the appropriate 
benchmark, respondents claim, is a LIBOR-linked interest rate. 
Accordingly, PSCFC loans should not be considered beneficial to the 
extent that they are provided at rates below the appropriate benchmark, 
i.e., the rate at which Indian commercial banks could borrow U.S. 
dollars.
    According to petitioners, the Department has consistently rejected 
the ``cost-to-government'' methodology of item (k), because that 
approach does not adequately capture the benefits provided under short-
term financing programs. In support of their argument, petitioners cite 
the Department's determinations in Extruded Rubber Thread from 
Malaysia; Final Results of Countervailing Duty Administrative Review, 
60 FR 17515, 17517 (1995) and Certain Textile Mill Products from 
Mexico; Final Results of Countervailing Duty Administrative Review, 56 
FR 12175, 12177 (1991). Petitioners also cite 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 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 msut [sic] use a 
commercial benchmark to calculate the benefit from a subsidy, 
consistent with the full definition of ``subsidy'' in the statute.

See 54 FR 36841, 36843 (1989). According to petitioners, the 
Department's repudiation of the ``cost-to-government'' standard 
contemplated in item (k) was upheld and restated in the Statement of 
Administrative Action: Agreement on Subsidies and Countervailing 
Measures, H. Doc. No. 316, 103d Cong., 2d Sess. (1994). For these 
reasons, the Department should reject respondents' argument and adopt 
as a benchmark a non-preferential interest rate based on the 
``predominant'' form of short-term financing in India.

Department's Position

    We disagree with respondents that the Department should use a 
LIBOR-linked interest rate as an appropriate benchmark for the PSCFC 
program. In determining whether a short-term export loan is 
preferential and confers countervailable benefits, the Department's 
practice has been to compare the amount of interest paid by a company 
for the loan with the amount the firm would have paid on a benchmark 
loan. In the case of short-term financing, the Department is instructed 
to use as a benchmark

    * * * the average interest rate for an alternative source of 
short-term financing in the country in question. In determining this 
benchmark, the Secretary normally will rely upon the predominant 
source of short-term financing in the country in question.
See Sec. 355.44(b)(3)(i) of the Proposed Regulations, 54 FR at 23380 
(emphasis added). In the preamble to the Proposed Regulations, we 
explained that ``the purpose of the comparison is to determine what a 
firm's cost of money would be absent the allegedly countervailable 
government loan.'' 54 FR at 23369.
    In this case, we have determined that the predominant source of 
short-term financing in India is financing for the SSI sector at 
interest rates defined by the RBI. See, e.g., 1991 Castings Final, 60 
FR 44843. We also found that PSCFC loans are limited only to exporters, 
and only exporters have access to LIBOR-linked interest. Therefore, as 
explained in Sec. 355.44(b)(1) of the Proposed Regulations, because the 
amount paid by exporters on PSCFC loans is less than what a firm would 
pay for benchmark loans, we determined that PSCFC loans confer 
countervailable benefits. Because we found that PSCFC loans are limited 
to exporters and that non-exporters do not have access to these low-
cost financing rates, LIBOR-linked interest rates clearly do not 
represent the predominant source of short-term financing in India. The 
fact that commercial banks may borrow at LIBOR-linked rates is, 
therefore, irrelevant to our finding.
    Furthermore, petitioners correctly note that the Department has 
consistently rejected the ``cost-to-government'' standard of item (k) 
of the Illustrative List, which respondents cite in support of their 
argument that the appropriate benchmark for PSCFC loans should be a 
LIBOR linked interest rate. The cost-to-government standard 
contemplated in item (k) does not limit the United States in applying 
its own national countervailing duty law to determine the 
countervailability of benefits on goods exported from India. See, e.g., 
Porcelain-on-Steel Cookingware From Mexico; Final Results of 
Countervailing Duty Administrative Review, 57 FR 562 (January 7, 1992). 
Therefore, in compliance with the U.S. countervailing duty law and the 
Department's past practice, we will continue to use as a benchmark the 
``predominant'' source of short-term financing in India to determine 
whether PSCFC loans confer countervailable benefits upon exports of the 
subject merchandise to the United States.

Comment 12

    According to respondents, the Department correctly adjusted the 
discounted benchmark interest rate for exchange rate changes. 
Respondents claim, however, that this adjustment is erroneous when it 
increases the benchmark, because the benchmark interest rates cannot be 
higher than the rate at which exporters could otherwise have borrowed.
    Petitioners contend that respondents fail to understand that the 
discounted benchmark could only be capped if PSCFC loans were 
denominated in rupees. However, the adjustment was made because these 
loans were dollar denominated. Accordingly, the Department correctly 
determined that on dollar terms the appropriate benchmark on these 
foreign currency loans did not equal the non-adjusted benchmark.

Department's Position

    Respondents' assertion that the benchmark rate for PSCFC loans 
should be capped is incorrect. The discounted benchmark interest rate 
reflects the predominant source of short-term rupee financing in India. 
As we explained in the preliminary results, we have adjusted this 
benchmark because we were unable to find a foreign currency interest 
rate to use as a benchmark. Accordingly, we adjusted the benchmark for 
changes in the rupee/dollar exchange rate, thereby converting the rupee 
benchmark into a foreign currency benchmark. See 1993 Castings Prelim, 
61 FR at 25625. If the benchmark increased beyond the rupee rate, that 
merely reflected the effect of currency movements on the interest rate 
and the exporter's alternative cost of borrowing. Accordingly, the 
benchmark should not be capped at the rupee rate

[[Page 64685]]

because the rupee interest rate was not the exporter's alternative cost 
of borrowing. Therefore, our determination in the preliminary results 
remains unchanged.

Comment 13

    According to respondents, for purposes of Section 80HHC, earnings 
from the sale of licenses are considered export income which may be 
deducted from taxable income to determine the tax payable by the 
exporter. Therefore, because proceeds from the sale of licenses are 
also part of the deductions under Section 80HHC, to countervail this 
revenue and the deduction results in double counting the subsidy from 
the sale of licenses. Respondents also contend that the Department is 
double counting the subsidy from the export financing programs. The 
financing programs reduce the companies' expenses in financing exports, 
which in turn increases profits on export sales. Because the 80HHC 
deduction increases as export profits increase, the financing programs 
increase the 80HHC deduction. Therefore, respondents argue, 
countervailing the financing programs and the 80HHC deduction means the 
benefit to the exporter is countervailed twice.
    In the 1991 final results of this case, the Department argued that 
adjusting the benefit from 80HHC for other subsidies is not a 
permissible offset under section 771(6) of the Act. Under section 
771(6), deductions are allowed because they represent actual costs to 
the exporter which lessen the benefit on the subsidy to the exporter. 
Respondents claim that section 771(6) of the Act is irrelevant to this 
issue, because it does not deal with the potential double counting of 
subsidies. With respect to the Department's policy to disregard the 
secondary tax effects of countervailable subsidies, respondents assert 
that this is also irrelevant in this case. According to respondents, 
the issue is whether the same subsidy is being countervailed twice 
(once because it provides a direct countervailable benefit and once 
because it makes up part of a tax deduction), and not whether the 
``after tax benefit'' is somehow less than the nominal benefit.
    According to petitioners, respondents' argument that the interest 
saved under the export financing programs and the proceeds from license 
sales are included in the Section 80HHC deduction is not supported by 
any record information. Respondents also offer no support for their 
claim that these programs increase the exporter's profits. Petitioners 
state that respondents err in equating revenues with profits, because 
profit is reached only at the point that revenues exceed costs. 
Respondents have not identified any record information indicating that 
castings exporters' receipt of concessional financing directly results 
in their revenues exceeding costs.
    Moreover, petitioners argue that even if countervailing proceeds 
from the sale of licenses and concessional export credit had some 
effect on the amount of the Section 80HHC deduction, it would not be an 
allowable offset under the countervailing duty law. Also, because these 
effects would be secondary, they would not be permissible. Therefore, 
the Department should use the same methodology for calculating the 
benefit from these programs as it used in its analysis for the 
preliminary results of review.

Department's Position

    Contrary to respondents' arguments, the same subsidy is not being 
countervailed twice. The 80HHC income tax exemption is a separate and 
distinct subsidy from the pre- and post-shipment export financing 
subsidy and the sale of import licenses subsidy. The pre- and post-
shipment financing programs permit exporters to obtain short-term loans 
at preferential rates. The benefit from that program is the difference 
between the amount of interest the respondents actually pay and the 
amount of interest they would have to pay on the market. The interest 
enters the accounts as an expense or cost, just like hundreds of other 
expenses. There is no way to determine what effect a reduced interest 
expense has on a company's profits because there are so many variables 
(not just countervailable subsidies) that enter into, and affect, a 
company's costs. In order to consider the effect that such reduced 
interest expense would have on profits, all of the other variables that 
affect profits (all other revenues and expenses) would have to be 
isolated.
    Similarly, the revenue from the sale of import licenses is 
considered to be a grant to the company, and that grant constitutes the 
benefit. The revenue a company receives from the sale of the licenses 
may enter the accounts as income, or it may enter the accounts as a 
reduction in costs. Because all the income and expenses from all 
sources enters into the calculation of a company's profit (or loss), 
there is no way to determine what effect the countervailable grant has 
on a company's profit.
    Respondents suggest that the Department attempt to isolate the 
effect of the countervailable grants and loans on the company's profits 
and, once that effect is determined, alter the measurement of the 
benefit of the 80HHC program to reflect the effect of the 
countervailable grants and loans. As stated in the Proposed Regulations 
under section 355.46(b), this is something the Department does not do; 
``In calculating the amount of countervailable benefit, the Secretary 
will ignore the secondary tax consequences of the benefit.'' To factor 
in the effect of other subsidies on the calculation of the benefit from 
a separate subsidy undermines the principle that we do not, and are not 
required to, consider the effects of subsidies on a company's profits 
or financial performance.
    In all of the cases where we have actually examined both grant and 
loan programs, as well as income tax programs (either exemptions or 
reductions), this principle has been applied even though it has not 
been expressly discussed. For example, in the Final Affirmative 
Countervailing Duty Determinations: Certain Steel Products From 
Belgium, 58 FR 37273 (July 29, 1993), the Department found cash grants 
and interest subsidies under the Economic Expansion Law of 1970 to 
constitute countervailable subsidies. 58 FR at 37275-37276. At the same 
time, the Belgian government exempted from corporate income tax grants 
received under the same 1970 Law. 58 FR at 37283. The Department found 
the exemption of those grants from income tax liability to be a 
countervailable subsidy. Id. Significantly, it did not examine the tax 
consequences of the tax exemption of the grants. See also Final 
Affirmative Countervailing Duty Determination: Certain Pasta From 
Turkey, 61 FR 30366 (June 14, 1996), and Final Affirmative 
Countervailing Duty Determination and Countervailing Duty Order; 
Extruded Rubber Thread From Malaysia, 57 FR 38472 (Aug. 25, 1992).
    In this case, because all companies' profits are taxable at the 
corporate tax rate, an exemption of payment of the corporate tax for 
specific enterprises or industries constitutes a countervailable 
subsidy. The amount of the benefit is equal to the amount of the 
exemption. The countervailable grant may or may not have contributed to 
the taxable profits, but the grant does not change the amount of the 
exemption that the government provided, and countervailing the tax 
exemption does not overcountervail the grant.
    Respondents claim that they are not asking us to consider the 
secondary tax consequences of subsidies--yet they are asking us to 
consider the effect of the grant and loan subsidies in the

[[Page 64686]]

valuation of the tax subsidy. As stated above, we do not adjust the 
calculation of the subsidy to take into consideration the effect of 
another subsidy. This would be akin to an offset, and the only 
permissible offsets to a countervailable subsidy are those provided 
under section 771(6) of the Act. Such offsets include application fees 
paid to attain the subsidy, losses in the value of the subsidy 
resulting from deferred receipt imposed by the government, and export 
taxes specifically intended to offset the subsidy received. Adjustments 
which do not strictly fit the descriptions under section 771(6) are 
disallowed. (See, e.g., Final Affirmative Countervailing Duty 
Determination and Countervailing Duty Order: Extruded Rubber Thread 
from Malaysia 57 FR 38472 (August 25, 1992).)
    It is clear that the 80 HHC program is an export subsidy; it 
provides a tax exemption to exporters that other companies in the 
economy do not receive. This is not a secondary consequence of a grant 
or loan program. Rather it is the primary consequence of a particular 
government program designed to benefit exporters. Just as we do not 
consider the effect of the standard tax regime on the amount of the 
grant to be countervailed, we do not consider the effect of other 
subsidy programs on the amount of tax exemption to be countervailed. 
Accordingly, we continue to find these programs to be separate and 
distinct subsidies and to find that no adjustment to the calculation of 
the subsidy for any of the programs is necessary.

Comment 14

    According to respondents, each type of payment received under the 
IPRS, CCS, the sales of licenses, and another program involving duty 
drawback, is considered export income and is, therefore, deducted from 
taxable income under 80HHC. Accordingly, because revenues from the CCS, 
IPRS, duty drawback, and sales of licenses are not related to, and were 
not earned on exports of subject castings to the United States, they 
should not be included in the calculation of 80HHC benefits. 
Respondents claim they are not suggesting that the Department offset 
the 80HHC subsidy, which would be impermissible under section 771(6) of 
the Act; nor are they asking the Department to disregard secondary tax 
effects. Rather, respondents maintain that because the income does not 
relate to subject castings at all, the unpaid tax on this income cannot 
be a subsidy benefitting the subject merchandise.
    Petitioners assert that the Department properly countervailed the 
benefits received under the 80HHC program, because it provides a 
subsidy associated with the export of all goods and merchandise. 
Petitioners further state that no new information has been provided in 
this review to suggest that the Department should modify its method for 
calculating the benefit under this program. Accordingly, the 
Department's final determination should continue to fully countervail 
80HHC benefits.

Department's Position

    We disagree with respondents' assertion that we incorrectly 
calculated the benefit provided under the 80HHC program. In the case of 
programs where benefits are not tied to the production or sale of a 
particular product or products, it is our practice to allocate the 
benefit to all products produced by the firm. See e.g., Final 
Affirmative Countervailing Duty Determination: Certain Pasta 
(``Pasta'') from Turkey, 61 FR 30366, 30370 (June 14, 1996). Because 
the 80HHC program is an export subsidy, we appropriately allocated the 
benefit over total exports. We have used this methodology to calculate 
benefits from the 80HHC program in previous reviews of this order. See 
e.g., 1991 Final Results, and our response to comment 13, above.

Comment 15

    Respondents argue that the Exemption of Export Credit from Interest 
Taxes program should not be viewed as a subsidy to castings exporters, 
because this merely enables the banks to provide export financing at a 
lower interest rate. According to respondents, because the lower 
interest rate is the subsidy, the interest tax exemption is subsumed in 
the subsidy relating to the lower interest rate on export loans.
    Petitioners argue that respondents have not provided any record 
evidence to support their claim that interest tax exemption is subsumed 
in the preferential export credit rates. According to petitioners, 
respondents' assumption is unfounded, because it is the RBI, and not 
Indian commercial banks, that sets the level of subsidized interest 
rates in India. Furthermore, the Department noted in the preliminary 
results notice that the interest tax is passed on to borrowers by 
commercial banks. Therefore, petitioners contend, the Department 
correctly found that the interest tax exemption constituted an 
additional benefit for castings exporters.

Department's Position

    Contrary to respondents' claim, there is no relationship between 
the interest tax and commercial banks' ability to extend financing at 
preferential rates to Indian exporters. In our preliminary results, we 
found that the GOI charges a three percent tax on all interest accruing 
from borrowers. As of April 1, 1993, however, the GOI exempted from the 
interest tax all interest accruing on export loans and advances made to 
an exporter. See 1993 Castings Prelim, 61 FR at 25625. Our finding that 
this exemption conferred countervailable benefits upon exporters was 
based on the fact that the interest tax was passed on to borrowers in 
its entirety. Because the interest tax is passed on by commercial 
banks, the effective cost of borrowing for the exporter increases. The 
exemption for exporters, however, relieves them of this additional 
liability. Accordingly, their cost of borrowing is lower than that for 
non-exporters, interest rates notwithstanding. Respondents' contention 
that the ``interest tax exemption is subsumed in the subsidy relating 
to the lower interest rate on export loans'' is incorrect and not 
supported by record evidence. Petitioners correctly note that the 
interest rate structure in India is regulated by the RBI, which 
announces periodically the interest rates commercial banks must charge 
on export financing. The interest tax does not in any way influence 
these rates, but is, rather, an additional cost to borrowers from which 
exporters are exempt.

Comment 16

    According to respondents, argued collectively and by R.B. Agarwalla 
individually, the Department over-calculated the subsidy found as a 
result of imports made under an Advance License, because it failed to 
deduct revenue lost from export sales of subject castings due to LERMS. 
Respondents argue that exporters could purchase pig iron under an 
Advance License at two exchange rates, the higher market rate and the 
lower official rate. However, they also argue that under the LERMS, the 
exporters lost revenue on the exports produced with the imported pig 
iron, because payment for the export sale was converted into rupees at 
dual exchange rates: 60 percent at the higher market rate and 40 
percent at the lower government-controlled rate. The revenue lost from 
the exchange at the lower rate, respondents contend, should be deducted 
from the benefit calculated by the Department under this program. In 
its brief, R.B. Agarwalla provided an attachment detailing its ``loss 
due to LERMS'' on the company's exports of subject castings to the 
United States.

[[Page 64687]]

    According to petitioners, the Department noted in its preliminary 
results notice that during 1993 all export earnings, regardless of 
whether inputs were imported under an Advance License, were subject to 
the same LERMS treatment, i.e., remitted at the dual exchange rates. In 
light of this, petitioners contend that respondents' argument should be 
rejected, because they have not explained why this non-targeted 
treatment under LERMS should provide a basis for an offset to the 
benefit provided under the Advance License scheme.

Department's Position

    We disagree with respondents. In the preliminary results, we 
explained that during 1993, while the LERMS was still in effect, all 
imports had to be purchased at the market exchange rate, with the 
exception of goods imported under an Advance License. Under this 
scheme, 40 percent of the value of imported goods could be paid for at 
a lower rate of exchange. Because Advance Licenses are issued to 
companies based on their status as exporters, we determined that the 
provision under LERMS allowing exporters with Advance Licenses to 
import goods at exchange rates more favorable than those available to 
non-exporters constitutes an export subsidy. See 1993 Castings Prelim, 
61 FR at 25626.
    Respondents' claim that the exporters ``lost revenue'' on exports 
produced with goods imported under an Advance License is misleading and 
does not correspond to the facts. Prior to the implementation of the 
LERMS, all export earnings were converted at a single exchange rate, 
the official government rate, which corresponds to the lower government 
rate at which 40 percent of export earnings were exchanged under the 
LERMS. Accordingly, the GOI's liberalization of the foreign currency 
markets provided exporters with increased export earnings, as only 40 
percent of remittances were converted at the lower official rate after 
implementation of the LERMS. Moreover, as we stated in the preliminary 
results, under the LERMS, all export earnings were remitted at the 
60:40 exchange rates. Accordingly, there was no discrimination in the 
application of the LERMS among exporters. Thus, there is no basis for 
considering that the exchange rates applied to export earnings 
constitute an offset for the exchange rates applied to imports. For the 
above reasons, our findings for this program remain unchanged.

Final Results of Review

    For the period January 1, 1993 through December 31, 1993, we 
determine the net subsidy to be zero percent for Delta Enterprises and 
Super Iron Foundry and 5.45 percent ad valorem for all other companies. 
In accordance with 19 CFR 355.7, any rate less than 0.5 percent ad 
valorem is de minimis.
    The Department will instruct the U.S. Customs Service to assess the 
following countervailing duties:

------------------------------------------------------------------------
                     Manufacturer/exporter                        Rate  
------------------------------------------------------------------------
Delta Enterprises.............................................      0.00
Super Iron Foundry............................................      0.00
All Other Companies...........................................      5.45
------------------------------------------------------------------------

    The Department will also instruct the U.S. Customs Service to 
collect a cash deposit of estimated countervailing duties of zero 
percent of the f.o.b. invoice price on all shipments of the subject 
merchandise from Delta Enterprises and Super Iron Foundry, and 5.13 
percent ad valorem of the f.o.b. invoice price on all shipments of the 
subject merchandise from all other companies, entered, or withdrawn 
from warehouse, for consumption on or after the date of publication of 
the final results of this review.
    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 C.F.R. 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)) and 19 CFR 355.22.

    Dated: November 27, 1996.
Robert S. LaRussa,
Acting Assistant Secretary for Import Administration.
[FR Doc. 96-31095 Filed 12-5-96; 8:45 am]
BILLING CODE 3510-DS-P