[Federal Register Volume 61, Number 236 (Friday, December 6, 1996)]
[Notices]
[Pages 64687-64693]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-31106]


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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.

SUMMARY: On August 29, 1995, 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, 1992 to 
December 31, 1992. We have completed this review and determine the net 
subsidies to be 0.00 percent ad valorem for Dinesh Brothers, Pvt. Ltd., 
13.99 percent for Kajaria Iron Castings Pvt. Ltd., and 6.02 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: Elizabeth Graham or Marian Wells, 
Import Administration, International Trade Administration, U.S. 
Department of Commerce, 14th Street and Constitution Avenue, N.W., 
Washington, D.C. 20230; telephone: (202) 482-4105 or 482-6309, 
respectively.

SUPPLEMENTARY INFORMATION:

Background

    On August 29, 1995, the Department published in the Federal 
Register (60 FR 44839) 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 September 28, 1995, case briefs were submitted by the 
Municipal Castings Fair Trade Council (MCFTC) (petitioners), and the 
Engineering Export Promotion Council of India (EEPC) and individually-
named producers of the subject merchandise that exported iron-metal 
castings to the United States during the review period (respondents). 
On October 5, 1995, rebuttal briefs were submitted by the MCFTC and the 
EEPC. The comments addressed in this notice were presented in the case 
and rebuttal briefs.
    The review covers the period January 1, 1992 through December 31, 
1992. The review involves 14 companies (11 exporters and three 
producers of the subject merchandise) and the following programs:

(1) Pre-Shipment Export Financing
(2) Post-Shipment Export Financing

[[Page 64688]]

(3) Income Tax Deductions under Section 80HHC
(4) Import Mechanisms
(5) Advance Licenses
(6) Market Development Assistance
(7) International Price Reimbursement Scheme (IPRS)
(8) Falta Free Trade Zones and Other Free Trade Zones Program
(9) Preferential Freight Rates
(10) Preferential Diesel Fuel Program
(11) 100 Percent Export-Oriented Units Program
(12) Cash Compensatory Support Program (CCS)

Applicable Statute and Regulations

    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 Rules), 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 Rules 
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 (Jan. 3, 1995).

Scope of the Review

    Imports covered by the 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.

Calculation Methodology for Assessment and Cash Deposit Purposes

    Pursuant to Ceramica Regiomontana, S.A. v. United States, 853 F. 
Supp. 431, 439 (CIT 1994), Commerce is required to calculate a country-
wide CVD rate, i.e., the all-others rate, by ``weight averaging the 
benefits received by all companies by their proportion of exports to 
the United States, inclusive of zero rate firms and de minimis firms.'' 
Therefore, we first calculated a subsidy rate for each company subject 
to the administrative review. We then weighted the rate received by 
each company using its share of U.S. exports to total Indian exports to 
the United States of subject merchandise. 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.
    Because 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 (Kajaria and Dinesh) received 
significantly different net subsidy rates during the review period. 
These companies would be treated separately for assessment and cash 
deposit purposes, while all other companies would be assigned the 
weighted-average country-wide rate. However, because this notice is 
being published concurrently with the final results of the 1993 
administrative review, the 1993 administrative review will serve as the 
basis for setting the cash deposit rate.

Analysis of Comments

Comment 1

    Petitioners argue that the Department must calculate a benefit for 
the Reserve Bank of India (RBI) refinancing practices that it 
preliminarily determined to be countervailable. Petitioners assert that 
the Government of India (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 Oil Country Tubular Goods from Korea (OCTG), 
49 FR 46,776, 46,777, 46,784 (November 28, 1994) as support for their 
contention. Petitioners state that, as the Department recognized in 
Steel and OCTG, 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-export 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.
    Petitioners assert that even if potential benchmark rates are 
inflated due to the refinancing program, a substantial gap still exists 
between the benchmark rates and the refinancing rates. They cite the 
benchmark used in the preliminary results (15 percent) as well as a 
lending rate listed in the International Financial Statistics Yearbook 
(18.92 percent) which are both much higher than the refinance rates (11 
and 5.5 percent). They assert that the Department should use the 18.92 
percent rate because the RBI rate used in the preliminary results (15 
percent) underestimates the benchmark rate.
    Respondents contend that the RBI refinancing is not a separate 
subsidy from the Post-Shipment Export Financing, and hence should not 
be countervailed. They argue that the refinancing is what allows the 
banks to give the preferential post-shipment credit and if the 
Department were to countervail the refinancing, it would be 
countervailing the same subsidy twice. They add that petitioners' 
concern over the fact that the refinancing rates are lower than other 
rates in India is without merit. Respondents state that refinancing 
rates between central banks and commercial banks are always lower than 
rates charged by commercial banks to non-bank customers.

Department's Position

    Petitioners are correct when they assert that higher rediscount or 
refinancing ratios provided for export loans may encourage commercial 
banks to provide export loans over domestic loans and drive up the cost 
of financing for non-exporters. See section 771(5)(A)(ii) of the Act. 
In such cases, when we determine that a program provides a preference 
for lending to exporters rather than non-exporters, we must 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., OCTG.) In this case, we consider the higher refinancing 
ratios provided

[[Page 64689]]

on export loans to be the mechanism that allows the banks to provide 
the Preferential Post-Shipment Financing. We agree with respondents' 
assertion that countervailing the refinancing would result in double-
counting the benefit from the program. Therefore, we have measured the 
preference as the differential between the program interest rate and 
the benchmark interest rate.
    We believe petitioners' cites to OCTG and Steel are misplaced. In 
OCTG, the Government of Korea (GOK) set the interest rates for both 
export and domestic loans at a uniform rate of 10 percent. We stated 
that if all the other terms and conditions were the same for export and 
domestic loans then we would find no export subsidy to exist. However, 
we found that the GOK set different rediscount ratios for export and 
domestic loans to encourage banks to provide export financing. Because 
there was no difference in the interest rates which were set for export 
and domestic loans, we had to devise another method to measure this 
preference. As such, we measured the preference for export over 
domestic loans by comparing the 10 percent rate with a weighted average 
of short-term domestic credit. 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.
    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 (see 
19 CFR 355.44(3)(b) (1994)) and have not calculated any additional 
benefit for the higher refinancing ratio provided for export loans.

Comment 2

    Petitioners state that the Department improperly failed to 
countervail the value of advance licenses, because advance licenses are 
simply export subsidies and not the equivalent of a duty drawback 
program. First, petitioners contend that the advance licenses are 
export subsidies as defined by item (a) of the Illustrative List of 
Export Subsidies (Illustrative List), annexed to the General Agreement 
on Tariffs and Trade (GATT) Subsidies Code, as they are contingent upon 
export performance. Petitioners also claim that the advance license 
program does not meet the criteria of a duty drawback system that would 
be permissible in light of item (i) of the Illustrative List. They base 
this claim on the fact that (1) the advance licenses were not limited 
to use just for importing duty-free input materials because the 
licenses could be sold to other companies; (2) eligibility for drawback 
is always contingent upon the claimant demonstrating that the amount of 
input material contained in an export is equal to the amount of such 
material imported, which the respondents failed to do; and (3) the GOI 
made no attempt to determine the amount of material that was physically 
incorporated (making normal allowances for waste) in the exported 
product as required under Item (i). For these reasons, petitioners 
state that the Department should countervail in full the value of 
advance licenses received by respondents during the period of review.
    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 the 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 rebut petitioners' contention that the GOI has no way of knowing 
how much imported pig iron is in the exported product. Respondents 
contend that the Department has verified in prior reviews that the 
Indian government carefully checks the amount imported under advance 
licenses and the amount physically incorporated into the exported 
merchandise. Respondents also state that no advance licenses were sold 
during the POR.

Department's Position

    Petitioners have only pointed out the administrative differences 
between a duty drawback system and the advance license scheme used by 
Indian exporters. Such differences do not render the advance license 
scheme different from a duty drawback system. Similar 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: To allow a producer to import raw materials used in the 
production of an exported product without having to pay duties.
    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 how a duty drawback 
scheme would work. That is, they used the licenses in order to import, 
net of duty, raw materials which were physically incorporated into the 
exported products. We have determined in previous reviews of this order 
(see, e.g., Certain Iron-Metal Castings from India: Final Results of 
Countervailing Duty Administrative Review (Castings 91) (60 FR 44843, 
August 29, 1995)), based on verified information, that the amount of 
raw materials imported and reported in the context of this 
administrative review was not excessive vis-a-vis the products 
exported. On this basis, we determine that use of the advance licenses 
was not countervailable.

Comment 3

    Petitioners argue that, to the extent that any respondent received 
CCS or IPRS payments on non-subject castings or sold Replenishment and 
Exim Scrip Licenses related to non-subject castings, the Department 
should calculate and countervail the value of CCS and IPRS payments and 
the sale of licenses

[[Page 64690]]

related to non-subject castings in this administrative review. They 
state that the Department's failure to countervail subsidies on non-
subject castings exports is at odds with the language and intent of the 
countervailing duty law, which applies to any subsidy whether bestowed 
``directly or indirectly.'' To support their contention, petitioners 
cite Armco, Inc. versus United States, 733 F. Supp. 514 (1990). They 
also 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.' They argue that subsidies 
conferred on non-subject castings should be countervailed because these 
subsidies provide indirect benefits on exports of the subject castings.
    Respondents state that petitioners have misapplied the term 
``indirectly.'' They state that the CCS, IPRS payments, and proceeds 
from the sales of licenses relating to other merchandise 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 law by claiming more CCS or IPRS on non-subject 
castings. They claim that there is no basis for petitioners' 
assertions. In fact, the GOI and the respondent companies have been 
verified numerous times, and not once has the Department determined 
that claims for CCS, IPRS or licenses were paid on non-subject castings 
in a way that circumvents the law.

Department's Position

    Section 771(5)(A)(ii) of the Act is concerned with subsidies that 
are ``paid or bestowed directly or indirectly on the manufacture, 
production, or export of any class or kind of merchandise''. 
Petitioners have misinterpreted the term ``indirect subsidy.'' They 
argue that a subsidy tied to the export of product B may provide an 
indirect subsidy to product A, or that a reimbursement of costs 
incurred in the manufacture of product B may provide an indirect 
subsidy upon the manufacture of product A. As such, they argue that 
grants that are tied to the production or export of product B, should 
also be countervailed as a benefit upon the production or export of 
product A. As explained below, this is 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. The term, as used by the Department, does not imply that a 
benefit tied to one type of product also provides an indirect subsidy 
to another product. The kind of interpretation proposed by petitioners 
is clearly not within the purview or intent of the statutory language 
under section 771(5)(A)(ii).
    In our Proposed Rules, we have clearly spelled out the Department's 
practice with respect to this issue. ``Where the Secretary determines 
that a countervailable benefit is 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). This practice of tying benefits 
to specific products is an established tenet of the Department's 
administration of the countervailing duty law. See, e.g., Industrial 
Nitrocellulose from France; Final Results of Countervailing Duty 
Administrative Review 52 FR 833, 834-35 (January 9, 1987); Final 
Affirmative Countervailing Duty Determination and Countervailing Duty 
Order: Certain Apparel from Thailand, 50 FR 9818, 9823 (March 12, 
1985); and Extruded Rubber Thread from Malaysia: Final Results of 
Countervailing Duty Administrative Review, 60 FR 17515, 17517 (April 6, 
1995).

Comment 4

    Importers argue that the Department incorrectly calculated the 
country-wide rate. They state that the Department assigned Kajaria an 
individual company rate based on the fact that it was significantly 
different from the weighted-average country-wide rate. However, the 
Department also included the amount of subsidies found to have been 
received by Kajaria in calculating the weighted-average country-wide 
rate. Importers argue this is contrary to the countervailing duty 
statute because it results in the collection of countervailing duties 
in excess of the subsidy amounts found by the Department. This is 
because the inclusion of this high rate in the weighted-average 
country-wide rate increases the all others' rate and, hence, the amount 
collected from all other shippers would include a portion of the 
subsidies received by Kajaria, which are already offset by the 
collection of the individual rate on Kajaria's shipments. Importers 
assert that the Department must exclude Kajaria's rate from the all 
others rate calculations to ensure that the amount collected is equal 
to, and does not exceed, the actual amount of subsidies that were 
found.
    Respondents agree with importers that the inclusion in the country-
wide rate of companies' rates that are ``significantly'' higher than 
the country-wide rate is improper when those companies are also given 
their own separate company-specific rates. They argue that this 
methodology overstates and, in part, double counts the overall benefit 
from the subsidies received by respondents. Respondents argue that 
Ceramica Regiomontana, S.A. v. United States, 853 F. Supp. 431 (CIT 
1994) does not require the Department to include ``significantly'' 
higher rates in calculation of the country-wide rate. They state that a 
careful reading of that case, as well as Ipsco Inc. v. United States, 
899 F. 2d 1192 (Fed. Cir. 1990), demonstrates that the courts in both 
cases were only concerned about the over-statement of rates owing to 
elimination of de minimis or zero margins from the country-wide rate 
calculation. Respondents claim that every company's rate is being 
pulled up to a percentage greater than it should be because the 
Department has included in the weighted-average country-wide rate the 
rates of companies that received their own ``significantly'' higher 
company-specific rates. Thus, they state that the country-wide rate is 
excessive for every company to which it applies. Respondents state 
that, not only is it unfair to charge this excessive countervailing 
duty, it is also contrary to law, in conflict with the international 
obligations of the United States, and violative of due process.
    Petitioners state that respondents have misread Ceramica and Ipsco. 
They state that the plain language of Ceramica requires the Department 
to calculate a country-wide rate by weight averaging the benefits 
received by all companies by their proportion of exports to the United 
States inclusive of zero rate firms and de minimis firms. Petitioners 
state that while Ceramica and Ipsco dealt factually with the 
circumstances in which respondent companies had lower-than-average 
rates, the principle on which these cases is based applies equally to 
instances in which some companies have higher-than-average

[[Page 64691]]

rates. They state that the courts have determined that the benefits 
received by all companies under review are to be weight-averaged in the 
calculation of the country-wide rate. Therefore, petitioners conclude 
that the Department followed the clear directives from the court.

Department's Position

    We disagree with respondents that ``significantly different'' 
higher rates (including BIA rates) should not be included in the 
calculation of the CVD country-wide rate. We further disagree with 
respondents' reading of Ceramica and Ipsco. In those cases, the 
Department excluded the zero and de minimis company-specific rates that 
were calculated before calculating the country-wide rate. The court in 
Ceramica, however, rejected this calculation methodology. Based upon 
the Federal Circuit's opinion in Ipsco, the court held that Commerce is 
required to calculate a country-wide CVD rate applicable to non-de 
minimis firms by ``weight averaging the benefits received by all 
companies by their proportion of exports to the United States, 
inclusive of zero rate firms and de minimis firms.'' Ceramica, 853 F. 
Supp. at 439 (emphasis on ``all'' added).
    Thus, the court held that the rates of all firms must be taken into 
account in determining the country-wide rate. As a result of Ceramica, 
Commerce no longer calculates, as it formerly did, an ``all others'' 
country-wide rate. Instead, it now calculates a single country-wide 
rate at the outset, and then determines, based on that rate, which of 
the company-specific rates are ``significantly'' different.
    Given that the courts in both Ipsco and Ceramica state that the 
Department should include all company rates, both de minimis and non de 
minimis, there is no legal basis for excluding ``significantly 
different'' higher rates, including BIA rates. To exclude these higher 
rates, while at the same time including zero and de minimis rates, 
would result in a similar type of country-wide rates bias of which the 
courts were critical when the Department excluded zero and de minimis 
rates under its former calculation methodology.

Comment 5

    Respondents claim that the Department used the incorrect 
denominator, total exports of subject castings, to calculate the 
benefit to RSI Ltd. from the Section 80 HHC income tax program.

Department's Position

    Upon a review of our calculations, we have determined that we did 
use the incorrect denominator, exports of subject merchandise, in 
calculating the benefit to RSI Ltd. from the Section 80 HHC program. 
For purposes of these final results, we have corrected our calculations 
by using total export sales of all merchandise as the denominator for 
this calculation.

Comment 6

    Respondents argue that the Department has incorrectly calculated 
preshipment interest for two of RB Agarwalla's loans. First, 
respondents claim that the Department assumed that RB Agarwalla Pre-
Shipment Export Financing loans taken on October 30, 1991 and November 
16, 1991 ran for 17 days plus 53 days, for a total of 70 days. 
Respondents state that only 19 days of interest should be considered 
for the 1992 calculation, since much of the interest was not paid in 
the period of review. In the second case, regarding loans from the 
Hongkong & Shanghai Banking Corporation to RB Agarwalla, respondents 
claim that the Department failed to take into account an interest 
payment made in 1992. According to respondents, the Department assumed 
incorrectly that the interest was paid in 1991. This interest accrued 
during 1991 but was actually paid during 1992 and should, therefore, be 
included in the calculation of preshipment interest for 1992.

Department's Position

    Upon a review of our calculations, we have determined that we did 
use the incorrect number of days to calculate the benefit to RB 
Agarwalla from certain of its preshipment loans. We have corrected our 
calculations by using 19 days rather than 70, as we determined that 
interest was calculated for those days in the 1991 review. 
Additionally, we have included RB Agarwalla's interest payment in our 
calculation of the interest paid by RB Agarwalla during 1992.

Comment 7

    Respondents claim that the Department used the incorrect 
denominator, RB Agarwalla's sales of subject castings, in its 
calculation of the benefit to RB Agarwalla from the Pre-Shipment Export 
Financing Program. According to respondents, the correct denominator 
for calculating the benefit is total exports of all products during the 
POI.

Department's Position

    Upon a review of our calculations, we have determined that we did 
use the incorrect denominator, exports of subject merchandise, in 
calculating the benefit to RB Agarwalla from the Pre-Shipment Export 
Financing program. For purposes of these final results, we have 
corrected our calculations by using total exports of all merchandise to 
all markets as the denominator.

Comment 8

    Respondents claim that the Department's calculation of Pre-shipment 
Export Financing loans includes loans that are not included in 
Kejriwal's list of loans. Therefore, these loans should not be included 
in the Department's calculation.
    Petitioners disagree with respondents' claim. They assert, based on 
proprietary information, that the Department has actually 
underestimated the benefit provided to Kerjriwal by the Pre-Shipment 
Export financing program because there is no evidence that these loans 
were paid off during the review period.

Department's Position

    We disagree with respondents. The loans to which respondents refer 
are not new loans but rather unpaid balances on existing loans. 
Kejriwal did not report its remaining payments on these loans in its 
1992 questionnaire responses. Additionally, we have checked the public 
record of the 1993 administrative review and discovered that Kejriwal 
reported not having used this program during 1993. Based on these 
facts, in our preliminary results of review, we calculated a benefit 
based on the assumption that Kejriwal paid the loan off in 180 days. 
However, as petitioners have argued, we may have underestimated the 
benefit as we have no evidence on the record to indicate that Kejriwal 
paid off this loan during the review period. Therefore, for purposes of 
this review period, we have calculated interest on the unpaid balance 
through the end of 1992 for both of these loans.

Comment 9

    Respondents state that the Department has incorrectly countervailed 
the sale of an additional license by Kejriwal during the period of 
review. Respondents state that all licenses listed in the company's 
response were earned on sales of industrial castings or on sales of 
subject castings to markets other than the United States. Therefore, 
the Department should not consider the sale

[[Page 64692]]

of the license as a subsidy when it calculates Kejriwal's benefits.
    Petitioners state that the Department was correct in finding that 
the sale of an additional license by Kejriwal is a subsidy on subject 
castings.

Department's Position

    Upon a review of our calculations and Appendix J of Kejriwal's May 
9, 1994, response, we have determined that Kejriwal did receive its 
additional license for non-subject merchandise. Therefore, we are not 
calculating a benefit from Kejriwal's sale of this additional license 
for purposes of these final results of review.

Comment 10

    Respondents state that countervailing the Pre- and Post-Shipment 
Export Financing programs, the sale of import licences and the income 
tax deductions under Section 80 HHC of the Income Tax Act double counts 
the subsidy from the financing programs and import license sales. They 
argue that, under Section 80 HHC, 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, respondents 
argue that, because proceeds from the sale of licenses are also part of 
the deductions under Section 80 HHC, to countervail the payments and 
the deduction results in double counting the subsidy from the sale of 
licenses. Additionally, the Department is double counting the subsidy 
by countervailing both the financing programs and the 80 HHC tax 
deduction. Respondents assert that the financing programs reduce the 
companies' expenses in financing exports, which in turn, increases 
profits on export sales. Because the 80 HHC deduction increases as 
export profits increase, the financing programs increase the 80 HHC 
deduction. Thus, countervailing the financing programs and the 80 HHC 
deduction means the benefit to the export is countervailed twice.
    Respondents argue that adjusting the tax deduction in order to 
avoid double counting should not be considered offsetting the subsidy 
as provided by section 771(6) of the Act. Under that section, 
deductions are allowed because they represent actual costs to the 
exporter which lessen the benefit on the subsidy to the exporter. 
Respondents also assert that the Department's treatment of secondary 
tax effects is also not relevant in this case. The issue in this case 
is whether the same subsidy is being countervailed twice, not whether 
the ``after tax benefit'' is somehow less than the nominal benefit.
    Petitioners assert that respondents benefit from both the 
preferential financing programs and sale of import licenses as the 
programs ultimately increase their profits and their total income. 
Respondents further benefit because they are able to use the 80 HHC 
program to eliminate or reduce the taxes owed on these increased 
profits and income. 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 80 HHC 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 80 HHC 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 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

[[Page 64693]]

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 11

    Respondents state that the Department preliminarily found that 
several programs, including IPRS, CCS, the sales of licenses, and 
another program involving duty drawback, did not benefit sales of 
subject castings to the United States. Respondents argue that, 
regardless of the fact that none of the income earned through these 
programs benefitted subject castings exported to the United States, the 
Department still countervailed the deduction of this income. 
Respondents suggest that income from the CCS, IPRS, duty drawback, and 
sales of licenses should not be included in the calculation of 80 HHC 
benefits. Respondents are not suggesting that the Department offset the 
subsidy or disregard secondary tax effects. They are stating that 
because the income does not relate to subject castings, the unpaid tax 
on this income cannot be a subsidy benefitting the subject merchandise.
    Respondents also argue that the Department overstated Kajaria's 
benefits from the Section 80 HHC Income Tax Deduction program by not 
factoring out its greater profits made on exports of non-subject 
castings. They assert that the Department should not include the profit 
earned on non-subject castings in its 80 HHC calculation.
    Petitioners state that the Department has correctly countervailed 
the benefits received under the 80 HHC program. They argue that 
respondents have failed to recognize that the Department has 
countervailed this program because it provides a subsidy associated 
with the export of all goods and merchandise. Petitioners add that no 
new information has been provided in this review to suggest that the 
Department should change its calculations. They assert that the 
Department should reject Kajaria's claim that its 80 HHC benefits are 
overstated.

Department's Position

    We disagree with respondents' assertion that we incorrectly 
calculated the benefit provided by the 80 HHC program. Again, 
respondents are, in effect, requesting the Department to trace specific 
revenues in order to determine the tax consequences on such revenues. 
As we explained above in Comment 10, this is something the Department 
does not do and is not required to do.
    Further, it is our practice, in the case of programs where benefits 
are not tied to the production or sale of a particular product or 
products, 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).) In 
this case, because the 80 HHC program is an export subsidy not tied to 
specific products, we appropriately allocated the benefit over total 
exports. We have used this methodology to calculate benefits from the 
80 HHC program in previous reviews of this order.

Final Results of Review

    For the period January 1, 1992 through December 31, 1992, we 
determine the net subsidies to be 0.00 percent ad valorem for Dinesh 
Brothers, Pvt. Ltd., 13.99 percent for Kajaria Iron Castings Pvt. Ltd., 
and 6.02 percent ad valorem for all other companies. Because this 
notice is being published concurrently with the final results of the 
1993 administrative review, the 1993 administrative review will serve 
as the basis for setting the cash deposit rate.
    This notice serves as the only reminder to parties subject to APO 
of their responsibilities concerning the return or destruction of 
proprietary information disclosed under APO in accordance with section 
355.34(d) of the Proposed Regulations. Failure to comply is a violation 
of the APO.
    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. 96-31106 Filed 12-5-96; 8:45 am]
BILLING CODE 3510-DS-P