[Federal Register Volume 62, Number 114 (Friday, June 13, 1997)]
[Notices]
[Pages 32297-32307]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-15606]


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DEPARTMENT OF COMMERCE

International Trade Administration
[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 December 6, 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, 1994 through 
December 31, 1994 (61 FR 64669). The Department has now completed this 
administrative review in accordance with section 751(a) of the Tariff 
Act of 1930, as amended. For information on the net subsidy for each 
reviewed company, and for all non-reviewed companies, see the Final 
Results of Review section of this notice. We will instruct the U.S. 
Customs Service to assess countervailing duties as detailed in the 
Final Results of Review section of this notice.

EFFECTIVE DATE: June 13, 1997.

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

    Pursuant to 19 C.F.R. 355.22(a), this review covers only those 
producers or exporters of the subject merchandise for which a review 
was specifically requested. The producers/exporters of the subject 
merchandise for which this review was requested are:


Calcutta Ferrous....................  Kajaria Iron Castings    RSI Limited.                                     
                                       Pvt. Ltd.                                                                
Carnation Enterprise Pvt. Ltd.......  Kejriwal Iron & Steel    Seramapore Industries Pvt. Ltd.                  
                                       Works.                                                                   
Commex Corporation..................  Nandikeshwari Iron       Shree Rama Enterprise.                           
                                       Foundry Pvt. Ltd.                                                        
Crescent Foundry Co. Pvt. Ltd.......  Orissa Metal Industries  Shree Uma Foundries.                             
Delta Enterprises...................  R.B. Agarwalla &         Siko Exports.                                    
                                       Company Pvt. Ltd.                                                        
Dinesh Brothers.....................  R.B. Agarwalla & Co....  Super Iron Foundry.                              
Uma Iron & Steel....................  Victory Castings Ltd     .................................................
                                                                                                                

Delta Enterprises, Orissa Metal Industries, R.B. Agarwalla & Co. Pvt. 
Ltd., Shree Uma Foundries and Uma Iron & Steel did not export the 
subject merchandise during the period of review (``POR''). Therefore, 
these companies have not been assigned an individual company rate for 
this administrative review. This review covers the period January 1, 
1994 through December 31, 1994, and nineteen programs.
    Since the publication of the preliminary results on December 6, 
1996, we invited interested parties to comment on the preliminary 
results. On January 6, 1997, 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 review period and the Municipal Castings Fair Trade Council 
and its members (petitioners). On January 13, 1997, rebuttal briefs 
were submitted by the EEPC, respondents and petitioners.

Applicable Statute

    Unless otherwise indicated, all citations to the statute are 
references to the provisions of the Tariff Act of 1930, as amended by 
the Uruguay Round Agreements Act (``URAA'') effective January 1, 1995 
(``the Act''). The Department is conducting this administrative review 
in accordance with Sec. 751(a) of the Act.

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

Analysis of Programs

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

[[Page 32298]]

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

------------------------------------------------------------------------
                                                                 Rate   
                   Manufacturer/exporter                      (percent) 
------------------------------------------------------------------------
Calcutta Ferrous...........................................         0.12
Carnation Enterprise Pvt. Ltd..............................         0.24
Commex Corporation.........................................         0.03
Crescent Foundry Co. Pvt. Ltd..............................         0.04
Dinesh Brothers............................................         0.57
Kajaria Iron Castings Pvt. Ltd.............................         0.40
Kejriwal Iron & Steel Works................................         0.00
Nandikeshwari Iron Foundry Pvt. Ltd........................         0.24
R.B. Agarwalla & Company...................................         0.03
RSI Limited................................................         0.59
Seramapore Industries Pvt. Ltd.............................         0.04
Shree Rama Enterprise......................................         0.00
Siko Exports...............................................         0.00
Super Iron Foundry.........................................         0.25
Victory Castings Ltd.......................................         0.25
------------------------------------------------------------------------

2. Pre-Shipment Export Credit in Foreign Currency (``PCFC'')
    In the preliminary results, we found that this program conferred 
countervailable subsidies on the subject merchandise. Our review of the 
record and our analysis of the comments submitted by the interested 
parties, summarized below, have not led us to change our preliminary 
findings. Accordingly, the net subsidies for this program remain 
unchanged from the preliminary results and are 0.45 percent for 
Calcutta Ferrous and 0.00 percent for all other producers/exporters of 
the subject merchandise.
3. Post-Shipment Export Financing
    In the preliminary results, we found that this program conferred 
countervailable subsidies on the subject merchandise. Our review of the 
record and our analysis of the comments submitted by the interested 
parties, summarized below, have not led us to change our preliminary 
findings. Accordingly, the net subsidies for this program remain 
unchanged from the preliminary results and are 0.03 percent for Dinesh 
Brothers Pvt. Ltd., 0.02 percent for Super Iron Foundry and 0.00 
percent for all other producers/exporters of the subject merchandise.
4. Post-Shipment Export Credit in Foreign Currency (``PSCFC'')
    In the preliminary results, we found that this program conferred 
countervailable subsidies on the subject merchandise. Our review of the 
record and our analysis of the comments submitted by the interested 
parties, summarized below, have not led us to change our preliminary 
findings. Accordingly, the net subsidies for this program remain 
unchanged from the preliminary results and are as follows:

------------------------------------------------------------------------
                                                                 Rate   
                   Manufacturer/exporter                      (percent) 
------------------------------------------------------------------------
Calcutta Ferrous...........................................         1.91
Carnation Enterprise Pvt. Ltd..............................         0.14
Commex Corporation.........................................         0.91
Crescent Foundry Co. Pvt. Ltd..............................         0.59
Dinesh Brothers............................................         1.45
Kajaria Iron Castings Pvt. Ltd.............................         3.54
Kejriwal Iron & Steel Works................................         0.10
Nandikeshwari Iron Foundry Pvt. Ltd........................         2.74
R.B. Agarwalla & Company...................................         0.67
RSI Limited................................................         2.21
Seramapore Industries Pvt. Ltd.............................         2.15
Shree Rama Enterprise......................................         0.00
Siko Exports...............................................         2.23
Super Iron Foundry.........................................         0.00
Victory Castings Ltd.1.91%.................................         1.77
------------------------------------------------------------------------

5. Income Tax Deductions Under Section 80 HHC
    In the preliminary results we found that this program conferred 
countervailable subsidies on the subject merchandise under section 
771(5A)(B) (Note: The preliminary results mistakenly indicated the 
section as 772(5A)(B)). Our review of the record and our analysis of 
the comments submitted by the interested parties, summarized below, 
have not led us to change our preliminary findings. Accordingly, the 
net subsidies for this program remain unchanged from the preliminary 
results and are as follows:

------------------------------------------------------------------------
                                                                 Rate   
                   Manufacturer/exporter                      (percent) 
------------------------------------------------------------------------
Calcutta Ferrous...........................................         3.19
Carnation Enterprise Pvt. Ltd..............................         2.15
Commex Corporation.........................................         0.45
Crescent Foundry Co. Pvt. Ltd..............................         7.52
Dinesh Brothers............................................         0.00
Kajaria Iron Castings Pvt. Ltd.............................        11.64
Kejriwal Iron & Steel Works................................        15.04
Nandikeshwari Iron Foundry Pvt. Ltd........................         0.28
R.B. Agarwalla & Company...................................         3.86
RSI Limited................................................         4.89
Seramapore Industries Pvt. Ltd.............................         7.02
Shree Rama Enterprise......................................        13.09
Siko Exports...............................................         2.28
Super Iron Foundry.........................................         0.05
Victory Castings Ltd.......................................         0.00
------------------------------------------------------------------------

6. Import Mechanisms (Sale of Licenses)
    In the preliminary results, we found that this program conferred 
countervailable subsidies on the subject merchandise. Our review of the 
record and our analysis of the comments submitted by the interested 
parties, summarized below, have not led us to change our preliminary 
findings. Accordingly, the net subsidies for this program remain 
unchanged from the preliminary results and are 0.24 percent for Kajaria 
Iron Castings Pvt. Ltd, 0.06 percent for Kejriwal Iron & Steel Works, 
0.15 percent for Seramapore Industries Pvt. Ltd, and 0.00 percent for 
all other producers/exporters of the subject merchandise.
7. Exemption of Export Credit From Interest Taxes
    In the preliminary results, we found that this program conferred 
countervailable subsidies on the subject merchandise. Our review of the 
record and our analysis of the comments submitted by the interested 
parties, summarized below, have not led us to change our preliminary 
findings. Accordingly, the net subsidies for this program remain 
unchanged from the preliminary results and are as follows:

------------------------------------------------------------------------
                                                                 Rate   
                   Manufacturer/exporter                      (percent) 
------------------------------------------------------------------------
Calcutta Ferrous...........................................         0.09
Carnation Enterprise Pvt. Ltd..............................         0.03
Commex Corporation.........................................         0.03
Crescent Foundry Co. Pvt. Ltd..............................         0.02
Dinesh Brothers............................................         0.16
Kajaria Iron Castings Pvt. Ltd.............................         0.24
Kejriwal Iron & Steel Works................................         0.00
Nandikeshwari Iron Foundry Pvt. Ltd........................         0.15
R.B. Agarwalla & Company...................................         0.02
RSI Limited................................................         0.12
Seramapore Industries Pvt. Ltd.............................         0.06
Shree Rama Enterprise......................................         0.00
Siko Exports...............................................         0.13
Super Iron Foundry.........................................         0.07
Victory Castings Ltd.......................................         0.08
------------------------------------------------------------------------

B. Other Program Determined to Confer Subsidies
    In the preliminary results we found that the following new program 
conferred countervailable benefits on the subject merchandise:

Payment of Premium Against Advance License

    Our analysis of the comments submitted by the interested parties, 
summarized below, have not led us to change our findings from the 
preliminary results. Accordingly, the net subsidies for this program 
are 3.65 percent ad valorem for Dinesh Brothers Pvt. Ltd. and 0.00 
percent for all other

[[Page 32299]]

producers/exporters of the subject merchandise.

II. 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:

1. Market Development Assistance (MDA)
2. Rediscounting of Export Bills Abroad
3. International Price Reimbursement Scheme (IPRS)
4. Cash Compensatory Support Program (CCS)
5. Programs Operated by the Small Industries Development Bank of India 
(SIDBI)
6. Export Promotion Replenishment Scheme (EPRS) (IPRS Replacement)
7. Export Promotion Capital Goods Scheme
8. Benefits for Export Oriented Units and Export Processing Zones
9. Special Imprest Licenses
10. Special Benefits
11. Duty Drawback on Excise Taxes

    We did not receive any comments on these programs from the 
interested parties, and our review of the record have not led us to 
change our findings from the preliminary results.

Analysis of Comments

Comment 1

    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 Agreement on Subsidies and Countervailing 
Measures. 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 above 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 (April 6, 1995) and Certain Textile Mill Products 
from Mexico; Final Results of Countervailing Duty Administrative 
Review, 56 FR 12175, 12177 (March 22, 1991). Petitioners also cite 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 must [sic] use a 
commercial benchmark to calculate the benefit from a subsidy, 
consistent with the full definition of ``subsidy'' in the statute.

54 FR 36841, 36843 (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. 927-928 (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 examining whether a short-term export loan confers 
countervailable benefits, the Department must determine whether ``there 
is a difference between the amount the recipient of the loan pays on 
the loan and the amount the recipient would pay on a comparable 
commercial loan that the recipient could actually obtain on the 
market.'' See Sec. 771(5)(E)(ii) of the Act. See also S. Rep. No. 412, 
103d Cong., 2d Sess. 91 (1994).
    In this case, we have determined that commercial financing 
comparable to PSCFC is the ``cash credit'' interest rate. As we 
explained in Certain Iron-Metal Castings From India: Preliminary 
Results of Countervailing Duty Administrative Review, 61 FR 64669, 
64671 (December 6, 1996) (1994 Castings Prelim), the ``cash credit'' 
interest rate is for domestic working capital finance, comparable to 
pre- and post-shipment export working capital finance. We also found 
that PSCFC loans are limited only to exporters, and only exporters have 
access to LIBOR-linked interest. Therefore, in accordance with 
Sec. 771(5)(E)(ii) of the Act, because the interest rate on PSCFC loans 
is less that what a company would have to pay on a comparable ``cash 
credit'' short-term loan, 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, loans with interest rates linked to LIBOR clearly 
do not represent the ``comparable commercial loan that the recipient 
could actually obtain on the market.'' The fact that commercial banks 
may borrow at LIBOR-linked rates is, therefore, irrelevant to our 
finding.
    Petitioners correctly note that the Department has consistently 
rejected the ``cost-to-government'' standard of item (k) of the 
Illustrative List, 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 accordance with the 
U.S. countervailing duty law and the Department's past practice, we 
will continue to use as a benchmark the ``comparable'' cash credit 
commercial loan rate that Indian exporters would actually obtain on the 
market to determine whether PSCFC loans confer countervailable benefits 
upon exports of the subject merchandise to the United States.

Comment 2

    According to respondents, for purposes of the Sec. 80 HHC tax 
program, 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 revenue from the sale of 
licenses are also part of the deductions under Sec. 80 HHC, 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

[[Page 32300]]

financing exports, which in turn increases profits on export sales. 
Because the Sec. 80 HHC deduction increases as export profits increase, 
the financing programs increase the Sec. 80 HHC deduction. Therefore, 
respondents argue, countervailing the financing programs and the 
Sec. 80 HHC deduction means the benefit to the exporter is 
countervailed twice.
    According to respondents, the Department rejected similar arguments 
in the 1990 administrative review of this case, stating that an 
adjustment to the Sec. 80 HHC benefit to account for other subsidies is 
contrary to our practice of disregarding secondary tax effects of 
subsidies. See Certain Iron-Metal Castings from India: Final Results of 
Countervailing Duty Administrative Review, 60 FR 44849, 44854 (August 
29, 1995). However, the 1990 final results were appealed to the Court 
of International Trade (CIT), and on December 26, 1996, the CIT ruled 
in that appeal. See Crescent Foundry Co., et al. v. United States, 951 
F.Supp. 252 (CIT 1996) (Crescent). In that ruling, the CIT addressed 
the issue of double-counting, stating:

    Commerce cited this policy of disregarding secondary tax 
consequences as the reason for refusing to eliminate countervailed 
CCS payments from its calculation of the Sec. 80 HHC subsidy. 
[citation omitted] However, the logic of that policy would seem to 
dictate the opposite result: that when companies pay lower taxes as 
a result of receiving a subsidy, Commerce should not add the 
additional tax benefit to the amount of the subsidy when calculating 
the benefit conferred. That is, it should not countervail the tax 
exemption for that subsidy. * * *

Id. at 261. The issue was then remanded by the CIT for ``a 
reexamination of whether countervailing the portion of the Sec. 80 HHC 
subsidy attributable to CCS over-rebates double-counts the CCS 
subsidy.'' Id.
    Respondents argue that the Department should reexamine its 
preliminary results in this review in light of the CIT's ruling in 
Crescent, and find that the subsidy from export financing and import 
license sales was double counted when the unpaid tax on those subsidies 
was also countervailed under Sec. 80 HHC.
    Petitioners contend that the Department's prior findings on this 
issue should be upheld in this administrative review on the basis of 
(1) the facts on the record; (2) because the subsidies being 
countervailed are separate and distinct; (3) because the Department has 
a consistent policy of not examining the tax consequences of tax 
exemptions related to loans and grants; and (4) there is no reasonable 
way for the Department to isolate the alleged effects on respondents' 
export tax liability. For these reasons, the Department should reject 
respondents' double-counting allegations.
    Petitioners indicate that the Department's policy of not examining 
secondary tax effects of subsidies has been upheld in the courts. In 
support of this, petitioners cite Geneva Steel v. United States, 914 F. 
Supp. 563, 609-610 (CIT 1996) (Geneva Steel); Ipsco, Inc. v. United 
States, 687 F. Supp. 614, 621-22 (Ct. Int'l Trade 1988); and Michelin 
Tire v. United States, 6 CIT 320, 328 (1983), vacated on other grounds, 
9 CIT 38 (1985). According to petitioners, the legislative history of 
the URAA also makes clear that in determining whether a countervailable 
subsidy exists, the Department is not required to consider the effect 
of the subsidy. SAA, H.R. Doc. No. 103-316 at 926 (1994). When applied 
to the alleged double-counting issue, this means that the Department 
does not have to consider whether subsidies in the form of grants or 
loans have any effect on the Sec. 80 HHC tax program when determining 
whether subsidies under Sec. 80 HHC are countervailable. Petitioners 
assert that this is the only reasonable policy given the difficulties 
in calculating such secondary effects. Furthermore, petitioners argue 
that even if the Department could consider the secondary effect of a 
subsidy program in determining its countervailability, the Department's 
ability to correct for unfair subsidization would be impaired, as 
governments would structure subsidy programs to appear to have 
overlapping effects.
    Petitioners state that the Department has applied this policy in 
all cases involving grant and loan programs as well as income tax 
programs. Only in two previous cases did the Department make different 
findings. See Carbon Steel Wire From Argentina; Suspension of 
Investigation, 47 FR 42393 (September 17, 1982), and Final Affirmative 
Countervailing Duty Determinations and Countervailing Duty Orders; 
Certain Welded Steel Pipe and Tube Products From Argentina, 53 FR 37619 
(September 27, 1988). In the Argentine cases, the Department found that 
excessive rebates of indirect taxes were countervailable. The 
petitioners at the time claimed that there was an additional subsidy 
due to the fact that the rebates were not subject to income taxes. The 
Department determined in those cases that it had captured the full 
benefit by countervailing the overrebate.
    Petitioners point out, however, that factual circumstances in these 
cases were different from those in the Indian castings reviews. In the 
Argentine cases, the Department did not examine whether there was a 
benefit as a result of the tax exemption because the overrebates were 
provided through a non-income tax program. Indian castings exporters, 
in contrast, were found to have benefitted from both non-income tax 
programs (grants and loans), in addition to the Sec. 80 HHC income tax 
program. According to petitioners, in such cases, it is the 
Department's policy to countervail both types of programs as separate 
and distinct subsidies.
    Petitioners claim that the recent CIT ruling in Crescent does not 
upset the Department's policy with respect to this issue, or the prior 
CIT cases upholding that policy. Rather, the CIT has merely requested 
that the Department on remand (1) reexamine whether countervailing the 
portion of the Sec. 80 HHC subsidy attributable of the CCS overrebate 
results in a double-counting of the CCS subsidy and (2) explain whether 
the Department's determination in Argentine Wire Rod continues to 
reflect current agency policy.
    Petitioners indicate that respondents do not provide any comment on 
how the Department should correct for alleged double-counting under 
Sec. 80 HHC. According to petitioners, even if the Department had the 
necessary data in this review to isolate all of the revenues and 
expenses, doing so would be too difficult and burdensome for the agency 
to accomplish. Accordingly, the Department should conclude that any 
attempt to trace the tax consequences of other subsidies would be 
overly complicated and administratively burdensome.

Department's Position

    Respondents' argument that the subsidy under the export financing 
and import licensing programs has been countervailed twice, by also 
countervailing the full amount of the Sec. 80 HHC deduction, is 
incorrect. With respect to the CIT's ruling in Crescent, the Department 
responded to the court's instructions on February 24, 1997, in the 
Final Results of Redetermination on Remand Pursuant to Crescent Foundry 
Co. Pvt. Ltd., et al. v. United States (Crescent Remand).
    As we explained in the Crescent Remand, adjusting the Sec. 80 HHC 
subsidy to take into account the CCS grants (in this review revenue 
from the export financing programs and earnings from the sale of 
licences) would be in conflict with the countervailing duty law, 
Department regulations, and longstanding Department policy. This type 
of adjustment is inappropriate because, if made, it would: (1) require

[[Page 32301]]

the Department to examine the secondary effects and uses of a subsidy; 
(2) expand the statutory definition of a permissible offset to a 
subsidy; and (3) require the Department to no longer countervail the 
full amount of the benefit provided by a government subsidy program.
    The Department explained fully its reasoning with respect to this 
issue in the 1991 final results of this case, and in the recently 
completed 1992 and 1993 final results. See Certain Iron-Metal Castings 
From India: Final Results of Countervailing Duty Administrative Review, 
60 FR 44843, 44848 (August 29, 1995) (1991 Castings Final), Certain 
Iron-Metal Castings From India: Final Results of Countervailing Duty 
Administrative Review, 61 FR 64687, 64692 (December 6, 1996) (1992 
Castings Final), and Certain Iron-Metal Castings From India: Final 
Results of Countervailing Duty Administrative Review, 61 FR 64676, 
64685 (December 6, 1996) (1993 Castings Final). It has been and 
continues to be our policy to ignore any secondary effect of a direct 
subsidy on a company's financial performance. This policy has been 
upheld by the court. See, e.g., Saarstahl AG v. United States, 78 F.3d 
1539, 1543 (Fed. Cir. 1996).
    With respect to the Argentine Wire Rod case, we stated in the 
Crescent Remand that there was not sufficient information to determine 
whether or not the Department should have investigated the allegation 
of an income tax benefit. However, we also stated that under our 
current approach, and under the approach adopted in the overwhelming 
majority of cases, we would not take into account the secondary effect 
of an income tax deduction on the calculation of the benefit conferred 
under the rebate of indirect taxes (reembolso) program in Argentina. 
Likewise, the Department would not take into account the secondary 
effects of that rebate program on the calculation of the benefit 
conferred by an income tax deduction program. If Argentine Wire Rod is 
interpreted as suggesting that the Department would not investigate and 
calculate separate benefits for a rebate program and a tax deduction 
program, then Argentine Wire Rod must be considered an anomaly and not 
reflective of current Department policy or of Department policy in 
other case precedents. Crescent Remand at 4.
    In all of the cases where we have actually examined both grant and 
tax programs, this principle has been applied, even though it has not 
always been expressly discussed. See, e.g., Final Affirmative 
Countervailing Duty Determination: Certain Pasta From Turkey, 61 FR 
30366 (June 14, 1996) (Pasta from Turkey); Final Affirmative 
Countervailing Duty Determination: Certain Pasta (``Pasta'') From 
Italy, 61 FR 30288 (June 14, 1996) (Pasta From Italy); Final 
Affirmative Countervailing Duty Determination and Countervailing Duty 
Order; Extruded Rubber Thread From Malaysia, 57 FR 38472 (Aug. 25, 
1992) (Malaysian Rubber Thread); Final Affirmative Countervailing Duty 
Determinations: Certain Steel Products From Belgium, 58 FR 37273 (July 
29, 1993) (Belgian Steel); and Final Affirmative Countervailing Duty 
Determination; Certain Fresh Atlantic Groundfish From Canada, 51 FR 
10041 (March 24, 1986) (Groundfish from Canada). For example, in 
Belgian Steel the Department found cash grants and interest subsidies 
under the Economic Expansion Law of 1970 to constitute countervailable 
subsidies. At the same time, the Belgian government exempted from 
corporate income tax, grants received under the same 1970 Law. The 
Department found the exemption of those grants from income tax 
liability to be a separate countervailable subsidy. We determined that 
a benefit had been provided under the grant program and an additional 
benefit was provided by the tax exemption. In calculating the benefit 
from the grant program, the Department did not take into account the 
secondary effects of income taxation on those grants. Likewise, the 
Department did not adjust the benefit from the tax exemption to take 
into account the secondary effects of non-tax programs on the tax 
exemption program. The pertinent fact here is that the Department, in 
examining whether a subsidy was conferred under the tax exemption 
provided by the Belgian Government, did not take into account the 
secondary effect of other government subsidy programs in deciding 
whether a countervailable benefit was conferred under the tax exemption 
program. We did not factor in the grant in determining whether a 
benefit was received from the tax exemption, and our decision would 
have been the same regardless of the fact that the subsidy from the tax 
exemption for the period of review in question was 0.00 percent.
    It is our view that the export financing and import license 
subsidies are not being double-counted and that the Sec. 80 HHC income 
tax exemption is a separate and distinct subsidy from those subsidies. 
For example, pre-and post-shipment export financing permits exporters 
to obtain short-term loans at preferential interest rates. The 
countervailable benefit from that program is the difference between the 
amount of interest respondents actually pay and the amount of interest 
they would have to pay at comparable interest rates on the market. In 
an analogous manner, the revenue from the sale of licenses is 
considered to be a grant to the company, and that grant constitutes the 
benefit. On the other hand, the countervailable portion of the Sec. 80 
HHC program is the amount of taxes on all export income (both of 
subject and non-subject merchandise) that is exempted and that 
otherwise would have been paid absent the tax deduction. Just as the 
Department does not consider the income tax effect on the amount of a 
grant to be countervailed (i.e., by deducting from the grant the amount 
of taxes that may have been due on the grant), it does not consider the 
secondary effect of other direct subsidy programs on the amount of the 
tax deduction because both programs provide separate and distinct 
countervailable benefits. If companies knew we would reduce their tax 
liability by the amount of other subsidies received, the Department 
would be, in essence, encouraging companies that receive 
countervailable income tax exemptions to use as many non-tax subsidy 
programs as possible because these companies would end up with the same 
countervailing duty rate as those companies that had no countervailable 
income tax deductions.
    Finally, we also have not followed the Court's decision in 
Crescent, because that case does not represent a final and conclusive 
decision and may yet be appealed. For these reasons, our determination 
and calculation of the countervailable benefit conferred on the 
castings exporters from the Sec. 80 HHC program is in accordance with 
record evidence, Department policy, and is otherwise in accordance with 
law.

Comment 3

    According to respondents, each type of payment received under the 
IPRS, CCS, the sales of licenses, and duty drawback program, is 
considered export income and is, therefore, deducted from taxable 
income under Sec. 80 HHC. Accordingly, because revenues from the CCS, 
IPRS, duty drawback, and sales of certain 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 Sec. 80 HHC 
benefits. Respondents claim they are not suggesting that the Department 
offset the Sec. 80 HHC subsidy, which would be impermissible under 
Sec. 771(6) of the Act; nor are they asking the Department to

[[Page 32302]]

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 benefiting the subject 
merchandise.
    Respondents further note that they had raised this issue in the 
1990 administrative review, and that the Department rejected the 
argument. According to respondents, the CIT has ruled on their appeal 
on this issue, stating:

    When Commerce specifically finds that a rebate program did not 
benefit merchandise subject to the countervailing duty order under 
review, Commerce cannot then countervail any of the benefit received 
through that program.

Crescent, 951 F. Supp. at 262. The CIT then remanded the issue to the 
Department, requiring ``recalculation of the benefit received through 
Sec. 80 HHC after subtracting the value of IPRS payments received from 
each company's taxable income.'' Id. Accordingly, respondents argue 
that the Department should recalculate the Sec. 80 HHC benefit in 
accordance with the court's ruling in the final results of this 
administrative review.
    Petitioners assert that the Department should sustain its practice 
of allocating the benefit from the Sec. 80 HHC program over total 
exports, because the program provides a subsidy associated with the 
export of all goods and merchandise. According to petitioners, this 
practice is consistent with Sec. 355.47(c)(1) of the 1989 Proposed 
Rule. Furthermore, contrary to respondents' claim that this policy 
elevates substance over form, it recognizes that a subsidy that is not 
tied to the export of particular products is different from a subsidy 
that is tied directly to one or more specific products.
    Petitioners argue that if the Department were to adopt respondents' 
approach, it would trace specific revenues to determine the tax 
consequences of those revenues. While petitioners recognize that the 
Department must conform to the Court's order in Crescent for the 1990 
review period, they also state that the Court's determination is 
subject to appeal. Accordingly, no final determination of this issue 
has yet been reached. Absent any binding judicial precedent that 
affects Department policy on this issue, petitioners urge the 
Department to continue to apply its consistent practice for purposes of 
the final results.

Department's Position

    We disagree with respondents. It is our view that the Department's 
rationale set forth above in Comment 2 for not adjusting the Sec. 80 
HHC subsidy calculations for revenue earned on the sale of export 
licenses and savings from pre- and post-shipment export financing 
applies equally to not adjusting the Sec. 80 HHC subsidy calculations 
for revenues from the CCS, IPRS, duty drawback, and sales of certain 
licenses not related to exports of subject castings to the United 
States. Further, the Department's approach is consistent with 
longstanding and judicially upheld allocation principles that underlie 
our countervailing duty methodology.
    Under the Department's past practice, where we determined that a 
subsidy is ``tied'' only to non-subject merchandise, that subsidy, of 
course, will not be attributed to the merchandise under investigation. 
To do so would violate the countervailing duty law which authorizes the 
Department to countervail only those subsidies that benefit subject 
merchandise.
    In this case, however, the benefit is not ``tied'' to either 
subject or non-subject merchandise, but applies across the board to all 
of the firm's export revenue, i.e., it is applicable to exports of both 
subject and non-subject merchandise. Under this type of situation, it 
is the Department's longstanding practice to allocate the benefit to 
the merchandise to which the benefit applies in order to produce an 
``apples-to-apples'' comparison. If a benefit is ``tied'' to subject 
merchandise, then the subsidy is determined by allocating the total 
benefit over the sales of subject merchandise only. However, if a 
benefit is firm-wide and not ``tied'' to specific merchandise, then the 
benefit is allocated over the firm's total sales, if it is a domestic 
subsidy, or over total exports, if it is an export subsidy. Either 
method provides for fair and accurate results.
    Under this longstanding practice, it is imperative that both the 
numerator (the benefit) and denominator (the universe of sales to which 
the benefit applies) used in our calculation of a subsidy reflect the 
same universe of goods. Otherwise the rate calculated will either over- 
or understate the subsidy attributable to the subject merchandise. If 
the numerator reflects a benefit ``tied'' to one particular product, 
then the denominator must reflect total sales or exports of only that 
product. Likewise, if the numerator reflects a benefit that is 
``untied'' and applies to all products, then the denominator must 
consist of total sales (if a domestic subsidy) or total exports (if an 
export subsidy) of all products.
    This is precisely the situation concerning the Sec. 80 HHC program, 
where a company can claim a tax deduction against taxable income (i.e., 
the company's profit prior to deductions) equal in amount to the profit 
it earned on all exports, both of subject and of non-subject 
merchandise. Indeed, this is a classic type of ``untied'' subsidy 
program--where the benefit is broad-based and not ``tied'' to a 
specific product or market. When calculating the benefit from an export 
subsidy such as the Sec. 80 HHC program, the Department does not deduct 
from the subsidy amount (the numerator) any benefits attributable to 
non-subject merchandise because the benefit is not ``tied'' to a 
specific product or market. Indeed, such an endeavor would be 
impossible. Rather, in order to determine the correct benefit for this 
type of export subsidy program, the Department divides the ``untied'' 
benefit by the company's total exports, which include both subject and 
non-subject merchandise. This calculation, dividing the ``untied'' 
Sec. 80 HHC tax deduction claimed on all exports by each firm's total 
exports, is consistent with longstanding Department practice. See, 
e.g., Malaysian Rubber Thread; Pasta From Turkey; Lamb Meat from New 
Zealand; Final Affirmative Countervailing Duty Determination; Standard 
Carnations From Chile, 52 FR 3313 (February 3, 1987); Final Affirmative 
Countervailing Duty Determination: Miniature Carnations From Colombia, 
52 FR 32033 (August 25, 1987); Final Affirmative Countervailing Duty 
Determinations: Certain Steel Products From Mexico, 58 FR 37352 (July 
9, 1993); and the Final Affirmative Countervailing Duty Determination; 
Certain Stainless Steel Cooking Ware From the Republic of Korea, 51 FR 
42867 (November 26, 1986). By allocating this ``untied'' benefit over 
both the company's subject and non-subject exports, we made an 
``apples-to-apples'' comparison which accurately reflected the net 
subsidy attributable to exports of subject merchandise.
    As petitioners noted, the Court's ruling in Crescent was not a 
final and conclusive court decision and is still subject to appeal. 
Accordingly, absent such a binding judicial precedent that affects the 
Department policy on this issue, we do not intend to not change our 
methodology for calculating the benefit conferred to castings exporters 
from the Sec. 80 HHC program. Also, for the reasons outlined above, it 
is our view that our current approach is in accordance with record 
evidence and Department policy, and is otherwise in accordance with 
law.

[[Page 32303]]

Comment 4

    According to respondents, certain castings exporters segregated 
profits relating to subject merchandise sales from profits relating to 
sales of non-subject merchandise. For these companies, respondents 
claim, the Department should calculate the Sec. 80 HHC subsidy based on 
profits relating to the subject merchandise only. For example, a 
calculation submitted by Kajaria Iron Castings shows the percentage of 
the company's total sales during the POR that were related to sales of 
the subject merchandise. Kajaria then applied that percentage to the 
company's total profits to derive the profit relating to sales of the 
subject merchandise. With respect to this company, respondents argue 
that the Department should have calculated the Sec. 80 HHC benefit 
based only on profits relating to subject merchandise sales.
    Petitioners first urge the Department to reject Kajaria's 
calculation, because they claim it is factual information submitted 
after the Department's deadline. Petitioners further contend that the 
company's calculation does not demonstrate how Kajaria derived the 
profit on sales of the subject merchandise. Rather, the company merely 
determined what percentage of its total sales were comprised of subject 
castings and applied that percentage to its profit. According to 
petitioners, the Department did not verify Kajaria's calculation, and, 
in any case, it would not allow the Department to determine accurately 
what portion of Kajaria's export profit was attributable to subject 
exports.
    Petitioners argue that Kajaria's calculation does not provide a 
reasonable basis to disaggregate the benefit attributable to various 
exported products under the Sec. 80 HHC program. The calculation 
presumes that in all cases there is a one-to-one correspondence between 
sales revenue, cost of production and profits. Petitioners assert, 
however, that the profit attributable to sales of different items will 
vary according to several factors, including time period, destination, 
customer, etc. In any case, petitioners state, it would be difficult to 
perform a consistent analysis across different companies, because each 
company may calculate end-of-year profit differently, depending on 
accounting decisions made in any given year. Therefore, any attempt to 
conduct such an analysis would be complicated and too administratively 
burdensome for the Department.
    Petitioners further argue that even if the profit attributable to 
the subject merchandise could be traced, the results could be 
anomalous, depending on the amount of the profit that is attributable 
to subject castings. For example, if the profit margin on subject 
castings in a given year is less than usual, the company's 
countervailable benefit would be relatively less for sales of that 
product. Conversely, if during a given period subject castings 
contributed more than usual to profits, the company would receive a 
larger countervailable benefit. Petitioners point out, however, that 
respondents are not suggesting that the countervailing duty margins 
should be increased because the operations of subject castings have 
become more profitable. For these reasons, petitioners argue that the 
Department should reject respondents proposal.

Department's Position

    At the outset, we must note that petitioners incorrectly claim that 
Kajaria's calculation, resubmitted by respondents in their January 6, 
1997, case brief, is factual information submitted after the 
Department's deadline. This calculation was originally provided by the 
company in its March 13, 1996, original questionnaire response, at 
Annexure B.
    With respect to respondents' argument that the Department should 
have calculated the Sec. 80 HHC subsidy based on profits relating to 
subject castings only, we disagree. Where a benefit is not tied to a 
particular product, the Department's consistent and longstanding 
practice is to attribute the benefit to all products exported by a firm 
where the benefit is received pursuant to an export subsidy program. 
See, e.g., Pasta From Turkey, 61 FR at 30370; and the 1993 Castings 
Final, 61 FR at 64683.
    As explained above in the Department's position on Comment 3, the 
benefit under Sec. 80 HHC applies, in this case, to exports of both 
subject and non-subject merchandise. The benefit, therefore, is not 
tied to any specific products manufactured or exported by a firm. If a 
benefit is firm-wide and not ``tied'' to specific merchandise, then 
that benefit is allocated over the firm's total exports, in the case of 
an export subsidy. By allocating the ``untied'' benefit under Sec. 80 
HHC over a company's total exports, we are making an ``apples-to-
apples'' comparison. This methodology accurately produces the net 
subsidy attributable to exports of the subject merchandise and provides 
for fair and accurate results.
    We also note that respondents have not, under their methodology, 
requested that the Department adjust the denominator in calculating the 
Sec. 80 HHC benefit. Accordingly, the net benefit to the company under 
this approach would be grossly understated because the ``apples-to-
apples'' comparison would be lost. In fact, the numerator (the benefit 
adjusted according to respondents' methodology) would reflect a benefit 
tied to the subject merchandise, while the denominator would still 
cover total exports. This result is not only inconsistent with 
Department practice, but is contrary to countervailing duty law. For 
these reasons, our calculation of the subsidy under Sec. 80 HHC remains 
unchanged from the preliminary results.

Comment 5

    In prior administrative reviews of this case, the Department used 
the small-scale industry (SSI) short-term interest rate as published by 
the Reserve Bank of India (RBI) to measure the benefit under the pre- 
and post-shipment export financing schemes. In this review, however, 
the Department changed its benchmark, adopting the ``cash credit'' 
short-term interest rate, as reported by the Government of India (GOI) 
in its March 13, 1997, original questionnaire response. According to 
respondents, the Department's justification for changing the benchmark 
was based on a statement by Small Industries Development Bank of India 
(SIDBI) officials at verification that castings exporters are not 
eligible for SIDBI financing at the small scale industry (SSI) interest 
rates. On December 2, 1996, following release of the Department's GOI 
verification report, respondents submitted a comment on that report, 
clarifying that ``all SSI castings exporters were eligible for non-
export credit as SSI rates during the [POR].'' Accordingly, respondents 
argue that the Department should use the SSI interest rate as a 
benchmark to calculate the benefit from the export financing programs. 
Respondents made similar arguments in their rebuttal brief which will 
not be repeated in a separate comment.
    Petitioners first argue that respondents December 2, 1996, letter 
constitutes new, unsolicited information and should be rejected. 
Petitioners further assert that record evidence does not support a 
finding that castings exporters in fact obtained non-export credit at 
SSI interest rates during the POR, notwithstanding respondents' claim 
that they were eligible for such credit. According to petitioners, 
Sec. 771(5)(E)(ii) of the Act directs the Department to select a 
benchmark based on financing that could actually be received by the 
recipient, and not one

[[Page 32304]]

for which respondents merely claim they are eligible to receive.
    The Department has, petitioners claim, complied with 
Sec. 771(5)(E)(ii) of the Act, by selecting a benchmark from a 
``comparable'' form of financing. According to GOI officials at 
verification, cash credit finance is comparable to financing received 
by exporters under the pre-and post-shipment export financing programs. 
Petitioners note that the same officials did not make such a claim with 
respect to SSI interest rates. With respect to the statute's direction 
to use a benchmark based on financing available ``on the market,'' 
petitioners assert that respondents failed to explain why market 
sourced cash credit financing is inferior to government directed SSI 
financing. Petitioners made similar arguments in their case brief which 
will not be repeated in a separate comment.

Department's Position

    We disagree with respondents. During the POR, the producers/
exporters of the subject merchandise obtained short-term financing 
under the pre- and post-shipment export financing programs. The 
companies are eligible for these loans based solely on their status as 
exporters. In determining whether a benefit has been conferred in the 
case of a loan, the statute very clearly directs the Department to 
examine ``if there is a difference between the amount the recipient of 
the loan pays on the loan and the amount the recipient would pay on a 
comparable commercial loan that the recipient could actually obtain on 
the market''. Section 771(5)(E)(ii) of the Act (emphasis added). While 
it is true that in prior proceedings of this case, we determined that 
the SSI interest rate was an appropriate benchmark to use in the 
calculation of the benefit under the export financing programs, 
information obtained at verification in this review has led us to 
change that finding.
    In this administrative review, the Department reexamined its use of 
the SSI interest rate, in part because of new allegations that 
respondents benefitted from programs administered by the Small 
Industries Development Bank of India (SIDBI). In our meetings with 
SIDBI and other GOI officials at verification, we learned that castings 
producers would not finance their domestic operations at SSI rates, 
but, rather, that such financing would most likely be linked to the 
prime lending rate (PLR). It is also our understanding from SIDBI 
officials that castings exporters were not eligible for financing at 
SSI rates during the POR. See the November 19, 1996, Memorandum for 
Barbara E. Tillman Re: Verification of the Government of India 
Questionnaire Responses for the 1994 Administrative Review of the 
Countervailing Duty Order on Certain Iron Metal Castings from India, at 
5 (GOI VR) (Public Version, on file in the Central Records Unit, Room 
B-099 of the Main Commerce Building).
    Respondents now argue that Department officials misunderstood what 
was stated at verification and that all castings exporters were 
eligible for SSI-linked financing. However, we disagree. The 
Department's findings with respect to interest rates are accurately 
reflected in the verification report. During verification, State Bank 
of India (SBI) officials stated that the domestic financing 
``comparable'' to the pre- and post-shipment export financing during 
the POR was financing at the ``cash credit'' interest rate, as reported 
by the GOI in its March 13, 1996, questionnaire response. See GOI VR at 
5. Furthermore, while respondents now claim that castings exporters 
were ``eligible'' to obtain SSI-linked financing, they do not dispute 
statements made by SIDBI officials that for non-export loans, castings 
exporters ``would most likely borrow at interest rates linked to the 
PLR.'' GOI VR at 8. The same officials, therefore, who claim that 
castings exporters are eligible for SSI programs, also believe that 
these companies would not, in fact, finance their non-export operations 
at SSI interest rates. This fact was further corroborated by Indian 
commercial bankers, who stated that an exporters' alternative source of 
financing during the POR was the PLR plus a spread. See the November 
19, 1996, Memorandum for Barbara E. Tillman Re: Meeting with Citibank 
Officials for the 1994 Administrative Review of the Countervailing Duty 
Order on Certain Iron Metal Castings from India, at 1 (Citibank VR) 
(Public Document, on file in the Central Records Unit, Room B-099 of 
the Main Commerce Building). Our discussions with bankers from the RBI 
also revealed that under the export financing programs, if exporters 
were unable to meet their obligations within a certain time period, 
``banks were free to charge commercial interest rates.'' GOI VR at 2 
(emphasis added). According to the RBI bankers, these rates ranged from 
16 percent to 21 percent in 1994. Therefore, even if castings exporters 
were eligible for SSI rates, the rates paid by these companies on 
overdue export loans were not SSI rates, but, rather, commercial 
interest rates comparable to those charged to non-exporting companies.
    Finally, evidence collected at Calcutta Ferrous, exporter of the 
subject merchandise, clearly indicates that non-export related 
financing by these companies was, in fact, not equivalent to the SSI 
interest rate during the POR. See the November 21, 1996, Memorandum for 
Barbara E. Tillman Re: Verification of the Calcutta Ferrous Limited's 
Questionnaire Responses for the 1994 Administrative Review of the 
Countervailing Duty Order on Certain Iron Metal Castings from India, at 
3-4 (CF VR) (Public Version, on file in the Central Records Unit, Room 
B-099 of the Main Commerce Building). Calcutta Ferrous officials 
explained the company maintains a ``cash credit'' account for domestic 
financing purposes. The documents we examined at verification showed 
that the company paid 16 percent on this financing through June 1994 
and 19.5 percent after that date. See CF VR at 4. Record evidence, 
therefore, supports the Department's preliminary finding. Accordingly, 
for these final results, we will continue to use the cash credit 
interest rate in calculating the benefit from the pre- and post-
shipment export financing programs.

Comment 6

    According to respondents, in calculating the actual benefit to 
castings exporters under the PSCFC program, the Department failed to 
take into account penalty interest paid at interest rates higher than 
the benchmark. Respondents argue that the Department should have 
adjusted the benefit on those loans by the excess overdue interest paid 
by the company at the penalty interest rate because that rate is 
greater than the benchmark rate. Rather than account for this excess 
interest paid on the loans, the Department calculated a zero benefit 
where the interest rate on the portion of the loan that was overdue was 
higher than the benchmark rate. According to respondents, the 
Department should have calculated a negative figure and adjusted the 
actual benefit on the loan.
    Petitioners argue that the Department should reject this 
methodology because it would permit a non-allowable offset to the 
countervailable benefit under the PSCFC program. According to 
petitioners, respondents fail to explain why an offset for penalty 
interest should be allowed when payment of that interest does not fall 
within the statute's list of allowable offsets under Sec. 771(6). The 
penalty interest, petitioners assert, does not fall within that list, 
but, rather, merely assures that the terms of the program are met. The 
costs associated with such interest charges are, therefore, due to the 
recipient's failure to comply with the terms of the loan. As such,

[[Page 32305]]

petitioners state, this is merely a secondary economic effect which the 
Department has previously determined should not be used as an offset to 
a program's benefit. See, e.g., Oil Country Tubular Goods from Canada; 
Final Affirmative Countervailing Duty Determination, 51 FR 15037 (April 
22, 1986), and Fabricas el Carmen, S.A. v. United States, 672 F. Supp. 
1465 (CIT 1987).
    Petitioners further claim that the Department has, in a comparable 
situation, refused to offset preferential with non-preferential loans 
in Oil Country Tubular Goods from Argentina: Final Results of 
Countervailing Duty Administrative Reviews, 56 FR 38116, 38117 (August 
12, 1991) (OCTG from Argentina). In that case, petitioners note, 
respondents claimed that a loan-by-loan analysis overstated the benefit 
received and that, taken together, the loans received by the company 
provided no preferential benefit. In rejecting this argument, the 
Department asserted that it

only examines loans received under programs that may potentially be 
countervailable [sic] if the interest rate is preferential when 
compared with the benchmark interest rate. We do not consolidate 
these preferential loans with non-countervailable commercial loans 
to examine whether the aggregate interest rate paid on a series of 
loans is preferential. It is not the Department's practice to offset 
the less favorable terms of one loan as an offset to another, 
preferential loan.

Id. According to petitioners, the statue by extension also does not 
allow the Department to offset the less favorable interest period of a 
loan (the period during which the loan was overdue) with the period in 
which the loan was provided on preferential terms. This is particularly 
the case, petitioners state, when the higher penalty interest was a 
result of the company's failure to comply with the terms of the 
program.

Department's Position

    We disagree with respondents. An adjustment to the benefit under 
the PSCFC program in the form advocated by respondents would be an 
impermissible offset to the benefit. Section 771(6) of the Act 
authorized the Department to subtract from the countervailable subsidy:

    (A) any application fee, deposit, or similar payment paid in 
order to qualify for, or to receive, the benefit of the 
countervailable subsidy,
    (B) any loss in the value of the countervailable subsidy 
resulting from its deferred receipt, if the deferral is mandated by 
Government order, and
    (C) export taxes, duties, or other charges levied on the export 
of merchandise to the United States specifically intended to offset 
the countervailable subsidy received.

As petitioners correctly note, penalty interest under the PSCFC program 
does not fall within this list of allowable offsets.
    Respondents cite no administrative or court precedent in support of 
their argument, and provide no clear indication how the suggested 
adjustment would be calculated. Apparently, respondents would have the 
Department determine the amount of overdue interest that would have 
been paid by the company at the benchmark interest rate. Overdue 
interest above this amount would be considered ``excess interest'' and 
deducted from the benefit calculated for the negotiated part of the 
loan.
    In light of how the PSCFC program operates, respondents' approach 
is inaccurate. As we explained in the preliminary results, under the 
PSCFC program, exporters discount their export bills with Indian 
commercial banks to finance their operations. By discounting an export 
bill, the company receives payment from the bank in the amount of the 
export bill, net of interest charges. The loan is considered ``paid'' 
once the foreign currency proceeds from an export sale are received by 
the bank. If those proceeds are not paid within the negotiated period, 
then the loan is considered ``overdue.'' In essence, however, this 
overdue period is like a new loan, because the original ``discounted 
loan period'' is fully accounted for, that is, the company has received 
payment from the bank and the interest on that payment has already been 
deducted. For the overdue loan, the bank will charge the company 
interest on the original amount of the loan at higher interest rates. 
The overdue interest rate varies, depending on the period for which the 
loan is overdue. Therefore, to determine whether interest charged on 
the ``overdue'' loan confers a countervailable benefit, we 
appropriately compared the overdue interest rate with the benchmark 
rate. If the benchmark rate was higher than the overdue interest rate, 
we found no benefit. Therefore, the adjustment suggested by respondents 
is inappropriate given the way in which the PSCFC program is 
structured.
    Further, because respondents characterize interest paid on overdue 
loans for which the interest rate exceeded the benchmark as ``excess 
interest,'' respondents'' argument assumes that the overdue interest 
rate for certain PSCFC loans does not reflect comparable commercial 
rates. This is incorrect. In fact, statements by Indian government and 
commercial bankers at verification indicate that the interest rates 
charged on the overdue portion of PSCFC loans are ``commercial rates.'' 
See Citibank VR at 2 and GOI VR at 3-4. The GOI requires banks to 
charge even higher penalty, rates for some of these loans so that 
exporters comply with the terms of this preferential financing. Under 
comparable domestic financing, companies that negotiated short-term 
working capital loans, but which failed to meet the terms of the loan, 
would also be subject to penalties if the terms of the loan were not 
met. For these reasons, the benefit calculations for PSCFC loans have 
not been changed.

Comment 7

    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 consumed in 
the production of the exported products (making normal allowance for 
waste).'' This condition, according to petitioners, has not been met 
with respect to the Advance License program because the 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.''

[[Page 32306]]

    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 
duty free imports rather than provide for remittance of duty upon 
exportation, this does not make them countervailable. Respondents also 
indicate that if an Advance 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 1993 Castings Final, 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 consumed in the production of 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 consumed 
in the production of an exported product is not a countervailable 
subsidy, if the remission or drawback is not excessive. We determined 
that Advance Licenses are equivalent to a duty remission drawback. That 
is, the licenses allow companies to import, net of duty, raw materials 
which are physically incorporated into the exported products. Further, 
we have never found that castings exporters have transferred an Advance 
License. Accordingly, our determination that the provision of Advance 
Licenses is not countervailable remains unchanged.

Final Results of Review

    In accordance with 19 CFR 355.22(c)(4)(ii), we calculated an 
individual subsidy rate for each producer/exporter subject to this 
administrative review. For the period January 1, 1994 through December 
31, 1994, we determine the net subsidy for the reviewed companies to be 
as follows:

------------------------------------------------------------------------
                                                             Net subsidy
             Net subsidies--Producer/ Exporter                   rate   
                                                              (percent) 
------------------------------------------------------------------------
Calcutta Ferrous...........................................         5.77
Carnation Enterprise Pvt. Ltd..............................         2.56
Commex Corporation.........................................         1.42
Crescent Foundry Co. Pvt. Ltd..............................         8.16
Dinesh Brothers............................................         5.85
Kajaria Iron Castings Pvt. Ltd.............................        16.06
Kejriwal Iron & Steel Works................................        15.21
Nandikeshwari Iron Foundry Pvt. Ltd........................         3.40
R.B. Agarwalla & Company Pvt. Ltd..........................         4.59
RSI Limited................................................         7.82
Seramapore Industries Pvt. Ltd.............................         9.43
Shree Rama Enterprise......................................        13.90
Siko Exports...............................................         4.65
Super Iron Foundry.........................................         0.39
Victory Castings Ltd.......................................         2.10
------------------------------------------------------------------------

    We will instruct the U.S. Customs Service (``Customs'') to assess 
countervailing duties as indicated above. The Department will also 
instruct Customs to collect cash deposits of estimated countervailing 
duties in the percentages detailed above of the f.o.b. invoice price on 
all shipments of the subject merchandise from reviewed companies, 
entered or withdrawn from warehouse, for consumption on or after the 
date of publication of the final results of this review. As provided 
for in 19 CFR Sec. 355.7, any rate less than 0.5 percent ad valorem in 
an administrative review is de minimis. Accordingly, for those 
producers/exporters no countervailing duties will be assessed or cash 
deposits required.
    Because the URAA replaced the general rule in favor of a country-
wide rate with a general rule in favor of individual rates for 
investigated and reviewed companies, the procedures for establishing 
countervailing duty rates, including those for non-reviewed companies, 
are now essentially the same as those in antidumping cases, except as 
provided for in Sec. 777A(e)(2)(B) of the Act. The requested review 
will normally cover only those companies specifically named. See 19 CFR 
355.22(a). Pursuant to 19 CFR Sec. 355.22(g), for all companies for 
which a review was not requested, duties must be assessed at the cash 
deposit rate, and cash deposits must continue to be collected, at the 
rate previously ordered. As such, the countervailing duty cash deposit 
rate applicable to a company can no longer change, except pursuant to a 
request for a review of that company. See Federal-Mogul Corporation and 
The Torrington Company v. United States, 822 F.Supp. 782 (CIT 1993) and 
Floral Trade Council v. United States, 822 F.Supp. 766 (CIT 1993) 
(interpreting 19 CFR Sec. 353.22(e), the antidumping regulation on 
automatic assessment, which is identical to 19 CFR Sec. 355.22(g)). 
Therefore, the cash deposit rates for all companies except those 
covered by this review will be unchanged by the results of this review.
    We will instruct Customs to continue to collect cash deposits for 
non-reviewed companies (including companies listed on page 2, above, 
that did not export the subject merchandise during the POR) at the most 
recent company-specific or country-wide rate applicable to the company. 
Accordingly, the cash deposit rates that will be applied to non-
reviewed companies covered by this order are those established in the 
most recently completed administrative proceeding, completed under the 
pre-URAA statutory provisions. See Certain Iron-Metal Castings From 
India: Final Results of Countervailing Administrative Review, 61 FR 
64676 (December 6, 1996). These rates shall apply to all non-reviewed 
companies until a review of a company assigned these rates is 
requested. In addition, for the period January 1, 1994 through December 
31, 1994, the assessment rates applicable to all non-reviewed companies 
covered by this order are the cash deposit rates in effect at the time 
of entry.
    This notice serves as a reminder to parties subject to 
administrative protective order (APO) of their responsibility 
concerning the disposition of proprietary information disclosed under 
APO in accordance with 19 CFR Sec. 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 
Sec. 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)).


[[Page 32307]]


    Dated: June 4, 1997.
Robert S. LaRussa,
Acting Assistant Secretary for Import Administration.
[FR Doc. 97-15606 Filed 6-12-97; 8:45 am]
BILLING CODE 3510-DS-P