[Federal Register Volume 63, Number 222 (Wednesday, November 18, 1998)]
[Notices]
[Pages 64050-64061]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-30856]



[[Page 64050]]

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DEPARTMENT OF COMMERCE

International Trade Administration
[C-533-063]


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

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

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

-----------------------------------------------------------------------

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

EFFECTIVE DATE: November 18, 1998.

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

SUPPLEMENTARY INFORMATION:

Background

    Pursuant to 19 CFR 351.213(b), this review covers only those 
producers/exporters of the subject merchandise for which a review was 
specifically requested. The producers/exporters of the subject 
merchandise for which this review was requested are:

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

    Delta Enterprises, Metflow Corporation, Orissa Metal Industries, 
R.B. Agarwalla & Co. Pvt. Ltd., Shree Uma Foundries, Siko Exports, and 
SSL Exports reported, through company certifications submitted on the 
record, that they did not export the subject merchandise to the United 
States during the period of review. Therefore, in accordance with 
section 351.213(d)(3) of the Department's regulations, we are 
rescinding the review with respect to these companies. This review also 
covers 19 programs.
    In the notice of preliminary results, we invited interested parties 
to comment on the preliminary results (63 FR 37534, July 13, 1998). On 
August 12, 1998, case briefs were submitted by the Engineering Export 
Promotion Council of India and the exporters of certain iron-metal 
castings from India (respondents), and the Municipal Castings Fair 
Trade Council and its members (petitioners). On August 19, 1998, 
rebuttal briefs were submitted by the respondents and petitioners.

Applicable Statute

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

Scope of the Review

    Imports covered by this administrative review are shipments of 
Indian manhole covers and frames, clean-out covers and frames, and 
catch basin grates and frames. These articles are commonly called 
municipal or public works castings and are used for access or drainage 
for public utility, water, and sanitary systems. During the review 
period, such merchandise was classifiable under the Harmonized Tariff 
Schedule (HTS) item numbers 7325.10.0010 and 7325.10.0050. The HTS item 
numbers are provided for convenience and Customs purposes. The written 
description remains dispositive.

Verification

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

Analysis of Programs

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

I. Programs Conferring Subsidies

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

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

B. Post-Shipment Export Financing
    In the preliminary results, we found that this program conferred 
countervailable subsidies on the subject

[[Page 64051]]

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

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

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

------------------------------------------------------------------------
                                                            Net subsidy 
             Net subsidies--producer/exporter              rate--percent
------------------------------------------------------------------------
Calcutta Ferrous Ltd.....................................         0.02  
Dinesh Brothers Pvt. Ltd.................................         0.05  
Nandikeshwari Iron Foundry Pvt. Ltd......................         0.08  
R.B. Agarwalla & Company.................................         0.11  
RSI Limited..............................................         0.08  
------------------------------------------------------------------------

D. Income Tax Deduction Under Sec. 80 HHC
    In the preliminary results, we found that this program conferred 
countervailable subsidies on the subject merchandise. Our review of the 
record and our analysis of the comments submitted by the interested 
parties, summarized below, has led us to modify our findings from the 
preliminary results for Dinesh. See Comment 1 below. Our findings for 
the other companies have not changed as as result of our review of the 
record and our analysis of the comments submitted by the interested 
parties. Accordingly, the net subsidies for this program are as 
follows:

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

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

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

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

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

II. Programs Found To Be Not Used

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

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

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

[[Page 64052]]

Analysis of Comments

Comment 1: Use of Denominator for Dinesh

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

Department's Position

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

Comment 2: Sale of Import License by Carnation

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

Department's Position

    We agree with petitioners. Not only is the Department's long-
standing policy to disregard secondary tax consequences of 
countervailable benefits, but also the statute is clear in regard to 
permissible offsets to subsidies. Section 771(6) of the Act provides an 
exclusive list of offsets which may be deducted from the amount of a 
gross subsidy, and an offset for income tax payments is not included in 
that list. For purposes of determining the net subsidy, the Department, 
pursuant to section 771(6), may subtract from the gross countervailable 
subsidy the amount of:

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

    In Michelin Tire, the court upheld the Department's policy of 
disregarding secondary tax consequences, rejecting a claim that after-
tax considerations should be included in the calculation of a subsidy. 
In its decision the court stated that: ``[T]hese effects [secondary tax 
effects] are too uncertain to be considered a necessary part of a 
subsidy calculation in these circumstances.'' See 6 CIT 320, 328 
(1983), vacated on other grounds, 9 CIT 38 (1985). Therefore, based on 
the statute, case precedent, and the Department's policy to disregard 
secondary tax effects on subsidies, we have not altered our calculation 
of the subsidy which Carnation received from the sale of an import 
license during the review period.

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

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

[[Page 64053]]

that PSCFC loans should not be viewed as subsidies so long as they are 
not provided at rates that are below the rates at which the banks 
themselves could borrow U.S. dollars. Accordingly, PSCFC loans should 
not be considered beneficial to the extent that they are provided at 
rates above the appropriate benchmark--a LIBOR-linked rate.
    Petitioners argue that respondents are erroneously confusing the 
terms ``export credit'' and ``packing credit,'' the type of financing 
provided to castings exporters, when discussing item (k). Petitioners 
note that the Department has consistently interpreted the term ``export 
credit'' to refer to medium- and long-term loans and therefore, item 
(k) does not apply to the short-term export loans which are under 
review.
    Additionally, petitioners assert that the Department has 
consistently rejected the cost-to-government'' methodology of item (k). 
In support of their argument, petitioners cite to the Department's 
determinations in Extruded Rubber Thread from Malaysia; Final Results 
of Countervailing Duty Administrative Review, 60 FR 17515, 17517 (April 
6, 1995) and Certain Textile Mill Products from Mexico; Final Results 
of Countervailing Duty Administrative Review, 56 FR 12175, 12177 (March 
22, 1991). Petitioners also cite to the 1989 final results of Certain 
Textile Mill Products from Mexico, in which the Department stated:

    When we have cited the Illustrative List as a source for 
benchmarks to identify and measure export subsidies, those 
benchmarks have been consistent with our long-standing practice of 
using commercial benchmarks to measure the benefit to a recipient of 
a subsidy program. The cost-to-government standard in item (k) of 
the Illustrative List does not fully capture the benefits provided 
to recipients of FOMEX financing. Therefore, we must [sic] use a 
commercial benchmark to calculate the benefit from a subsidy, 
consistent with the full definition of ``subsidy'' in the statute.

    54 FR 36841, 36843 (September 5, 1989). Petitioners further point 
out that the Department upheld its repudiation of the ``cost-to-
government'' standard contemplated in item (k) in the Statement of 
Administrative Action: Agreement on Subsidies and Countervailing 
Measures (SAA). The SAA states that ``* * * the Illustrative List has 
no direct application to the CVD portion of the Subsidies Agreement, 
and items (k) and (l) of the Illustrative List use a cost-to-the-
government standard which is inappropriate for CVD purposes.'' See H.R. 
Doc. No. 103-316, Vol. 1, 927-928 (1994). The petitioners assert that 
this language restates the Department's long-standing practice that the 
``cost-to-government'' approach contemplated in item (k) does not 
adequately capture the benefits provided under short-term export 
financing programs. Therefore, the Department should reject 
respondents' argument and continue using a non-preferential interest 
rate based on comparable, rupee-based financing as a benchmark.

Department's Position

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

Comment 4: Double-Counting of Subsidies

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

[[Page 64054]]

1997) (1994 Castings Final). Petitioners contend that the Department's 
prior findings on this issue should be upheld in this administrative 
review on the basis of (1) The facts on the record; (2) because the 
subsidies being countervailed are separate and distinct; (3) because 
the Department has a consistent policy of not examining the tax 
consequences of tax exemptions related to loans and grants; and (4) 
there is no reasonable way for the Department to isolate the alleged 
effects on respondents' export tax liability. In addition, petitioners 
argue that the Department has explained in earlier reviews that the 80 
HHC income tax exemption for export earnings is a countervailable 
subsidy that is separate and distinct from the subsidies received from 
export financing programs and the sale of import licenses, and 
therefore, each subsidy program should be separately countervailed.
    Also, petitioners contend that it is not the Department's policy to 
examine the secondary tax effects of subsidies. Petitioners indicate 
that the Department's determination to separately countervail these 
different subsidies is supported by the courts' affirmance of the 
agency's policy to disregard any secondary effect of a direct subsidy 
on a company's financial performance. In support of this, petitioners 
cite Saarstahl AG v. United States, 78 F.3d 1539, 1543 (Fed. Cir. 
1996). Petitioners assert that this approach is proper and reasonable 
given the difficulties inherent in an effort to calculate secondary 
effects. Petitioners cite to Michelin Tire Corp. v. United States, in 
which the court stated, ``These {secondary} effects are too uncertain 
to be considered a necessary part of a subsidy calculation.'' See 6 CIT 
320, 328 (1983), vacated on other grounds, 9 CIT 38 (1985).
    Petitioners further note that the legislative history of the URAA 
also makes clear that in determining whether a countervailable subsidy 
exists, the Department is not required to consider the effect of the 
subsidy. SAA at 246, 926 (codified at 19 U.S.C. 1677(5)(C)). The SAA 
explains that:

    [T]he Administration wants to make clear its view that the new 
definition of subsidy does not require that Commerce consider or 
analyze the effect (including whether there is any effect at all) of 
a government action on the price or output of the class or kind of 
merchandise under investigation or review.

    Id. at 926. Petitioners state that when applied to the alleged 
double-counting issue, this means that the Department does not have to 
consider whether subsidies in the form of grants or loans have any 
effect on the 80 HHC tax program when determining whether subsidies 
under 80 HHC are countervailable.
    Petitioners further indicate that though respondents argue that the 
Department should correct for the alleged double-counting issue by 
making adjustments to the 80 HHC subsidy percentage, they do not 
provide any comment on how the Department should do this. According to 
petitioners, the Department has acknowledged in earlier reviews that 
the adjustments requested by the respondents cannot be accomplished due 
to the multiple variables, which affect a company's costs, that would 
have to be isolated.

Department's Position

    Respondents' argument that the subsidies provided under the export 
financing and import licensing programs have been countervailed twice, 
by also countervailing the full amount of the 80 HHC tax deduction, is 
incorrect. In Kajaria, the CAFC reviewed the Department's decision to 
countervail that portion of the Cash Compensatory Support (CCS) rebates 
found to be excessive, and to also countervail those over-rebates under 
the 80 HHC program. Under the CCS program, the GOI rebated indirect 
taxes on inputs consumed in the production an exported product. The CCS 
rebates were considered by the GOI to be export income. Under the GOI's 
80 HHC program only profit from export income is exempt from tax 
liability. With respect to these particular facts, the CAFC in its 
decision concluded that by first countervailing the CCS over-rebates, 
as a distinct program, and then countervailing the same over-rebates 
again as tax exempt export income under the 80 HHC program, the 
Department had improperly double-counted the over-rebates.
    In its decision, the court stated:

    * * * Commerce must avoid double-counting subsidies, i.e., 
countervailing both the full amount of a subsidy and the non-
taxation of that subsidy, when the party under investigation 
provides documentation that allows Commerce to separate the tax 
deduction based on the fully countervailed subsidy from the 
otherwise countervailable portion of the tax deduction.

    Kajaria, No. 97-1490 at 24-25. In the present review, neither the 
interest saved under the export financing programs nor the proceeds 
earned on the sales of import licenses are deemed to be export income. 
There is no evidence on the record which demonstrates a direct link 
between these separate and distinct program subsidies and a specific 
tax exemption subsidy program, i.e., the 80 HHC tax deduction. The 
respondents in this review did not provide either income and tax 
statements, or government descriptions of the subsidy programs which 
demonstrate that the export financing and import license subsidies are 
considered by the GOI to be export income and that the profit derived 
from such income is specifically exempt from tax liability under 80 
HHC.
    With respect to the export financing programs, the respondents 
stated that under these schemes, the GOI provides exporters with short-
term export lending to finance their working capital requirements. The 
respondents' contention that as a result of such financing, an exporter 
realizes a reduction of interest expenses which in turn increases 
profits on export sales, is speculative. It is incorrect for 
respondents to assume that every rupee saved on interest costs 
increases the profits of the company by one rupee and therefore, the 
concessional financing programs increase the 80 HHC deduction since the 
deduction increases as profits from exports increase. Thus, we find no 
basis for the respondents' argument that, by countervailing the export 
financing programs and the 80 HHC deduction in full, the benefit to the 
exporter from the financing programs is being countervailed twice.
    In regard to the sale of import licenses, the record is void of any 
indication that the profit a company realizes from the sale of an 
import license is exempt from tax liability. What evidence respondents 
did put on the record shows, for example, that Carnation Industries 
reported and documented on the record that the revenue it earned from 
the sale of an import licence during the review period was taxed by the 
State of West Bengal. Therefore, we find no basis for the respondents' 
argument that revenue earned from the sale of an import license 
constitutes export income, the profits from which may be deducted from 
taxable income under 80 HHC. Accordingly, we determine that the subsidy 
from the import license sale is not being double-counted by also 
countervailing in full the 80 HHC tax deduction.

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

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

[[Page 64055]]

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

Department's Position

    We disagree with respondents that for the final results the 
Department should revise its benefit calculations for the 80 HHC tax 
exemption program in light of Kajaria. The circumstances and the record 
developed in this review are different from those in the case of 
Kajaria. In Kajaria, the Court ruled that the record showed that the 
IPRS rebates for non-subject merchandise were deemed by the GOI to be 
export income. Further, the Court found that profits derived from that 
export income were specifically exempt from income tax liability under 
the 80 HHC program. In short, rebates specifically identified as export 
income under one program were directly linked to the exemption from tax 
liability of profits derived from such export income under another 
subsidy program. It is clear from the CAFC's opinion that its holding 
was limited to the particular circumstances in Kajaria. The facts and 
record in this review are not the same as those in Kajaria. Thus, no 
revision to the 80 HHC benefit calculation is warranted.
    During this administrative review, no exporter submitted 
information for the record which demonstrated that IPRS rebates were 
received for the sale of non-subject merchandise to the United States. 
In fact, no exporter submitted information that demonstrated that any 
alleged benefits received for non-subject merchandise were expressly 
denominated as export income, and that the profits derived from such 
export income were expressly exempt from tax liability under the 80 HHC 
program.
    As mentioned above, respondents claim that the export incentives 
which Kejriwal received on the sale of non-subject merchandise should 
be factored out of the Department's calculation of the benefit to 
subject castings from the 80 HHC tax deduction. We disagree with the 
respondents. Kejriwal provided no documentation on the record to 
support its claim that the export incentives received were in fact 
export income earned on the sale of non-subject merchandise. Further, 
nowhere on the record does Kejriwal or the GOI indicate that export 
incentives are export income and that the section 80 HHC specifically 
exempts profits derived from that export income. Because the record is 
void of such information, we have not modified the 80 HHC benefit 
calculation for Kejriwal to exclude, from the computation, these export 
incentives.
    In like manner, R.B. Agarwalla did not provide any documentation to 
support its claim that a portion of its income listed as duty drawback 
received on non-subject merchandise is specifically denominated as 
export income by the GOI. There is no information on the record which 
indicates that duty drawback is considered to be export income and that 
the section 80 HHC specifically exempts the profits derived from that 
income. Therefore, we have not made any adjustments to the 80 HHC 
benefit calculation for R.B. Agarwalla to take into account the duty 
drawback the company received on non-subject merchandise.
    The burden of creating an adequate record lies with respondents and 
not with the Department. NTN Bearing Corp. of America v. United States, 
997 F.2d 1453, 1458 (Fed. Cir. 1993), quoting Tianjin Mach. Import & 
Export Corp. v. United States, 806 F. Supp. 1008, 1015 (CIT 1992). In 
this review, neither Kejriwal nor R.B. Agarwalla developed such a 
record with respect to the Kajaria-type adjustment they are requesting. 
Moreover, the Department need not engage in any kind of subsidy tracing 
exercise. On this point, the CAFC was very clear:

    [W]e are mindful of the government's argument that Commerce does 
not engage in subsidy tracing because of the burden involved in 
sorting the tax treatment of subsidies. Again, our decision does not 
mean that in every review or investigation Commerce must trace the 
tax treatment of subsidies on non-subject merchandise when a tax 
deduction results in a countervailable subsidy to determine if the 
deduction is partially based on the subsidy on non-subject 
merchandise.

    Kajaria, No. 97-1490 at 27. Accordingly, the Department has not 
made any adjustment to the 80 HHC calculations in the final results of 
this review to determine the subsidy bestowed on exports of the subject 
merchandise. Because respondents did not provide to the Department 
documentation with respect to export profits derived from export income 
earned on non-subject merchandise which is specifically exempt under 
the 80 HHC, we have continued to employ our ``untied'' benefit 
methodology to calculate the net subsidy attributable to exports of the 
subject merchandise for those exporters which claimed the 80 HHC tax 
deduction during the period of review. It is the Department's 
consistent and long-standing practice to attribute a benefit from an 
export subsidy that is not tied to a particular product or

[[Page 64056]]

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

Comment 6: Penalty Interest Paid

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

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

    Id. Petitioners argue that, by extension, the Department cannot, 
under the terms of the statute, offset the less favorable interest 
period of a loan (the period during which the loan was overdue) with 
the period in which the loan was provided on preferential terms. This 
is particularly the case, petitioners state, when the higher penalty 
interest was a result of the company's failure to comply with the terms 
of the program.

[[Page 64057]]

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

Department's Position

    An adjustment to the benefit under the export financing programs in 
the form advocated by respondents would be an impermissible offset to 
the benefit. In accordance with section 771(6) of the Act, the 
Department may subtract from the gross countervailable subsidy the 
amount of:

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

    As petitioners correctly note, penalty interest under the export 
financing programs does not fall within this list of allowable offsets.
    Additionally, in light of how the post-shipment export financing 
programs operate, respondents' approach is inaccurate. As we explained 
in the preliminary results, exporters discount their export bills with 
Indian commercial banks to finance their operations. See Certain Iron 
Metal Castings from India; Preliminary Results of Administrative 
Review, 63 FR 37536 (July 13, 1998) (1996 Castings Prelim). By 
discounting an export bill, the company receives payment from the bank 
in the amount of the export bill, net of interest charges. The loan is 
considered ``paid'' once the foreign currency proceeds from an export 
sale are received by the bank. If those proceeds are not paid within 
the negotiated period, then the loan is considered ``overdue.'' In 
essence, however, this overdue period is a new loan, because the 
original ``discounted loan period'' is fully accounted for, that is, 
the company has received payment from the bank and the interest on that 
payment has already been deducted. For the overdue loan, the bank will 
charge the company interest on the original amount of the loan at a 
higher interest rate. The overdue interest rate varies depending on the 
period for which the loan is overdue. To determine whether interest 
charged on the ``overdue'' loan confers a countervailable benefit, we 
compared the overdue interest rate with the benchmark rate. If the 
overdue interest rate was higher than the benchmark rate, we found no 
benefit. Therefore, the adjustment suggested by respondents is 
inappropriate given the way in which the export financing programs 
operate.

Comment 7: Company-Specific Benchmarks

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

Department's Position

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

[[Page 64058]]

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

Comment 8: Countervailability of Advance Licenses

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

[[Page 64059]]

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

Department's Position

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

Comment 9: Countervailability of the Duty Entitlement Passbook Scheme

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

Department's Position

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

[[Page 64060]]

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

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

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

Department's Position

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

Final Results of Review

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

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

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

[[Page 64061]]

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

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

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

    Dated: November 10, 1998.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 98-30856 Filed 11-17-98; 8:45 am]
BILLING CODE 3510-DS-P