[Federal Register Volume 64, Number 74 (Monday, April 19, 1999)]
[Notices]
[Pages 19125-19134]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-9761]


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DEPARTMENT OF COMMERCE

International Trade Administration
[C-533-816]


Final Negative Countervailing Duty Determination: Elastic Rubber 
Tape From India

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

EFFECTIVE DATE: April 19, 1999.

FOR FURTHER INFORMATION CONTACT: Vincent Kane or Suresh Maniam, Office 
I, AD/CVD Enforcement, Import Administration, U.S. Department of 
Commerce, Room 3099, 14th Street and Constitution Avenue, N.W., 
Washington, D.C. 20230; telephone (202) 482-2815 or 482-0176, 
respectively.

Final Determination

    The Department of Commerce (``the Department'') determines that 
countervailable subsidies are being provided to Garware Elastomerics 
Ltd. and that these subsidies are de minimis.

Petitioners

    The petition in this investigation was filed by Fulflex, Inc., 
Elastomer Technologies Group, Inc., and RM Engineered Products, Inc. 
(``petitioners'').

Respondents

    The respondents in this investigation are Garware Elastomerics Ltd. 
(``GEL''), its affiliate, and the Government of India (``GOI'').

Case History

    Since our preliminary determination on December 7, 1998 (63 FR 
67457), the following events have occurred: On January 11, 1999, 
January 13, 1999, February 8, 1999, and February 12, 1999, we issued 
supplemental questionnaires to respondents. We received responses to 
these questionnaires prior to verification. On January 8, 1999, we 
aligned the date of our final determination with the date of the final 
determination in the companion antidumping duty investigation of 
elastic rubber tape from India (63 FR 4973). We conducted a 
verification in India of the questionnaire responses received from the 
Government of India, Garware Elastomeric Ltd., (GEL) and one of GEL's 
affiliates from February 21 through March 6, 1999. Petitioners filed a 
case brief on March 24, 1999. Respondents filed a rebuttal brief on 
March 26, 1999.

Period of Investigation

    The period for which we are measuring subsidies (``the POI'') is 
GEL's 1997 fiscal year from April 1, 1997 through March 31, 1998.

Scope of Investigation

    For purposes of this investigation, the product covered is elastic 
rubber tape. Elastic rubber tape is defined as vulcanized, non-cellular 
rubber strips, of either natural or synthetic rubber, 0.006 inches to 
0.100 inches (0.15 mm to 2.54 mm) in thickness, and \1/8\ inches to 
1\5/8\ inches (3 mm to 42 mm) in width. Such product is generally used 
in swim wear and underwear.
    The merchandise subject to this investigation is classified in the 
Harmonized Tariff Schedule of the United States (``HTSUS'') at 
subheading 4008.21.00. Although the HTSUS subheading is provided for 
convenience and customs purposes, the written description of the 
merchandise under investigation is dispositive.

The 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 investigation in 
accordance with section 701 of the Act.

Injury Test

    Because India is a ``Subsidies Agreement Country'' within the 
meaning of section 701(b) of the Act, the International Trade 
Commission (``ITC'') is required to determine whether imports of the 
subject merchandise from India materially injure, or threaten material 
injury to, a U.S. industry. On October 15, 1998, the ITC published its 
preliminary determination finding that there is a reasonable indication 
that an industry in the United States is being materially injured, or 
threatened with material injury, by reason of imports of the subject 
merchandise from India (see 63 FR 55407 (October 15, 1998)).

De Minimis Threshold for Least Developed Countries

    Section 705(3) of the Act requires the Department to disregard de 
minimis subsidies in making countervailing duty determinations. The 
Agreement on Subsidies and Countervailing Measures extends special and 
differential treatment to developing and least-developed members of the 
World Trade Organization, inter alia, by raising the de minimis level 
for these members. Normally, de minimis is defined as a

[[Page 19126]]

subsidy of one percent or less ad valorem. In the case of least 
developed countries the de minimis standard is three percent or less. 
(See section 703(b)(4)(C) of the Act.)
    Because India is considered a least developed country, it is 
entitled to the three percent de minimis test. (See Developing and 
Least-Developed Country Designations under the Countervailing Duty Law 
(63 FR 29945, 29946 (June 2, 1998)).

Subsidies Valuation Information

    Benchmarks for Short-term Loans: GEL received an exemption from 
customs duties on certain capital goods under the Export Promotion 
Capital Goods Scheme contingent on its export performance over a five-
year period. We are treating the contingent liability arising from the 
exemption as a series of short-term, zero rate loans that were taken 
out in the year prior to the POI. Our benchmark for these loans is an 
average of the short-term loan rates reported by the State Bank of 
India for the year prior to the POI. See the Reserve Bank of India's 
Report on Currency and Finance (1997-98, Statement 70). We find this 
rate to be representative of short-term commercial interest rates in 
effect prior to the POI.
    As explained below in the Affiliated Parties section, we found GEL 
to be related to an affiliated company. In addition, as explained below 
in the Financial Transaction Between GEL and Its Related Company 
section, we found that GEL received short-term loans from its 
affiliate. To determine whether loans received from its affiliate prior 
to the POI were on commercial terms, we used the State Bank of India's 
short-term advance rate (described above) as our benchmark rate. For 
the loans received from its affiliate during the POI, most did not have 
interest payments due during the POI. Therefore, GEL would not receive 
any benefit from these loans during the POI. For those loans received 
from its affiliate during the POI which also had payments due during 
the POI, we have used as our benchmark the average interest rate on 
several short-term lines of credit received by GEL from commercial 
banks.

Affiliated Parties

    In accordance with section 771(33) of the Act, the Department 
considers the following persons to be affiliated or affiliated persons: 
(1) members of a family; (2) any officer or director of an organization 
and such organization; (3) partners; (4) employer and employee; (5) any 
person directly or indirectly owning, controlling, or holding with 
power to vote, five percent or more of the outstanding voting stock or 
shares of any organization and such organization; (6) two or more 
persons directly or indirectly controlling, controlled by, or under 
common control with, any person; and (7) any person who controls any 
other person and such other person.
    In cases where a company under investigation is affiliated with 
another company, the Department's questionnaire directs the affiliated 
company to respond to our countervailing duty questionnaire, if: (1) 
that company produces the subject merchandise or (2) that company is 
``related'' to the company under investigation, and there are financial 
transactions between the two companies. Normally, we consider companies 
to be ``related,'' if they prepare consolidated financial statements or 
if one of the companies has at least 20 percent ownership in the other. 
See Final Affirmative Countervailing Duty Determination: Certain Pasta 
(``Pasta'') from Italy, 61 FR 30288, 30290 (June 14, 1996). If the 
related company has financial transactions with the company under 
investigation that are not on commercial terms and the related company 
is found to have benefitted from subsidies during the POI, the 
Department may determine that there has been a transfer of subsidies 
from the related company to the company originally under investigation.
    In this case, based on proprietary information in GEL's November 9, 
1998 questionnaire response and its November 16, 1998 supplementary 
questionnaire response (SQR), we determine that GEL is related to its 
affiliate. In addition, GEL reported, and we verified, that financial 
transactions have taken place between the two companies. (See March 31, 
1999 Memorandum to the File on our reasons for determining the related 
company to be related.) As described below, our review of these various 
transactions leads us to conclude that certain of the financial 
transactions resulted in a transfer of subsidies from the related 
company to GEL.

Financial Transactions Between GEL and Its Related Company

    During GEL's start-up in 1995, the related company supplied certain 
machinery and equipment and technical advice to GEL. In addition, the 
related company provided loans and loan guarantees to GEL and, on 
limited occasions, certain inputs to production. As explained below, we 
determine that the transactions between GEL and its related company 
involving loan guarantees and the provision of supplies were on 
commercial terms. However, the short-term loans provided to GEL by its 
related company are not on commercial terms. Nor are the financing 
arrangements for the machinery and technical advice provided to GEL by 
its related company.
    Respondents argue that the financial transactions (short-term 
loans, loan guarantees, provision of machinery and supplies, and 
provision of technical advice) between GEL and its related company were 
consistent with commercial considerations. In support of this argument, 
they claim that the stock structure of GEL's related company requires 
that the transactions be made on commercial terms. The transfer of 
subsidies to GEL through non-commercial transactions would deplete the 
related company's assets and would be contrary to its shareholders' 
interests. They conclude that because these transactions were made on 
commercial terms, the Department has no basis on which to transfer any 
of the subsidies received by GEL's related company to GEL.
    While we recognize that a company generally acts in the best 
interests of its stockholders, we cannot disregard evidence to the 
contrary in specific instances. As explained below, we found the short-
term loans and the financing arrangements for the machinery and 
technical advice which GEL received from its related company were not 
on commercial terms. Hence, it is appropriate to allocate a portion of 
these subsidies received by GEL's affiliate to GEL.

Short-Term Loans to GEL From Its Related Company

    GEL received short-term loans from its related company both prior 
to and during the POI. To determine whether GEL's loans received prior 
to the POI were on commercial terms, we first compared the interest 
rate on these loans to the benchmark rate. This comparison revealed 
that the interest rate on the loans from the related party was higher 
than the benchmark rate. We used the Bank of India rates as our 
benchmark for loans received prior to the POI because we did not have 
information on any short-term commercial loans which GEL may have 
received prior to the POI. Respondents assert that the loans GEL 
obtained from its related company during the POI were provided at 
above-market rates to take into account possible delays in payment of 
interest during the start-up period.
    In fact, the Department verified that the rate charged by the 
related company to GEL was greater than the 13.3 percent rate for 
commercial loans in 1997-98 as

[[Page 19127]]

reported by the Reserve Bank of India. However, even though GEL's rate 
for pre-POI loans was higher than the benchmark rate, the terms of 
payment on the loans provided prior to the POI were more favorable than 
commercial terms. Specifically, GEL was required to (and has) repaid 
the principal on these loans. However, it has not paid interest on 
these loans and is not required to do so until after its start-up 
period concludes. Although deferral of interest is not inconsistent 
with commercial terms in itself, it is inconsistent when the borrower 
is not required to pay interest on the deferred interest. In such a 
situation, the borrower is essentially receiving a zero-interest loan 
in the amount of the interest that is being deferred. Consequently, we 
determine that GEL has received loans from its related company on terms 
inconsistent with commercial considerations. An examination of the loan 
contract does not support respondents' assertion that the interest rate 
accounts for delayed interest payments.
    For the loans received during the POI, we have used a different 
benchmark interest rate. In selecting a benchmark for short-term 
government loan, our preference is to use the interest rate on short-
term loans received by the company from a commercial bank as our 
benchmark. GEL received short-term lines of credit from commercial 
banks during the POI. Therefore, we have used the average of the 
interest rate on these lines of credit as our benchmark for loans 
received by GEL from its related company during the POI.
    Therefore, for loans received from the related company during the 
POI which had payments due during the POI, we compared the interest 
rate charged by the related company to the benchmark rate. Based on 
this comparison, we determine the interest rate paid by GEL was less 
than the benchmark and, hence, that these loans were not on commercial 
terms.

Provision of Machinery

    GEL's related company manufactured and sold certain machinery to 
GEL during its start-up period. The related company calculated the 
sales price based on the cost of design, materials, fabrication, 
assembly and profit in an amount equal to the related company's profit 
ratio from the prior fiscal year. The costs of producing the machinery 
and the profit amount were audited by an outside accountant and the 
sales prices were certified by the accountant to be the assessable 
value of the machinery. The GOI requires an outside audit of financial 
transactions between related companies because such sales are subject 
to the excise tax and a sales tax. At verification, we found that the 
related company actually charged GEL the prices certified by the 
outside accountant.
    We consider the related company's method for setting the sales 
prices to be a reasonable method of determining a commercial price. 
However, GEL has not paid its related company for the machinery and 
will not be required to do so until after its start-up period has 
concluded. In fact, it appears that GEL will not be required to pay for 
the machinery until it has sufficient cash flow to do so. Moreover, 
although GEL is required to pay interest on this debt, which has 
already been outstanding for a considerable period, it has not done so, 
nor does it appear that GEL is required to pay interest on the 
outstanding interest.
    Because of the length of time that this debt has been outstanding, 
the open-ended terms of the debt, and the fact that GEL is not 
currently paying interest on it, we determine that the financing for 
GEL's purchases of machinery from its related company is not on 
commercial terms.

Provision of Technical Advice

    GEL also received technical advice from its related company's 
engineers during its start-up period. The related company invoiced GEL 
for this technical advice based on the related company's appraisal of 
the cost of providing the technical advice required for each particular 
project plus an amount for profit and taxes. As with the purchases of 
machinery from the related company, an outside engineer certified these 
costs for excise tax and sales tax purposes. At verification, we found 
that GEL's related company actually charged GEL the prices certified by 
the outside engineer.
    Petitioners assert that the technical advice from GEL's related 
company was provided at below market rates. They cite a 1996 Price 
Waterhouse report which states that the GOI requires accountants and 
engineers to certify transfer prices between related companies to 
prevent companies from overstating their costs on sales to related 
companies as a means of reducing the net profit to be reported for 
income tax purposes. (See Petitioners' February 2, 1999 submission, 
Exhibit 1.)
    At verification, we found that the prices charged to GEL by its 
related company for technical advice were certified by an outside 
engineer as the correct assessable value for excise tax purposes. Our 
review of the engineer's certification of the related company's price 
for technical advice and our review of the related company's costs of 
providing the advice and profit confirmed that the related company's 
method of establishing a price was a reasonable one.
    We consider the related company's method for setting the sales 
prices to be a reasonable method of determining a commercial price. 
However, GEL has not paid its related company for the technical advice 
and will not be required to do so until after its start-up period has 
concluded. In fact, it appears then that GEL will not be required to 
pay for the technical advice until it has sufficient cash flow to do 
so. Moreover, although GEL is required to pay interest on this debt, 
which has already been outstanding for a considerable period, it has 
not done so, nor does it appear that GEL is required to pay interest on 
the outstanding interest.
    Because of the length of time that this debt has been outstanding, 
the open-ended terms of the debt, and the fact that GEL is not 
currently paying interest on it, we determine that the financing for 
GEL's purchases of technical advice from its related company is not on 
commercial terms.

Loan Guarantees

    GEL's related company guaranteed several of GEL's medium-term loans 
and charged no fee for the guarantees. During verification, we 
discussed loan guarantee practices with an official from the UTI Bank 
Ltd., a commercial bank in New Delhi. The official indicated that it is 
not uncommon for a parent company to guarantee a loan received by a 
subsidiary or for a company to guarantee a loan to a related company. 
The official also said that it was also not uncommon for the guarantor 
in these cases not to charge a fee for the loan guarantee. Based on 
these discussions, we determine that the loan guarantees received by 
GEL from its related company are consistent with commercial 
considerations.
    Petitioners claim that the related company's guarantee of GEL's 
loans without charging a guarantee fee is inconsistent with commercial 
considerations.
    We disagree. As explained above, we confirmed at verification that 
such a practice is not uncommon in India. Therefore, we find the 
related company's provision of guarantees to GEL free of any fees 
consistent with commercial considerations. (See section 351.506(a)(2) 
of Countervailing Duties; Final Rule (63 FR 65348, November 25, 1998) 
(Countervailing Duty Regulations) (although not in effect for this 
investigation).

[[Page 19128]]

Provision of Supplies

    GEL purchased diesel fuel and other supplies from its related 
company during the POI and paid an amount for these supplies equivalent 
to the related company's cost of acquiring them. GEL purchased these 
supplies through its related company as a convenience. At verification, 
we found that the prices paid by GEL's related company for the 
supplies, as reflected on its purchase invoices, were the prices which 
the related company charged GEL for the supplies.
    Based on our review of the purchase invoices, we determine that the 
sales were at arm's length and that the prices were market prices for 
the supplies in question. We found no evidence at verification 
indicating that GEL could not have purchased the supplies at the same 
price as its related company. Therefore, we determine that GEL's 
purchases of supplies from its related company were made on commercial 
terms.
    Petitioners claim that the price for supplies was not a market 
price because it did not include a mark-up for general, selling and 
administrative expenses incurred by GEL's affiliate in purchasing 
supplies. For this reason, GEL's purchases of supplies were not made on 
commercial terms.
    GEL paid market prices for the supplies provided by its affiliate 
and could have purchased these supplies at the same market prices on 
its own. Therefore, we find that the fact that GEL was not required to 
pay a price which included a share of the affiliate's general, selling 
and administrative expenses does not make the price which it did pay to 
be on terms inconsistent with commercial considerations. It is not 
uncommon for affiliates to provide services such as this without 
charging an additional fee.

Subsidies Received by GEL's Related Company

    On January 11, 1999, we issued a countervailing duty questionnaire 
to the affiliated company. On January 16, 1999, we received a response 
from the affiliated company indicating that all of the programs that it 
used during the POI were tied to its production and not to the subject 
merchandise.
    At verification, we examined documentation regarding each of the 
programs that GEL's related company had used during the POI. With the 
exception of the Income Tax Exemption Scheme, we determine that 
benefits under the programs used by GEL's related company, which does 
not produce subject merchandise, were tied to the products produced and 
sold by the related company. (Our bases for finding these benefits tied 
to non-subject merchandise are discussed more fully below.) Because we 
find the programs used by GEL's related company, with the exception of 
the Income Tax Exemption Scheme, to be tied to the production and sale 
of non-subject merchandise, we determine that they confer a benefit 
only on those products and do not benefit the production or sale of the 
subject merchandise.
1. Export Promotion Capital Goods Scheme
    The Export Promotion Capital Goods Scheme provides for duty 
reductions or exemptions and an exemption from the excise tax on 
imports of capital equipment. At verification, the applications, 
approvals and licenses for this scheme clearly showed that the 
machinery imported under the scheme was for the production of 
merchandise produced by GEL's related company. On each of these 
documents, the products to be produced with the imported machinery were 
specifically named. The products that had to be exported to satisfy the 
related company's export obligation under the license were also 
specifically named on the license. These products were the related 
company's products, not subject merchandise. In addition, from our 
observation at verification of GEL's machinery for producing ERT and 
from our review of machinery imports by GEL's related company, it was 
clear that the machinery imported by GEL's related company was not the 
machinery we observed in GEL's plant.
2. Export Oriented Unit (Duty-Free Import of Inputs)
    The application, approvals and licenses to obtain this benefit 
clearly showed that the inputs imported duty-free were inputs to be 
used in the production of the related company's products. On these 
documents, the inputs that may be entered duty free are specifically 
stated. These inputs are inputs used to produce the related company's 
products and could not be used to produce subject merchandise. Further, 
the finished products to be produced from these inputs are also clearly 
stated on these documents. Our review of importations made under the 
scheme confirmed that the imported inputs were inputs to the related 
company's products and could not have been used to produce the subject 
merchandise. Therefore, we find that benefits from this scheme are tied 
to non-subject merchandise.
3. Pre-Shipment Export Financing
    The loan applications and accompanying list of purchase orders from 
the related company's customers in foreign markets which served as the 
basis for the loans plainly showed that the products being ordered were 
the related company's own products.
4. Post-Shipment Export Financing
    The loan applications and attached invoices clearly showed that the 
financing was to enable GEL's related company to extend credit on sales 
of its products to customers in foreign markets.
5. Duty Drawback of Excise Taxes
    The applications, approvals and licenses of GEL's related company 
clearly showed that the inputs for which duty drawback was claimed were 
inputs to be used in the production of the related company's products. 
Our review of importations made under the scheme confirmed that the 
imported inputs were inputs to the related company's products and could 
not have been used to produce the subject merchandise.
6. Exemption From the Tax on Interest on Export Credits
    During the POI, GEL's related company was not required to pay the 
interest tax on export credits. GEL's related company received export 
credits under the Pre-Shipment and Post-Shipment Export Financing 
programs discussed above. As explained above, these loan programs were 
tied to the production and sale of GEL's related company's products. 
Because the interest tax exemption was granted with respect to interest 
on loans found to be tied to GEL's related company's products, the 
benefit from the interest tax exemption is also tied to those products.
7. Special Benefits for Trading Houses and Super Star Trading Houses
    Although GEL's related company had trading house status during the 
POI, it did not use its special import license to import restricted 
merchandise nor did it sell this license during the POI. Because GEL's 
related company did not benefit from this license during the POI, it 
was not necessary to determine whether benefits to companies with 
Trading Houses and Superstar Trading House status are tied to the 
products produced and sold by these companies.
8. Income Tax Exemption Scheme
    During the POI, GEL's related company received benefits under 
section 80HHC of the Income Tax Exemption Scheme, which provides an

[[Page 19129]]

income tax exemption for the profits earned on export sales. 
Respondents argue that the Department verified that section 80HHC 
benefits are tied to the production and export of non-subject 
merchandise. Because section 80HHC provides income tax exemptions to 
companies based on their total export profits, without regard to the 
products which earned the profits, we determine that 80HHC benefits are 
untied export subsidies. See Certain Hot-Rolled Lead and Bismuth Carbon 
Steel Products from the United Kingdom: Final Results of Countervailing 
Duty Administrative Review, 62 FR 53306, 13-16 (October 14, 1998); 
Final Affirmative Countervailing Duty Determination: Certain Pasta from 
Turkey, 61 FR 30366, 70 (June 14, 1996); Final Negative Countervailing 
Duty Determination: Silicon Metal from Brazil, 56 FR 26988 (June 21, 
1991).
    We normally attribute a subsidy received by a company to the 
products produced by that company. However, as discussed above, untied 
subsidies received by one company may be allocated to a related 
company, if the company receiving the subsidies transfers them to the 
company producing the subject merchandise. In GEL's case, as discussed 
above, its related company provided loans and financing for machinery 
and technical advice on non-commercial terms. These non-commercial 
transactions indicate that a portion of the untied subsidies received 
by GEL's related company should be allocated to GEL.
    To determine the portion attributable to GEL, we first calculated 
the benefit received by GEL's related party under the Income Tax 
Exemption Scheme. We then calculated GEL's share by multiplying the 
total benefit by GEL's share of the total sales of both companies. We 
used this method to determine GEL's share because, although this is an 
export subsidy to GEL's related company, it should not be considered an 
export subsidy to GEL for allocation purposes. This is because it was 
not GEL's exports that gave rise to the portion of the benefit which 
GEL received but, rather, the short-term loans it received from its 
affiliate on terms inconsistent with commercial considerations. Since 
the portion of the subsidy transferred to GEL is untied, and the 
benefit to GEL is calculated using GEL's total sales, we have used 
total sales of the two companies as the basis for calculating the share 
to be allocated to each company. For the countervailable subsidy to 
GEL, see section below on the Transfer of Income Tax Exemption Scheme 
Benefits to GEL.

Programs Determined To Be Countervailable

    With regard to GEL, based on the information provided in the 
responses and the results of verification, we find the following 
programs to be countervailable:

A. Export Promotion Capital Goods Scheme

    The Export Promotion Capital Goods Scheme (EPCGS) provides for a 
reduction or exemption of customs duties and an exemption from excise 
taxes on imports of capital goods. A reduction of customs duties and an 
exemption from excise taxes are provided under the Concessional EPCGS. 
Under this scheme, producers may import capital goods at reduced rates 
of duty and must undertake to earn convertible foreign exchange equal 
to four times the value of the capital goods within a period of five 
years. For failure to meet the export obligation, a company is subject 
to payment of all or part of the duty reduction, depending on the 
extent of the export shortfall, plus interest on the amount of the 
payment. (See the section below on the Excise Tax Exemption under the 
EPCGS for our treatment of this tax exemption.)
    In 1995, GEL received a license under the Concessional EPCGS to 
import certain machinery to be used in the production of ERT. GEL met 
the portion of its export undertaking applicable to the POI and has not 
had to pay duty or interest on the duty reduction which it received 
under the EPCGS.
    The customs duty reduction under the EPCGS represents revenue 
foregone by the GOI and confers a benefit on GEL. In addition, the duty 
reduction benefit is specific because its receipt was contingent upon 
anticipated export performance. Therefore, we determine that duty 
reduction under the EPCGS is a countervailable subsidy within the 
meaning of section 771(5) of the Act.
    Petitioners claim that GEL did not receive a benefit from the duty 
exemption under the EPCGS until GEL satisfied its export obligation as 
required by the scheme. Petitioners state that because GEL's exports 
during the POI served to satisfy this export obligation, GEL realized 
the entire duty exemption during the POI. Petitioners also claim that 
the benefit cannot be allocated to the period before GEL began 
commercial production because allocating a benefit to a pre-production 
period would create a loophole in the countervailing duty law because 
the subsidy could not be countervailed during a period when nothing was 
exported.
    Respondents claim that it is the Department's established practice 
to expense customs duty exemptions in the year of receipt. Respondents 
cite Porcelain-on-Steel Cookingware from Mexico: Final Results of 
Countervailing Duty Administrative Review (57 FR 562, 564; January 7, 
1992) (Cookingware from Mexico), as a case in which the Department 
rejected the Government of Mexico's claim that the benefit of an import 
duty exemption on machinery should be allocated over the useful life of 
the machinery. Respondents assert that in this case, the Department 
should follow its usual practice and expense the benefit in the year of 
receipt.
    GEL may be obligated to pay the duties on its imported capital 
equipment in each year or in any given year during the five-year period 
following importation. Thus, we find that the waived duties are 
properly viewed as a contingent liability loan because GEL has the use 
of funds from the waived duties interest free for a five-year period, 
assuming it meets its export obligation. Where a government provides a 
long-term, interest free loan and the obligation for its repayment is 
contingent upon subsequent events, our practice is to treat any balance 
on the loan outstanding during a year as an interest-free short-term 
loan (in the amount of the duty waived) that is rolled over each year. 
(See Final Negative Countervailing Duty Determination: Fresh Atlantic 
Salmon from Chile, 63 FR 31437, 42-43 (June 1998); see also section 
351.505(d)(1) of the Countervailing Duty Regulations. Although GEL met 
the portion of its export obligation applicable to the POI, we cannot 
be certain at this point that it will continue to do so in the future. 
Therefore, we have considered the full amount of the customs duty 
reduction to be an interest free loan that was outstanding during the 
POI.
    In Cookingware from Mexico, although exporters were subject to 
forfeiting a portion of benefits if they sold production domestically, 
receipt of the benefits was not dependent upon exporting a specified 
amount, the duty exemption received by the company was not contingent 
on the company's meeting an export obligation for a number of years, 
nor did it require that duty be paid if the company failed to meet the 
export obligation. Therefore, the Department did not treat the duty 
exemption as a contingent liability but countervailed the full amount 
of the exemption in the POR. As described above, however, the duty 
exemption under the EPCGS, is contingent on a company's meeting a 
specific export obligation for a period of five years.

[[Page 19130]]

Therefore, we properly countervailed it as a short-term interest-free 
loan, which is rolled over for a period of five years.
    Because we consider the loans to be rolled over from year to year, 
we used a short-term interest rate as our benchmark for measuring the 
subsidy. We calculated the benefit as the difference in the interest 
that GEL paid on the zero-rate loan received as a result of the duty 
reduction under the EPCGS and the interest GEL would have paid at the 
benchmark rate. We divided this benefit by GEL's total exports of all 
products because the capital equipment imported under the Concessional 
EPCGS was used in the production of all of GEL's products. On this 
basis, we calculated a subsidy of 1.53 percent ad valorem.

B. Transfer of Income Tax Exemption Scheme Benefits to GEL

    As discussed above, GEL's related company received an income tax 
exemption under section 80HHC of the Income Tax Exemption Scheme on 
profits from exports during the POI. The 80HHC exemption received by 
GEL's related company represents revenue foregone by the GOI. In 
addition, the exemption is specific within the meaning of section 
771(5A)(B) of the Act because it is contingent on export performance. 
Therefore, we determine that the 80HHC exemption received by GEL's 
related company during the POI is a countervailable subsidy within the 
meaning of section 771(5) of the Act.
    As explained above in the Income Tax Exemption Scheme section, the 
benefit of the 80HHC exemption is attributable to both GEL and its 
related company. Accordingly, we have calculated the subsidy for ERT by 
dividing the amount of the income tax savings from the 80HHC 
attributable to GEL by GEL's total sales of all products. On this 
basis, we calculated a subsidy of 0.18 percent ad valorem for GEL 
during the POI.

Programs Determined To Be Not Countervailable

A. Exemption From Excise Tax on Imports of Capital Goods

    In addition to providing for a reduction or exemption of customs 
duties, the EPCGS also provides for an exemption from excise duties on 
imports of capital goods. In its February 16, 1999 response, GEL 
reported that its benefit under the EPCGS was the sum of the customs 
duty reduction and the excise duty exemption. However, at verification, 
GEL officials claimed that the excise duty exemption was not a benefit 
because had GEL not received the exemption but instead paid the excise 
duty, it would then have received excise credits in the amount of the 
excise duty payment. Specifically, when GEL purchases inputs or capital 
goods in the domestic market or in foreign markets (other than under 
the EPCGS), GEL pays the excise duty or tax. When GEL sells finished 
products in the domestic market, it collects the excise tax from its 
customers and remits it to the GOI. In computing the amount of excise 
tax it must remit to the GOI, GEL gets a credit for the amount of 
excise taxes it paid on its purchases of inputs and capital goods. In 
this way, manufacturers are ultimately not burdened by the excise tax. 
It is essentially a tax on the consumer.
    Petitioners claim the Department should not offset the benefit of 
the excise tax exemption on imports of capital equipment under the 
EPCGS because respondents did not claim this offset until verification. 
In addition, petitioners state that the Department's practice precludes 
consideration of the secondary tax effect on the subsidy provided by 
the EPCGS.
    Respondents claim that at verification, GEL provided information 
that demonstrates that the excise duty exemption should not be 
considered a subsidy because payment of the tax results in a credit 
that can be used against excise taxes owed. In Ball Bearings and Parts 
Thereof from Thailand: Final Results of Countervailing Administrative 
Review (60 FR 52371, 52373; October 6, 1995) (Bearings from Thailand--
Final), the Department stated that under the VAT system, companies 
receive credit for the VAT paid on the purchase of inputs and, as a 
result, no VAT is effectively paid by companies on these purchases. 
Therefore, the exemption from the VAT was found not to be a 
countervailable subsidy.
    We do not view the excise tax as a prior stage cumulative tax (see 
item (h) of the Illustrative List of Export Subsidies, Annex I of the 
Agreement on Subsidies and Countervailing Measures (Illustrative List). 
The excise tax, like a value added tax, is treated as being passed on 
to the consumer. (See Ball Bearings and Parts Thereof from Thailand: 
Preliminary Results of a Countervailing Duty Administrative Review, 60 
FR 42532 (August 16, 1995)) (Bearings from Thailand--Preliminary). 
Indian Companies pay the excise tax on purchases of inputs and capital 
goods and collect it on sales of finished goods. When a company pays 
the tax it enters a tax credit in its excise tax book. When a company 
sells finished goods it enters a debit in its excise tax book. 
Periodically, the company remits in cash any excess excise tax debits 
over credits to the GOI and receives a rebate for any excess of tax 
credits over debits. Therefore, because GEL does not ultimately bear 
the excise tax, we determine that the exemption from the excise tax 
under EPCGS is not a countervailable benefit.

B. Drawback of Customs Duties

    In the preliminary determination of the companion antidumping duty 
investigation, the Department found that respondents had not provided 
sufficient information to demonstrate that drawback was tied to import 
duties paid and should, therefore, be added to U.S price. (Preliminary 
Affirmative Determination of Sales at Less Than Fair Value and 
Preliminary Determination of Critical Circumstances: Elastic Rubber 
Tape from India (64 FR 5025, 5028; February 2, 1999) (Preliminary Anti-
Dumping Determination). On the basis of this finding, petitioners 
allege that GEL received impermissible drawback and claim that the 
Department should include this program in its countervailing duty 
investigation.
    Under this program, exporters may file a drawback claim after the 
exportation of finished goods to recover import duties paid on imported 
inputs used to produce the export goods. Exporters may claim drawback 
at the all-industry rate or the brand rate. The all-industry rate is an 
average rate calculated for a product or group of products. The brand-
rates are applicable to products of specified description and technical 
characteristics, which are exported by specific exporters, and permit 
reimbursement of actual duties paid. Companies may use the all-industry 
rate or apply for the brand rate and supply the documentation necessary 
to establish the brand rate.
    In 1997, GEL filed an application for a brand-rate to be used in 
calculating the drawback on export shipments of ERT for inputs imported 
prior to the POI. At verification, we examined GEL's drawback 
application. The application included copies of the import entries on 
which the drawback was based, which showed payment of customs duties on 
the imported inputs, a bill of materials showing the quantity of each 
input used by GEL to produce one metric ton of ERT, the duty per 
kilogram of each input, and the duty borne by each input per metric ton 
of ERT. The quantities were certified by company officials and by an 
outside accountant.
    An officer from a regional office of the Central Board of Excise 
and Customs (CBEC) audited GEL's application. As a result of the audit, 
the quantity of ERT on which GEL could claim drawback

[[Page 19131]]

was reduced because the quantity of inputs imported by GEL was 
sufficient for the production of only this reduced quantity. In 
addition, the drawback rate was adjusted downward slightly to take into 
account waste.
    At verification, we were unable to review the audit of GEL's 
application because GOI officials indicated that it had been archived. 
Instead, we reviewed two recent audits of brand rate drawback 
applications from other companies producing products other than ERT to 
determine how the GOI audited these applications. Each of the audits 
appeared thorough, took several days to complete, and were described in 
detail in a lengthy audit report. The quantities of inputs necessary to 
produce a given quantity of each of these companies' outputs was 
checked by the CBEC officer against each company's actual stock 
issuance records and batch production cards.
    The drawback of customs duties paid on inputs, which are consumed 
in the production of goods for export, is a permissible rebate and not 
countervailable provided it is not excessive. (See Item (i) of the 
Illustrative List: See Ball Bearing from Thailand--Final). Based on our 
review of GEL's application for brand rate drawback and the GOI's 
procedures for auditing such claims, we determine that GEL's adjusted 
brand rate of drawback provides a non-excessive rebate of customs 
duties paid on imported inputs, i.e., the duty rebates which GEL 
received on exports of its finished products did not exceed the duty 
paid on the imported inputs. Therefore, we determine that the drawback 
received by GEL under the brand rate of drawback is not 
countervailable.
    Because GEL submitted a published input/output norm with its 
drawback application, petitioners claim that GEL's drawback claim was 
based on standard input/output norms rather than on the quantities of 
inputs GEL actually used to produce a unit of ERT. Therefore, they 
assert, drawback paid on these inputs is based on an estimate of the 
duties paid rather than on actual duties. Petitioners also claim that 
based on this standard norm, GEL's exports qualify for drawback whether 
the ERT is produced from imported or domestic inputs.
    GEL is the only producer of ERT in India. The bill of materials 
listing the quantities of each input needed to produce a unit of ERT 
was based on GEL's own production experience. (See the March 19, 1999, 
verification report on GEL, Exhibit 35 at page 3). At verification, we 
found that auditors from the regional offices of CBEC audit the 
applications of companies applying for brand-rate drawback. We also 
found that they audited the input/output ratios based on companies' 
actual usage as reflected on inventory and production records. The 
reason that the GOI publishes norms is so they can be disseminated to 
customs offices throughout the country.
    We disagree with petitioners' claim that GEL may receive drawback 
even if it uses domestic inputs. At verification we found that GEL had 
applied to receive drawback on a certain quantity of ERT exports. The 
GOI reduced this quantity to correspond to the quantity GEL was able to 
produce based on the quantities of inputs it had imported. In addition, 
GEL was required to include with its application copies of the import 
entries of each of the imported inputs indicating that duties had been 
paid on these inputs. Thus, it is clear that GEL's inputs were imported 
inputs and not domestic ones.

C. Advance Licenses

    The Advance Licenses Program allows for the duty-free importation 
of inputs to be incorporated into finished products for export. 
Companies importing under advance licenses are obligated to export the 
products produced using the duty-free imports. GEL received an advance 
license late in 1997. With this license, GEL was authorized to import 
duty free a given quantity of the raw materials needed to produce ERT 
and was obligated to export the ERT produced with these inputs. The 
quantity to be exported was also specified on the license.
    In Certain Iron-Metal Castings from India: Final Results of 
Countervailing Duty Administrative Review (62 FR 32297, 32306; June 13, 
1997) (1995 Castings Final), the Department found the advance license 
system to accomplish what a drawback system is intended to accomplish, 
i.e., to allow finished products produced with imported inputs to be 
exported free of the import duties assessed on the imported inputs. In 
the 1995 Castings Final, the Department concluded that because the 
imported inputs were used to produce castings which were subsequently 
exported, the duty-free importation of these inputs under the advance 
license was not a countervailable subsidy.
    GEL's advance license allows for the duty-free importation of the 
inputs needed to produce ERT. We verified that GEL did not transfer 
this license but used it to import inputs that were subsequently used 
in the production of ERT. At verification, we reviewed customs entries 
of imported inputs, entries in GEL's inward shipping register, entries 
in GEL's stock receipt and issuance register and in GEL's batch 
production card to confirm that imported inputs were used by GEL to 
produce ERT. From our examination of the import entries and these 
inventory control records, it was clear that GEL used the imported 
inputs to produce ERT. It was also clear from our review of export 
entries that GEL was exporting the ERT produced from the imported 
inputs thereby satisfying its export obligation under the license. 
Because GEL used the duty-free imported inputs to produce ERT which was 
subsequently exported, we do not consider the Advance License program 
to be countervailable.
    Petitioners argue that the advance license is based on standard 
input/output norms rather than on a producer's actual input/output 
experience and, therefore, under the Department's practice, 
countervailable. Further, petitioners indicate that under the Advance 
License Scheme, inputs are merely assumed to be imported.
    Citing Iron Metal Castings from India, respondents argue that 
Advance Licenses were found not to be countervailable because the 
Advance License Scheme is a drawback scheme which provides duty rebates 
commensurate with the duties paid on imported inputs used to produce 
the exported product.
    We agree with respondents that the Advance License Program has been 
found not countervailable in the past because under this program the 
drawback of import duties was not excessive. See 1995 Castings Final. 
Despite petitioners' assertions, the Advance License is not based on 
standard input/output norms. GEL's Advance License specified the 
quantity of inputs permitted to be imported under the license and the 
quantity of finished goods to be exported. As explained above, in the 
section of this notice on Duty Drawback on Exports, we found at 
verification that the bill of materials (input/output formula) which 
GEL used was based on its actual experience not a standard norm. This 
input output/formula was also used to determine GEL's obligation under 
the Advance License. Therefore, we find that GEL used actual production 
experience rather than a standard norm for purposes of the Advance 
License Scheme. Also, under the Advance License Scheme, inputs are not 
merely assumed to be imported, but must be demonstrated to be imported 
on the basis of evidence of importations of the inputs required to 
produce the export product.

[[Page 19132]]

Programs Determined Not To Be Used

    Based upon the information provided in the responses and our 
verification, we determine that GEL did not apply for or receive 
benefits under the following programs during the POI:
    A. Passbook Scheme/Duty Entitlement Passbook Scheme.
    B. Export Processing Zones/Export Oriented Units Programs.
    C. Income Tax Exemption Scheme.
    D. Pre-Shipment Export Financing.
    E. Post-Shipment Export Financing.
    F. Import Mechanism (Sale of Import Licenses).
    G. Exemption of the Interest Tax on Export Credits.
    H. Re-discounting of Export Bills Abroad.
    I. Programs Operated by the Small Industries Development Bank of 
India.
    J. Special Imprest Licenses.
    K. Market Development Assistance.
    L. Special Benefits to Export Houses, Trading Houses and Super Star 
Trading Houses.
    M. Duty Drawback on Excise Taxes.
    N. Pre-Shipment Export Financing in Foreign Currency.

Programs Determined Not To Exist

    Based on information provided by the GOI and the results of 
verification, we determine that the following program does not exist: 
Preferential Freight Rates.

Interested Party Comments

Comment 1: Use of Facts Available

    Petitioners argue that GEL's related company did not properly 
respond to the Department's questionnaire. Therefore, if the Department 
determines that any of the financial transactions between the two 
parties were made on terms inconsistent with commercial considerations, 
the Department should apply adverse facts available. Petitioners claim 
that in its January 11, 1999 questionnaire to GEL's related company, 
the Department informed GEL's related company that it must either 
respond to the questionnaire by February 11, 1999, or risk facts 
available being used if it determined that the transactions between the 
two companies were not on commercial terms. GEL, on behalf of its 
related company, responded late to the Department on February 16, 1999. 
In this late submission, petitioners argue that GEL listed the programs 
used by its related company rather than providing a full description, 
and merely stated that all of the benefits received were directly tied 
to non-subject merchandise. In addition, petitioners argue that GEL's 
related company failed to certify the submission.
    Petitioners assert that GEL has falsely certified its responses by 
simply asserting that the financial transactions with its related 
company were made on commercial terms and subsequently not responding 
to the Department's questionnaire. If GEL and its related company had 
been more forthright in their initial responses, petitioners claim they 
would have been able to comment fully on the issues and the Department 
would have been able to issue supplemental questionnaires more readily. 
Because of these failures, facts available is warranted.
    Petitioners assert that at a minimum, the Department should apply 
facts available to the related company's use of the EPCGS program 
because GEL never completely answered the Department's questions 
regarding this program. As such, it is unclear whether the related 
company benefitted from this program. Petitioners argue that the 
Department should make adverse inferences regarding certain 
transactions between GEL and its related company and find that benefits 
transferred to GEL from the affiliate's use of the EPCGS.
    Respondents assert that petitioners' request that the Department 
apply facts available to GEL is unfounded. They state that they have 
cooperated fully in this investigation by responding to all of the 
Department's requests for information and cooperating fully during 
verification.
    Regarding petitioners' claim that GEL failed to accurately respond 
to the Department's September 18, 1998 questions regarding the EPCGS 
program, respondents assert that their responses were accurate and 
complete. Respondents argue that GEL responded that it did not use or 
benefit from the EPCGS program during the POI based on the Department's 
previous treatment of such programs as benefitting companies at the 
time the duty on imports was actually paid. Because GEL received 
benefits from this program outside of the POI, it did not report the 
benefits. However, respondents point out that they did provide the 
information once the Department informed the company of its possible 
change in methodology.
    Respondents also argue that GEL should not be penalized for 
petitioners' failure to include the Drawback of Customs Duties program 
and Advance License Scheme in their petition. Because these programs 
have been previously found not countervailable by the Department, 
respondents claim that petitioners are required to provide new evidence 
to suggest that the Department's prior decisions were incorrect or that 
the programs are otherwise countervailable. Petitioners provided no 
such evidence.
    Furthermore, according to respondents, GEL's related company should 
not be penalized for not providing a separate response to the 
Department's questionnaire. Because the related company believed its 
financial transactions with GEL were made on commercial terms and all 
of the programs it used were tied to the production and export of non-
subject merchandise, it was unnecessary for it to respond on its own.
    Respondents point out that they filed a certificate of accuracy on 
March 4, 1999, regarding its February 16, 1999 response.
DOC Position
    We disagree with petitioners' claim that GEL's related company did 
not respond adequately to our countervailing duty questionnaire and 
that its response was not filed on time. Based on the evidence, 
pursuant to section 776(a) of the Act, we find that facts available are 
unwarranted because respondents did not (1) withhold information, (2) 
did not fail to provide information by the due dates required in the 
form and manner requested or (3) did not significantly impede the 
investigation. The February 16, 1999 questionnaire response of GEL's 
related company was filed timely. The original due date for this 
response was extended from February 11, 1999 to February 16, 1999, by 
the case analyst in a telephone conversation with respondents. Thus, 
although petitioners were not notified of the extension as they should 
have been, respondents were timely in their submission.
    Although respondents did not initially file a certification of 
accuracy with the related company's questionnaire response, they did 
file one on March 6, 1999. We do not find this delayed certification, 
in and of itself, grounds for applying fact available under section 
776(a) of the Act. Moreover, the related company's response, which was 
filed as an exhibit to GEL's February 16, 1999 SQR, did contain a 
certificate (in proper form) of accuracy from GEL. Moreover, both GEL 
and the related company responded to our questionnaires and were fully 
cooperative at verification. Furthermore, at verification, we were able 
to confirm the accuracy of their responses. Therefore, we find no basis 
for using facts available in this case.
    We also disagree with petitioners' assertion that GEL falsely 
certified its responses by simply asserting that the financial 
transactions with its related company were on terms consistent with

[[Page 19133]]

commercial considerations. Although GEL maintained that it had no 
commercially inconsistent transactions, as defined in the 
questionnaire, with related companies in its questionnaire response, 
GEL did inform the Department of financial transactions it had with its 
related company by briefly listing them in its response and thereafter 
supplied the Department with additional information as requested, which 
we later verified. Because GEL was forthright in its response regarding 
these transactions, we see no grounds for applying facts available in 
this circumstance.
    Petitioners are mistaken in stating that capital goods which GEL's 
related company transferred to GEL were imported under the EPCGS. At 
verification, we confirmed that all of the capital goods imported under 
the EPCGS by the related company were tied to the production of the 
related company's products. The capital goods in question were 
identified in Attachment 3 of GEL's December 23, 1998 questionnaire 
response. As we confirmed at verification, these capital goods could 
not be used in producing the related company's merchandise but were 
produced by GEL's related company for GEL and sold to GEL at market 
prices. These capital goods were not imported under the EPCGS. (See the 
March 16, 1999 verification report on GEL's related company at page 9.)
    We agree with respondents' claim that they should not be penalized 
for failure to include the Drawback of Customs Duties and the Advance 
License schemes in their response. Because the petition did not allege 
that respondent benefitted from Drawback of Customs Duties and the 
Advance License schemes, the original questionnaire did not include 
questions about the Advance License or the Drawback of Customs Duties. 
The subject of drawback arose only after the preliminary determination 
in the antidumping investigation where the Department disallowed 
respondents' claim that drawback be added to the U.S. price. (See 
Preliminary Anti-dumping Determination). It was not until after the 
preliminary determination in this investigation that petitioners 
alleged these programs. Because their allegation was timely, however, 
we then sent a supplementary questionnaire to respondent with regard to 
this scheme. In an SQR dated February 16, 1999, GEL reported that it 
had imported natural rubber under the Advance License Scheme to be used 
in the production of elastic rubber tape for export. At verification, 
as described above, we reviewed this scheme fully. Therefore, we 
conclude that the information provided by respondents on these programs 
was adequate and that use of facts available is not warranted.
    We also agree with respondents' claim that GEL's related company 
should not be penalized for not providing a separate questionnaire 
response. As required under section 782(e) of the Act, the Department 
cannot decline to consider information necessary to the determination 
even though it may not meet all of the requirements established 
provided that the information is submitted by the deadline, can be 
verified, is not so incomplete that it cannot be used, and the 
interested party has demonstrated that it has acted to the best of its 
ability. As described above, because GEL and its affiliate answered our 
questionnaire and supplemental responses in a timely fashion, and the 
information was verified and usable, we find that GEL and its affiliate 
acted to the best of their ability. Therefore, facts available are 
unwarranted. Pursuant to section 776(a) of the Act, even though GEL did 
not provide a full description of the programs its related company 
benefitted from during the POI, GEL did provide sufficient timely 
information. This permitted us to verify fully whether any of the 
benefits received by GEL's related company were tied to its products 
and not transferred to GEL. Therefore, we find that GEL's related 
company responded sufficiently and we find no basis for using facts 
available in this determination.

Comment 2: Excise Rebates

    Petitioners argue that the Department should countervail the excise 
rebates reported in GEL's 1997/98 financial statements. They assert 
that because GEL failed to provide a copy of its financial statements 
for the POI in a timely manner, the Department was unable to fully 
investigate whether the line item entitled ``Other Income'' from 
``Excise Rebate Received Export'' constitutes a countervailable 
subsidy. Therefore, the Department should apply facts available and 
countervail these rebates.
DOC Position
    We disagree with petitioners since we received GEL's financial 
statements in sufficient time to review them prior to verification. At 
verification, we confirmed that the excise rebates referred to in the 
financial statements were, in fact, permissible rebates of the excise 
tax, as discussed above in the Exemption from Excise Tax under the 
EPCGS section of this notice.

Comment 3: Income Tax Exemption Scheme

    Respondents argue that the Income Tax Exemption Scheme (``ITES'') 
is tied to the production of the related company's products such that 
the benefits earned under a tax deduction from ITES could be attributed 
to a related company. Respondents cite to section 351.525(b)(5) of the 
countervailing duty regulations saying that ``subsidies tied to the 
production, sale, or export of a particular product will be attributed 
only to that product.'' Respondents also state that in cross-ownership 
situations, only untied subsidies may be allocated to a subsidiary. 
Final Affirmative Countervailing Duty Determination: Steel Wire Rod 
from Canada, 62 FR 54972, 54981 (Oct. 22, 1997). Respondents further 
point to Final Negative Countervailing Duty Determination and Final 
Negative Critical Circumstances Determination: Certain Laminated 
Hardwood Trailer Flooring (LHF) from Canada, 62 FR 5201, 5202 (February 
4, 1997) to state the fact that even when the Department treats several 
companies as one, it will not countervail a subsidy that was received 
for non-subject merchandise. Finally, respondents argue that because of 
the Department's position on fungibility of money, the Department would 
refuse ``to trace the use of specific funds to determine whether the 
funds were used for their stated purpose.''
DOC Position
    It is the Department's consistent and long-standing practice to 
attribute the benefit from an export subsidy that is not tied to a 
particular product or market to all export sales. See e.g., Certain 
Iron-Metal Castings From India; Final Results and Partial Rescission of 
Countervailing Duty Administrative Review; 63 FR 64050, 055 (Nov. 18, 
1998); Final Affirmative Countervailing Duty Determination: Certain 
Pasta from Turkey, 61 FR 30366, 30370 (June 1996). Where, as here, the 
tax exemption applies to all export profits, we find that it is not 
tied to a particular product or market and therefore is an untied 
export subsidy. See Silicon Metal From Brazil (tax exemption from 
profits of export sales a subsidy to all exports).
    We disagree with respondents that all subsidies received by GEL's 
affiliate were tied to the production and sale of products produced by 
GEL's affiliate. As described above, although six of the seven programs 
investigated were tied to the particular products produced by GEL's 
affiliate, we find the ITES, which

[[Page 19134]]

exempts all of a firm's export profits from the income tax, is not tied 
to a particular product.
    In determining whether a benefit is or is not tied, we examine 
whether the company's application, the government's approval notice, 
and the benefits disbursal documents specify the product or products 
that qualify to receive the benefit. If the production and sale of a 
particular product is specified on these documents, we generally regard 
the benefit as tied to that product. In the case of this scheme, we saw 
no evidence at verification of the application or approval forms for 
receipt of the benefit because the benefit was claimed directly on the 
income tax return.
    As discussed elsewhere in this notice, because there were 
transactions between GEL and its affiliate, which we find were not on 
market terms, we find both companies have benefitted from this subsidy. 
Respondents do not dispute that it is the Department's practice to 
allocate subsidies in between related parties where the subsidies are 
untied nor the Department's authority in this regard. See e.g., Certain 
Hot-Rolled Lead and Bismuth Carbon Steel Products From the United 
Kingdom; Final Results of Countervailing Duty Administrative Review, 62 
FR 53306, 3313-16 (Oct. 1998); Final Negative Countervailing Duty 
Determination: Certain Laminated Hardwood Trailer Flooring From Canada, 
62 FR 5201, 02 (Feb. 1997); Final Affirmative Countervailing Duty 
Determination: Steel Wire Rod From Canada, 62 FR 54972 (Oct. 1997). 
Rather, respondents agree that our practice of allocating only untied 
subsidies between two companies is consistent with the Department's 
basic principle of tying.
    Respondents rely upon the Department's new regulations for the 
proposition that export subsidies are tied subsidies which may be 
attributed only to products exported by the company directly receiving 
the subsidy. While we note that these regulations are not in effect for 
this investigation, there is nothing in our view, as discussed above, 
of how to treat export subsidies that is contradicted by our new 
regulations. See 19 CFR 351.525(b)(2). In addition, respondents 
themselves acknowledge that under our new regulations we have codified 
our practice of allocating untied subsidies between related companies 
(i.e., companies with cross-ownership) in a circumstance where one 
company is not producing subject merchandise. See 19 CFR 
351.525(b)(6)(v).

Verification

    In accordance with section 782(i) of the Act, we verified the 
information used in making our final determination. We followed our 
standard verification procedures, including meeting with government 
officials and examination of relevant government records and original 
source documents. Our verification results are outlined in detail in 
the public versions of the verification reports, which are on file in 
the Central Records Unit (Room B-099 of the Main Commerce Building).

Summary

    In accordance with section 705(a)(3) of the Act, we determine that 
the total estimated net countervailable subsidy rate is 1.71 percent ad 
valorem which is de minimis. Therefore, we determine that no 
countervailable subsidies are being provided to the production or 
exportation of elastic rubber tape from India. Pursuant to section 
705(c)(2) of the Act, this investigation will be terminated upon 
publication of the final negative determination in the Federal 
Register.

ITC Notification

    In accordance with section 705(d) of the Act, we will notify the 
ITC of our determination.

Return or Destruction of Proprietary Information

    This notice serves as the only reminder to parties subject to 
Administrative Protective Order (``APO'') of their responsibility 
concerning the return or destruction of proprietary information 
disclosed under APO in accordance with 19 CFR 355.34(d). Failure to 
comply is a violation of the APO.
    This determination is issued and published pursuant to section 
705(d) and 777(i) of the Act.

    Dated: April 12, 1999.
Richard W. Moreland,
Acting Assistant Secretary for Import Administration.
[FR Doc. 99-9761 Filed 4-16-99; 8:45 am]
BILLING CODE 3510-DS-P