[Federal Register Volume 61, Number 100 (Wednesday, May 22, 1996)] [Notices] [Pages 25623-25627] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 96-12871] ----------------------------------------------------------------------- DEPARTMENT OF COMMERCE [C-533-063] Certain Iron Metal Castings From India: Preliminary Results of Countervailing Duty Administrative Review AGENCY: Import Administration, International Trade Administration, Department of Commerce. ACTION: Notice of Preliminary Results of Countervailing Duty Administrative Review. ----------------------------------------------------------------------- SUMMARY: The Department of Commerce (the Department) is conducting an administrative review of the countervailing duty order on certain iron metal castings from India. We preliminarily determine the net subsidy to be zero or de minimis for Delta Enterprises and Super Iron Foundry, and 5.45 percent ad valorem for all other companies for the period January 1, 1993 through December 31, 1993. If the final results remain the same as these preliminary results of administrative review, we will instruct the U.S. Customs Service to assess countervailing duties as indicated above. Interested parties are invited to comment on these preliminary results. EFFECTIVE DATE: May 22, 1996. FOR FURTHER INFORMATION CONTACT: Christopher Cassel or Lorenza Olivas, Office of Countervailing Compliance, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC 20230; telephone: (202) 482-2786. SUPPLEMENTARY INFORMATION: Background On October 16, 1980, the Department published in the Federal Register (45 FR 50739) the countervailing duty order on certain iron- metal castings from India. On October 7, 1994, the Department published a notice of ``Opportunity to Request an Administrative Review'' (59 FR 51166) of this countervailing duty order. We received a timely request for review from the Municipal Castings Fair Trade Council and individually-named members on October 24, 1994. We initiated the review, covering the period January 1, 1993 through December 31, 1993, on November 14, 1994 (59 FR 56549). The review covers 14 manufacturers/exporters of the subject merchandise and six programs. Applicable Statute and Regulations The Department is conducting this administrative review in accordance with section 751(a) of the Tariff Act of 1930, as amended (the Act). Unless otherwise indicated, all citations to the statute and to the Department's regulations are in reference to the provisions as they existed on December 31, 1994. However, references to the Department's Countervailing Duties; Notice of Proposed Rulemaking and Request for Public Comments, 54 FR 23366 (May 31, 1989) (Proposed Regulations), are provided solely for further explanation of the Department's countervailing duty practice. Although the Department has withdrawn the particular rulemaking proceeding pursuant to which the Proposed Regulations were issued, the subject matter of these regulations is being considered in connection with an ongoing rulemaking proceeding which, among other things, is intended to conform the Department's regulations to the Uruguay Round Agreements Act. See 60 FR 80 (Jan. 3, 1995). Scope of the Review Imports covered by the review are shipments of Indian manhole covers and frames, clean-out covers and frames, and catch basin grates and frames. These articles are commonly called municipal or public works castings and are used for access or drainage for public utility, water, and sanitary systems. During the review period, such merchandise was classifiable under the Harmonized Tariff Schedule (HTS) item numbers 7325.10.0010 and 7325.10.0050. The HTS item numbers are provided for convenience and Customs purposes. The written description remains dispositive. Verification As provided in section 776(b) of the Act, we verified information provided by the Government of India and, six producers/exporters of the subject merchandise. We followed standard verification procedures, including meeting with government and company officials, and examination of relevant accounting and original source documents. Our verification results are outlined in the public versions of the verification reports, which are on file in the Central Records Unit (Room B-099 of the Main Commerce Building). Calculation Methodology for Assessment and Cash Deposit Purposes In accordance with Ceramica Regiomontana, S.A. v. United States, 853 F. Supp. 431 (CIT 1994), we calculated the net subsidy on a country-wide basis by first calculating the subsidy rate for each company subject to the administrative review. We then weight-averaged the rate received by each company using as the weight its share of total Indian exports to the United States of subject merchandise, including all companies, even those with de minimis and zero rates. We then summed the individual companies' weight-averaged rates to determine the subsidy rate from all programs benefitting exports of subject merchandise to the United States. Since the country-wide rate calculated using this methodology was above de minimis, as defined by 19 CFR Sec. 355.7 (1994), we proceeded to the next step and examined the net subsidy rate calculated for each company to determine whether individual company rates differed significantly from the weighted-average country-wide rate, pursuant to 19 CFR 355.22(d)(3). Two companies (Delta Enterprises and Super Iron Foundry) had significantly different net subsidy rates during the review period pursuant to 19 CFR 355.22(d)(3). The rate for these companies was zero. These companies are treated separately for assessment and cash deposit purposes. All other companies are assigned the country-wide rate. Analysis of Programs I. Programs Conferring Subsidies A. Programs Previously Determined to Confer Subsidies 1. Pre-Shipment Export Financing. The Reserve Bank of India (RBI), [[Page 25624]] through commercial banks, provides pre-shipment financing, or ``packing credits,'' to exporters. Upon presentation of a confirmed order or letter of credit, exporters may receive pre-shipment loans for working capital purposes, i.e., for the purchase of raw materials and for packing, warehousing, and transporting of export merchandise. Exporters may also establish pre-shipment credit lines upon which they may draw as needed. Credit line limits are established by commercial banks, based upon the company's creditworthiness and past export performance. Companies that have pre-shipment credit lines typically pay interest on these loans on a quarterly basis on the outstanding balance of the account at the end of each period. In general, packing credits are granted for a period of up to 180 days. In prior administrative reviews of this order, the Department found this program to be de jure specific, and thus countervailable, because receipt of pre-shipment export financing was contingent upon export performance and the interest rates were preferential. (See e.g., Final Results of Countervailing Duty Administrative Review: Certain Iron- Metal Castings From India, 56 FR 41658 (August 22, 1991); Final Results of Countervailing Duty Administrative Review: Certain Iron-Metal Castings From India, 56 FR 52515 (October 21, 1991 (1987 and 1988 Indian Castings Final Results). No new information or evidence of changed circumstances has been submitted in this proceeding to warrant reconsideration of this finding. During the POR, the rate of interest charged on pre-shipment export loans ranged from 13.0 percent to 15.5 percent, depending on the length and date of receipt of the loan. The Government of India (GOI) classifies the companies under review as small-scale industry companies. Therefore, as we have done in past relevant cases, we used the small-scale industry short-term interest rates published in the August 1994 Reserve Bank of India Annual Report 1993-94 as our benchmark. This rate was 15 percent during the POR for all categories of advances. We compared this benchmark to the interest rate charged on pre-shipment loans and found that for certain loans granted under this program, the interest rate charged was lower than the benchmark. The use of this benchmark rate is consistent with prior reviews of this order. (See Final Results of Countervailing Duty Administrative Review: Certain Iron-Metal Castings From India, 60 FR 44843 (August 29, 1995) (1991 Indian Castings Final Results)). Eight of the fourteen respondent companies used pre-shipment export loans for shipments of subject castings to the United States during the POR. To calculate the benefit from the pre-shipment loans to these eight companies, we compared the actual interest paid on these loans with the amount of interest that would have been paid using the benchmark interest rate of 15 percent. If the benchmark rate exceeded the program rate, the difference between those amounts is the benefit. If a company was able to segregate pre-shipment financing applicable to subject merchandise exported to the United States, we divided the benefit derived from only those loans by total exports of subject merchandise to the United States. If a firm was unable to segregate pre-shipment financing, we divided the benefit from all pre-shipment loans by total exports. On this basis, we preliminarily determine the net subsidy from this program to be 0.13 percent ad valorem for all manufacturers and exporters in India of certain iron-metal castings, except for those firms listed below which have significantly different total subsidies from all programs combined. The net subsidy for those firms is as follows: ------------------------------------------------------------------------ Rate Manufacturer/Exporter (percent) ------------------------------------------------------------------------ Delta Enterprises.......................................... 0.00 Super Iron Foundry......................................... 0.00 ------------------------------------------------------------------------ 2. Post-Shipment Export Financing and Post-Shipment Credit Denominated in Foreign Currency (PSCFC). The Reserve Bank of India, through commercial banks, provides post-shipment rupee denominated loans to exporters upon presentation of export documents. Post-shipment financing also consists of bank discounting of foreign customer receivables. In general, post-shipment loans are granted for a period of up to 180 days. The interest rate for post-shipment financing ranged from 13 to 18 percent during the POR. In the 1987 and 1988 Indian Castings Final Results, the Department found this program to be specific, and thus countervailable, because receipt of the post- shipment export financing in rupees was contingent upon export performance and the interest rates were preferential. No new information or evidence of changed circumstances has been submitted in this proceeding to warrant reconsideration of this finding. On January 1, 1992, the GOI amended the original post-shipment financing scheme and introduced the ``Scheme for Post-Shipment Credit Denominated in Foreign Currency (PSCFC).'' Under the amended scheme, exporters may discount foreign currency export bills at interest rates linked to the London Interbank Offering Rate (LIBOR). These loans are not provided to the borrower in the foreign currency, but allow the post-shipment credit liability of the exporter to be denominated in foreign currency, which is then liquidated with foreign currency export proceeds. Upon presentation of the export bill, the bank will discount the bill for a period of up to 180 days at an interest rate determined by the RBI. The interest amount, calculated at the applicable foreign currency interest rate, will be deducted from the total amount of the bill, and the exporter's account will be credited for the rupee equivalent of the net foreign currency amount. Commercial banks are required to convert the net amount of the export bill drawn or expressed in U.S. dollars into rupees at a contracted exchange rate (if the exporter takes forward cover) or at the rate prevailing on the date of negotiation or discount by the bank. The exporter's credit liability will continue to be shown in U.S. dollars. If payment from the overseas customer is received within the due date for the loan, the exporter's account is considered fully liquidated or ``crystallized''. Where payment by the overseas customer is made beyond the due date, additional interest will be recovered from the exporter for the number of days payment is overdue. The additional interest amount is calculated in U.S. dollars for the delayed period at the overdue foreign currency interest rate set by the RBI. This amount is then converted into rupees at the commercial bank's prevailing selling rate of the U.S. dollar and deducted from the exporter's account. Any exchange rate risk on the dollar amount of the bill (i.e., gain or loss due to the change in value of the rupee vis-a-vis the dollar) will be borne by the commercial bank. If the overseas customer defaults, the exporter must repay the rupee equivalent of the export bill at the exchange rate prevailing on the date the payment of the export bill would have been due. During the POR, the discount rate charged on these bills ranged from 6.5 percent to 6.75 percent, while the overdue foreign currency interest rate was 8.5 percent. For overdue bills repaid beyond 180 days, the normal rupee interest rates apply. These rates ranged from 15 to 22 percent during the POR. For reasons stated in the prior section for pre-shipment financing above, we are using the small-scale industry short-term interest rates published in the [[Page 25625]] August 1994 Reserve Bank of India Annual Report 1993-94 as our benchmark for short-term rupee denominated post-shipment loans. However, because loans under this program are discounted, and the effective rate paid by exporters on these loans is a discounted rate, we derived a benchmark discount rate of 13.04 percent for the POR. Where loans are denominated in foreign currency, as is the case for PSCFC loans, our normal practice is to use a foreign currency benchmark, which would be the interest rate on alternative dollar- indexed loans in India. However, we have not been able to find such a benchmark, and must, therefore, use as a benchmark a rupee-denominated interest rate, adjusted to take into account movements in the rupee- dollar exchange rate over the term of the loan. In this situation, our preference would be to adjust the benchmark by the ``expected'' movement in the rupee/dollar exchange rate by comparing the spot rate on the day the bill was discounted with the forward exchange rate. Because we were unable to find forward exchange rates for the POR, we adjusted the benchmark used for rupee denominated post-shipment loans described above, by the actual movement in the rupee/dollar exchange rate over the period for which the export bill was discounted. Therefore, the adjusted benchmark varied for each PSCFC loan. During the POR, 11 of the 14 respondent companies made payments on post-shipment export or PSCFC loans for shipments of subject castings to the United States. To calculate the benefit from these loans we followed the same short-term loan methodology discussed above for pre- shipment financing. We divided the benefit by either total exports or exports of the subject merchandise to the United States, depending on whether the company was able to segregate the post-shipment financing on the basis of destination of the exported good. On this basis, we preliminarily determine the net subsidy from this program to be 1.25 percent ad valorem for all manufacturers and exporters in India of certain iron-metal castings, except for those firms listed below which have significantly different total subsidies from all programs combined. The net subsidy for those firms is as follows: ------------------------------------------------------------------------ Rate Manufacturer/Exporter (percent) ------------------------------------------------------------------------ Delta Enterprises.......................................... 0.00 Super Iron Foundry......................................... 0.00 ------------------------------------------------------------------------ 3. Income Tax Deductions Under Section 80HHC. Under section 80HHC of the Income Tax Act, the GOI allows exporters to deduct profits derived from the export of goods and merchandise from taxable income. In the 1987 and 1988 Indian Castings Final Results, the Department found this program to de jure specific, and thus countervailable, because receipt of benefits was contingent upon export performance. No new information or evidence of changed circumstances has been submitted in this proceeeding to warrant reconsideration of this finding. To calculate the benefit to each company, we subtracted the total amount of income tax the company actually paid during the review period from the amount of tax the company would have paid during the review period had it not claimed any deductions under section 80HHC. We then divided this difference by the value of the company's total exports. On this basis, we preliminarily determine the net subsidy from this program to be 3.64 percent for all manufacturers and exporters in India of certain iron-metal castings, except for those firms listed below which have significantly different total subsidies from all programs combined. The net subsidy for those firms is as follows: ------------------------------------------------------------------------ Rate Manufacturer/Exporter (percent) ------------------------------------------------------------------------ Delta Enterprises.......................................... 0.00 Super Iron Foundry......................................... 0.04 ------------------------------------------------------------------------ 4. Import Mechanisms. The GOI allows companies to transfer certain types of import licenses to other companies in India. During the POR, producers/exporters of subject castings sold Additional Licenses, Replenishment Licenses, and Special Import Licenses. In prior administrative reviews of this order, we determined that the sale of these licenses by exporters is countervailable. See the 1987 and 1988 Indian Castings Final Results and the 1991 Indian Castings Final Results. No new information or evidence of changed circumstances has been submitted in this proceeding to warrant reconsideration of this finding. Because the sale of Special Import Licenses and Additional Licenses could not be tied to specific shipments, we calculated the subsidies by dividing the total amount of proceeds a company received from sales of these licenses by the total value of its exports of all products to all markets. Also, because sales of Replenishment Licenses can be tied to specific exports, we calculated the subsidies by dividing the amount of proceeds a company received from sales of Replenishment Licenses that was attributable to shipments of subject castings to the United States by the total value of the company's exports of subject castings to the United States. We do not consider the sale of Replenishment Licenses issued for non-subject merchandise to have benefitted exports of the subject merchandise. We preliminarily determine the net subsidy from the sale of Additional, Special Import, and Replenishment Licenses to be 0.04 percent ad valorem for all manufacturers and exporters in India of certain iron-metal castings, except for those firms listed below which have significantly different aggregate benefits. The net subsidies for those firms are as follows: ------------------------------------------------------------------------ Rate Manufacturer/Exporter (percent) ------------------------------------------------------------------------ Delta Enterprises.......................................... 0.00 Super Iron Foundry......................................... 0.00 ------------------------------------------------------------------------ B. New Programs Preliminarily Found to Confer Subsidies 1. Exemption of Export Credit from Interest Taxes. At verification, the GOI and commercial bank officials explained that starting from September, 1991, commercial banks were required to pay a 3 percent tax on all interest accrued from borrowers. This tax is passed on to borrowers in its entirety. As of April 1, 1993, the GOI exempted from the interest tax all interest accruing or arising to any commercial bank on loans and advances made to any exporter as export credit. See the 1993 GOI Verification Report at 6-7 and Exhibits EEPC-8, 9, 10 and 11 (October 30, 1995) (Public Document). Because only interest accruing or arising on loans and advances made to exporters in the form of export credit is exempt from the interest tax, we preliminarily determine this exemption to provide countervailable benefits to exporters. During the POR, eleven of the fourteen respondent companies made interest payments on export related loans, through the pre- and post-shipment financing schemes. To calculate the benefit to each company, we first determined the total amount of interest paid by each producer/exporter of subject castings from April 1 to December 31, 1993, by adding all interest payments made on pre- and post-shipment loans after April 1, 1993. For the two companies that reported aggregate interest on pre- and post- shipment loans for the POR, and for which we were unable to determine what portion of the reported interest was paid after April 1, 1993, we [[Page 25626]] assumed that the company's interest payments were evenly distributed over each quarter of 1993, and, therefore, that 75 percent of the interest reported was paid in the last three quarters of 1993, i.e., from April 1 through December 31. Next, we multiplied this amount by three percent, the amount of tax that the interest would have been subject to without the exemption. We then divided the benefit by the value of the company's total exports or exports of subject merchandise to the United States, depending on whether the export financing was on total exports or only exports of subject castings to the U.S. On this basis, we preliminarily determine the net subsidy from this program to be 0.06 percent ad valorem for all manufacturers and exporters in India of certain iron-metal casting, except for those firms listed below which have significantly different total subsidies from all programs combined. The net subsidy for those firms is as follows: ------------------------------------------------------------------------ Rate Manufacturer/Exporter (percent) ------------------------------------------------------------------------ Delta Enterprises.......................................... 0.00 Super Iron Foundry......................................... 0.00 ------------------------------------------------------------------------ 2. Imports Made Under an Advance License through the Liberalized Exchange Rate Management System (LERMS). The Liberalized Exchange Rate Management System or LERMS, in effect from March 1, 1992 through February 28, 1993, was part of the GOI's economic liberalization efforts, aimed in part at achieving full convertibility of the rupee. Under the LERMS, the importation of goods under the Duty Exemption Scheme (with Advance Licences), was financed at two rates: 40 percent at the official RBI rate and 60 percent at the (higher) market determined rate. We verified that the LERMS was terminated effective February 28, 1993, after which all foreign exchange earnings and the financing of all imports was at the full market exchange rate. (See section II.1. below for a discussion of foreign exchange earnings under the LERMS). While the LERMS was in effect, purchases of most imports are made at the market exchange rate. This applied to both exporters and non- exporters. An exception to this were goods imported under the Duty Exemption Scheme which permitted exporters holding an Advance License to purchase imports at dual exchange rates through February 28, 1993. Sixty percent of the value of the import was charged at the market rate and forty percent at the Reserve Bank determined official dollar/rupee exchange rate. The Advance License was the only license under which imports were charged at the 60/40 ratio. These licenses allow exporters to import products duty free, that are subsequently consumed in the production of exported goods. Castings exporters used Advance Licenses by the importation of pig iron consumed in the production of the subject merchandise. The receipt of these licenses was previously determined to be not countervailable, because the Advance License operates as duty drawback scheme, and the drawback of import duties on raw materials consumed in the production of exported goods was found to be not excessive. See the 1991 Indian Castings Final Results. However, Advance Licenses are issued to companies based on their status as exporters. As such, provisions under the LERMS which allow exporters to import goods at exchange rates more favorable than those available to non-exporters constitutes an export subsidy within the meaning of Sec. 355.43(a)(1) of the Department's Proposed Regulations. Therefore, because the official rupee/dollar exchange rate was lower than the market rate during the POR, thereby lowering the cost of goods imported under an Advance License during January and February of 1993, we preliminarily determine the importation of goods under an Advance License at the 60/ 40 ratio to provide countervailable benefits to producers/exporters of the subject merchandise. During the POR, three of the fourteen respondent companies made imports against an Advance License while the LERMS was still in effect. To calculate the benefit to each company, we subtracted the total amount the company paid in rupees for the imported goods from the amount they would have paid if the imports had been paid for at the higher market exchange rate. We then divided the benefit by the value of the company's total exports. On this basis, we preliminarily determine the net subsidy from this program to be 0.33 percent ad valorem for all manufacturers and exporters in India of certain iron- metal castings, except for those firms listed below which have significantly different total subsidies from all programs combined. The net subsidy for those firms is as follows: ------------------------------------------------------------------------ Rate Manufacturer/Exporter (percent) ------------------------------------------------------------------------ Delta Enterprises.......................................... 0.00 Super Iron Foundry......................................... 0.00 ------------------------------------------------------------------------ Because we verified that this program was terminated as of February 28, 1993, and there are no residual benefits, for cash deposit purposes, in accordance with section Sec. 355.50 of the Department's Proposed Regulations, the deposit rate for this program will be zero. II. Programs Preliminarily Found Not to Confer Subsidies 1. Inward Exchange Remittances under the Liberalized Exchange Rate Management System (LERMS). The Liberalized Exchange Rate Management System or LERMS, in effect from March 1, 1992 through February 28, 1993, was part of the GOI's economic liberalization efforts, partly aimed at achieving full convertibility of the rupee. Under the LERMS, all inward exchange remittances, i.e., foreign exchange earnings, were converted into rupees either at the market exchange rate or at dual exchange rates: 40 percent at the official RBI rate and 60 percent at the (higher) market determined rate. We verified that the LERMS was terminated effective February 28, 1993, after which all foreign exchange remittances and the financing of all imports was at the full market exchange rate. (For a discussion of import financing under the LERMS, see I.B.2. above.) During January and February of 1993, while the LERMS was in effect, castings exporters converted all of their export earnings at the 60/40 exchange rate ratio described above. Because all transactions by which Indian companies or individuals exchanged foreign currency into rupees while the LERMS was in effect were converted at the 60/40 exchange rate ratio or at the higher market exchange rate, we preliminarily determine that the export earnings of castings producers, converted at the dual exchange rates under LERMS, do not confer countervailable benefits with respect to the subject merchandise. III. Programs Preliminarily Found Not To Be Used We examined the following programs and preliminarily find that the producers/exporters of the subject merchandise did not apply for or receive benefits under these programs during the period of review: 1. Market Development Assistance (MDA) 2. Rediscounting of Export Bills Abroad 3. International Price Reimbursement Scheme (IPRS) 4. Cash Compensatory Support Program (CCS) 5. Pre-Shipment Financing in Foreign Currency (PSFC) [[Page 25627]] Preliminary Results of Review For the period January 1, 1993 through December 31, 1993, we preliminarily determine the net subsidy to be zero or de minimis for Delta Enterprises and Super Iron Foundry, and 5.45 percent ad valorem for all other companies. In accordance with 19 CFR 355.7, any rate less than 0.5 percent ad valorem is de minimis. If the final results of this review remain the same as these preliminary results, the Department intends to instruct the U.S. Customs Service to assess the following countervailing duties: ------------------------------------------------------------------------ Rate Manufacturer/Exporter (percent) ------------------------------------------------------------------------ Delta Enterprises.......................................... 0.00 Super Iron Foundry......................................... 0.00 All Other Companies........................................ 5.45 ------------------------------------------------------------------------ The Department also intends to instruct the U.S. Customs Service to collect a cash deposit of estimated countervailing duties of zero percent of the f.o.b. invoice price on all shipments of the subject merchandise from Delta Enterprises and Super Iron Foundry, and 5.13 percent of the f.o.b. invoice price on all shipments of the subject merchandise from all other companies. Public Comment Parties to the proceeding may request disclosure of the calculation methodology and interested parties may request a hearing not later than 10 days after the date of publication of this notice. Interested parties may submit written arguments in case briefs on these preliminary results within 30 days of the date of publication. Rebuttal briefs, limited to arguments raised in case briefs, may be submitted seven days after the time limit for filing the case brief. Parties who submit argument in this proceeding are requested to submit with the argument (1) a statement of the issue and (2) a brief summary of the argument. Any hearing, if requested, will be held seven days after the scheduled date for submission of rebuttal briefs. Copies of case briefs and rebuttal briefs must be served on interested parties in accordance with 19 CFR 355.38(e). Representatives of parties to the proceeding may request disclosure of proprietary information under administrative protective order no later than 10 days after the representative's client or employer becomes a party to the proceeding, but in no event later than the date the case briefs, under 19 CFR Sec. 355.38(c), are due. The Department will publish the final results of this administrative review including the results of its analysis of issues raised in any case or rebuttal brief or at a hearing. This administrative review and notice are in accordance with section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)) and 19 CFR Sec. 355.22. Dated: May 14, 1996. Paul L. Joffe, Acting Assistant Secretary for Import Administration. [FR Doc. 96-12871 Filed 5-21-96; 8:45 am] BILLING CODE 3510-DS-P