[Federal Register: January 7, 2004 (Volume 69, Number 4)]
[Notices]
[Page 907-915]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07ja04-34]
-----------------------------------------------------------------------
DEPARTMENT OF COMMERCE
International Trade Administration
[C-533-821]
Notice of Preliminary Results of Countervailing Duty
Administrative Review: Certain Hot-Rolled Carbon Steel Flat Products
from India
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 (CVD) order on certain
hot-rolled carbon steel flat products from India for the period April
20, 2001, through December 31, 2002,\1\ the period of review (POR). For
information on the net subsidy rate for the reviewed company, see the
``Preliminary Results of Review'' section of this notice. If the final
results remain the same as the preliminary results of this review, we
will instruct the U.S. Customs and Border Protection (CBP) to assess
countervailing duties as detailed in the ``Preliminary Results of
Administrative Review'' section of this notice. Interested parties are
invited to comment on these preliminary results. (See the ``Public
Comment'' section of this notice).
---------------------------------------------------------------------------
\1\ For the purposes of these preliminary results, we have
analyzed data for the period January 1, 2001 through December 31,
2001 to determine the subsidy rate for exports of subject
merchandise made during the period in 2001 when liquidation of
entries was suspended. In addition, we have analyzed data for the
period January 1, 2002 through December 31, 2002 to determine the
subsidy rate for exports during that period. Further, we are using
the 2002 subsidy rate to establish the cash deposit rate for exports
of subject merchandise subsequent to the issuance of the final
results of this administrative review.
---------------------------------------------------------------------------
DATES: EFFECTIVE DATE: January 7, 2004.
FOR FURTHER INFORMATION CONTACT: Tipten Troidl at (202) 482-1767, Maura
Jeffords at (202) 482-3146 or Cindy Robinson at (202) 482-3797, Office
of AD/CVD Enforcement VI, Group II, Import Administration,
International Trade Administration, U.S. Department of Commerce, Room
4012, 14th Street and Constitution Avenue, NW, Washington, DC 20230.
SUPPLEMENTARY INFORMATION:
Background
On December 3, 2001, the Department published in the Federal
Register the CVD order on certain hot-rolled carbon steel flat products
from India. See Notice of Amended Final Determination and Notice of
Countervailing Duty Orders: Certain Hot-Rolled Carbon Steel Flat
Products from India and Indonesia, 66 FR 60198 (December 3, 2001) (Hot-
Rolled Amended Final). On December 2, 2002, the Department published a
notice of opportunity to request an administrative review of this CVD
order. See Antidumping or Countervailing Duty Order, Finding, or
Suspended Investigation; Opportunity to Request Administrative Review,
67 FR 71533 (December 2, 2002). On December 30, 2002, we received a
timely request for review from Essar Steel Ltd. (Essar), an Indian
producer and exporter of subject merchandise. On January 15, 2003, the
Department initiated an administrative review of the CVD order on
certain hot-rolled carbon steel flat products from India, covering POR
April 20, 2001 through December 31, 2002. See Initiation of Antidumping
and Countervailing Duty Administrative Reviews and Requests for
Revocation in Part, 68 FR 3009 (January 22, 2003).
On February 11, 2003, the Department issued a questionnaire to the
Government of India (GOI) and Essar. We received questionnaire
responses from Essar on April 7, 2003, and from the GOI on April 17 and
April 28, 2003. On June 3, 2003, we issued a supplemental questionnaire
to the GOI; the response was received on August 5, 2003. On July 14 and
September 5, 2003, we issued supplemental questionnaires to Essar,
which submitted its responses on August 5, September 20, October 14,
and October 16, 2003. On July 30, 2003, the Department published in the
Federal Register an extension of the deadline for the preliminary
results. See Certain Hot-Rolled Carbon Steel Flat Products from India:
Extension of Preliminary Results of Countervailing Duty Administrative
Review, 68 FR 44744 (July 30, 2003).
On May 19, 2003, petitioners submitted new subsidy allegations.
These allegations covered the following programs: unequityworthiness in
2001 and 2002, uncreditworthiness in 2001 and 2002, forgiveness of debt
obligations in 2002 restructuring, suspension and restructuring of
interest payments, debt-to-equity conversions, preferential
restructuring of loans and guarantee and repayment of debt. On
September 12, 2003, the Department initiated a review of the new
subsidy allegations. See Memorandum to Melissa G. Skinner regarding
``Administrative Review of the Countervailing Duty Order on Certain
Hot-Rolled Carbon Steel Flat Products from India, New Subsidy
Allegations''
[[Page 908]]
(New Subsidy Allegation Memorandum). On September 15, 2003, additional
supplemental questionnaires were issued to the GOI and Essar. The
responses were received on October 14, 2003. On October 17, 2003, we
issued a supplemental questionnaire to Essar. We received Essar's
response on October 24, 2003. On October 29 through November 7, 2003,
we conducted verification of the responses of Essar and the GOI.
In accordance with 19 CFR 351.213(b), this review covers only those
producers or exporters for which a review was specifically requested.
The only company subject to this review is Essar. This review covers
eleven programs.
Scope of Order
The merchandise subject to this order is certain hot-rolled flat-
rolled carbon-quality steel products of a rectangular shape, of a width
of 0.5 inch or greater, neither clad, plated, nor coated with metal and
whether or not painted, varnished, or coated with plastics or other
non-metallic substances, in coils (whether or not in successively
superimposed layers), regardless of thickness, and in straight lengths,
of a thickness of less than 4.75 mm and of a width measuring at least
10 times the thickness. Universal mill plate (i.e., flat-rolled
products rolled on four faces or in a closed box pass, of a width
exceeding 150 mm, but not exceeding 1250 mm, and of a thickness of not
less than 4 mm, not in coils and without patterns in relief) of a
thickness not less than 4.0 mm is not included within the scope of this
order.
Specifically included within the scope of this order are vacuum
degassed, fully stabilized (commonly referred to as interstitial-free
(IF)) steels, high strength low alloy (HSLA) steels, and the substrate
for motor lamination steels. IF steels are recognized as low carbon
steels with micro-alloying levels of elements such as titanium or
niobium (also commonly referred to as columbium), or both, added to
stabilize carbon and nitrogen elements. HSLA steels are recognized as
steels with micro-alloying levels of elements such as chromium, copper,
niobium, vanadium, and molybdenum. The substrate for motor lamination
steels contains micro-alloying levels of elements such as silicon and
aluminum.
Steel products included in the scope of this order, regardless of
definitions in the Harmonized Tariff Schedule of the United States
(HTS), are products in which: I) iron predominates, by weight, over
each of the other contained elements; ii) the carbon content is 2
percent or less, by weight; and iii) none of the elements listed below
exceeds the quantity, by weight, respectively indicated:
1.80 percent of manganese, or
2.25 percent of silicon, or
1.00 percent of copper, or
0.50 percent of aluminum, or
1.25 percent of chromium, or
0.30 percent of cobalt, or
0.40 percent of lead, or
1.25 percent of nickel, or
0.30 percent of tungsten, or
0.10 percent of molybdenum, or
0.10 percent of niobium, or
0.15 percent of vanadium, or
0.15 percent of zirconium.
All products that meet the physical and chemical description
provided above are within the scope of this order unless otherwise
excluded. The following products, by way of example, are outside or
specifically excluded from the scope of this order:
[sbull] Alloy hot-rolled steel products in which at least one of
the chemical elements exceeds those listed above (including, e.g., ASTM
specifications A543, A387, A514, A517, A506).
[sbull] SAE/AISI grades of series 2300 and higher.
[sbull] Ball bearings steels, as defined in the HTS.
[sbull] Tool steels, as defined in the HTS.
[sbull] Silico-manganese (as defined in the HTS) or silicon
electrical steel with a silicon level exceeding 2.25 percent.
[sbull] ASTM specifications A710 and A736.
[sbull] USS Abrasion-resistant steels (USS AR 400, USS AR 500).
[sbull] All products (proprietary or otherwise) based on an alloy
ASTM specification (sample specifications: ASTM A506, A507).
[sbull] Non-rectangular shapes, not in coils, which are the result
of having been processed by cutting or stamping and which have assumed
the character of articles or products classified outside chapter 72 of
the HTS.
The merchandise subject to this order is classified in the HTS at
subheadings: 7208.10.15.00, 7208.10.30.00, 7208.10.60.00,
7208.25.30.00, 7208.25.60.00, 7208.26.00.30, 7208.26.00.60,
7208.27.00.30, 7208.27.00.60, 7208.36.00.30, 7208.36.00.60,
7208.37.00.30, 7208.37.00.60, 7208.38.00.15, 7208.38.00.30,
7208.38.00.90, 7208.39.00.15, 7208.39.00.30, 7208.39.00.90,
7208.40.60.30, 7208.40.60.60, 7208.53.00.00, 7208.54.00.00,
7208.90.00.00, 7211.14.00.90, 7211.19.15.00, 7211.19.20.00,
7211.19.30.00, 7211.19.45.00, 7211.19.60.00, 7211.19.75.30,
7211.19.75.60, and 7211.19.75.90. Certain hot-rolled flat-rolled
carbon-quality steel covered by this order, including: vacuum degassed
fully stabilized; high strength low alloy; and the substrate for motor
lamination steel may also enter under the following tariff numbers:
7225.11.00.00, 7225.19.00.00, 7225.30.30.50, 7225.30.70.00,
7225.40.70.00, 7225.99.00.90, 7226.11.10.00, 7226.11.90.30,
7226.11.90.60, 7226.19.10.00, 7226.19.90.00, 7226.91.50.00,
7226.91.70.00, 7226.91.80.00, and 7226.99.00.00. Subject merchandise
may also enter under 7210.70.30.00, 7210.90.90.00, 7211.14.00.30,
7212.40.10.00, 7212.40.50.00, and 7212.50.00.00. Although the HTS
subheadings are provided for convenience and CBP purposes, the
Department's written description of the merchandise subject to this
order is dispositive.
Subsidies Valuation Information
Equityworthiness:
As discussed above, petitioners alleged that Essar was
unequityworthy in 2001 and 2002. On September 12, 2003, the Department
initiated a review of Essar's equityworthiness for 2001 and 2002. See
New Subsidy Allegation Memorandum. We preliminarily find that it is not
necessary for the Department to conduct such an analysis, as Essar did
not receive any equity infusion or conduct any debt-to-equity
conversions during calendar years 2001 and 2002.
Creditworthiness:
On May 19, 2003, petitioners alleged that Essar was uncreditworthy
in 2001 and 2002.\2\ Based on an analysis of the information provided
by petitioners, including detailed data regarding Essar's financial
health in 2001 and 2002, we initiated a review of Essar's
creditworthiness during calendar years 2001 and 2002. See New Subsidy
Allegation Memorandum.
---------------------------------------------------------------------------
\2\ In our New Subsidy Allegations Memorandum, we erroneously
stated 2000 and 2001 were the periods in which petitioners alleged
that Essar was uncreditworthy. Petitioners actually alleged that
Essar was uncreditworthy in 2001 and 2002.
---------------------------------------------------------------------------
Pursuant to section 351.505(a)(4)(I) of the Department's
Regulations, the Department will generally consider a firm to be
uncreditworthy if, based on information available at the time of the
government-provided loan, the firm could not have obtained long-term
loans from conventional commercial sources. To make this determination,
the
[[Page 909]]
Department may examine, among other factors, the following:
(A) The receipt by the firm of comparable commercial long-term
loans;
(B) The present and past financial health of the firm, as reflected
in various financial indicators calculated from the firm's financial
statements and accounts;
(C) The firm's recent past and present ability to meet its costs
and fixed financial obligations with its cash flow; and
(D) Evidence of the firm's future financial position, such as
market studies, country and industry economic forecasts, and project
and loan appraisals prepared prior to the agreement between the lender
and the firm on the terms of the loan.
The Department found that Essar did not receive commercial loans
during 2001 or 2002, as set forth in factor (A). See Memorandum to the
File from the Team, Regarding: Creditworthiness Allegation
(Creditworthiness Memorandum) dated December 31, 2003. In addition, we
analyzed factors (B) and (C) and we compared Essar's financial ratios
to those of the U.S. steel and iron industry, as reported in Standard &
Poor's Industry Surveys, Metals: Industrial, dated July 3, 2003. We
found that Essar's ratios do not appear to indicate any potential
short-term problems with respect to the company's ability to meet its
debt obligations in 2001. However, Essar's current and quick ratios
show a decline in 2002 while its current liability/net worth ratio
became negative as Essar's net worth fell below zero. Essar's debt/
equity, total liabilities/net worth and fixed assets/net worth ratios
indicate that its financial health was declining in 2001 and the
company moved into default status, which ultimately caused its net
worth to fall below zero in 2002.
Also, during 2001, Essar defaulted on a long-term loan to a group
of noteholders. See Essar's October 2, 2003, submission at page 17.
When the lenders threatened to take action against the company, Essar
applied for protection under the Bombay Relief Undertaking (BRU) Act,
which prevented Essar's creditors from taking action against the
company. Id at 12. The BRU is important for this analysis, because this
program is designed to assist companies in poor financial conditions
whose failure would exacerbate the unemployment situation in the State
of Gujarat. Part D of section 351.505(a)(4)(I) of the Department's
Regulations also directs that we review Essar's future financial
position. In 2001, Essar was in default status on interest and
principal payments and the company confirmed this fact during
verification (see the December 8, 2003, Memorandum to Melissa Skinner,
Director, Office of AD/CVD Enforcement VI, from Tipten Troidl, Cindy
Robinson, and Maura Jeffords, Case Analysts, Regarding: Countervailing
Duty Administrative Review of Certain Hot-Rolled Carbon Steel Flat
Products from India, at page 12 (Essar Verification Report). As a
result in August 2001, the company entered into one-on-one negotiations
with individual lenders, which led to a formalized restructuring plan
drafted in 2002 and finalized in 2003.
Based on our analysis of Essar's financial ratios, its financial
statements, its history of missed principal and interest payments,
Essar's negotiations of a restructuring package of its outstanding debt
obligations, and its application for protection under the BRU, we
preliminarily find that Essar was uncreditworthy during fiscal years
2001 and 2002.
Benchmarks for Loans and Discount Rate
Benchmark for Short-Term loans
In accordance with section 351.505(a)(3)(I) of the Department's
Regulations, for those programs requiring the application of a short-
term benchmark interest rate, we used company-specific, short-term
interest rates on commercial loans as reported by Essar. With respect
to the rupee-denominated, short-term benchmark used in calculating the
benefit for pre-shipment export financing, we used the weighted-average
rate of the company's cash credit loans. Cash credit loans are the most
comparable type of short-term loan to use as a benchmark because, like
the pre- shipment export financing, cash credit loans are denominated
in rupees and take the form of a line of credit which can be drawn down
by the recipient. See Notice of Final Affirmative Countervailing Duty
Determination: Certain Hot-Rolled Carbon Steel Flat Products from
India, 66 FR 49635 (September 28, 2001) (HRC Final) and the
accompanying Decision Memorandum, at Section II.C. ``Benchmark for
Loans and Discount Rates'' and Notice of Final Affirmative
Countervailing Duty Determination: Polyethylene Terephthalate Film,
Sheet, and Strip from India, 67 FR 34905 (May 16, 2002) (PET Film) and
accompanying Decision Memorandum, at section II.A.2. ``Benchmark for
Loans and Discount Rates'' (PET Film Decision Memorandum).
Benchmark for Loans issued up to 2000
For those programs requiring a rupee-denominated discount rate or
the application of a rupee-denominated, long-term benchmark interest
rate, we used, where available, company-specific, weighted-average
interest rates on commercial long-term, rupee-denominated loans. We
note, however, that Essar did not have rupee-denominated, long-term
loans from commercial banks for all required years. Therefore, for
those years for which we did not have company- specific information, we
relied on a rupee-denominated, long-term benchmark interest rate from
the immediately preceding year as directed by section
351.505(a)(2)(iii) of the Department's regulations.
Benchmark for loans issued in 2001 and 2002
As discussed in the ``Creditworthiness'' section of this
preliminary results, we have preliminarily determined that Essar was
uncreditworthy during 2001 and 2002. In these preliminary results for
years 2001 and 2002, where Essar received benefits that were treated as
fixed, long-term loans, we used as our long-term benchmark interest
rate India's Prime Lending Rate (PLR), as published by the Reserve Bank
of India (RBI). See GOI Verification Exhibit 1. We note that we
converted the PLR into a benchmark interest rate for uncreditworthy
companies using the formula set forth in section 351.505(a)(3)(iii) of
the Department's Regulations.
Programs Preliminarily Determined To Confer Subsidies
1. Pre-shipment Export Financing
The RBI, through commercial banks, provides short-term pre-shipment
financing to exporters. Upon presentation of a confirmed export order
or letter of credit to a bank, companies may receive pre-shipment loans
for working capital purposes. Exporters may also establish pre-shipment
credit lines upon which they may draw as needed.
We determined in HRC Final that the pre-shipment export financing
program constitutes a financial contribution pursuant to section
771(5)(D)(I) of the Tariff Act of 1930, as amended (the Act), as a
direct transfer of funds. See HRC Decision Memorandum at Section III.
I.A. ``Pre-Shipment and Post-Shipment Export Financing.'' This program
also confers a benefit to the company under section 771(5)(E)(ii) of
the Act, to the extent that interest payments under the program are
less than the amount the
[[Page 910]]
company would pay on a comparable commercial loan that the company
could actually obtain on the market. This program is also contingent on
export performance and is therefore specific under section 771(5A) of
the Act. No new information or evidence of changed circumstances have
been presented to warrant reconsideration of this finding; therefore,
for the purpose of these preliminary results we continue to find this
program countervailable.
Essar did not use this program in 2001. To calculate the benefit
conferred by these pre-shipment loans taken out by Essar in 2002, we
compared the actual interest paid on the loans with the amount of
interest that would have been paid at the benchmark interest rate.
Where the benchmark interest exceeds the actual interest paid, the
difference constitutes the benefit. We then divided the total amount of
benefit by Essar's 2002 total exports. On this basis, we preliminarily
determine the net countervailable subsidy under the pre-shipment export
financing program in 2002 to be less than 0.005 percent ad valorem for
Essar.
2. Export Promotion Capital Goods Scheme (EPCGS)
The EPCGS provides for a reduction or exemption of customs duties
and an exemption from excise taxes on imports of capital goods. Under
this program, producers may import capital equipment at reduced rates
of duty by undertaking to earn convertible foreign exchange equal to
five times the CIF value of capital goods to be fulfilled over a
period of eight years (12 years in the case where the CIF value is Rs.
100 Crore \3\ or more). 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 penalty interest.
During verification, we found that in April 2003, after the POR, there
was a change to the EPCGS with respect to export obligation commitment.
The export earning commitment, which was five times the CIF value of
the imported capital goods, was changed to eight times the CIF value of
the imported capital good.
---------------------------------------------------------------------------
\3\ A crore is equal to 10,000,000 rupees.
---------------------------------------------------------------------------
In PET Film, we determined that import duty reductions provided
under the EPCGS constituted a countervailable export subsidy. See PET
Film Decision Memorandum, at section II.A.4. ``EPCGS.'' Specifically,
the Department found that under the EPCGS program, the GOI provides a
financial contribution under section 771(5)(D)(ii) of the Act in the
form of revenue foregone that otherwise would be due, that a benefit is
thereby conferred, as defined by section 771(5)(E) of the Act, and that
this program is specific under section 771(5A)(B) of the Act because it
is contingent upon export performance. No new information or evidence
of changed circumstances has been provided to warrant a reconsideration
of this determination. Therefore, we continue to find that import duty
reductions provided under the EPCGS are countervailable export
subsidies.
We have determined the benefit under this program in accordance
with our findings and treatment of benefit in HRC Final and PET Film.
See HRC Decision Memorandum, at Analysis of Programs I.E. ``Export
Promotion of Capital Goods Scheme (EPCGS)'' and PET Film Decision
Memorandum, at section II.A.4. ``EPCGS'', and Pet Film, 66 FR at 53394.
Specifically, there are two potential benefits under the EPCGS program.
The first benefit is the amount of unpaid duties that would have to be
paid to the GOI if the export requirements are not met. The repayment
of this liability is contingent on subsequent events, and in such
instances it is the Department's practice to treat any balance on an
unpaid liability as an interest-free loan. See section 351.505(d)(1) of
the Department's regulations. Because Essar had not yet met its export
obligation, we preliminarily determine that the company has an
outstanding contingent liability during the POR. We further determine
that the amount of the contingent liability to be treated as an
interest-free loan is the amount of the import duty reduction or
exemption for those EPCGS licenses which Essar applied but, as of the
end of the POR, had not received a waiver of its obligation to repay
the duties from the GOI.
Accordingly, for those unpaid duties for which Essar has yet to
fulfill its export obligations, we determine the benefit to be the
interest that Essar would have paid during the POR had they borrowed
the full amount of the duty reduction at the time of import. Pursuant
to section 351.505(d)(1) of the Department's regulations, we used a
long-term interest rate as our benchmark to calculate the benefit of a
contingent liability interest-free loan because the event upon which
repayment of the duties depends (i.e., the date of expiration of the
time period for Essar to fulfill its export commitments) occurs at a
point in time more than one year after the date the capital goods were
imported. Specifically, we used the calculated long-term benchmark
interest rate for Essar, as described in the ``Subsidies Valuation''
section above. The rate used corresponded to the year in which Essar
imported the item under the program.
The second potential benefit is the waiver of import duty on
imports of capital equipment covered by those EPCGS licenses for which
export requirements have been met. Essar reported that it imported
machinery under the EPCGS in the years prior to the POR and during the
POR. Upon importation under these licenses Essar received reduced
import duty liabilities and agreed to the export obligations prescribed
under the program, as noted above. For some of its licenses, Essar
reported to the GOI that it met its export requirements and requested
waiver of the obligation to repay the duties otherwise due for
importation of the equipment. However, Essar did not provide evidence
that the GOI has granted these waivers during the POR. Consistent with
our policy, absent acknowledgment from the GOI that the liability has
been eliminated, we continue to treat benefits of these licenses as
contingent liabilities. See ``Export Promotion of Capital Goods Scheme
(EPCGS)'' section from the HRC Final Decision Memoradnum.
Essar reported that it paid application fees in order to obtain its
EPCGS license. We preliminarily determine that the application fees
paid by Essar qualify as an ``application fee, deposit, or similar
payment paid in order to qualify for, or to receive, the benefit of the
countervailable subsidy.'' See section 771(6)(A) of the Act. As a
result, we have offset the benefit in an amount equal to the fees paid.
To calculate the subsidy rate, we summed the benefits conferred on
Essar in the form of contingent liability loans. We note, that for some
licenses related to imports of capital goods during 2001 and 2002, we
prorated the contingent liability by the actual number of days. We then
divided Essar's total benefit under the program by its respective total
export sales during years 2001 and 2002. On this basis, we
preliminarily determine the net countervailable subsidy from this
program to be 1.69 percent ad valorem for 2001 and 1.16 percent ad
valorem for 2002.
In addition, we found that Essar had taken out EPCGS licenses for
the importation of capital goods equipment used for making iron ore
pellets. At the time that Essar took out these licenses, it wholly-
owned Hy-Grade Pallets Ltd. (Hy-Grade), an iron ore pellet
manufacturer. In September 2000, subsequent to the issuance of the EPCG
licenses, Essar divested itself of its
[[Page 911]]
majority ownership in Hy-Grade. At that time, Essar also transferred
the EPCGS licenses connected to the iron ore pellet equipment to Hy-
Grade. During Essar's verification, we reviewed certain selected EPCG
licenses and noted that the licenses specify the name of the company
and the product. See Essar's Verification Report at 15. Thus, in order
for Hy-Grade to receive a permanent waiver on the import duties
incurred on the importation of the iron ore pellet equipment, Hy-Grade
must export a certain amount of pellets within a given period of time.
With respect to the EPCGS licenses that were transferred from Essar
to Hy-Grade, we preliminarily determine that 1) the license can be tied
to Hy-Grade, the transferee, and 2) the license is tied to a product,
which in this case are iron ore pellets (i.e., pellets must be exported
by Hy-Grade in order for the duties to be permanently waived). By
legally transferring the licence to Hy-Grade, Essar is relieved of its
potential obligation to repay the import duties. That obligation now
lies with Hy-Grade. Therefore, we preliminarily find that the EPCGS
licenses are the liability of Hy-Grade and are tied to iron ore
pellets.
3. Bombay Relief Undertaking Act
In their May 19, 2003 submission, petitioners alleged that the
State Government of Gujarat conferred a countervailable benefit upon
Essar under the Bombay Relief Undertaking Act (BRU). As explained in
our New Subsidy Allegation Memorandum, we initiated an investigation of
this program.
Enacted in 1958 and later amended in 1974, the BRU is a provincial
law enacted by the State of Gujarat that is intended to safeguard
employment. Under the BRU, companies designated as a relief
undertakings have all litigation against them stayed for a period of
one year. In disputes between companies and their creditors, the effect
is that principal and interest payments are also put on hold, as a
creditor is unable to sue for collection. During the time in which
litigation is stayed, the company has the opportunity to become current
on its financial debts. Subsequent BRU declarations are allowable after
the initial declaration. A company can be protected under the BRU for
up to ten years. To be designated as a relief undertaking, a company
must submit an application. The State Government of Gujarat evaluates
applications according to three criteria: (1) whether the company's
balance sheet indicates a loss, (2) whether there is an allegation that
unemployment will occur if the applicant is not declared a relief
undertaking, and (3) whether there is information demonstrating that
the company has the potential to turn itself around. While the BRU is
specific to Gujarat, most other states in India have similar
legislation.
Essar applied for BRU protection in late 2001. Essar stated that
its application was prompted by a group of foreign lenders that refused
to agree to the terms of the company's debt restructuring package.\4\
The foreign lenders' share of Essar's total debt was sufficient to
block the company's corporate restructuring from going forward.
According to Essar, the corporate restructuring was essential to its
financial well-being. Essar further claimed that without a declaration
under the BRU, the company's lenders would file a petition declaring
that the company was insolvent, an action that Essar claimed would
cause it to eliminate jobs.
---------------------------------------------------------------------------
\4\ The company proposed corporate debt restructuring is
discussed in further detail below in the ``Corporate Debt
Restructuring (CDR)'' section of these preliminary results.
---------------------------------------------------------------------------
Upon review of Essar's application, the State Government of Gujarat
granted Essar protection under the BRU in order to ``serve as a measure
of preveningt unemployment.'' See Exhibit 11 of the GOI's October 14,
2003, questionnaire response. The State Government of Gujarat further
promulgated that, rights, privileges, obligations, and liabilities
incurred by Essar would be suspended and that proceedings relating
thereto pending before any court, Tribunal or Authority would be stayed
for one year beginning on March 19, 2002. Id. Upon receiving protection
under the BRU, Essar ceased making principal and interest payments on
some of its loans. During this time, which included the period covered
by the POR, Essar's creditors were prohibited from taking any legal
action against the company.
In determining whether a program is countervailable, the Department
must conclude that the program constitutes a financial contribution by
the government, confers a benefit, and is specific pursuant to the
criteria enumerated under the Act. For purposes of these preliminary
results, we find that the State Government of Gujarat's protection of
Essar from litigation under the BRU constitutes a financial
contribution under section 771(5)(B)(iii) of the Act. Specifically, we
find that by granting Essar protection under the BRU, the State
Government of Gujarat, by prohibiting Essar's creditors from pursuing
any pending litigation against the company, directed the creditors to
not collect principal and interest payments on loans that otherwise
would be due. For purposes of these preliminary results, we further
determine that the limitations imposed on the creditors by the State
Government of Gujarat conferred a benefit upon Essar, under section
771(E)(ii) of the Act, in an amount equal to the principal and interest
it would have had to pay absent the legal protection afforded under the
BRU.
Regarding the criterion of specificity, as defined by section
771(5A) of the Act, in our new subsidies allegations questionnaire, we
asked the GOI and the State Government of Gujarat to provide
information regarding how companies are granted BRU status. See the
``Bombay Relief Undertakings (Special Act) 1956 (BRU)'' section of the
September 15, 2003, questionnaire. In particular, we asked the
governments to discuss the application/petition process companies
undergo when they seek treatment under the BRU as well as a description
of the types of documents that applicants are required to submit. In
addition, we asked the GOI and the State Government of Gujarat to
provide information concerning the distribution of the recipients of
BRU protection (i.e., specificity information). Id.
In its response, the GOI provided the legislation for the BRU
program. See Exhibit 10 of the GOI's October 14, 2003, questionnaire
response. However, regarding the Department's other questions, the GOI
explained that, ``a response from the State Government of Gujarat is
still awaited and will be sent as soon as received. . .. The Government
of India will assist the investigating authorities in verifying the
facts submitted by Essar Steel Limited, if need be.'' \5\ A response
from the State Government of Gujarat was never received.
---------------------------------------------------------------------------
\5\ We note that the GOI's incomplete response was submitted in
spite of the fact that the Department granted the GOI and the State
Government of Gujarat a 15-day extension to response to the
questionnaire.
---------------------------------------------------------------------------
In our October 21, 2003, verification outline issued to the GOI and
the State Government of Gujarat, we informed the two governments that
they should prepared to discuss the BRU. Namely, we instructed them to
be ready to discuss how the program was administered, including the
eligibility requirements. See ``State of Gujarat'' section of the GOI
Verification Outline. We further instructed them to be prepared to
discuss Essar's participation under the BRU and to have available any
documents or reports that pertained to Essar's protection under the
BRU. Id.
[[Page 912]]
During verification, the officials from the State Government of
Gujarat claimed that eight companies were granted protection in 2001
while six were granted BRU status in 2002. State government officials
further claimed that there are between 25 and 30 applicants per year.
However, the State Government of Gujarat presented no documentation to
support these contentions. See the ``Bombay Relief Undertaking Act
(BRU)'' section of the GOI's Verification Report. Further, state
government officials failed to provide the Department with the
requested documentation regarding Essar's application and declaration
under the BRU.
Regarding specificity, we find that there is nothing in the BRU
legislation indicating that the program is de jure specific under
section 771(5A)(D)(I) of the Act. See Exhibit 10 of the GOI's October
14, 2003, questionnaire response. Thus, we turn to issue of whether the
program is de facto specific under section 771(5A)(D)(iii) of the Act.
According this subsection of the Act, a program is de facto specific
where one or more of the following factors exist:
(I). The actual recipients of the subsidy, whether considered on an
enterprise or industry basis, are limited in number;
(II). An enterprise or industry is a predominant user of the
subsidy;
(III). An enterprise or industry receives a disproportionately
large amount of the subsidy;
(IV). The manner in which the authority providing the subsidy has
exercised discretion in the decision to grant the subsidy indicates
that an enterprise or industry is favored over others.
The Preamble to the CVD Regulations states that:
As indicated in the SAA at 931, the discretion factor is generally
more valuable as an analytical tool that enhances the analysis of the
other de facto specificity factors and criteria. . . .
Discretion can also come into play where the evidence relating to
the first three factors is inconclusive.
See 63 FR 65348, 65356.
Record evidence indicates that the State Government of Gujarat
granted eight companies protection in 2001 while in 2002, the year in
which Essar received protection under the program, the State Government
of Gujarat approved only six companies. Record evidence further
indicates that the State Government of Gujarat reviewed between 25 and
30 applicants during these years. In 2002, Essar received protection
under the BRU, while some 19 or so other applicants were rejected. The
fact that only six companies were approved under this program during
2002 demonstrates that the actual recipients of the subsidy are limited
in number. While this, by itself, may be inconclusive, we preliminarily
find that the State Government of Gujarat's exercise of discretion in
approving applicants, supports a finding of specificity. Although the
three criteria for designation as a relief undertaking would make the
program appear broadly available, we note that the State Government of
Gujarat has established a set of generic criteria under which it
analyzes applications. For example, the State Government of Gujarat has
not established the amount of financial losses that a company must be
experiencing, the level of anticipated unemployment, or the factors
upon which the company's proposed turn-around should be based. On this
basis, at least 19 other applicants were rejected during 2002.
Therefore, we find that the State Government of Gujarat exercises
discretion in the manner in which grants approval under the program to
a limited number of users, as provided for under section
771(5A)(D)(iii)(I) of the Act. Thus, for purposes of these preliminary
results, we find that the BRU is countervailable.
To calculate the benefit to Essar, we summed the amount of the
principal and interest payments that Essar would have otherwise been
required to make had it not been under the protection of the BRU. We
treated these payments as interest-free short-term loans using the
short-term interest benchmark, as discussed in the ``Benchmarks for
Loans and discount Rate'' section above. We then took this amount and
divided it by Essar's total sales for 2002. As the protection under the
BRU did not take affect until March 19, 2002, we are not calculating a
net subsidy rate for this program for 2001. On this basis, we
preliminarily find that Essar received a countervailable subsidy of
1.43 percent ad valorem.
4. Duty Entitlement Passbook Scheme (DEPS)
The DEPS enables exporting companies to earn import duty exemptions
in the form of passbook credits rather than cash. All exporters are
eligible to earn DEPS credits on a post-export basis, provided that the
GOI has established a standard input-output norm (SION) for the
exported product. DEPS credits can be used for any subsequent imports,
regardless of whether they are consumed in the production of an export
product. DEPS credits are valid for twelve months and are transferable
after the foreign exchange is realized from the export sales on which
the DEPS credits are earned. With respect to subject merchandise,
exporters were eligible to earn credits equal to 14 percent of the FOB
value of their export shipments during the fiscal year ending January
31, 2003. During the POR, Essar earned a DEPS credit on a sale of
subject merchandise to the United States.
In PET Film, the Department determined that DEPS conferred
countervailable subsidies on the respondents: 1) because a financial
contribution, as defined under section 771(5)(D)(ii) of the Act, is
provided under the program, as the GOI provides the respondents with
credits for the future payment of import duties; 2) since the GOI does
not have in place and does not apply a system to confirm which inputs,
and in what amounts, are consumed in the production of the exported
products that is reasonable and effective for the purposes intended,
under section 351.519(a)(4) of the Department's regulations and section
771(5)(E) of the Act, the entire amount of import duty exemption earned
by the respondents during the POI constitutes a benefit; and 3) this
program can only be used by exporters and, therefore, is specific under
section 771(5A)(B) of the Act. See the ``DEPS'' section of the PET Film
Decision Memorandum. No new information or evidence of changed
circumstances have been presented in this review to warrant
reconsideration of this findings. Therefore, we continue to find that
the DEPS program is countervailable.
In October 2003, Essar switched the license it earned under the
DEPS program to a license under the Duty Free Remission Certificate
Scheme (DFRCS). Essar claims that the DFRCS program is similar to the
Advance License program, a program under which duty exemptions are not
countervailable provided that the input imported under the program is
physically incorporated into the re-exported product. Essar further
claims that it switched the license (after the POR) in order to avoid
any countervailable duties associated with the DEPS program. Essar also
claims that, as it did not use the DEPS license during the POR to
receive duty exemption on imported inputs, the Department should not
find that it received any benefits during the POR.
We disagree with Essar. We note that in CTL Plate from India, we
stated that, ``benefits from the DEPS program are conferred as of the
date of exportation of the shipment for which the pertinent DEPS
credits are earned rather than the
[[Page 913]]
date the DEPS credits are used. At that time, the amount of the benefit
is known by the exporter.'' See CTL Plate at 64 FR 73134. See also
Comment 4 of CTL Plate, ``Timing and Calculation of DEPS Benefits,'' 64
FR 73140. Moreover, Essar has not provided any new evidence that would
lead us to reconsider our finding that the GOI does not have in place
and does not apply a system that is reasonable and effective to confirm
which inputs, and in what amounts, are consumed in the production of
the exported products for the purposes intended. Thus, consistent with
our approach in CTL Plate, we find that the DEPS credit earned by Essar
during the POR is countervailable.
To derive the DEPS program rate, we first calculated the value of
the credits that Essar earned for its export shipments of subject
merchandise to the United States during the POR by multiplying the
f.o.b. value of each export shipment by 14 percent, the percentage of
DEPS credit allowed under the program for exports of subject
merchandise. We then subtracted as an allowable offset the actual
amount of application fees paid for each license in accordance with
section 771(6) of the Act. Finally, we took this sum (the total value
of the licenses net of application fees paid) and divided it by Essar's
total exports of subject merchandise to the United States during the
POR. On this basis, we determine the net countervailable subsidy from
this program to be 14.06 percent ad valorem.
Program Preliminarily Determined Not To Be Used
1. Corporate Debt Restructuring
On September 12, 2003, the Department initiated separate
investigations of the following programs: forgiveness of debt
obligations, suspension and restructuring of interest payments, debt-
to-equity conversions, preferential restructuring of loans, and
guarantee and ultimate payment of certain debt. See New Subsidy
Allegation Memorandum. While we initiated on each program separately,
we preliminary find that it is more appropriate to discuss and analyze
these programs under the single program of the corporate debt
restructuring. During the course of this proceeding, the Department has
found that these programs are all related to the Corporate Debt
Restructuring (CDR) and therefore should be treated as a single
program.
The RBI and a group of lenders introduced the CDR Mechanism to
restructure corporations' debt in August 2001. The Inter-Creditor
Agreement (ICA) was signed in February 2002 to deal with the increasing
amount of non-performing assets (NPAs) that banks where holding. The
RBI and the CDR Standing Forum, which consisted of members from various
banks in India reviewed other countries' restructuring programs, and
ultimately based the CDR framework on the London Approach. The CDR is a
non-statutory and voluntary organization whose members are bound by the
ICA. Lender participation in the CDR is voluntary. However, when a
restructuring package is accepted by at least 75 percent of the
lenders, determined by value of their outstanding loans, the remaining
25 percent must either comply with the terms of the agreement, or, if
they decide to opt out, must transfer their debts to another lender on
terms set by the agreement.
The CDR has three levels; the CDR Core Group, the Empowered Group
and the CDR Cell. During the POR, state banks, private banks and other
financial institutions had representation on the CDR Core Group.
Foreign banks did not. The Core Group is responsible for overseeing the
CDR as a whole, while the Empowered Group is responsible for making the
decision on the individual restructuring packages. The CDR Cell works
with the company and oversees the restructuring package. The RBI is a
party to the CDR Core Group; however, it does not have representation
on the other two levels.
The objective of the CDR is to restructure a company's debt. The
guidelines for the CDR are set forth in the RBI's circulars dated
August 23, 2001 and February 5, 2003. The CDR began restructuring
companies' debts in March 2002. See GOI Verification Report at 5. While
CDR packages are created on a case-by-case basis, most CDR packages
include a change (lowering) of the company's interest rates and an
extension of the time period for repayment of outstanding debt.
With respect to Essar, in October 2002, the IDBI proposed a CDR
package for Essar under the CDR. See Essar's Verification Report at 9.
On January 21, 2003, the Empowered Group approved the proposed
restructuring package. Id. at 10. On February 24, 2003, the CDR Cell
sent a letter to the IDBI, stating that the package had been approved
and that the IDBI was selected as the monitoring agency for
implementation of the plan and Essar's Board of Directors approved the
CDR package on March 31, 2003. See Essar's October 2, 2003 submission
at Exhibit 3 and Essar's Verification Exhibit 14.
Essar's restructuring package included the extension of loan due
dates until 2017, and a lowering of interest rates for all lenders who
had not yet changed the interest rates that they were charging. If a
lender did not want to extend the loan, it could accept a one-time
settlement, in which Essar would pay out its obligation at a discount.
Another option presented to the lenders would be to convert debt to
rupees and extend the due date to 2017.
Based on the record evidence provided by the GOI and Essar as well
as information obtained during verification, we preliminarily determine
that the restructuring plan for Essar under the CDR did not take effect
until after the POR. As a result, we preliminarily determine that Essar
did not use this program during the POR.
2.Duty Free Remission Certificate Scheme (DFRCS)
The Duty Free Remission Certificate (DFRC) scheme was introduced by
the GOI in 2001. The DFRC is administered by the Director-General for
Foreign Trade (DGFT), and is applicable to manufacturing exporters.
Eligibility is not conditioned on any sector or region, but is
conditioned on export. The GOI characterizes the DFRC as an extension
of the Advance License scheme. The DFRC also uses the same Standard
Input Output Norms (SION) as the Advance License program. See Essar's
Verification Report at 5. The DFRC differs from the Advance License
scheme in that the Advance License program requires only positive
addition and the DFRC requires a minimum value addition of 25 percent.
DFRC licenses are only issued after export has occurred. Manufacturers
are required to provide all shipping documents and invoices to
demonstrate they imported only the allowable input.
In October 2003, Essar switched from a DEPS to a DFRC. Id. Since
the company switched from a DEPS to a DFRC in 2003, we find that this
occurred after the POR and therefore, Essar did not use this program
during the POR.
3. Sick Industrial Companies Act and Board for Industrial and Financial
Reconstruction
Passed in 1987, the Sick Industrial Company Act (SICA) is
administered by the Board for Industrial and Financial Reconstruction
(BIFR). It was designed for companies whose accumulated losses surpass
the net equity of share capital. Companies in such a financial
situation must refer themselves to the BIFR within sixty days of
finalizing their audited financial statements. The
[[Page 914]]
referral of a company triggers a judicial process which brings
companies under the oversight of the BIFR. Then the BIFR supervises the
process through which the companies restructure their debts and
financial obligations. While under the BIFR, companies are shielded
from any litigation.
On September 30, 2002, Essar's accumulated losses exceeded its net
worth of equity capital. However, these results were not officially
adopted until March 2003 by Essar's shareholders. Between September
2002 and March 2003, Essar's net worth exceeded its losses. The company
had also entered its restructuring process under the CDR. As the
company was in the process of rehabilitating its financial condition,
the company sought an opinion as to whether it was necessary to refer
itself, as a sick company, to the BIFR. The BIFR concluded that
referral was not necessary, since the company's net worth became
positive before the required notification period. Thus, Essar was never
officially declared to be a ``sick company'' by the BIFR.
Consequently, we conclude that Essar never invoked protection under
the BIFR, and therefore, we preliminarily find that Essar did not use
this program during the POR.
Furthermore, we preliminarily find that Essar did not use the
following programs during the POR.\6\
---------------------------------------------------------------------------
\6\ For descriptions of these previously examined programs, see,
e.g., CTL Plate from India.
---------------------------------------------------------------------------
4. Advance Licenses
5. Exemption of Export Credit from Interest Taxes
6. Income Tax Deductions Under Section 80 HHC
7. Post-Shipment Export Financing
Preliminary Results of Review
In accordance with 19 CFR 351.221(b)(4)(i), we calculated an
individual subsidy rate for Essar subject to this administrative
review, for 2001 and 2002. We preliminarily determine the total
estimated net countervailable subsidy rate is 1.69 percent ad valorem
for 2001 and 17.10 percent ad valorem for 2002.
If the final results of this review remain the same as these
preliminary results, the Department intends to instruct the CBP, within
15 days of publication, to liquidate shipments of hot rolled steel from
India entered, or withdrawn from warehouse, for consummption from April
20, 2001 through August 18, 2001 as well as from December 3, 2001
through December 31, 2001 at 1.69 percent ad valorem and and shipments
of hot rolled steel from India entered, or withdrawn from warehouse,
for consumption from January 1, 2002 through December 31, 2002 at 17.10
percent ad valorem of the f.o.b. invoice price on all shipments of the
subject merchandise from Essar. Also, the rate of cash deposits of
estimated countervailing duties will be set at 17.10 percent ad valorem
for all shipments of hot rolled steel made by Essar from India entered
or withdrawn from warehouse, for consumption on or after the
publication of the final results of this administrative review. The
Department will issue appropriate instructions directly to the CBP
within 15 days of the final results of this review.
Because the Uruguay Round Agreements Act (URAA) replaced the
general rule in favor of a country-wide rate with a general rule in
favor of individual rates for investigated and reviewed companies, the
procedures for establishing countervailing duty rates, including those
for non-reviewed companies, are now essentially the same as those in
antidumping cases, except as provided for in section 777A(e)(2)(B) of
the Act. A requested review will normally cover only those companies
specifically named. See 19 CFR 351.213(b). Pursuant to 19 CFR
351.212(c), for all companies for which a review was not requested,
duties must be assessed at the cash deposit rate, and cash deposits
must continue to be collected at the rate previously ordered. As such,
the countervailing duty cash deposit rate applicable to a company can
no longer change, except pursuant to a request for a review of that
company. See Federal-Mogul Corporation and The Torrington Company v.
United States, 822 F. Supp. 782 (CIT 1993) and Floral Trade Council v.
United States, 822 F. Supp. 766 (CIT 1993) (interpreting 19 CFR
353.22(e), the pre-URA antidumping regulation on automatic assessment,
which was identical to 19 CFR 355.22(g)). Therefore, the cash deposit
rates for all companies except those covered by this review will be
unchanged by the results of this review.
We will instruct the CBP to continue to collect cash deposits for
non-reviewed companies at the most recent company-specific or country-
wide rate applicable to the company. Accordingly, the cash deposit
rates that will be applied to non-reviewed companies covered by this
order are those established in the most recently completed
administrative proceeding conducted under the URAA. See HRC Amended
Final, 66 FR 60200. These rates shall apply to all non-reviewed
companies until a review of a company assigned these rates is
requested. In addition, for the period April 20, 2001 through December
31, 2002, the assessment rates applicable to all non-reviewed companies
covered by this order are the cash deposit rates in effect at the time
of entry.
Public Comment
Pursuant to 19 CFR 351.224(b), the Department will disclose to
parties to the proceeding any calculations performed in connection with
these preliminary results within five days after the date of the public
announcement of this notice. Pursuant to 19 CFR 351.309, interested
parties may submit written comments in response to these preliminary
results. Unless otherwise indicated by the Department, case briefs must
be submitted within 30 days after the date of publication of this
notice, and rebuttal briefs, limited to arguments raised in case
briefs, must be submitted no later than five days after the time limit
for filing case briefs, unless otherwise specified by the Department.
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. Parties submitting case and/or rebuttal briefs
are requested to provide the Department copies of the public version on
disk. Case and rebuttal briefs must be served on interested parties in
accordance with 19 CFR 351.303(f). Also, pursuant to 19 CFR 351.310,
within 30 days of the date of publication of this notice, interested
parties may request a public hearing on arguments to be raised in the
case and rebuttal briefs. Unless the Secretary specifies otherwise, the
hearing, if requested, will be held two days after the date for
submission of rebuttal briefs, that is, thirty-seven days after the
date of publication of these preliminary results.
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 351.309(c)(ii), are due. The Department
will publish the final results of this administrative review, including
the results of its analysis of arguments made in any case or rebuttal
briefs.
This administrative review is issued and published in accordance
with sections 751(a)(1) and 777(I)(1) of the
[[Page 915]]
Act (19 U.S.C. 1675(a)(1) and 19 U.S.C. 1677f(I)(1)).
Dated: December 30, 2003.
James J. Jochum,
Assistant Secretary for Import Administration.
[FR Doc. 04-330 Filed 1-6-04; 8:45 am]