[Federal Register: August 30, 2004 (Volume 69, Number 167)]
[Notices]
[Page 52866-52874]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30au04-35]
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DEPARTMENT OF COMMERCE
International Trade Administration
[C-533-842]
Notice of Preliminary Affirmative Countervailing Duty
Determination and Alignment With Final Antidumping Duty Determination:
Bottle-Grade Polyethylene Terephthalate (``PET'') Resin From India
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
SUMMARY: The Department of Commerce (the Department) preliminarily
determines that countervailable subsidies are being provided to
producers and exporters of Bottle-Grade Polyethylene Terephthalate
(PET) Resin
[[Page 52867]]
(BG PET Resin) from India. For information on the estimated subsidy
rates, see the ``Suspension of Liquidation'' section of this notice.
EFFECTIVE DATE: August 30, 2004.
FOR FURTHER INFORMATION CONTACT: Douglas Kirby or Addilyn Chams-Eddine,
Office of AD/CVD Enforcement VI, Import Administration, U.S. Department
of Commerce, Room 7866, 14th Street and Constitution Avenue, NW.,
Washington, DC 20230; telephone (202) 482-3782 and (202) 482-0648
respectively.
SUPPLEMENTARY INFORMATION:
Case History
The petition in this investigation was filed on March 24, 2004, by
the United States PET Resin Producers Coalition (Petitioner). This
investigation was initiated on April 13, 2004. See Notice of Initiation
of Countervailing Duty Investigations: Bottle-Grade Polyethylene
Terephthalate (PET) Resin from India (C-533-842) and Thailand (C-549-
824), 69 FR 21096 (April 20, 2004). On April 28, 2004, we issued a
questionnaire to the Government of India (GOI) and requested that the
GOI forward the relevant sections of the questionnaire to Indian
producers/exporters of BG PET Resin.
On May 21, 2004, petitioner timely requested a 65-day postponement
of the preliminary determination for this investigation until August
21, 2004. On June 3, 2004, the Department extended the deadline for the
preliminary determination by 67 days to August 23, 2004, since August
21st falls on a Saturday, in accordance with section 703(c)(1)(A) of
the Tariff Act of 1930, as amended (the Act). See Postponement of
Preliminary Countervailing Duty Determinations: Bottle-Grade
Polyethylene Terephthalate Resin from India and Thailand, 69 FR 31354
(June 3, 2004).
On June 21, 2004, the GOI submitted its questionnaire response. In
its questionnaire response, the GOI identified four Indian companies
that produced and exported BG PET Resin to the United States during the
period of investigation (POI), and indicated which programs had been
used by these companies. These four companies are Reliance Industries,
Ltd. (Reliance), Futura Polyesters, Ltd. (Futura), South Asia Petrochem
Ltd. (SAPL), and Elque Polyesters Ltd. (Elque). In addition, all of the
four companies identified by the GOI submitted questionnaire responses
to the Department.
Between July 8, and July 15, 2004, the Department issued
supplemental questionnaires to the GOI and the four respondent
companies. Between July 27, and August 2, 2004, the GOI and the four
respondent companies submitted their responses to the supplemental
questionnaires.
Between July 23, and August 3, 2004, the Department issued addenda
to the supplemental questionnaires to the four respondent companies.
Responses were submitted between August 4, and August 14, 2004.
Scope of the Investigation
The merchandise covered by this investigation is bottle-grade
polyethylene terephthalate (PET) resin, defined as having an intrinsic
viscosity of at least 0.68 deciliters per gram but not more than 0.86
deciliters per gram. The scope includes bottle-grade PET resin that
contains various additives introduced in the manufacturing process. The
scope does not include post-consumer recycle (PCR) or post-industrial
recycle (PIR) PET resin; however, included in the scope is any bottle-
grade PET resin blend of virgin PET bottle-grade resin and recycled PET
(RPET). Waste and scrap PET is outside the scope of the investigation.
Fiber-grade PET resin, which has an intrinsic viscosity of less than
0.68 deciliters per gram, is also outside the scope of the
investigation.
The merchandise subject to this investigation is properly
classified under subheading 3907.60.0010 of the Harmonized Tariff
Schedule of the United States (HTSUS); however, merchandise classified
under HTSUS subheading 3907.60.0050 that otherwise meets the written
description of the scope is also subject to this investigation.
Although the HTSUS subheadings are provided for convenience and customs
purposes, the written description of the merchandise under
investigation is dispositive.
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 May 19, 2004, the ITC published its
preliminary determination that there is a reasonable indication that an
industry in the United States is materially injured by reason of
imports from India, Indonesia, Taiwan, and Thailand of subject
merchandise. See Polyethylene Terephthalate (PET) Resin From India,
Indonesia, Taiwan, and Thailand, 69 FR 28948.
Alignment With Final Antidumping Duty Determinations
On July 30, 2004, petitioner submitted a letter requesting
alignment of the final determination in this investigation with the
final determination in the companion antidumping duty investigation.
Therefore, in accordance with section 705(a)(1) of the Act, we are
aligning the final determination in this investigation with the final
determinations in the antidumping duty investigations of BG PET Resin
from India, Thailand, Taiwan, and Indonesia.
Period of Investigation
The period of investigation (POI) for which we are measuring
subsidies is April 1, 2003, through March 31, 2004, which corresponds
to the most recently completed fiscal year for all of the respondents.
See 19 CFR 351.204(b)(2).
Subsidies Valuation Information
Benchmarks for Loans and Discount Rate
For those programs requiring the application of a benchmark
interest rate, 19 CFR 351.505(a)(1) provides a preference for using an
interest rate that the company could have obtained on a comparable loan
in the commercial market. Both Futura and SAPL have provided
information on rupee-denominated short-term commercial loans
outstanding during the POI. Thus, in accordance with 19 CFR
351.505(a)(1), we are using these interest rates as company-specific
benchmarks for purposes of calculating benefits arising from the rupee-
denominated short term loan programs we find countervailable. SAPL and
Futura are the only two producers/exporters of BG PET Resin which
reported using these short-term loan programs. SAPL also received
short-term loans denominated in U.S. dollars. When loans are
denominated in a foreign currency, our practice, in accordance with 19
CFR 351.505, is to use a foreign currency benchmark. See, e.g., Certain
Pasta From Turkey: Final Results of Countervailing Duty Administrative
Review, 66 FR 64398 (December 13, 2001) and accompanying Issues and
Decision Memorandum in the section entitled ``Benchmark Interest Rates
for Short-term Loans.'' For these loans, we used as our benchmark a
national average dollar-denominated short-term interest rate for the
United States, as reported in the International Monetary Fund's
publication International Financial Statistics.
For those programs requiring a rupee-denominated discount rate or
the application of a rupee-denominated,
[[Page 52868]]
long-term benchmark interest rate, we used, where available, company-
specific, weighted-average interest rates on comparable commercial
long-term, rupee-denominated loans. We did not use those long-term
loans that had unpaid interest or principal payments because we do not
consider such loans to be comparable loans under section 771(5)(E)(ii)
of the Act and 19 CFR 351.505(a)(2)(i). We note that some respondents
did not have rupee-denominated, comparable long-term loans from
commercial banks for all required years. Therefore, for those years, we
relied on a rupee-denominated, short to medium-term benchmark interest
rate that is not company-specific, but still provides a reasonable
representation of long-term interest rates, in order to determine
whether a benefit was provided to the companies from rupee-denominated,
long-term loans received from the GOI. Pursuant to 19 CFR
351.505(a)(3)(ii), we used national average interest rates for those
years in which the respondents did not report company-specific interest
rates on comparable commercial loans. In the absence of data regarding
a national average interest rate for long-term rupee-denominated loans,
we based these national average interest rates on information on short-
to medium-term, rupee-denominated financing from private creditors in
the International Monetary Fund's publication International Financial
Statistics. We will continue to seek information regarding the most
appropriate long-term interest rate for purposes of the final
determination.
Allocation Period
Under 19 CFR 351.524(d)(2)(i), we will presume the allocation
period for non-recurring subsidies to be the average useful life (AUL)
of renewable physical assets for the industry concerned, as listed in
the Internal Revenue Service's (IRS) 1977 Class Life Asset Depreciation
Range System, as updated by the Department of the Treasury. The
presumption will apply unless a party claims and establishes that these
tables do not reasonably reflect the AUL of the renewable physical
assets for the company or industry under investigation, and the party
can establish that the difference between the company-specific or
country-wide AUL for the industry under investigation is significant,
pursuant to 19 CFR 351.524(d)(2)(ii). For assets used to manufacture
products such as BG PET resin, the IRS tables prescribe an AUL of 10
years.
In their questionnaire responses, SAPL, Futura, and Elque rebutted
the regulatory presumption by meeting the criteria set forth in CFR
351.524(d)(2)(iii) and calculating company-specific AULs. Futura and
Elque divided the aggregate of their respective annual average gross
book values of their depreciable productive fixed assets by their
aggregated annual charge to accumulated depreciation for a ten-year
period in the manner specified by 19 CFR 351.524(d)(2)(iii). Using this
method, Elque calculated an AUL of 20 years, and Futura calculated an
AUL of 17 years. Based on information submitted by the respondents, we
find the presumptions to be rebutted by those two companies and are
using the company-specific AULs for Elque and Futura for purposes of
allocating any non-recurring subsidies over time. Reliance and SAPL
provided information in an attempt to rebut the AUL presumption, but
did not comply with the requirements specified by 19 CFR
351.524(d)(2)(iii) for calculating a company-specific AUL. Thus, for
SAPL and Reliance we will use the IRS AUL of 10 years to allocate any
non-recurring subsidies for purposes of this preliminary determination.
I. Programs Preliminarily Determined To Be Countervailable
A. GOI Programs
1. Duty Entitlement Passbook Scheme (DEPS)
India's DEPS was enacted on April 1, 1997, as a successor to the
Passbook Scheme (PBS). As with PBS, 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, the GOI has
established a SION. Beginning in April 1, 2003, BG PET Resin exporters
were eligible to earn credits equal to 17 percent of the free on board
(FOB) value of their export shipments until February 9, 2004, when the
DEPS rate changed to 13 percent.
The Department has previously determined that the DEPS is
countervailable. In Notice of Final Affirmative Countervailing Duty
Determination: Polyethylene Terephthalate Film, Sheet, and Strip from
India (PET Film from India), 67 FR 34905 (May 16, 2002), and
accompanying Issues and Decision Memorandum), the Department determined
that under the DEPS, a financial contribution, as defined under section
771(5)(D)(ii) of the Act, is provided because (1) the GOI provides
credits for the future payment of import duties; and (2), the GOI does
not have in place and does not apply a system that is reasonable and
effective for the purposes intended to confirm which inputs, and in
what amounts, are consumed in the production of the exported products.
Therefore, under 19 CFR 351.519(a)(4) and section 771(5)(E) of the Act,
the entire amount of import duty exemption earned during the POI
constitutes a benefit. Finally, this program can only be used by
exporters and, therefore, it is specific under section 771(5A)(B) of
the Act. See the ``DEPS'' section of the PET Film from India Issues and
Decision Memorandum on file in the CRU and available online at http://www.ia.ita.doc.gov.
No new information or evidence of changed
circumstances has been presented in this investigation to warrant
reconsideration of this finding. Therefore, we continue to find that
the DEPS is countervailable.
We have previously determined that this program provides a
recurring benefit under19 CFR 351.524(c). See Final Affirmative
Countervailing Duty Determination: Certain Cut-to-Length Carbon-Quality
Steel Plate From India, (Carbon Steel Plate From India), 64 FR 73131,
73140 (December 29, 1999). Benefits from the DEPS program are conferred
as of the date of exportation of the shipment for which the pertinent
DEPS credits are earned. See comment 4, ``Timing and Calculation of
DEPS Benefits'', Carbon Steel Plate From India.
Reliance was the only company that reported that it received post-
export credits on BG PET resin under the DEPS program during the POI.
We calculated the DEPS program rate using the value of the post-export
credits that Reliance earned for its export shipments of subject
merchandise to the United States during the POI by multiplying the FOB
value of each export shipment by the relevant 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)
[[Page 52869]]
and divided it by Reliance's total exports of subject merchandise to
the United States during the POI. On this basis, we preliminarily
determine Reliance's net countervailable subsidy from the DEPS program
to be 16.96 percent ad valorem.
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, exporters may import capital equipment at reduced rates
of duty by undertaking to earn convertible foreign exchange equal to
four to five times the value of the capital goods within a period of
eight 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 penalty interest. In previous
investigations, the Department has determined that producers/exporters
benefit from the waiver of import duty on imports of capital equipment.
Also, a second type of benefit conferred under this program that
involves import duty reductions that producers/exporters receive on
imports of capital equipment for which producers/exporters have not yet
met their export requirements. For those capital equipment imports,
producers/exporters have unpaid duties that will have to be paid to the
GOI if the export requirements are not met.
When a company has an outstanding liability and the repayment of
that liability is contingent upon subsequent events, our practice is to
treat any balance on that unpaid liability as an interest-free loan.
See 19 CFR 351.505(d)(1). See also PET Film From India; Final
Affirmative Countervailing Duty Determination: Certain Hot-Rolled
Carbon Steel Flat Products From India (Hot-Rolled Steel from India), 66
FR 49635 (September 28, 2001), and accompanying Issues and Decision
Memorandum (Hot-Rolled Steel Decision Memo). The Department
preliminarily determined that the EPCGS program is countervailable
because (1) the receipt of benefits under this program is contingent
upon export performance in accordance with section 771(5A)(B) of the
Act; (2) the GOI provided a financial contribution under section
771(5)(D)(ii) of the Act in the two ways described above; and (3) the
program provides benefits under section 771(5)(E) of the Act. See PET
Film From India.
The criteria to be used by the Department in determining whether to
allocate the benefits from a countervailable subsidy program are
specified under 19 CFR 351.524. Specifically, recurring benefits are
not allocated over time but are attributed to the year of receipt,
while non-recurring benefits are normally allocated over time.
Normally, tax benefits are considered to be recurring benefits and are
expensed in the year of receipt. Since import duties are a type of tax,
the benefit provided under this program is a tax benefit, and, thus,
normally would be considered a recurring benefit.
However, the Department's regulations recognize that, under certain
circumstances, it is more appropriate to allocate over time the
benefits of a program normally considered a recurring subsidy, rather
than to expense the benefits in the year of receipt. In the Preamble to
our regulations, the Department provides an example of when it may be
more appropriate to consider the benefits of a tax program to be non-
recurring benefits, and, thus, allocate those benefits over time. See
Countervailing Duties; Final Rule, 63 FR 65348, 65393 (November 25,
1998). We stated in the Preamble to our regulations that, if a
government provides an import duty exemption tied to major capital
equipment purchases, it may be reasonable to conclude that, because
these duty exemptions are tied to capital assets, the benefits from
such duty exemptions should be considered non-recurring, even though
import duty exemptions are on the list of recurring subsidies.
Because the benefit received from the waiver of import duties under
the EPCGS is tied to the capital assets of the respondent companies,
and, therefore, is just such a benefit, we determine that it is
appropriate to treat the waiver of duties as a non-recurring benefit.
We note that our approach on this issue is consistent with that taken
in Hot-Rolled Steel from India. Reliance is the only respondent that
reported using the EPCGS program, and for the preliminary determination
of this investigation, non-recurring benefits will be allocated over 10
years, the AUL for Reliance. (See ``Subsidies Valuation Section''
above).
In its questionnaire responses, Reliance reported the capital
equipment imports they made using EPCGS licenses are granted pursuant
to obligations to export BG PET Resin, as well as the application fees
they paid to obtain their EPCGS licenses. We preliminarily determine
that the application fees paid by Reliance 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. In order to calculate the benefit received from
the waiver of Reliance's import duties on their capital equipment
imports, we determined the total amount of duties which were waived in
each year (net of application fees), i.e., those for which the GOI
determined other export obligations had been met. Consistent with our
approach in Hot-Rolled Steel from India, we determine the year of
receipt to be the year in which the GOI formally waived the respondent
company's remaining outstanding import duties.
A second type of financial contribution and benefit conferred under
this program arises from the import duty reductions that the respondent
received on the imports of capital equipment for which the respondent
has not yet met its export requirements. For those capital equipment
imports, the respondent has unpaid duties that will have to be paid to
the GOI if the export requirements are not met. When a company has an
outstanding liability and the repayment of that liability is contingent
upon subsequent events, our practice is to treat any balance on that
unpaid liability as an interest-free loan. See 19 CFR 351.505(d)(1). We
determine that the amount of contingent liability to be treated as an
interest-free loan is the amount of the import duty reduction or
exemption for which the respondent applied but, as of the end of the
POI, had not been finally waived by the GOI. Accordingly, we determine
the benefit to be the interest that the respondent would have paid
during the POI had the company borrowed the full amount of the duty
reduction at the time of import. We note that this approach is
consistent with the methodology employed in Hot-Rolled Steel from
India.
For purposes of calculating the benefit from this element of EPCGS,
we treated the outstanding duties as a long-term interest-free loan.
Based on the information provided by Reliance with respect to this
program, we determine that Reliance had outstanding contingent
liabilities during the POI. Pursuant to19 CFR 351.505(d)(1), the
benchmark for measuring the benefit is a long-term interest rate
because the event upon which repayment of the duties depends (i.e., the
date of expiration of the time period for the respondents to fulfill
their export commitments) occurs at a point in time more than one year
after the date the capital goods were imported.
To calculate the countervailable subsidy rate for Reliance, we
combined, where applicable, the sum of the benefits received on waived
duties and
[[Page 52870]]
allocated to the POI, and the benefits conferred upon Reliance in the
form of contingent-liability loans. We then subtracted as an allowable
offset the actual amount of application fees paid for each license in
accordance with section 771(6)(A) of the Act. Then, because the
licenses were granted specifically for the export of BG PET resin, we
divided Reliance's total benefit under the program by its total export
sales of BG PET resin during the POI (see 19 CFR 351.525). On this
basis, we preliminarily determine the net countervailable subsidy from
this program to be 11.40 percent ad valorem for Reliance.
3. Export-Oriented Units
Companies designated as Export-Oriented United (EOUs) can receive
various types of assistance including: (1) Duty-free import of capital
goods and raw materials; (2) reimbursement of Central Sales Tax (CST)
paid on materials procured domestically; (3) purchase of materials and
other inputs free of Central Excise Duty; and (4) duty drawback on
furnace oil procured from domestic oil companies. Elque, Futura, and
SAPL have been designated as EOUs.
Since eligibility for the EOU program is contingent upon export
performance, we find that the assistance provided under the EOU program
is specific within the meaning of section 771(5A)(B) of the Act. We
also preliminarily determine that the Duty-Free Import of Capital Goods
and Raw Materials program, and the Reimbursement of Central Sales Tax
(CST) Paid on Materials Procured Domestically program, provide a
financial contribution pursuant to section 771(5)(D)(ii) of the Act
through the foregoing of duty and tax payments. These two EOU programs
confer benefits in the amounts of exemptions and reimbursements of
customs duties and certain sales taxes in accordance with section
771(5)(E) of the Act. (See ``Programs for Which Additional Information
is Needed'' below for a discussion of the Duty Drawback on Furnace Oil
Procured from Domestic Oil Companies plan, and the Purchase of
Materials and other Inputs free of Central Excise Duty plan.)
Elque, Futura, and SAPL are designated as EOUs, and they reported
receiving benefits under the Duty-Free Import of Capital Goods and Raw
Materials program, and the Reimbursement of Central Sales Tax (CST)
Paid on Materials Procured Domestically program during the POI.
a. Duty-Free Import of Capital Goods and Raw Materials
Under this program, EOUs are entitled to import capital goods and
raw materials duty-free. The GOI provided no information to demonstrate
that exemptions on raw materials met the standards for non-
countervailability pursuant to 19 CFR 351.519(a)(4). Normally, tax
benefits are considered to be recurring benefits and are expensed in
the year of receipt. Since import duties are a type of tax, the benefit
provided under this program is a tax benefit, and, thus, normally would
be considered a recurring benefit. Thus, we are treating the duty
exemptions on raw materials as recurring benefits.
However, as discussed in the ``EPCGS'' section above, the
Department's regulations recognize that, under certain circumstances,
it is more appropriate to allocate over time the benefits of a program
normally considered a recurring subsidy, rather than to attribute the
benefits to the year of receipt. Because the benefit received from the
exemption of import duties on capital goods under this program is
granted for the capital goods of the respondent companies, we determine
that it is appropriate to treat the exemption of duties on capital
goods as a non-recurring benefit.
Therefore, to calculate the countervailable subsidy for Elque,
SAPL, and Futura, we summed duty exemptions on raw material inputs
received during the POI and the duty exemptions on capital goods
allocated to the POI. We then divided each company's total benefits
under the program by their total export sales during the POI. On this
basis, we preliminarily determine the countervailable subsidy from this
program to be 11.20 percent ad valorem for Elque, 18.59 percent ad
valorem for SAPL, and 1.03 percent ad valorem for Futura.
b. Reimbursement of Central Sales Tax (CST) Paid on Materials Procured
Domestically
Under this program, EOUs are entitled to reimbursements of the CST
paid on materials procured domestically. This reimbursement is
available on purchases of both raw materials and capital goods. For the
reimbursement of CST paid on materials procured domestically, the
record shows that EOUs record the CST reimbursement at the point of
purchase and receipt of invoice from the domestic supplier. EOU
companies then enter the claims in the books of accounts at the point
of purchase and, simultaneously, deduct CST from the cost of domestic
goods procured. To calculate the benefit for Elque, SAPL, and Futura,
we summed the reimbursements of the CST paid on raw materials procured
domestically that each company received during the POI. We separately
summed the CST reimbursements paid on capital goods for each year and
allocated these sums over each company's AUL using the appropriate
discount rate. (See ``Subsidies Valuation Information'' section above.)
For CST reimbursements on capital goods received during the POI, we
first conducted the ``0.5 percent'' test. See 19 CFR 351.524(b)(2).
Based in the result of this test, we either allocated the total CST
reimbursements received during the POI over each company's AUL using
the appropriate discount rate (see ``Subsidies Valuation Information''
section above), or we attributed the total CST reimbursements received
during the POI to POI, as appropriate. See Id.
We then summed the benefits on capital goods allocated to the POI
with the benefits on raw materials attributed to the POI and divided
the companies' total benefits under the program by their respective
total export sales during the POI. (Futura provided no information
indicating which CST reimbursements were received for raw materials
purchases and which for capital goods purchases. Thus, for the purposes
of the preliminary determination, we attributed all of Futura's CST
reimbursements to the POI.) On this basis, we preliminarily determine
the countervailable subsidy from this program to be 0.07 percent ad
valorem for SAPL, 0.79 percent ad valorem for Elque, and 0.12 percent
ad valorem for Futura.
4. Income Tax Exemption Scheme (Section 80 HHC) In Certain Iron-Metal
Castings From India: Final Results of Countervailing Duty
Administrative Review (Iron-Metal Castings from India), 65 FR 31515
(May 18, 2000), the Department determined that deductions of profit
derived from exports under section 80HHC of India's Income Tax Act are
countervailable. No new information or evidence of changed
circumstances has been submitted in this investigation to warrant
reconsideration of this finding. Therefore, we continue to find this
program countervailable because it is contingent upon export
performance and, therefore, is specific in accordance with section
771(5A)(B) of the Act. Pursuant to section 771(5)(D)(ii) of the Act,
the GOI provides a financial contribution in the form of tax revenue
not collected. Finally, a benefit is
[[Page 52871]]
conferred in the amount of tax savings in accordance with section
771(5)(E) of the Act.
Reliance claimed deductions of profits derived from exported goods,
under section 80HHC, in computing its total taxable income during the
POI. To calculate the benefit Reliance received under this program, we
subtracted the total amount of income tax the company actually paid
during the POI from the amount of tax the company otherwise would have
paid had it not claimed a deduction under section 80 HHC. Since the
Department has previously found section 80 HHC to be an ``untied''
export subsidy program, i.e., the benefits provided are attributable to
all products exported by the company. See Certain Iron-Metal Castings
From India: Final Results of Countervailing Duty Administrative Review,
65 FR 31515 (May 18, 2000); see also e.g., Final Affirmative
Countervailing Duty Determination: Certain Pasta from Turkey, 61 FR
30366, 30370 (June 14, 1996).
To calculate the benefit Reliance received under section 80HHC, we
subtracted the total amount of income tax the company actually paid
during the POI from the amount of tax the company otherwise would have
paid had it not claimed a deduction under section 80HHC. We then
divided this difference by total export sales. Thus, the
countervailable subsidy is 0.64 percent ad valorem for Reliance.
Elque reported that all of its exports of subject merchandise to
the United States during the POI were made through a trading company,
and further reported that the trading company claimed Section 80 HHC
deductions. In accordance with 19 CFR 351.525(c), we have attributed
the trading company's export subsidy benefits from Section 80 HHC to
Elque.
To calculate the benefit Elque's trading company received under
section 80HHC, we subtracted the total amount of income tax actually
paid during the POI from the amount of tax that otherwise would have
been paid had a deduction under section 80HHC not been claimed. We then
divided this difference by Elque's total export sales. Thus, the
countervailable subsidy is 0.02 percent ad valorem for Elque.
5. Pre- and Post-Shipment Export Financing
The Reserve Bank of India (RBI), through commercial banks, provides
short-term pre-shipment export financing, or ``packing credits,'' 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. Credit line limits are
established by commercial banks based upon a company's creditworthiness
and past export performance, and may be denominated either in Indian
rupees or in foreign currency. Commercial banks extending export credit
to Indian companies must, by law, charge interest on this credit at
rates capped by the RBI. For post-shipment export financing, exporters
are eligible to receive post-shipment short-term credit in the form of
discounted trade bills or advances by commercial banks at preferential
interest rates to finance the period between the date of shipment of
exported merchandise and payment from export customers (``transit
period'').
The Department has previously determined that this export financing
is countervailable to the extent that the interest rates are set by the
GOI and are lower than the rates exporters would have paid on
comparable commercial loans. See Notice of Final Affirmative
Countervailing Duty Determination: Polyethylene Terephthalate Film,
Sheet, and Strip from India (PET Film from India), 67 FR 34905 (May 16,
2002). Specifically, the Department determined that the GOI's issuance
of financing at preferential rates constituted a financial contribution
pursuant to section 771(5)(D)(i) of the Act. See the ``Pre-Shipment and
Post-Shipment Export Financing'' section of the PET Film from India
Issues and Decision Memorandum. The Department further determined that
the interest savings under this program conferred a benefit pursuant to
section 771(5)(E)(ii) of the Act. In addition, the Department
determined this program, which is contingent upon exports, to be
specific within the meaning of section 771(5A)(B) of the Act. No new
information or evidence of changed circumstances have been presented in
this investigation to warrant reconsideration of this finding.
SAPL reported that it had outstanding pre- and post-shipment export
loans during the POI. Both SAPL's pre-shipment and post-shipment loans
were denominated in rupees and U.S. dollars. Futura also reported that
it had outstanding pre-shipment export loans during the POI,
denominated in rupees. Reliance and Elque reported that they had no
outstanding loans under these programs during the POI.
To calculate the benefit conferred by the pre-shipment and post-
shipment loans taken out by SAPL and the pre-shipment loans taken out
by Futura, we compared the actual interest paid on the loans with the
amount of interest that would have been paid at the benchmark interest
rate. We used a rupee-denominated or dollar-denominated benchmark, as
appropriate (see ``Subsidies Valuation Information'' section above).
Where the benchmark interest exceeds the actual interest paid, the
difference constitutes the benefit. For pre-shipment loans, we divided
the total benefit by the company's total exports. However, for Futura,
we used its total exports of BG PET resin during the POI since its pre-
shipment financing was limited to the BG Resin division. Post-shipment
loans are granted for particular shipments, and thus, are tied to
particular markets in accordance with 19 CFR 351.525(b)(2). Therefore,
we divided the total benefit from post-export loans by SAPL's exports
of subject merchandise to the United States.
We preliminarily determine the countervailable subsidy rate under
the pre-shipment export financing program for SAPL to be 0.44 percent
ad valorem during the POI, and for Futura to be 0.48 percent ad valorem
during the POI. The countervailable subsidy rate under the post-
shipment export financing program for SAPL is 0.01 percent ad valorem
during the POI.
B. State of Maharashtra (SOM) Programs: Maharashtra Industrial Policy
2001 and Scheme of Incentives 1983
The State of Maharashtra (SOM) grants a package scheme of
incentives for privately-owned (i.e., not 100 percent owned by the GOI)
manufacturers to invest in certain areas of Maharashtra. One of these
incentives consists of either an exemption or deferral of state sales
taxes. Through this incentive, companies are exempted from paying state
sales taxes on purchases, and collecting sales taxes on sales; or, as
an alternative, are allowed to defer submitting sales taxes collected
on sales to the SOM for ten to twelve years. After the deferral period
expires, the companies are required to submit the deferred sales taxes
to the SOM in equal installments over five to six years. The total
amount of the sales tax incentive either exempted or deferred is based
on the size of the capital investment, and the area in which the
capital is invested.
In PET Film from India, the Department determined that the program
is specific within the meaning of section 771(5A)(D)(iv) of the Act
because the benefits are limited to industries located within
designated geographical areas within the SOM. The Department also
determined that the
[[Page 52872]]
SOM program provided a financial contribution under section
771(5)(D)(i) of the Act in the form of uncollected interest on the
deferred sales tax, and that the program conferred benefits under
section 771(5)(E) of the Act in the amount of interest otherwise due.
See the ``Sales Tax Incentives'' section of the PET Film from India
Decision Memo.
The Department initiated on the Maharashtra Industrial Policy 2001.
See ``Countervailing Duty Investigation Initiation Checklist,'' April
13, 2004, on file in the CRU. The GOI reported that no sales tax
exemptions or deferrals were provided under the Package Scheme of
Incentives 2001. However, Reliance reported that it received sales tax
exemptions and deferrals under the SOM's Scheme of Incentives 1983,
with portions of the sales tax deferrals still outstanding during the
POI. Because Reliance has reported incentives received under a prior
SOM scheme that were still outstanding during the POI, the Department
has determined that it is appropriate to analyze incentives received by
Reliance during the POI to determine whether they are countervailable
subsidies. See Memorandum from Dana Mermelstein to Barbara E. Tillman
entitled ``Countervailing Duty Investigation of Bottle-Grade
Polyethylene Terephthalate (PET) Resin from India: Initiation of
Investigation of Maharashtra Sales Tax Incentive Scheme 1983'' on file
in the CRU.
First, although the Department initiated on a different scheme for
the SOM, Reliance has reported the incentives it received under the
SOM's Scheme of Incentives 1983, both in the form of deferrals on sales
taxes which were outstanding during the POI, and in the form of
exemptions of sales taxes granted during the POI. The Department finds
the sales tax incentives and deferrals specific in accordance with
section 771(5A)(D)(iv) of the Act because, the 1983 Scheme limited the
benefits to industries located within designated geographical areas
within the SOM.
Second, for the sales taxes exempted, a benefit exists to the
extent that the taxes paid by Reliance as a result of this program are
less than the taxes it would have paid in the absence of the program.
See 19 CFR 351.510(a)(1). Therefore, we preliminarily determine that a
benefit and financial contribution were conferred by the exemption of
sales taxes on purchases.
Finally, for the sales taxes deferred, the Department treats such
deferred taxes as a government-provided loan in the amount of the taxes
deferred because the SOM charges no interest during the deferral
period. A benefit thus exists to the extent that the appropriate
interest charges are not collected. See 19 CFR 351.510(a)(2). We
therefore preliminarily determine that a benefit was conferred in the
amount of the interest that Reliance would have paid during the POI had
it borrowed, at the time the collected sales taxes were deferred, the
amount of the deferred sales taxes still unpaid at the end of the POI.
Pursuant to 19 CFR 351.505(a)(2)(iii), to determine the amount of the
benefit conferred, we used a long-term benchmark interest rate (see
``Benchmark Interest and Discount Rates section above'') during the
years in which sales tax deferrals were received.
To calculate the program rate, we first summed Reliance's benefits
received on exempted sales taxes on purchases during the POI. For
deferred sales taxes which were still outstanding during the POI, we
calculated the benefits conferred in the form of unpaid interest on the
deferred sales taxes. We then divided Reliance's total benefit under
the program by its total sales during the POI. On this basis, we
preliminarily determine the countervailable subsidy from this program
to be 0.12 percent ad valorem for Reliance.
C. State of Gujarat (SOG) Program: Sales Tax Incentive Scheme
Under the 1995 Industrial Policy of Gujarat, companies located in
specific areas of Gujarat are exempted from payment of sales tax on the
purchase of raw materials, consumable stores, packing materials, and
processing materials. Other available benefits include exemption or
deferment from sales tax and turnover tax on the sale of intermediate
products, by-products, and scrap. After the deferral period expires,
the companies are required to submit the deferred sales taxes to the
SOG in equal installments over six years.
The Department preliminarily determines that this program is
specific within the meaning of section 771(5A)(D)(iv) of the Act
because the benefits are limited to industries located within
designated geographical areas within the SOG. We also preliminarily
find that the SOG provided a financial contribution under section
771(5)(D)(ii) of the Act by foregoing the collection of sales tax
revenue, and that the Indian companies benefitted under section
771(5)(E) of the Act, in the amount of sales tax exempted or in the
amount of interest foregone on sales taxes deferred on purchases noted
above.
Reliance is the only company which received benefits from this
program during the POI. Reliance reported that it received sales tax
exemptions on qualifying purchases made within the SOG during the POI.
In addition, Reliance received tax deferrals in earlier years which
were still outstanding during the POI.
To calculate the program rate, we first summed Reliance's benefits
received on exempted sales taxes on purchases during the POI. For
deferred sales taxes which were still outstanding during the POI, we
treated the amount of sales taxes deferred as an interest-free loan
received in the year in which the deferral was granted, and we
calculated the benefits conferred in the form of unpaid interest on the
deferred sales taxes. (See ``State of Maharashtra Programs'' above). We
then divided Reliance's total benefit under the program by its total
sales during the POI. On this basis, we preliminarily determine the
countervailable subsidy from this program to be 1.12 percent ad valorem
for Reliance.
D. State of West Bengal Programs (SWB)
The Department initiated on the New Economic Policy on Industrial
Development, a SWB scheme begun in the year 2000. See ``Countervailing
Duty Investigation Initiation Checklist''. The GOI reported that no BG
PET resin company benefitted from this program during the POI. However,
the GOI reported that Elque received benefits under the West Bengal
Scheme of 1993 (Scheme 1993), and SAPL received benefits under the West
Bengal Scheme of 1999 (Scheme 1999). Although the Department initiated
on a more recent scheme for the SWB, respondent companies have reported
incentives received under the SWB schemes of 1993 and 1999 during the
POI. Therefore, the Department has determined that it is appropriate to
analyze incentives received by BG PET resin companies during the POI to
determine whether they are countervailable subsidies. See Memorandum
from Dana Mermelstein to Barbara E. Tillman entitled ``Countervailing
Duty Investigation of Bottle-Grade Polyethylene Terephthalate (PET)
Resin from India: Initiation of Investigations of State of West Bengal
Scheme of 1993 and 1999'' on file in the CRU.
Scheme 1993 was introduced on April 1, 1993. Though the program was
terminated effective March 31, 1999, assistance is still being provided
under the Scheme. The objective of Scheme 1993 was to assist in the
growth of medium- and large-scale industries, the tourism industry, the
expansion of existing units, and revival of sick units in the SWB
through the provision of
[[Page 52873]]
incentives. Industrial projects which receive an industrial license,
registration certificate, and term loans from a financial institution
are eligible to receive benefits under Scheme 1993. The program offers
various incentives and tax concessions to entrepreneurs and industrial
units to assist them in the construction of new units or expansion of
existing units, and the building of infrastructure in the backward
areas of West Bengal. The amount of financial assistance an industrial
unit is eligible to receive is determined by its location in West
Bengal. Under the scheme, West Bengal is divided into four groups:
Group A (i.e., Calcutta) is classified as developed, while Groups B
through D are categorized as less developed, with Group D deemed the
most backward. Industrial units located in the more backward areas
receive greater monetary assistance than those units located in the
more developed areas.
See e.g., Certain Iron-Metal Castings From India: Preliminary
Results and Partial Rescission of Countervailing Duty Administrative
Review, 64 FR 61592 (November 12, 1999). Under Scheme 1993, Elque
qualified for assistance because one of its manufacturing facilities is
located in Group B, and received a grant in multiple disbursements
under the State Capital Investment Subsidy program, which was made
available under the Scheme 1993 to eligible units in any area in Group
B.
Scheme 1999, an amended version of Scheme 1993, has not been
previously examined by the Department. Under Scheme 1999, the number of
geographical groups was reduced from four to three. Companies located
in Group A (called the ``Calcutta Municipal Corporation''), classified
as a developed area, receive few, if any, incentives; according to
Scheme 1999, ``no subsidy, loan, deferment or remission of tax or
incentive will be granted to any unit set up in the area under Group A
except to the extent provided for in the Scheme, such as deferments of
payments of sales taxes for preferred industries'' (i.e., expansion of
information technology units, tourist units). Companies located in
Group B can receive assistance in the form of sales tax exemptions on
purchases of raw materials, capital grant disbursements, and a subsidy
for conversion of piped coal gas. Group C is comprised of the most
underdeveloped areas in West Bengal, and companies located there are
entitled to more incentives under Scheme 1999 than those located in
Groups A and B. Group C receives the same types of incentives as Group
B, but at a higher level. For example, for the Exemption of Sales Tax
on Purchase of Raw Materials program, companies located in Group C can
receive deferrals on payments for substantially longer periods than
those in Group B. SAPL is located in Group B, and received an exemption
of sales tax on purchases under Scheme 1999, which provided benefits to
the company during the POI.
We find that the assistance granted to Elque under Scheme 1993 and
the assistance granted to SAPL under Scheme 1999 are specific within
the meaning of section 771(5A)(D)(iv) of the Act, because the benefits
are limited to companies located in specific regions within SWB. The
capital grant which Elque received is a financial contribution in
accordance with 771(5)(D)(i) of the Act. The sales tax exemption which
SAPL received is revenue foregone, and therefore a financial
contribution in accordance with 771(5)(D)(ii) of the Act. Both forms of
assistance provide benefits in accordance with 771(5)(E) of the Act.
To calculate the countervailable subsidy for Elque, because the
capital grant is a non-recurring subsidy (see 19 CFR 351.504), we
allocated each of the grant disbursements over Elque's AUL. We used a
discount rate from 1995, the year in which Elque was approved for the
total capital grant. See ``Subsidies Valuation Information'' section
above. We summed the benefits allocable to the POI, and divided that
sum by Elque's total sales during the POI. To calculate the
countervailable subsidy for SAPL, we divided the total sales tax
exemptions received by SAPL during the POI by SAPL's total sales. We
thus preliminarily determine the countervailable subsidy to be 0.02
percent ad valorem for Elque and 0.02 percent ad valorem for SAPL.
II. Programs Preliminarily Determined To Be Not Used
We preliminarily determine that the producers/exporters of BG PET
Resin did not apply for or receive benefits during the POI under the
programs listed below.
GOI Programs:
A. Status Certificate Program
B. Market Development Assistance Program
C. Income Tax Exemption Scheme (Sections 10A and 10B)
D. Loan Guarantees from the GOI
E. Special Economic Zones (formerly called ``Export Processing Zones'')
For purposes of this preliminary determination, we have relied on
the GOI and respondent companies' responses to preliminarily determine
non-use of the programs listed above. During the course of
verification, the Department will examine whether these programs were
not used by respondent companies during the POI.
III. Program Preliminarily Determined To Be Terminated
GOI Program: Exemption of Export Credit From Interest Taxes
Indian commercial banks were required to pay a tax on all interest
accrued from borrowers. The banks passed along this interest tax to
borrowers in its entirety. As of April 1, 1993, the GOI exempted from
the interest tax all interest accruing to a commercial bank on export-
related loans. The Department has previously found this tax exemption
to be an export subsidy, and thus countervailable, because only
interest accruing on loans and advances made to exporters in the form
of export credit was exempt from interest tax. See e.g., Final Results
of Countervailing Duty Administrative Review: Certain Iron-Metal
Castings from India, 61 FR 64676, 64686 (December 6, 1996).
The GOI reported that the tax on interest on any category of loan
was eliminated prior to the POI. Specifically, the GOI submitted
Section 4(3) of the Interest Tax Act which provides that ``no interest
tax shall be charged in respect of any chargeable interest accruing or
arising after the 31st day of March, 2000.'' See Appendix 8 of the
GOI's June 21, 2004, questionnaire response. In addition, the
information reported by the responding companies indicates that they
are no longer required to pay tax on any interest on any loans.
Therefore, in accordance with 19 CFR 351.526(d), we preliminarily
determine that this program has been terminated. If, however, we are
unable to establish at verification that there are no residual benefits
accruing to exporters of BG PET Resin from India from this program, and
that the GOI has not implemented a replacement program, we will not
find, for purposes of the final determination that this program has
been terminated in accordance with 19 CFR 351.526(d).
IV. Programs for Which Additional Information Is Needed
GOI Programs
A. Certain Assistance Under the Export Oriented Unit (EOU) Program
1. Purchase of Materials and Other Inputs Free of Central Excise Duty
Under this element of the EOU program, eligible companies can
purchase raw materials and other inputs
[[Page 52874]]
free of the central excise duty. As an element of the EOU program, the
Central Excise Duty (CED) exemption is limited to exporters, and
therefore specific under section 771(5A)(B) of the Act. However, based
on the information in the record of this investigation, we are unable
to determine whether the Purchase of Materials and other Inputs of
Central Excise Duty provides a financial contribution in accordance
with section 771(5)(D)(ii) of the Act, or a benefit in accordance with
section 771(5)(E)(iv) of the Act. Therefore, for purposes of this
preliminary determination, additional information is needed before
making a decision with respect to this program. We will seek additional
information from the GOI prior to our verification and final
determination.
2. Duty Drawback on Furnace Oil Procured From Domestic Oil Companies
Under this element of the EOU program, an EOU procuring oil from
domestic oil companies can file a drawback claim on a quarterly basis.
As an element of the EOU program, this duty drawback program is limited
to exporters and therefore specific under section 771(5A)(B) of the
Act. However, based on the information in the record of this
investigation, we are unable to determine whether the duty drawback of
domestic furnace oil purchases provides a financial contribution in
accordance with section 771(5)(D)(ii) of the Act, or a benefit in
accordance with section 771(5)(E)(iv) of the Act. Therefore, for
purposes of this preliminary determination, additional information is
needed before making a decision with respect to this program. We will
seek additional information from the GOI prior to our verification and
final determination.
Verification
In accordance with section 782(i) of the Act, we will verify the
information submitted prior to making our final determination.
Suspension of Liquidation
In accordance with section 703(d)(1)(A)(i) of the Act, we have
determined individual rates for Reliance, SAPL, Futura, and Elque. To
calculate the ``all others'' rate, we weight-averaged the individual
rates of Reliance, SAPL, Futura, and Elque's by each company's
respective exports of subject merchandise made to the United States
during the POI. These rates are summarized in the table below:
------------------------------------------------------------------------
Producer/exporter Subsidy rate
------------------------------------------------------------------------
Reliance Industries Ltd................... 30.24 % ad valorem
South Asia Petrochem Ltd.................. 19.13 % ad valorem
Futura Polyesters Ltd..................... 1.62 % ad valorem
Elque Polyesters Ltd...................... 12.02 % ad valorem
All Others................................ 24.01 % ad valorem
------------------------------------------------------------------------
In accordance with section 703(d)(1)(B) of the Act, we are
directing U.S. Customs and Border Protection (CBP) to suspend
liquidation of all entries of the subject merchandise from India, which
are entered or withdrawn from warehouse, for consumption on or after
the date of the publication of this notice in the Federal Register, and
to require a cash deposit or the posting of a bond for such entries of
the merchandise in the amounts indicated above. This suspension will
remain in effect until further notice.
As provided for in the section 703(b)(4)(B) of the Act, for
developing countries, any rate less than 2.0 percent ad valorem in an
investigation is de minimis. Therefore, we preliminarily determine that
countervailable subsidies are not being provided to Futura.
Accordingly, for Futura, we will not direct CBP to suspend liquidation
of entries of subject merchandise.
ITC Notification
In accordance with section 703(f) of the Act, we will notify the
ITC of our determination. In addition, we are making available to the
ITC all non-privileged and non-proprietary information relating to this
investigation. We will allow the ITC access to all privileged and
business proprietary information in our files, provided the ITC
confirms that it will not disclose such information, either publicly or
under an administrative protective order, without the written consent
of the Assistant Secretary for Import Administration.
In accordance with section 705(b)(2) of the Act, if our final
determination is affirmative, the ITC will make its final determination
within 45 days after the Department makes its final determination.
Notification of Parties
In accordance with 19 CFR 351.224(b), the Department will disclose
to the parties the calculations for this preliminary determination
within five days of its announcement. Unless otherwise notified by the
Department, interested parties may submit case briefs within 50 days of
the date of publication of the preliminary determination in accordance
with 19 CFR 351.309(c)(i) of the Department's regulations. As part of
the case brief, parties are encouraged to provide a summary of the
arguments not to exceed five pages and a table of statutes,
regulations, and cases cited. Rebuttal briefs, which must be limited to
issues raised in the case briefs, must be filed within five days after
the case brief is filed.
In accordance with 19 CFR 351.310, we will hold a public hearing if
requested, to afford interested parties an opportunity to comment on
this preliminary determination. Individuals who wish to request a
hearing must submit a written request within 30 days of the publication
of this notice in the Federal Register to the Assistant Secretary for
Import Administration, U.S. Department of Commerce, Room 1870, 14th
Street and Constitution Avenue, NW., Washington, DC 20230. Parties will
be notified of the schedule for the hearing and parties should confirm
by telephone the time, date, and place of the hearing 48 hours before
the scheduled time. Requests for a public hearing should contain: (1)
Party's name, address, and telephone number; (2) the number of
participants; and, (3) to the extent practicable, an identification of
the arguments to be raised at the hearing.
This determination is issued and published pursuant to sections
703(f) and 777(i) of the Act.
Dated: August 23, 2004.
James J. Jochum,
Assistant Secretary for Import Administration.
[FR Doc. E4-1975 Filed 8-27-04; 8:45 am]