Notice of Preliminary Results of Countervailing Duty Administrative Review: Certain Hot-Rolled Carbon Steel Flat Products from India, 1512-1519 [E6-105]

Agencies

• DEPARTMENT OF COMMERCE
• International Trade Administration

[Federal Register Volume 71, Number 6 (Tuesday, January 10, 2006)]
[Notices]
[Pages 1512-1519]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-105]



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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.
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 January 
1, 2004, through December 31, 2004, the period of review (POR). For 
information on the net subsidy rate for the reviewed company, see the 
``Preliminary Results of Review'' section, infra. If the final results 
remain the same as the preliminary results of this review, we will 
instruct U.S. Customs and Border Protection (CBP) to assess 
countervailing duties as detailed in the ``Preliminary Results of 
Administrative Review'' section, infra. Interested parties are invited 
to comment on these preliminary results. (See the ``Public Comment'' 
section, infra).

EFFECTIVE DATE: January 10, 2006.

FOR FURTHER INFORMATION CONTACT: Tipten Troidl or Preeti Tolani, AD/CVD 
Operations, Office 3, Import Administration, International Trade 
Administration, U.S. Department of Commerce, Room 4014, 14\th\ Street 
and Constitution Avenue, NW, Washington, DC 20230; telephone: (202) 
482-1767 or (202) 482-0395, respectively.

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 Determination). On December 1, 2004, 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, 69 FR 69889 (December 1, 
2004). On December 30, 2004, we received a timely request for review 
from Essar Steel Ltd. (Essar), an Indian producer and exporter of 
subject merchandise, and on January 3, 2005, we received an untimely 
request for review from petitioner.\1\ On January 31, 2005, the 
Department initiated an administrative review of the CVD order on 
certain hot-rolled carbon steel flat products from India, covering POR 
January 01, 2004 through December 31, 2004. See Initiation of 
Antidumping and Countervailing Duty Administrative Reviews and Requests 
for Revocation in Part, 70 FR 4818 (January 31, 2005).
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    \1\ Petitioner in this case is United States Steel Corporation.
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    On February 3, 2005, the Department issued a questionnaire to the 
Government of India (GOI) and Essar. We received questionnaire 
responses from Essar on April 11, 2005, and from the GOI on April 7, 
2003. On June 28, 2005, we issued supplemental questionnaires to the 
GOI and Essar; the responses were received on July 11, 2005, from the 
GOI and July 20, 2005, from Essar. On August 18, 2005, the Department 
issued a second supplemental questionnaire to Essar. On August 25, 
2005, Essar provided a response.
    On May 2 and June 29, 2005, petitioner submitted new subsidy 
allegations. These allegations covered the following programs: GOI's 
provision of high-grade iron ore for less than adequate remuneration, 
the State Government of Gujarat's (SGOG) tax incentives, and the State 
Government of Maharashtra's (SGOM) tax incentives. On July 19, 2005, 
the Department initiated an investigation 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'' (New Subsidy Allegation Memorandum). On July 19, 2005, 
additional supplemental questionnaires were issued to the GOI and 
Essar. The responses were received on August 10 and August 25, 2005, 
from Essar and on September 2, 2005, from the GOI. On September 12, 
2005, we issued a supplemental questionnaire to the GOI and on 
September 20, 2005, to Essar. We received responses from the GOI on 
October 7 and 14, 2005, and from Essar on October 4 and 11, 2005.
    On September 7, 2005, the Department published in the Federal 
Register an extension of the deadline for the preliminary results. See 
Notice of Extension of Time Limits for Preliminary Results of 
Countervailing Duty Administrative Review: Certain Hot-Rolled Carbon 
Steel Flat Products from India, 70 FR 53166 (September 7, 2005).
    On October 20 through October 28, 2005, we conducted verifications 
of the questionnaire responses of the GOI and Essar in New Delhi and 
Mumbai, India.
    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 in 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

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    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:
     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).
     SAE/AISI grades of series 2300 and higher.
     Ball bearings steels, as defined in the HTS.
     Tool steels, as defined in the HTS.
     Silico-manganese (as defined in the HTS) or silicon 
electrical steel with a silicon level exceeding 2.25 percent.
     ASTM specifications A710 and A736.
     USS Abrasion-resistant steels (USS AR 400, USS AR 500).
     All products (proprietary or otherwise) based on an alloy 
ASTM specification (sample specifications: ASTM A506, A507).
     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 currently classifiable 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 customs purposes, the 
Department's written description of the merchandise subject to this 
order is dispositive.

Subsidies Valuation Information

Benchmarks for Loans and Discount Rate

Benchmark for Short-Term Loans

    In accordance with 19 CFR 351.505(a)(3)(ii), for those programs 
requiring the application of a short-term benchmark interest rate where 
the firm has no comparable commercial loans, the Department may use a 
national average interest rate for comparable commercial loans. Essar 
did not have any comparable, commercial loans denominated in the 
appropriate foreign currency. Therefore, we are using the currency-
specific ``Lending rates'' from private creditors as published in the 
International Financial Statistics. See Final Affirmative 
Countervailing Duty Determination: Certain Hot-Rolled Carbon Steel Flat 
Products from India, 66 FR 49635 (September 28, 2001) (HRC 
Investigation), and the Accompanying Issues and Decision Memorandum 
(HRC Investigation Decision Memo), at Benchmarks for Loans and Discount 
Rate.

Benchmark for Long-Term 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 19 CFR 
351.505(a)(2)(iii).

Benchmark for Long-Term Loans issued in 2001 and 2002

    In the most recently completed administrative review, we found 
Essar to be uncreditworthy during 2001 and 2002. See Final Results of 
Countervailing Duty Administrative Review: Certain Hot-Rolled Carbon 
Steel Flat Products from India, 69 FR 26549 (May 13, 2004) (HRC First 
Review Final), and Accompanying Issues and Decision Memorandum (HRC 
First Review Decision Memo). As no new evidence has been provided to 
the Department with respect to Essar's uncreditworthiness during 2001 
and 2002, we will continue to apply the uncreditworthy methodology for 
those programs requiring a long-term benchmark for 2001 and 2002. For 
our long-term interest rate, we used India's prime lending rate (PLR), 
as published by the Reserve Bank of India (RBI). We note that we 
converted the PLR into a benchmark interest rate for uncreditworthy 
companies using the formula set forth in 19 CFR 351.505(a)(3)(iii).

Benchmark for Long-Term Loans issued from 2003 and 2004

    For those programs requiring a rupee-denominated discount rate or 
the application of a rupee-denominated, long-term benchmark interest 
rate, we used company-specific interest rates, as reported by Essar.

Programs Preliminarily Determined To Be Countervailable

1. 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\2\). 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.
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    \2\ A crore is equal to 10,000,000 rupees.
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    In prior proceedings, we determined that import duty reductions 
provided

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under the EPCGS constituted a countervailable export subsidy. See e.g., 
Notice of Final Affirmative Countervailing Duty Determination: 
Polyethylene Terephthalate Film, Sheet, and Strip from India, 67 FR 
34950 (May 16, 2002) (PET Film), and PET Film Issues and Decision 
Memorandum (PET Film Decision Memo), 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 Tariff Act of 1930, as amended (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 with respect to this program. 
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 Investigation and PET 
Film. See HRC Investigation at Analysis of Programs I.E. ``Export 
Promotion of Capital Goods Scheme (EPCGS)'' and PET Film Decision Memo, 
at section II.A.4. ``EPCGS.'' Specifically, there are two 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 19 CFR 351.505(d)(1). 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 it borrowed the 
full amount of the duty reduction at the time of import. Pursuant to 19 
CFR 351.505(d)(1), 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, supra. The rate used corresponded 
to the year in which Essar imported the item under the program. 
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 First Review Decision Memo.
    The second 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. For certain EPCGS licenses Essar provided evidence that the 
GOI granted these waivers during the POR. For those licenses upon which 
waivers were granted, we followed our methodology set forth in the HRC 
Investigation and summed the benefits. We then performed the 0.5 
percent test to determine whether the benefit should be allocated or 
expensed. For one license waived in 2002, we divided the benefit by 
Essar's export sales for 2002 and found that the benefit was less than 
0.5 percent. Consistent with the policy set forth in 19 CFR 
351.524(b)(2), we expensed that license during the year in which it was 
waived. For other waived licenses, we found that the benefit exceeded 
the 0.5 percent test and we are allocating the benefit pursuant to the 
methodology described under 19 CFR 351.524(d)(1).
    Essar reported that it paid application fees in order to obtain its 
EPCGS licenses. 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 from the 
waived licenses and those licenses which have yet to be waived, which 
we determine conferred a benefit on Essar in the form of contingent 
liability loans. Where licenses related to imports of capital goods 
during 2004, we prorated the contingent liability by the actual number 
of days. After subtracting the application fees, we divided Essar's 
total benefit under the program by its respective total export sales 
during the POR. On this basis, we preliminarily determine the net 
countervailable subsidy from this program to be 2.12 percent ad 
valorem.

2. State Government of Gujarat Tax Incentives

    Pursuant to a 1995 Industrial Policy of Gujarat and an Incentive 
Policy of 1995-2000, the SGOG offered incentives, such as sales tax 
exemptions and deferrals, to companies that locate or invest in certain 
disadvantaged or rural areas in the State of Gujarat. A company could 
be eligible to claim exemptions or deferrals valued up to 90 percent of 
the total eligible capital investment. These policies exempt companies 
from paying sales tax on the purchases of raw materials, consumable 
stores, packing materials and processing materials. There are two 
schemes available under this policy: Pioneer and Prestigious. To be 
eligible for the incentives, companies must make a fixed capital 
investment of over 5 crores (Pioneer scheme) or 300 crores (Prestigious 
scheme) in a qualified under-developed area in the state of Gujarat. 
See the January 3, 2006, Memorandum to Eric B. Greynolds, Program 
Manager, AD/CVD Operations, Office 3, from Tipten Troidl and Preeti 
Tolani, Case Analysts, Regarding: Countervailing Duty Administrative 
Review of Certain Hot-Rolled Carbon Steel Flat Products from India: 
Verification of the Questionnaire Responses Submitted by the Government 
of India, at pages 3-4 (GOI Verification Report). The amount of this 
eligible capital investment is linked to the amount of the incentives 
received over a period of eight to fourteen years, depending on the 
category of participation. For the Pioneer scheme, which initially 
began in 1986, companies making a capital investment during 1986 and 
1991 were allowed to utilize this program. For the Prestigious scheme, 
tax incentives were offered only for investment units which started

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production between 1990 and 1995. See GOI Verification Report at 4.
    During the current review, we found that Essar had investments 
under both the Pioneer and the Prestigious schemes. During the POR, 
Essar only took sales tax exemptions. In PET Resin, the Department 
determined that the purchases under these two schemes resulted in 
companies not paying the state sales tax otherwise due, and thus 
constituted a countervailable subsidy. See Final Affirmative 
Countervailing Duty Determination: Bottle-Grade Polyethylene 
Terephthalate (PET) Resin from India, 70 DR 13460 (March 21, 2005) (PET 
Resin), and Accompanying Issues and Decision Memorandum (PET Resin 
Decision Memo) at page 10.
    Consistent with our findings in PET Resin, we preliminarily find 
that this program is countervailable. It is limited to only those 
companies that make an investment in a specified disadvantaged area and 
is therefore specific under section 771(5A)(D)(iv) of the Act. We also 
preliminarily find that the SGOG provides a financial contribution 
under section 771(5)(D)(ii) of the Act by foregoing the collection of 
sales tax revenue and that Essar receives a benefit under section 
771(5)(E) of the Act in the amount of sales tax that Essar does not 
pay.
    Essar reported that it claimed tax exemptions on purchases during 
the POR. To calculate the benefit under this program we multiplied the 
tax rate by the amount of purchases Essar reported it claimed tax 
exemptions for in 2004. We summed the amounts for both the Pioneer and 
Prestigious schemes. We then divided this amount by Essar's total 
sales. On this basis, we preliminarily calculated an ad valorem rate of 
0.12 percent for 2004.

3. Bombay Relief Undertaking (BRU) Act

    Enacted in 1958 and later amended in 1974, the BRU is a provincial 
law enacted by the SGOG that is intended to safeguard employment. Under 
the BRU, companies designated as ``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 which the SGOG evaluates 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.
    Essar was declared a relief undertaking and was granted protection 
beginning on March 19, 2002. See Notice of Preliminary Results of 
Countervailing Duty Administrative Review: Certain Hot-Rolled Carbon 
Steel Flat Products from India, 69 FR 907 (January 7, 2004) (HRC First 
Review Prelim) at 911. The Department determined that the SGOG's 
protection of Essar from litigation under the BRU constituted a 
financial contribution under section 771(5)(B)(iii) of the Act. In 
particular, we found that by granting Essar protection under the BRU 
and by prohibiting Essar's creditors from pursing any pending 
litigation against the company, ``the SGOG directed the creditors to 
not collect principal and interest payments on loans that otherwise 
would be due.'' HRC First Review Final and HRC First Review Decision 
Memo at page 5. Moreover, we found that under section 771(E)(ii) of the 
Act, Essar benefitted under this program ``in an amount equal to the 
principal and interest it would have had to pay absent the legal 
protection afforded under the BRU.'' Id. Lastly, the Department found 
this program was specific under section 771(5A)(D)(iii)(I) of the Act.
    During this POR, Essar applied for and was granted an extension of 
its original one-year protection under the BRU. Its initial application 
for an extension was denied by the SGOG, but upon amending its 
application to seek protection only from unsecured foreign lenders, 
Essar's request for an extension was granted. See GOI's July 11, 2005, 
submission at page 13 and Exhibit 8. The SGOG extended Essar's BRU 
protection for a one-year period from September 11, 2003, to September 
10, 2004. In granting Essar protection, the SGOG stated that it was ''. 
. . pleased to direct that dues of the foreign un-secured lenders only, 
in relation to the said undertaking rights, privileges, obligations, 
liabilities (other than those liabilities etc, towards its employees) 
occurred or incurred before dated 11th September, 2003 and remedy for 
the enforcement thereof shall be suspended and proceedings relating 
thereto pending before any Court, Tribunal, officer or Authority shall 
be stayed during one year commencing from 11\th\ September, 2003 and 
ending on 10th September, 2004.'' Id.
    With respect to the issue of specificity, during the course of this 
review we asked the SGOG to provide certain information regarding the 
application process and approval of BRU protection as well as the 
companies granted relief undertaking status. In our initial 
questionnaire, our June 28, 2005, supplemental and our September 14, 
2005, supplemental, we asked the SGOG to submit information on the 
companies and industries who applied for and were granted relief during 
the POR. In their October 7, 2005, questionnaire response, the SGOG 
submitted a list of only those companies that were granted either 
initial protection or an extension of their protection. They did not 
provide any information on those companies who applied for relief and 
whose applications were rejected. During the time period that Essar was 
granted its second protection under BRU, the SGOG granted five 
companies initial protection, 10 companies (including Essar) an 
extension of their initial protection, one company a third extension, 
and 3 companies a fourth extension of their protection, for a total of 
19 companies in 10 industries. However, the SGOG did not provide the 
information requested concerning the number of companies whose 
applications were rejected.
    In the HRC First Review Prelim, the Department found that eight 
companies were granted protection in 2001 and six in 2002, while 25-30 
applicants had submitted applications during that time. In light of the 
existence of generic criteria, the absence of any specific measure for 
evaluating the criteria, and the number of companies whose applications 
were rejected, the Department determined that the SGOG exercised 
discretion in a manner in which it grants approval under this program 
to a limited number of users, leading the Department to determine the 
program was de facto specific.
    In this review, the SGOG did not provide the Department with the 
information it requested on this issue. Section 776(a)(2)(A) of the Act 
requires the use of facts available when an interested party withholds 
information that has been requested by the Department. As described 
above, the SGOG failed to provide the requested information concerning 
the total number of applications during this review. Therefore, we must 
resort to the use of facts otherwise available. Furthermore, section 
776(b) of the Act provides that in selecting from among the facts 
available, the Department may

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use an inference that is adverse to the interests of a party if it 
determines that a party has failed to cooperate to the best of its 
ability. The Department finds that, by not providing necessary 
information specifically requested by the Department, despite numerous 
opportunities, the SGOG has failed to cooperate to the best of its 
ability. Therefore, in selecting from among the facts otherwise 
available, the Department determines that an adverse inference is 
warranted. When employing an adverse inference in an administrative 
review, section 776(b) of the Act allows the Department to rely upon 
information derived from the petition, a final determination in the 
investigation, any previous review or any other information placed on 
the record. In applying adverse facts available in the instant review, 
we have used information on the record of this administrative review. 
Therefore, as adverse facts available, as consistent with the our 
findings in the last administrative review, and because the SGOG did 
not provide us with the number of applicants, the Department 
preliminarily concludes that the SGOG continues to exercise discretion 
in the manner in which it grants approval under this program to a 
limited number of users. Therefore, we preliminarily find this program 
to be specific under section 771(5A)(D)(iii)(I) of the Act.
    Essar has argued that it did not have any protection from the 
government under the BRU since it expired in 2004. See Essar's August 
25, 2005, submission at page 7, and October 4, 2005, submission at page 
5. Moreover, during verification Essar officials explained that 
although one creditor had sued Essar in a London court, pending the 
outcome of the litigation, Essar had placed the full amount of the loan 
into a reserve account with the Court. Essar further explained that if 
the creditor wins the litigation, the creditor will receive the amount 
in this reserve; however, if the Court rules in favor of Essar, the 
amount in the reserve account will be returned. See the January 3, 
2006, Memorandum to Eric B. Greynolds, Program Manager, AD/CVD 
Operations, Office 3, from Tipten Troidl and Preeti Tolani, Case 
Analysts, Regarding: Countervailing Duty Administrative Review of 
Certain Hot-Rolled Carbon Steel Flat Products from India: Verification 
of the Questionnaire Responses Submitted by Essar Steel Ltd. (Essar 
Verification Report), at page 11. However, Essar was not able to submit 
any documentation to support this claim. Absent any such documentation, 
we were unable to verify this claim.
    Therefore, the Department preliminarily determines that the SGOG's 
protection of Essar from litigation under the BRU continues to 
constitute a financial contribution under section 771(5)(B)(iii) of the 
Act to the extent that the SGOG is prohibiting Essar's creditors from 
pursuing any pending litigation against the company and thereby 
directing creditors not to collect principal and interest payments on 
loans that otherwise would be due. We also preliminarily find that 
Essar receives a benefit under this program in an amount equal to the 
interest and principal it would have had to pay absent the legal 
protection afforded under the BRU.
    To calculate the benefit to Essar, we summed the amount of interest 
and principal 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. Therefore, we calculated 
the interest that would have been due by the interest rate listed in 
their loan agreement. See the GOI's July 11, 2005, submission at page 
80, Annexure 8. We added this amount to the outstanding principal and 
multiplied the sum by the short-term interest benchmark, as discussed 
in the ``Benchmarks for Loans and discount Rate'' section, supra. We 
then divided this amount by Essar's total sales for 2004. As 
information on the record indicates that the protection under the BRU 
expired on September 10, 2004, we are only calculating a net subsidy 
rate for this program up to that date. On this basis, we preliminarily 
find that Essar received a countervailable subsidy of 0.63 percent ad 
valorem.

4. Sale of High-Grade Iron Ore for Less Than Adequate Remuneration

    On May 2 and June 29, 2005, petitioner submitted new subsidy 
allegations, alleging that the GOI, through the government-owned 
National Mineral Development Corporation (NMDC), provided high-grade 
iron ore to Essar for less than adequate remuneration. On July 19, 
2005, the Department initiated an investigation into whether Essar 
received a direct subsidy from the GOI when purchasing iron ore from 
the NMDC. See New Subsidy Allegation Memorandum.
    Essar reported that it purchased high-grade iron ore (i.e., iron 
ore with Fe content of 64 percent or above) from the NMDC during the 
POR. In accordance with section 771(5) of the Act, to find a 
countervailable subsidy, the Department must determine that a 
government provided a financial contribution and that a benefit was 
thereby conferred, and that the subsidy is specific within the meaning 
of section 771(5A) of the Act.
    Section 771(5)(D)(iii) of the Act states that the provision of a 
good or service (other than general infrastructure) by a government (or 
any public entity) constitutes a financial contribution. During 
verification, the Department found that the NMDC is a mining company 
governed by the GOI's Ministry of Steel and that the GOI holds 98 
percent of its shares. See GOI Verification Report, at page 5. 
Accordingly, we preliminarily determine that the NMDC is a part of the 
GOI. Therefore, we preliminarily find that the GOI directly, through 
the government-owned NMDC, provided a financial contribution as defined 
under section 771(5)(D)(iii) of the Act to Essar.
    We preliminarily find that the GOI's provision of high-grade iron 
ore is specific under section 771(5A)(D)(iii)(I) of the Act because the 
actual recipient of the subsidy is limited to industries that use iron 
ore, including the steel industry, and is thus limited in number.
    Section 771(5)(E)(iv) of the Act provides that a benefit is 
conferred by a government when the government provides the good or 
service for less than adequate remuneration. Pursuant to 19 CFR 
351.511(a)(2)(i) the Department will normally seek to measure the 
adequacy of remuneration by comparing the government price for the 
goods or service to a market-determined price resulting from actual 
transactions in the country in question. The regulations provide that 
such market-determined prices could include prices stemming from actual 
transactions between private parties, actual imports, or, in certain 
circumstances, actual sales from competitively run government auctions. 
In seeking a market-determined benchmark price, we found that Essar 
purchases more than 98 percent of its high-grade iron ore from NMDC, 
and the remainder from a mine run by the State of Orissa. See Essar 
Verification Report at page 19. Moreover, the record contains no 
information on actual transaction prices between private parties in 
India. Additionally, a review of GOI import statistics demonstrates 
that there is no distinction in iron ore imports based on grade so we 
have no basis to determine whether import statistics reflect prices 
associated with imports of high-grade iron ore. Therefore, the 
Department preliminarily determines that there is no record information 
regarding actual transactions between private parties that

[[Page 1517]]

could be used as an ``in-country'' benchmark to compare against Essar's 
purchases from NMDC. Thus, the Department is unable to measure the 
adequacy of remuneration using actual market-determined prices in 
India, as directed by 19 CFR 351.511(a)(2)(i).
    Under 19 CFR 351.511(a)(2)(ii), where actual market-determined 
prices are not available with which to make the comparison under 
paragraph (a)(2)(i), the Department will seek to measure the adequacy 
of remuneration by comparing the government price to a world market 
price where it is reasonable to conclude that such prices would be 
available to purchasers in the country in question. This second tier 
directs the Department to examine prices which it would be reasonable 
to conclude that purchasers could obtain in India. Information on the 
record indicates that there are prices from the world market for 
comparable goods which can be used as a benchmark to determine whether 
the GOI provides high-grade iron ore to Essar for less than adequate 
remuneration. During verification, NMDC and MMTC\3\ officials provided 
copies of the Tex Report. The Tex Report is a daily Japanese 
publication that reports on world-wide price negotiations for iron 
ore.\4\ The officials explained that annual negotiations occur between 
steel makers and iron ore suppliers, either in Japan or in other 
countries (including European countries). During these negotiations, 
the participating parties agree on a percentage change (either up or 
down) from the base price. See GOI Verification Report at page 6. The 
February 16, 2004, edition of the Tex Report reported that several 
Japanese integrated steelmakers had concluded negotiations with an 
Indian mission including MMTC, Kudremukh Iron Ore (KIOCL), and 
officials of the Indian government regarding prices for iron ore, 
including high-grade iron ore. The price for this iron ore is quoted on 
an FOB Indian port basis. In addition, the February 24, 2005, edition 
of the Tex Report reported that several Japanese steelmakers had 
concluded talks with an Australian company for high-grade iron ore. 
This publication includes the prices for high-grade iron ore that were 
set for 2004. Based upon this information, we preliminarily determine 
that the prices reported in the Tex Report constitute world market 
prices that would be available to Essar in accordance with 19 CFR 
351.511(a)(2)(ii).
---------------------------------------------------------------------------

    \3\ MMTC was formally called Minerals & Metals Trading 
Corporation.
    \4\ Copies of several issues of the Tex Report reporting on 
negotiated iron ore prices with Australian, Brazilian iron ore 
producers and Japanese and European steel makers are provided as an 
exhibit E-15 of the Essar Verification Report.
---------------------------------------------------------------------------

    To measure the adequacy of remuneration, we compared the price that 
Essar actually paid for its high-grade iron ore to an average of the 
prices of high-grade iron ore set forth in the Tex Reports. We made the 
following adjustments to the benchmark information: We converted the 
iron ore lumps and fines' prices listed in U.S. cents per dry long ton 
to U.S. dollars. We multiplied the per unit U.S. dollar price by 64 
(iron ore is priced by one unit of Fe content) to calculate a U.S. 
dollar high-grade iron ore amount. We then converted the dry long ton 
to a wet long ton. We applied the conversion from dry long ton to wet 
long ton for those purchases that were already listed in U.S. dollars 
with an Fe content of 64. We then applied the average exchange rate for 
2004 to calculate a Rupee per metric ton price for high-grade iron ore. 
We then averaged all of the prices to arrive at the benchmark used to 
compare against Essar's purchases of high-grade iron ore.
    To calculate the benefit, we compared Essar's monthly prices for 
iron ore to the benchmark rate, and multiplied this price differential 
by the quantity that Essar purchased from NMDC. We then divided this 
amount by Essar's total sales for 2004. We preliminarily calculated a 
rate of 0.65 percent ad valorem.

Program Preliminarily Determined Not To Be Used

1. Duty Free Replenishment Certificate (DFRC)

    The DFRC scheme was introduced by the GOI in 2001 and is 
administered by the Director-General for Foreign Trade (DGFT). The DFRC 
is a duty replenishment scheme that is available to exporters for the 
import of inputs used in the manufacture of goods without payment of 
basic customs duty. The DFRC differs from other duty exemption schemes 
previously reviewed by the Department to the extent that the exemption 
is earned on specified exports and is applicable to future imports. In 
order to receive a license, which entitles the recipient to import duty 
free certain inputs used in the production of the exported product, as 
identified in a Standard Input/Output Norm (SION), within the following 
24 months, a company must: (1) export manufactured products listed in 
the GOI's export policy book and against which there is a SION for 
inputs required in the manufacture of the export product based on 
quantity; and (2) have realized the payment of export proceeds in the 
form of convertible foreign currency. See GOI Verification Report at 
10; see also the GOI's July 11, 2005, submission at page 70, Annexure 
6. The application must be filed within six months of the realization 
of the profits. DFRC licenses are transferrable, yet the transferee is 
limited to importing only those products and in the quantities 
specified on the license. Id.
    Essar exported merchandise during the POR for which it applied for 
a DFRC license. However, it did not receive its DFRC license until 
after the POR. Although 19 CFR 351.519(b)(2) provides that the 
Secretary will normally consider any benefit from a duty drawback or 
exemption program as having been received as of the date of 
exportation, we preliminary find that an exception to this normal 
practice is warranted here in view of the unique manner in which this 
program operates. Specifically, a company may not submit an application 
for a DFRC license until the proceeds of the sale are realized. The 
license, once granted, specifies the quantity of the particular inputs 
that the bearer may then subsequently import duty free.
    In HRC First Review Final, we noted that the benefits from another 
duty exemption program, the Duty Entitlement Passbook Scheme, were 
conferred as of the date of exportation of the shipment because it is 
at that point that ``the amount of the benefit is known by the 
exporter.'' See HRC First Review Decision Memo at page 6. However, in 
the case of the DFRC, the company does not know at the time of export 
the value of the duty exemption that it will ultimately receive; it 
merely knows the quantity of the inputs it will likely be able to 
import duty free if its application for a DFRC license is granted. 
Unlike the Duty Entitlement Passbook Scheme, under the DFRC program the 
respondent will only know the total value of the duty exemption when it 
subsequently uses that license to import the specified products duty 
free.
    Accordingly, we preliminarily determine that any benefit from the 
DFRC program would be received as of the date of the exemption of 
payment of duties. In this case, the benefit would not be received 
until Essar began to import inputs and claim the exemption. Because 
Essar did not receive the license for the POR export until 2005, we 
preliminarily determine that this program was not used during this POR.

[[Page 1518]]

2. Pre-shipment Export Financing

3. Duty Entitlement Passbook (DEPS)

4. Target Plus Scheme

5. Advance Licenses

6. Tax Incentives from the State Government of Maharashtra (SGOM)

Programs Preliminary Found Not To Be Countervailable

1. Corporate Debt Restructuring

    On August 23, 2001, and February 5, 2003, the RBI and the 
government bank of India set forth guidelines for corporations and 
their creditors to follow during the course of a corporate debt 
restructuring (``CDR''). See the GOI's July 11, 2005, submission at 
page 40, Annexure 2. The CDR mechanism has a set of guidelines that all 
companies must follow. See GOI's Verification Report at page 2.
    The organization of the CDR mechanism has three levels: the CDR 
Core Group, the Empowered Group and the CDR Cell. See id; see also HRC 
First Review Prelim at 913. The Core Group is responsible for 
overseeing the CDR as a whole, while the Empowered Group is responsible 
for making the decision on the restructuring packages. The CDR Cell 
works with the company and oversees the restructuring package. Id. The 
CDR cell is comprised of the company's main lenders and it oversees the 
actual restructuring of the company. Id.
    Essar was one such company that, at the determination of its 
creditors, participated in such a restructuring program. Essar's 
restructuring involved debt from private lenders as well as from 
lending institutions owned/controlled by the GOI. In the HRC First 
Review Final we determined that Essar did not use the CDR program 
during the POR. See HRC First Review Final and HRC First Review 
Decision Memo at Corporate Debt Restructuring (CDR) page 7. 
Specifically, in the HRC First Review Prelim, we found that the 
restructuring plan for Essar did not take effect until after the POR. 
See HRC First Review Prelim. Essar's debt restructuring was in effect 
and covered debt outstanding during the period of the current review.
    The Department does not automatically find reorganizations, workout 
programs or bankruptcy proceedings to be countervailable. Rather, the 
Department must find that the program is not generally available in the 
country or, if it is generally available in the country in question, 
that it is provided in a manner that is inconsistent with typical 
practice. See e.g., Final Results of Countervailing Duty Administrative 
Review: Stainless Steel Sheet and Strip in Coils from the Republic of 
Korea, 69 FR 2113 (January 14, 2004), and Accompanying Issues and 
Decision Memorandum at Comment 4 (where the Department found that 
KAMCO's debt forgiveness to Sammi was not specific or preferential as 
it was similar to debt forgiveness to other companies in court 
receivership where KAMCO was the lead creditor) and Final Affirmative 
Countervailing Duty Determination and Negative Critical Circumstances 
Determination: Carbon and Certain Alloy Seel Wire Rod from Germany, 67 
FR 55808 (August 30, 2002), and Accompanying Issues and Decision 
Memorandum at 24-25 (where the Department found that Saarstahl and its 
creditors followed established procedures and that there was no 
evidence indicating that the German government acted in a manner that 
caused the terms of Saarstahl's bankruptcy/restructuring proceedings to 
be unduly favorable to the company).
    In the prior administrative review of this order, the Department 
found that the RBI and a group of lenders introduced the CDR Mechanism 
to restructure corporations' debt in August 2001. See HRC First Review 
Prelim at 913. The Inter-Creditor Agreement (ICA) was signed in 
February 2002 to deal with the increasing amount of non-performing 
assets that banks were 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, the 
remaining 25 percent must either comply with the terms of the 
agreement, or, if they decide to opt out, they may take a payout at a 
discounted rate. Id.
    We preliminarily determine that Essar did not receive a benefit 
from any government-provided financial contribution during the course 
of its restructuring. Record evidence indicates that Essar and its 
creditors followed the existing framework and guidelines of the CDR and 
that Essar's participation in the restructuring program was made at the 
behest of its secured creditors. There is no evidence of government 
influence over the decision making ability of the CDR cell, and/or any 
private lenders.
    In view of the fact that there is no evidence of government 
influence over the decision making ability of the CDR cell and given 
that the private lenders freely agreed to be a part of Essar's CDR 
restructuring package, we preliminarily find that Essar's loans from 
private lenders that were included as part of Essar's restructuring 
package serve as a comparable commercial benchmark for evaluating the 
concurrently restructured loans from the GOI-owned/controlled 
lenders.\5\ Exhibit 2 of Essar's July 20, 2005, submission provides a 
list of Essar's restructured loans from both private and GOI-owned/
controlled banks and demonstrates that Essar's loans from private and 
government banks were restructured on the same terms, including at the 
same interest rates. Further, a review of Essar's approved 
restructuring package and amendments to that approved restructuring 
package further demonstrates that there was no distinction in the 
treatment of debt from private and government banks. The GOI-owned/
controlled banks, which held a minority share of Essar's debt, agreed 
to the same terms and conditions set by the company's private 
creditors. Therefore, we preliminarily determine that this program is 
not countervailable as Essar did not receive any benefit from any GOI-
provided financial contribution.
---------------------------------------------------------------------------

    \5\ As it is the Department's practice to treat any material 
change to an outstanding loan as a new loan, the restructured loans 
from GOI-owned/controlled banks can be considered to be 
contemporaneous with the private-lender loans. See e.g., Final 
Affirmative Countervailing Duty Determinations: Certain Cut-to-
Length Carbon Steel Plate from Mexico, 69 FR 1972 (January 13, 
2004), and Accompanying Issues and Decision Memorandum at Comment 4; 
Final Affirmative Countervailing Duty Determinations: Stainless 
Steel Plate in Coils from Italy, 64 FR 15508, 15516 (March 31, 
1999).
---------------------------------------------------------------------------

Preliminary Results of Review

    In accordance with 19 CFR 351.221(b)(4)(i), we calculated a subsidy 
rate for Essar subject to this administrative review, for 2004. We 
preliminarily determine the total estimated net countervailable subsidy 
rate is 3.52 percent ad valorem for 2004.
    If the final results of this review remain the same as these 
preliminary results, the Department intends to instruct CBP, within 15 
days of publication, to liquidate shipments of certain hot-rolled 
carbon steel flat products from India entered, or withdrawn from 
warehouse, for consumption from January 1, 2004, through December 31, 
2004 at 3.52 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 3.52

[[Page 1519]]

percent ad valorem for all shipments of certain hot-rolled carbon steel 
flat products 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 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-URAA 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 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 
Determination, 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, 37 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 Act (19 U.S.C. 1675(a)(1) 
and 19 U.S.C. 677f(I)(1)).

    Dated: January 3, 2006.
David M. Spooner,
Assistant Secretaryfor Import Administration.
[FR Doc. E6-105 Filed 1-9-06; 8:45 am]
BILLING CODE 3510-DS-S