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28 May 2019

Consequence of non-participation by India in CVD investigations conducted by USA

Government of the exporting country is an interested party in a countervailing duty investigation. Apart from exporters of the subject product, Government of the exporting country is also required to file response to the questionnaire issued by the investigating authority and provide necessary information.[see endnote 1]

The United States is one of the biggest users of countervailing duty investigation against imports from India. In many cases, the USDOC has determined that Government of India did not provide complete information in response to the questionnaire issued by the United States Department of Commerce (“USDOC”). In other words, as per the USDOC, there was absence of complete information or response by Government of India regarding certain subsidy programs under investigation. Section 776(a) of the Tariff Act 1930 (“The Act”) provides that the USDOC can rely on facts available when an interested party does not provide complete information. Section 776(b) of the Act further provides that the USDOC may use an adverse inference in selecting from among the facts otherwise available.

USDOC has the discretion in deciding the application of adverse facts available in a given case. Final determinations issued by the USDOC in the following countervailing duty investigations against India illustrates the practice adopted by the USDOC in applying adverse facts available when complete information is not provided by GOI:

  • Polyethylene Terephthalate Film, Sheet and Strip from India, Administrative Review, Final Determination dated March 18, 2019
  • Polytetrafluoroethylene Resin from India, Original Investigation, Final Determination dated May 14, 2018
  • Stainless Steel Flanges from India, Original Investigation, Final Determination dated August 10, 2018

In Polyethylene Terephthalate Film, Sheet, and Strip from India, the USDOC, among others, examined the countervailability of the income tax program under Section 32AC (1A) (“sub-section 32AC”) of the Income Tax Act.[see endnote 2] Sub-section 32AC provides that when a company is engaged in the business of manufacture acquires and installs new assets exceeding prescribed amount, then such company shall be allowed in computing total income a deduction of 15 percent of the actual cost incurred for such new assets.

During this administrative review proceedings, the exporters of the subject product and the mandatory respondents namely SRF and Jindal provided full data of the benefits received during the POR under sub-section 32AC. Jindal reported that it received benefit under sub-section 32AC of the Income Tax Act. SRF submitted and demonstrated that it did not benefit from this program. However, GOI did not provide program description, explanation and other requested information in the appendix in the questionnaire response.[see endnote 3]

The USDOC determined that GOI withheld the information and an adverse inference is warranted under section 776(b) of the Act. Consequently, the USDOC determined that the GOI vide sub-section 32AC provides financial contribution in the form of revenue foregone and benefit is equal to the difference between the amount of income tax that would be payable absent this program and the actual amount of taxes paid by recipient after availing this benefit.[see endnote 4] The USDOC specifically relied on the application of adverse facts to summarily determine that the income tax program is de facto specific.[see endnote 5] The USDOC did not deem it appropriate to analyze claims concerning non-specificity in absence of relevant information in this regard from the GOI.[see endnote 6]

Determination of specificity of a subsidy program is crucial. Subsidy program will not be considered as countervailable if it is not specific. Subsidy program is not specific if the eligibility of the program is based on objective criteria and conditions i.e. criteria or conditions which are neutral, which do not favor certain enterprise over others and which are economic in nature and horizontal in application (eg. Size of enterprise, number of employees).[see endnote 7] Section 771(5A)(D) of the Act also provides that if the relevant statute incorporates objective criteria and conditions governing the eligibility of the program, then such program will not be considered as specific.

Sub-section 32AC of the Income Tax Act provides eligibility for enterprises based on objective criteria i.e. the amount of investment made in new assets and is therefore not specific. However, as already noted, the USDOC resorted to the application of adverse facts available and determined that the program is de facto specific because GOI did not provide any explanation regarding the sub-section 32AC in its questionnaire response.[see endnote 8] It is acknowledged that absence of specificity is a difficult legal criterion to establish and practice shows that it is not easily accepted by the investigating authorities.[see endnote 9]   However, full co-operation by the GOI may have rendered a different result regarding the specificity and  countervailability of this program.

Be that as it may, it is also noted that the USDOC did not reject the information provided by the mandatory respondents namely, Jindal and SRF entirely. The USDOC determined the subsidy margin for this program based on the data furnished by the mandatory exporters. The USDOC determined the benefit for Jindal under this program by dividing the amount of benefit with the total sales during the POR and accepted the substantiated and verified claim of SRF that it did not benefit from this program. To this extent, it is required to be acknowledged that the USDOC’s application of adverse facts available did not penalize mandatory respondents by imposing high rate of countervailing duty for the concerned program.[see endnote 10]   

In Polytetrafluoroethylene Resin from India, the GOI filed questionnaire response. However, the USDOC noted that GOI did not provide any substantive response regarding two programs namely (i) Exemption from electricity duty by the State Government of Gujarat (SGOG)[see endnote 11] and (ii) Renewable Energy Certificates program by the GOI.[see endnote 12]  Consequently, USDOC determined that application of adverse facts available is warranted in accordance with Section 776(b) of the Tariff Act. The exporter of the subject product and the mandatory respondent Gujarat Fluorochemicals Limited (“GFL”), provided complete information regarding the use of both these programs.   

Regarding exemption from electricity duty by SGOG, GFL reported that it received two different types of exemptions from electricity duty, (i) electricity consumed by its new manufacturing unit in accordance with the Electricity Duty Act, 1958 and (ii) duty exemption for its wind power generation in accordance with Wind Power Policy-2013. However, because GOI did not provide information regarding the nature of the program, the USDOC applied adverse facts available for determined countervailability of the program. USDOC determined that GOI conferred a financial contribution in the form of revenue foregone, benefit and the program is specific.[see endnote 13] For this purpose, USDOC relied on the information provided by the domestic industry in the petition.[see endnote 14] Once again, the USDOC determined that because GFL provided information regarding the benefits it received under this program during the POI, it is relying on this information to calculate the subsidy margin and the countervailing duty rate for GFL.

Regarding Renewable Energy Certificate (“REC”) Program, GFL explained that GOI identifies energy intensive consumers and requires them, through the Central Electricity Regulatory Commission (“CERC”), to generate a certain percentage of green energy either from self-generation or by purchasing RECs through a CERC administered power exchange. GFL reported that it generated a number of RECs during the POI through its captive windfarm and these RECs were sold during the POI at prices set by CERC.[see endnote 15] The USDOC specifically observed that it normally relies on the government to provide specific program information with regard to the administration and specificity of programs. Because the GOI did not provide any information regarding this program, USDOC was not able to confirm GFL’s description of how this program is administered.[see endnote 16] Therefore, USDOC determined that this program provides financial contribution, benefit and is de facto specific.[see endnote 17] However, the USDOC determined subsidy margin for GFL based on the verifiable benefit amount actually reported by GFL during the POI to arrive at a countervailable subsidy rate.[see endnote 18]

In Stainless Steel Flanges from India, the United States examined host of subsidy programs alleged by the petitioners.[see endnote 19] The USDOC noted that GOI did not provide complete information regarding eight programs[see endnote 20] including (i) Provision of stainless steel, billet and bar by SAIL at less than adequate remuneration and (ii) Ten State Government of Andhra Pradesh Programs (“SGAP”). Exporter of the subject product from India and a mandatory respondent in the investigation, Echjay Forging Industries Pvt. Ltd (“Echjay”) provided complete information regarding the use of these two subsidy programs.

Regarding provision of stainless steel, billet and bar by SAIL, domestic industry in the United States argued that GOI failed to provide response to USDOC questionnaire and therefore adverse facts available should be applied for Echjay to determine countervailing duty rate of this subsidy program.[see endnote 21] The USDOC determined the provision of steel inputs by SAIL at less than adequate remuneration provides a countervailable subsidy. The USDOC did not accept the GOI’s argument that the provision of steel inputs by SAIL for less than adequate remuneration is not a program that confers a benefit from the GOI because SAIL is not a public body and it neither possesses governmental authority nor discharges any government function.[see endnote 22] However, USDOC observed that Echjay reported properly regarding this program and submitted that it had no purchases of any kind from SAIL during the POI. USDOC observed the no evidence was uncovered during the verification that called into question the claim of Echjay. Accordingly, USDOC determined that Echjay did not benefit from this program.[see endnote 23]

Similarly, in absence of information regarding SGAP programs from the GOI, the USDOC applied adverse facts available to determine that SGAP programs provides countervailable subsidy.[see endnote 24] However, the USDOC accepted the verifiable claim that Echjay did not receive any benefit under ten SGAP programs.[see endnote 25]

Conclusion

Following conclusions are evident regarding the application of adverse facts available by the USDOC when it determined that GOI has not provided complete information regarding certain subsidy programs:

  • Application of adverse facts available is determined for each subsidy program. Absence of information regarding certain subsidy programs by the GOI will not result in rejection of the entire GOI questionnaire response.
  • GOI information and explanation of the program is necessary to determine the nature of subsidy programs and its countervailability in accordance with the provisions of the SCM Agreement as incorporated in the US Statute and as implemented by the USDOC.
  • When the GOI does not provide details regarding the benefit provided to the mandatory respondent under the concerned program, the USDOC will rely on the actual information and data provided by the exporter for determining subsidy margin and countervailing duty rate for such co-operating exporter for the concerned program.

[The author is a Joint Partner in International Trade Practice, Lakshmikumaran & Sridharan, New Delhi]

Endnotes:

  1. Article 12 of the SCM Agreement.
  2. Issues & Decision Memorandum for the Final Results of the Countervailing Duty Administrative Review: Polyethylene Terephthalate Film, Sheet and Strip from India, AR 2016, Comment 2, March 18, 2019.
  3. Issues & Decision Memorandum for the Final Results of the Countervailing Duty Administrative Review: Polyethylene Terephthalate Film, Sheet and Strip from India, AR 2016, March 18, 2019, pg. 6.
  4. Ibid., pg. 14
  5. Ibid., Comment 2, pg. 24
  6. Ibid.
  7. Section 771(5A)(D) of Tariff Act 1930; Article 2, SCM Agreement, Footnote 2.
  8. Issues & Decision Memorandum for the Final Results of the Countervailing Duty Administrative Review: Polyethylene Terephthalate Film, Sheet and Strip from India, AR 2016, Comment 2, March 18, 2019.
  9. In Certain graphite electrode systems originating in India, the European Commission evaluated Section 80IA of Income Tax Act by which an amount corresponding to the profit generated by the power generating activities was exempted from tax for 10 consecutive years for companies that started operation on or after the 1 April 2003 and up to 31 March 2010. The European Commission determined that the subsidy program is not specific because scheme appears to be available to all companies on the basis of objective criteria. Council  Regulation (EC) No 1354/2008 of 18 December 2008 amending Regulation (EC) No 1628/2004 imposing a definitive countervailing duty on imports of certain graphite electrode systems originating in India and Regulation (EC) No 1629/2004 imposing a definitive anti-dumping duty on imports of certain graphite electrode systems originating in India, Official Journal of the European Union, L 350/24, 30.12.2018, paras. 60 to 66.   
  10. Issues & Decision Memorandum for the Final Results of the Countervailing Duty Administrative Review: Polyethylene Terephthalate Film, Sheet and Strip from India, AR 2016, Comment 2, March 18, 2019
  11. GOI provided only a brief statement that information regarding this program, administered by the State Government of Gujarat, could be collected from the mandatory respondent; Decision Memorandum for the Preliminary Determination in the Countervailing Duty Investigation of Polytetrafluoroethylene Resin from India, February 28, 2018, pg. 9.
  12. Issues and Decision Memorandum for the Final Determination in the Countervailing Duty Investigation of Polytetrafluoroethylene Resin from India, May 14, 2018, Comment 2.
  13. Decision Memorandum for the Preliminary Determination in the Countervailing Duty Investigation of Polytetrafluoroethylene Resin from India, February 28, 2018, pg. 17
  14. Ibid. footnote, 92
  15. Ibid., pgs. 18 & 19
  16. Ibid., pg. 19
  17. Ibid. Preliminary determination was confirmed by the USDOC in the Final Determination issued on August 10, 2018.
  18. Ibid.
  19. Issues and Decision Memorandum for the Final Determination in the Countervailing Duty Investigation of Stainless Steel Flanges from India, August 10, 2018
  20. (i) GOI Loan Guarantee (ii) Status Certificate Program (iii) Provision of Stainless Steel, Billet and Bar by SAI at LTAR (iv) Infrastructure Assistance for Mega Projects under the Maharashtra Industrial Policy of 2013 (v) Other State Government of Maharashtra Industrial Promotion Policy to Support Mega Projects & (vi) Incremental Export Incentive Scheme (vii) Steel Development Fund. Ibid., Comment 6
  21. Ibid., Comment 3.
  22. Issues and Decision Memorandum for the Final Determination in the Countervailing Duty Investigation of Stainless Steel Flanges from India, August 10, 2018, pg. 16
  23. Ibid.
  24. Ibid., Comment 6.
  25. Decision Memorandum for the Preliminary Determination in the Countervailing Duty Investigation of Stainless Steel Flanges from India, Programs Preliminarily Determined to Be Not Used by, or Not Confer a Measurable Benefit to Echjay, S.No. 28, January 16, 2018.

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