INDUSTRIAL FASTENERS GROUP, ETC. v. US, Court No. 80-7-01157.

• Decision Date: 29 October 1981
• Docket Number: Court No. 80-7-01157.
• Citation: 525 F. Supp. 885,2 CIT 181
• Parties: INDUSTRIAL FASTENERS GROUP, AMERICAN IMPORTERS ASSOCIATION, Plaintiff, v. The UNITED STATES, et al., Defendants.
• Court: U.S. Court of International Trade

525 F. Supp. 885

2 CIT 181

INDUSTRIAL FASTENERS GROUP, AMERICAN IMPORTERS ASSOCIATION, Plaintiff, v. The UNITED STATES, et al., Defendants.

Court No. 80-7-01157.

United States Court of International Trade.

October 29, 1981.

Barnes, Richardson & Colburn, New York City (Andrew P. Vance and Michael A. Johnson, New York City, on the briefs), for plaintiff.

J. Paul McGrath, Asst. Atty. Gen., David M. Cohen, Director, Commercial Litigation Branch, New York City (Velta A. Melnbrencis, New York City, on the brief), for defendants.

Opinion and Order

BOE, Judge:

Plaintiff, an association of importers and wholesalers of industrial fasteners manufactured in India, brings this action under 19 U.S.C.A. § 1516a(a)(2)(A)(ii), § 1516a(a)(2)(B)(i), contesting the final affirmative countervailing duty determination and order by the International Trade Administration (ITA), United States Department of Commerce, in Certain Fasteners From India, 45 Fed.Reg. 48607 (published July 21, 1980).

On February 25, 1980, a notice of the Initiation of Countervailing Duty Investigation was published in the Federal Register, advising:

that a satisfactory petition has been received and as a result an investigation is being started by the ITA for the purpose of determining whether or not benefits are granted by the Government of India GOI to manufacturers, producers, or exporters of certain industrial fasteners covered under item numbers 646.49, .54, .56, .58, .60, .63, TSUS constitute a bounty or grant within the meaning of the countervailing duty law.

Having concluded that India was not a "country under the Agreement" within the meaning of 19 U.S.C.A. § 1671(b), the ITA determined that the investigation was governed by § 303 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979, 19 U.S.C.A. § 1303, and accordingly, the investigation would not be referred to the International Trade Commission (ITC) for injury determinations. 45 Fed.Reg. 12276.

On July 21, 1980, the ITA published the countervailing duty determination and order appealed from in the instant action, in which the ITA determined that "the Government of India provides bounties or grants (subsidies) within the meaning of section 303 of the Act and that the estimated aggregate net amount of these benefits equals 18.0% of the f. o. b. value of the exported merchandise." The customs officers were directed to assess a countervailing duty on imports covered by the determination pursuant to 19 U.S.C.A. § 1671e.

The proceedings in this court were commenced by the filing of a summons and complaint on July 28, 1980. Plaintiff, on the same date, made application to this court for a Temporary Restraining Order and preliminary injunction, which were granted on July 28, 1980 and August 7, 1980, respectively. Pursuant to the preliminary injunction, the Customs Service was enjoined from liquidating merchandise pursuant to the countervailing duty order of July 21, 1980.

This civil action was submitted for determination pursuant to the expedited review procedure of Rule 56.1 of the United States Court of International Trade Rules.

The ITA has determined in its final determination that the Government of India provided subsidies to exporters of certain industrial fasteners through three programs: (1) Cash Compensatory Support on Export (CCS), providing a lump-sum payment of 17.5% of the f. o. b. value of the exported merchandise; (2) Preferential Export Financing, whereby the GOI had underwritten low interest packing credit loans to exporters by making grants of 1.5% of the interest rate to lending institutions, amounting to a subsidy of 0.4% of the f. o. b. value of the exported merchandise; (3) Tax Deductions, providing special income tax deductions of 133% of certain expenses incurred in export market development, amounting to a subsidy of 0.1% of the f. o. b. value of the exported merchandise.

Notwithstanding the several assignments of error asserted by plaintiff in its Motion for Judgment on the Administrative Record the central dispositive question to be decided herein in reviewing the ITA's determination with respect to the CCS payments, is whether there is substantial evidence in the administrative record to support the conclusion that the CCS payments to exporters of fasteners are not non-excessive rebates of indirect taxes not otherwise rebated on export, and, accordingly, are subsidies.

According to the information submitted by the Government of India, in October 1978 the Ministry of Commerce advised all Export Promotion Councils (EPCs) that it was restructuring the export payment programs and that the Ministry had decided that CCS should fully compensate for all types of indirect taxes which exporters pay on "inputs" and which are not otherwise refunded. AR. 70. However, the letter from the Ministry advising the EPCs of such restructuring (to which was appended a "proforma" questionnaire) stated that the main objective of the CCS should be to help neutralize handicaps faced by Indian exporters, vis-à-vis their foreign competitors, in the form of (i) indirect taxes on "inputs," (ii) higher rate of interest payable on working capital employed on export production, and (iii) higher cost of domestic capital goods used on export production. AR. 879. In addition to the foregoing three types of handicaps, the Ministry advised of other broad criteria that would likely be accepted in the formulation of the new CCS rates.¹ AR. 880. The EPCs (including the Engineering Export Promotion Council EEPC, representing industrial fastener exporters) were requested to collect, compile, verify and make available to the Ministry basic data in regard to all the products with which they are concerned, the data to be collected from a representative number of manufacturing and exporting units throughout the country. AR. 71, 878, 880. The representative manufacturers/exporters were to work out the average incidence of the various non-refundable taxes, duties and levies imposed on "inputs" entering the exported products. AR. 71. However, the "proforma" appended to the Ministry's letter to the EPCs demonstrates that the scope of the data to be supplied by the representative manufacturing/exporting units was more extensive than just the incidence of indirect taxes, duties and other levies on "inputs." Rather, the "proforma" requested information with respect to the eight broad criteria afore-referred to. AR. 882-91. The Government of India has stated that the tax data was scrutinized by the Ministry and that the CCS was based directly on the calculations and documentation provided by EPC members. AR. 71.

The CCS payment for industrial fasteners originally was set at 12.5%. The industrial fastener manufacturers, however, objected to that rate as being too low to compensate for all indirect taxes and levies and the Ministry announced in March 1979 the higher payment rate of 17.5%. The new payment rates which became effective April 1, 1979, were in most cases, to remain in effect for three (3) years. AR. 434. Counsel for the EEPC submitted to an ITA official, during the course of her duties in verifying information in India, documents from six (6) Indian industrial fastener firms (one unidentified) and an industry group, providing tax calculations, which, counsel asserts,

were done in 1978/79 for the express purpose of setting cash compensatory support for industrial fasteners. These calculations were submitted to the Ministry of Commerce by the Engineering Export Promotion Council and were the basis for the CCS granted in 1979. Emphasis in original.

AR. 441-42.

19 U.S.C.A. § 1303, as amended, governs the imposition of countervailing duties on merchandise which is the product of a country other than a "country under the Agreement" within the meaning of 19 U.S.C.A. § 1671(b). Section 1303(b) provides that the countervailing duty imposed under § 1303(a) "shall be imposed, under regulations prescribed by the administrative authority (as defined in 19 U.S.C.A. § 1677(1)), in accordance with 19 U.S.C.A. §§ 1671-1677g, as added by the Trade Agreements Act of 1979 (relating to the imposition of countervailing duties).²

In the Senate Committee Report to the Trade Agreements Act of 1979, the following comments were made with respect to the amendments made to § 1303 by the 1979 Act, S.Rep.No. 96-249 at 104, U.S.Code Cong. & Admin. News 1979, 381, 490:

The committee believes the procedures and standards under new §§ 1671-1677g are a significant improvement over existing law and practice and should be applied to § 1303.

It clearly was the intent of Congress that those provisions of the Trade Agreements Act of 1979 relevant to countervailing duty investigations be applied to investigations governed by § 1303, with the exceptions noted.

The statutory standard for the imposition of countervailing duties is provided in § 1671(a), which states in pertinent part:

(a) General rule. — If —

(1) the administering authority determines that —

(A) a country under the Agreement, or

(B) a person who is a citizen or national of such a country, or a corporation, association, or other organization organized in such a country,

is providing, directly or indirectly, a subsidy with respect to the manufacture, production, or exportation of a class or kind of merchandise imported into the United States, ...

then there shall be imposed upon such merchandise a countervailing duty, in addition to any other duty imposed, equal to the amount of the net subsidy.

The term "subsidy" is defined in § 1677(5), providing in relevant part:

(5) Subsidy. — The term "subsidy" has the same meaning as the term "bounty or grant" as that term is used in section 1303 of this title, and includes, but is not limited to, the following:

(A) Any export subsidy described in Annex A to the Agreement on Subsidies and Countervailing Measures (relating to illustrative list of export subsidies).

The definition of "net subsidy" is provided in §...