Before Rich, Rader, and Schall, Circuit Judges.
The opinion of the court was delivered by: Schall, Circuit Judge.
Appealed from: United States Court of International Trade
Senior Judge Dominick L. DiCarlo
United States Court of Appeals for the Federal Circuit
Opinion for the court filed by Circuit Judge SCHALL. Opinion, dissenting-in-part, filed by Circuit Judge RADER.
This action stems from an administrative review of a countervailing duty order covering iron-metal castings from India. Plaintiffs-Appellants, Kajaria Iron Castings Pvt. Ltd. ("Kajaria"), Calcutta Ferrous Ltd., Crescent Foundry Co. Pvt. Ltd., Commex Corporation, Dinesh Brothers ("Dinesh"), Nandikeshwari Pvt. Ltd., Carnation Enterprises Pvt. Ltd., Kejriwal Iron & Steel Works, R.B. Agarwalla & Company, RSI Limited, Serampore Industries Pvt. Ltd., Tirupati International (P) Ltd., and Uma Iron & Steel Co. (collectively "Producers"), are Indian producers and exporters of iron-metal castings. Defendants-Appellees, Alhambra Foundry, Inc., Allegheny Foundry Co., Deeter Foundry, Inc., East Jordan Iron Works, Inc., Lebaron Foundry Inc., Municipal Castings, Inc., Neenah Foundry Co., U.S. Foundry & Manufacturing Co., and Vulcan Foundry, Inc. (collectively "Domestic Industry"), are United States producers of iron-metal castings. The Producers appeal the final decision of the United States Court of International Trade sustaining the determination of the International Trade Administration, United States Department of Commerce ("Commerce"), that the Producers were receiving net subsidies on iron-metal castings that were within the scope of the countervailing duty order and that were imported into the United States, and therefore imposing countervailing duties on the castings. See Kajaria Iron Castings Pvt. Ltd. v. United States, 969 F. Supp. 90 (Ct. Int'l Trade 1997) ("Kajaria II"); Kajaria Iron Castings Pvt. Ltd. v. United States, 956 F. Supp. 1023 (Ct. Int'l Trade 1997) ("Kajaria I").
The Producers allege that Commerce's methodology double counted certain subsidies and included income from merchandise not covered by the countervailing duty order in calculating the net subsidy. They also allege that Commerce's methodology in calculating the country-wide countervailing duty rate was erroneous because it included producers with significantly different higher subsidy rates and rates based on the best information available ("BIA"). Because Commerce's methodology did double count subsidies and did include income from merchandise not covered by the countervailing duty order in determining the net subsidy, we reverse and remand for further proceedings. However, we affirm Commerce's methodology for calculating the country-wide countervailing duty rate.
The countervailing duty laws impose additional duties on merchandise that is imported, or sold or likely to be sold for importation, into the United States when the manufacture, production, or exportation of the merchandise is directly or indirectly subsidized. See 19 U.S.C. §§ 1303(a), 1671(a) (1988). *fn1 These additional duties, called "countervailing" duties, are levied on subsidized imports to offset the unfair competitive advantages created by the foreign subsidies. See Wolff Shoe Co. v. United States, 141 F.3d 1116, 1117 (Fed. Cir. 1998). The quantum of the countervailing duties imposed upon such merchandise is equal to the amount of the net subsidy. See 19 U.S.C. § 1671(a); see also 19 U.S.C. §§ 1677(6) (defining "net subsidy"), 1677(5) (defining "subsidy").
Once affirmative determinations of subsidization and material injury or threatened material injury to a domestic industry have been made, see 19 U.S.C. §§ 1671(a), 1671d(b), 1671e(a), Commerce issues a countervailing duty order that directs customs officials to assess a countervailing duty "equal to the amount of the net subsidy determined or estimated to exist." See 19 U.S.C. § 1671e(a)(1). That countervailing duty rate presumptively applies to all merchandise within the scope of the investigation. See 19 U.S.C. § 1671e(a)(2). Commerce annually reviews countervailing duty orders if properly requested to do so. See 19 U.S.C. § 1675(a)(1)(A); 19 C.F.R. § 355.22 (1992).
In 1980, Commerce issued a countervailing duty order covering "certain iron-metal castings [from India] consisting of manhole covers and frames, clean-out covers and frames, and catch basin grates and frames." *fn2 Certain Iron Metal Castings From India: Countervailing Duty Order, 45 Fed. Reg. 68,650 (Oct. 16, 1980). On October 27, 1992, the Municipal Castings Fair Trade Council and individually-named members ("petitioners") requested an administrative review of the 1980 order pursuant to 19 U.S.C. § 1675(a)(1)(A) and 19 C.F.R. § 355.22(a). See Certain Iron-Metal Castings From India: Preliminary Results of Countervailing Duty Administrative Review, 60 Fed. Reg. 4596 (Jan. 24, 1995) ("Preliminary Results"). On November 27, 1992, Commerce initiated review for the period January 1 through December 31, 1991, involving fourteen producers/exporters ("producers") and twelve Indian programs. See Initiation of Antidumping and Countervailing Duty Administrative Reviews, 57 Fed. Reg. 56,318 (Nov. 27, 1992); Preliminary Results, 60 Fed. Reg. at 4596.
On January 24, 1995, Commerce issued its preliminary results, in which it determined the country-wide net subsidy rate with respect to the iron-metal castings at issue to be 5.54 percent ad valorem for all manufacturers and exporters, except for firms which had received significantly different aggregate benefits and were assigned individual net subsidy rates. See Preliminary Results, 60 Fed. Reg. at 4596. Three firms were assigned significantly different net subsidy rates: (1) Dinesh (a net subsidy rate of zero), (2) Super Castings (India) Pvt. Ltd. ("Super Castings") (a net subsidy rate of 41.75 percent), and (3) Kajaria (a net subsidy rate of 16.14 percent). See id. at 4599. Commerce explained its calculation methodology as follows:
Pursuant to Ceramica Regiomontana, S.A. v. United States, 853 F. Supp. 431 (CIT 1994), Commerce is required to calculate a country-wide [countervailing duty] rate, i.e., the all-other rate, by "weight averaging the benefits received by all companies by their proportion of exports to the United States, inclusive of zero rate firms and de minimis firms." Therefore, we first calculated a subsidy rate for each company subject to the administrative review. We then weight-averaged the rate received by each company using as the weight its share of total Indian exports to the United States of subject merchandise. We then summed the individual companies' weight-averaged rates to determine the subsidy rate from all programs benefitting exports of subject merchandise to the United States.
Since the country-wide rate calculated using this methodology was above de minimis, as defined by 19 CFR 355.7 (1993), we proceeded to the next step and examined the net subsidy rate calculated for each company to determine whether individual company rates differed significantly from the weighted-average country-wide rate, pursuant to 19 CFR 355.22(d)(3). Three companies . . . received significantly different net subsidy rates during the review. . . . These companies are treated separately for assessment and cash deposit purposes. All other companies are assigned the country-wide rate.
In determining the subsidies received by each producer, Commerce found that the producers had received countervailable benefits under section 80HHC of India's Income Tax Act ("section 80HHC"). See id. at 4597. Pursuant to this provision, the government of India "allows exporters to deduct profits derived from the export of goods and merchandise from taxable income." Id. Commerce had determined in prior administrative reviews that the program provided a countervailable subsidy because the "receipt of benefits under this program [was] contingent upon export performance." Id. Commerce determined in this review that no new information altered its prior determination. See id. Commerce calculated the countervailable subsidy attributable to section 80HHC by subtracting the total amount of income tax a producer actually paid from the amount of income tax the producer would have paid absent the section 80HHC deduction. See id. at 4598.
Commerce also determined that the producers had received over-rebates under India's Cash Compensatory Support ("CCS") Program. *fn3 See id. "The CCS [P]rogram rebates indirect taxes and import duties borne by inputs physically incorporated into an exported product." Kajaria I, 956 F. Supp. at 1025. Through the CCS Program, producers receive a tax rebate upon export, calculated as a percentage of the invoice price of the exported merchandise. See Preliminary Results, 60 Fed. Reg. at 4598. In prior administrative reviews, Commerce had determined that the CCS Program did not provide a countervailable benefit because "(1) [t]he program operate[d] for the purpose of rebating prior stage cumulative indirect taxes and/or import charges; (2) the government [of India] accurately ascertained the level of the rebate; and (3) the government [of India] re-examine[d] its schedules periodically to reflect the amount of actual indirect taxes and/or import charges paid." Id. However, Commerce noted that it must determine on a case-by-case basis whether there is an over-rebate, i.e., "whether the rebate for the subject merchandise exceeds the total amount of indirect taxes and import duties borne by inputs that are physically incorporated into the exported product." Id. If an over-rebate exists, the difference between the allowable rebate and the actual rebate is a countervailable subsidy. See id.
During the review period, the producers switched from domestic pig iron to imported pig iron as the basic raw material used in the production of castings exported to the United States. See id. The producers listed port and harbor taxes associated with the imported pig iron as part of the indirect tax incidence on inputs of the subject castings. See id. During the verification of the 1990 administrative review, Commerce determined that the port tax is a wharfage charge and the harbor tax included berthage, port duties, pilotage, and towing charges. See id. During the current review, the government of India failed to show that the port and harbor taxes were indirect taxes. See id. Commerce determined that those taxes were actually service charges and therefore disallowed those items in the calculation of the indirect tax incidence. See id. Commerce recalculated the indirect tax incidence incurred on items physically incorporated in the manufacture of the exported castings, excluding the service charges, and compared the recalculated tax incidence rate to the CCS rebates. See id. Commerce then determined that the CCS Program provided an over-rebate of indirect taxes and that the over-rebates were countervailable subsidies. See id.
Commerce also found that the producers did not apply for or receive benefits under India's International Price Reimbursement Scheme ("IPRS") with respect to subject castings. See id. at 4599. The IPRS reimburses producers for the difference in price between higher-priced domestic pig iron and imported pig iron. See Kajaria I, 956 F. Supp. at 1025; see generally Creswell Trading Co. v. United States, 15 F.3d 1054 (Fed. Cir. 1994), and Creswell Trading Co. v. Allegheny Foundry Co., 141 F.3d 1471 (Fed. Cir. 1998) (explaining the IPRS program and its history).
On August 29, 1995, Commerce issued its final results, in which it adjusted the countervailing duty rate for all producers, other than those assigned individual rates, to 5.53 percent ad valorem. See Certain Iron-Metal Castings From India: Final Results of Countervailing Duty Administrative Review, 60 Fed. Reg. 44,843, 44,849 (Aug. 29, 1995) ("Final Results"). In the final results, Commerce also maintained the significantly different rates for Dinesh, Super Castings, and Kajaria that were established in the preliminary results. See id. At the same time, Commerce reaffirmed the calculation methodology used in arriving at the preliminary results. See id. at 44,843-44.
Commerce rejected the producers' claim that it had erroneously classified the port and harbor taxes as service charges rather than indirect taxes. See id. at 44,845. Commerce reiterated that the over-rebates under the CCS Program were countervailable under the countervailing duty laws. See id. Based on the 1990 administrative review, Commerce determined that the port and harbor charges were not taxes on items physically incorporated into exported castings, but rather were service charges that led to over-rebates under the CCS Program that are countervailable. See id. at 44,845-46.
In response to the petitioners' claim that Commerce should have countervailed CCS rebates on non-subject castings, Commerce responded:
Where the Secretary determines that a countervailable benefit is tied to the production or sale of a particular product or products, the Secretary will allocate the benefit solely to that product or products. If the Secretary determines that a countervailable benefit is tied to a product other than the [subject] merchandise, the Secretary will not find a countervailable subsidy on the merchandise. This practice of tying benefits to specific products is an established tenet of the Department's administration of the countervailing duty law.
Id. at 44,845 (internal quotation marks and citations omitted). Using this same reasoning, Commerce also rejected the petitioners' contention that it should have countervailed IPRS rebates on non-subject castings. See id. at 44,847. Commerce reiterated that "[g]rants that are tied to the production or export of only non-subject merchandise do not provide a countervailable benefit to the subject merchandise." Id.
The producers argued that Commerce erred in countervailing the portion of the section 80HHC tax deduction that was based on the CCS over-rebates and the IPRS rebates on non-subject castings. See id. at 44,848. They argued that under the section 80HHC program CCS rebates are considered export income, which may be deducted from taxable income in determining the tax payable by the producer. See id. Since Commerce fully countervailed the CCS over-rebates, the producers claimed that countervailing the portion of the section 80HHC tax deduction attributable to those over-rebates double counted the benefit of the over-rebates. See id. The producers also argued that Commerce erred in countervailing the portion of the section 80HHC deduction attributable to IPRS rebates on non-subject castings because those rebates did not benefit castings subject to the countervailing duty order. See id.
Commerce rejected these arguments. Commerce determined that the full amount of the section 80HHC tax deduction was a countervailable subsidy and that the offsets requested by the producers did not fit within any of the statutorily-permitted offset categories. See id. Commerce noted:
Adjusting the benefit conferred by the 80HHC tax program to account for the CCS and IPRS rebates is not a permissible offset under section 771(6) of the Act. In addition, we also note that, with respect to respondents' CCS argument, that it is the Department's established policy to disregard the secondary tax effects of countervailable subsidies. See, e.g., Certain Fresh Atlantic Groundfish From Canada, 51 FR 10041 (March 24, 1986) and Fresh and Chilled Atlantic Salmon From Norway, 56 FR 7678 (February 25, 1991).
The producers also commented that it was inappropriate for Commerce to include the net subsidy rates of producers that were assigned individual, significantly higher net subsidy rates in calculating the country-wide rate applicable to all other producers. See id. In addition, they claimed that it was inappropriate for Commerce to include BIA-based net subsidy rates in the calculation of the country-wide rate. *fn4 See id. The producers argued that including the significantly different higher rates and the BIA-based rates in ...