67 FR 34905, May 16, 2002 C-533-825 Investigation Public Document GII/O4: AGA MEMORANDUM TO: Joseph A. Spetrini Acting Assistant Secretary for Import Administration FROM: Bernard T. Carreau Deputy Assistant Secretary for AD/CVD Enforcement II SUBJECT: Issues and Decision Memorandum: Final Countervailing Duty Determination: Polyethylene Terephthalate Film, Sheet, and Strip (PET Film) from India Summary We have analyzed the comments in the case and rebuttal briefs submitted by interested parties in the countervailing duty investigation of PET film from India. Below is a complete list of issues in this investigation for which we received comments from the parties. Also below are the "Methodology and Background Information" and "Analysis of Programs" sections which describe the methodologies used to calculate the benefits from the subsidy programs under investigation and the details of the subsidy programs themselves, including clarifications since verification. As a result of our analysis, we have made changes in the preliminary subsidy rate calculations. We recommend that you approve the positions we have developed below in this memorandum. In Section I, we identify the issues in this investigation for which we received comments from the interested parties. Section II sets out certain methodologies that we used to value the benefits in the programs under investigation. Section III explains the details of the programs under investigation. Section IV analyzes the comments of the interested parties. Finally, we recommend approval of the Department's positions developed for each of the issues. 1. List of Issues General Issues 1. Countervailability of the Duty Entitlement Passbook Scheme (DEPS) 2. Calculation of the Benefit for the DEPS 3. Financial Contribution in the Pre- and Post-Shipment Export Financing Programs 4. Calculation of the Benefit for the Pre- and Post-Shipment Export Financing Programs 5. Calculation of the Benefit for Export Promotion Capital Good Scheme (EPCGS) 6. Termination of the Pre-Export DEPS and the Special Import License Scheme 7. Program-Wide Change in the Post-Export DEPS 8. Deemed Exports in Calculation of Export Subsidies 9. State of Maharashtra's Package Scheme of Incentives 10. Benefit of Sales Tax Incentives for Exports Under Section 4-B of the Uttar Pradesh Trade Tax Act 11. Specificity of Sales Tax Incentives Under Section 4-A of the Uttar Pradesh Trade Tax Act Company-Specific Issues 12. Calculation of EPCGS Benefit for Ester 13. Calculation of Pre- and Post-Shipment Financing for Ester 14. Correction of Ester's Clerical Errors 15. Application of Input Supplier Rule to Garware and Garware Chemicals 16. Ministerial Error in the Calculation of Garware's EPCGS Benefits 17. Benchmarks for Garware's Pre- and Post-Shipment Export Financing Loans II. Methodology and Background Information A. Subsidies Valuation Information 1. Allocation Period Under section 351.524(d)(2) of the Department's regulations, we will presume the allocation period for non-recurring subsidies to be the average useful life (AUL) of renewable physical assets for the industry concerned, as listed in the Internal Revenue Service's (IRS) 1977 Class Life Asset Depreciation Range System, as updated by the Department of the Treasury. The presumption will apply unless a party claims and establishes that these tables do not reasonably reflect the AUL of the renewable physical assets for the company or industry under investigation, and the party can establish that the difference between the company-specific or country-wide AUL for the industry under investigation is significant. In Notice of Preliminary Affirmative Countervailing Duty Determination and Alignment of Final Countervailing Determination with Final Antidumping Duty Determination: Polyethylene Terephthalate Film, Sheet, and Strip (PET Film) from India, 66 FR 53389, 53390, (October 22, 2001) (Preliminary Determination),we used company-specific AULs of eighteen years for Ester Industries Ltd. (Ester) and Polyplex Corporation Ltd. (Polyplex), and a company-specific AUL of nineteen years for Garware, that these companies calculated in the manner specified by section 351.524(d)(2)(iii) of the Department's regulations. No party contested the Department's use of these company-specific AULs. Therefore, in accordance with section 351.524(d)(2) of the Department's regulations, we have allocated all non-recurring subsidies over eighteen years for Ester and Polyplex, and over nineteen years for Garware. 2. Benchmarks for Loans and Discount Rate In the Preliminary Determination, 66 FR at 53391, for those programs requiring the application of a short-term benchmark interest rate, we used, in accordance with section 351.505(a)(3)(i) of the Department's regulations, company-specific, short-term interest rates on commercial loans as reported by the respondents. With respect to the rupee- denominated, short-term benchmark used in calculating the benefit for pre- shipment export financing, we used the weighted average of the companies' cash credit loans. With respect to the rupee-denominated, short-term benchmark used in calculating the benefit for post-shipment export financing, we used, where available, the weighted-average of the companies' "inland" or "local" bill discounting loans. Where a company did not have any bill discounting loans, we used the weighted-average of the companies' cash credit loans, which are the next most comparable type of short-term loans. For the final determination, for Garware, we have also included Garware's other bill discounting loans, except for certain supplier bill discounting loans, to calculate the short-term benchmark for Garware's post-shipment export financing. For further information, see comments 4 and 17 in the "Analysis of Comments" section of this memorandum. In the Preliminary Determination, 66 FR at 53392, we further explained that 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 comparable, commercial long-term, rupee-denominated loans. We did not use those long-term loans that had unpaid interest or principal payments, because we do not consider such loans to be comparable loans under section 771(5)(E)(ii) of the Tariff Act of 1930, as amended (the Act) and section 351.505(a)(2)(i) of the Department's regulations. In this final determination, we also did not use Garware's long-terms loans that were guaranteed by a public entity because we do not consider such loans to be commercial loans under section 771(5)(E)(ii) of the Act and section 351.505(a)(2)(ii) of the Department's regulations. For further information, see description of Octroi Refund Scheme in the "Analysis of Programs" section of this memorandum and comment 12 in the "Analysis of Comments" section of this memorandum. We note that, as in the Preliminary Determination, 66 FR at 53391, some respondents did not have rupee-denominated, comparable long-term loans from commercial banks for all required years. Therefore, for those years, we had to rely on a rupee-denominated, long-term benchmark interest rate that is not company-specific, but still provides a reasonable representation of industry practice, in order to determine whether a benefit was provided to the companies from rupee-denominated, government- provided long-term loans. Pursuant to 19 CFR §351.505(a)(3)(ii), we used national average interest rates for those years in which the respondents did not report company-specific interest rates on comparable commercial loans. We based these national average interest rates on information on long-term, rupee-denominated financing from private creditors in the International Monetary Fund's publication International Financial Statistics. 3. Cross-Ownership and Attribution of Subsidies Section 351.525(b)(6)(vi) of the Department's regulations defines cross- ownership as existing "where one corporation can use or direct the individual assets of the other corporation(s) in essentially the same ways it can use its own assets. Normally, this standard will be met where there is a majority voting ownership interest between two corporations or through common ownership of two (or more) corporations." In the Preliminary Determination, 66 FR at 53391, we determined that cross- ownership exists between Garware and its eighty percent-owned affiliate, Garware Chemicals Ltd. (Garware Chemicals). Since Garware Chemicals supplies an input to Garware that is primarily dedicated to the production of the subject merchandise, we also determined that subsidies received by Garware Chemicals are attributable to the products sold by both corporations in accordance with section 351.525(b)(6)(iv) of the Department's regulations. Therefore, for all applicable programs except for the electricity duty exemption scheme, we calculated a subsidy rate for Garware Chemicals for each program by dividing Garware Chemicals' countervailable subsidies during the POI under each program by the sum of the two companies' total sales (excluding the sales between Garware and Garware Chemicals) (for domestic subsidies), or appropriate export sales (for export subsidies) during the POI. We then added these subsidy rates to Garware's calculated subsidy rates for each applicable program to calculate Garware's total subsidy rate. For the electricity duty exemption scheme, due to the manner in which Garware and Garware Chemicals pay for their electricity charges through Garware, and the manner in which they receive the benefit through this program, we calculated Garware's total subsidy rate for this program by dividing the amount of countervailable subsidy received by both companies under this program by the sum of the two companies' total sales (excluding the sales between Garware and Garware Chemicals). Furthermore, since Garware owns eighty percent of Garware Chemicals, guarantees almost all of Garware Chemicals' loans, and is in a position to control Garware Chemicals' finances, we calculated company-specific long- term benchmark interest rates for both Garware and Garware Chemicals based on both companies' reported long-term loans. We did not calculate company- specific short-term benchmark interest rates for Garware based on both companies' short-term loans because Garware Chemicals did not report its short-term loans. Garware Chemicals subsequently reported, and we verified, that Garware Chemicals had no short-term loans during the POI. Since Garware Chemicals had no short-term loans during the POI, for the final determination, we are continuing to base the company-specific short- term benchmark interest rates for Garware on Garware's reported short-term loans. No new information, evidence of changed circumstances or comments from interested parties were presented in this investigation to warrant any reconsideration of our other findings and methodologies with respect to cross-ownership and attribution of subsidies. For further information, see comment 15 in the "Analysis of Comments" section of this memorandum. II. Analysis of Programs A. Programs Found to Confer Subsidies Government of India (GOI) Programs 1. Pre-Shipment and Post-Shipment Export Financing The Reserve Bank of India (RBI), through commercial banks, provides short- term pre-shipment financing, or "packing credits," to exporters. Upon presentation of a confirmed export order or letter of credit to a bank, companies may receive pre-shipment loans for working capital purposes, i.e., for the purchase of raw materials, warehousing, packing, and transporting of export merchandise. Exporters may also establish pre- shipment credit lines upon which they may draw as needed. Credit line limits are established by commercial banks, based upon a company's creditworthiness and past export performance, and may be denominated either in Indian rupees or in foreign currency. Commercial banks extending export credit to Indian companies must, by law, charge interest on this credit at rates capped by the RBI. Post-shipment export financing consists of loans in the form of discounted trade bills or advances by commercial banks. Exporters qualify for this program by presenting their export documents to their lending bank. The credit covers the period from the date of shipment of the goods to the date of realization of export proceeds from the overseas customer. Under the Foreign Exchange Management Act of 1999, exporters are required to realize export proceeds within one hundred eighty days from the date of shipment, which is monitored by the RBI. Post-shipment financing is, therefore, a working capital program used to finance export receivables. In the Preliminary Determination, 66 FR at 53392, we found that the pre- and post-shipment export financing programs conferred countervailable subsidies on the subject merchandise because 1) provision of the export financing constitutes a financial contribution pursuant to section 771(5)(D)(i) of the Act; 2) provision of the export financing conferred benefits on the respondents under section 771(5)(E)(ii) of the Act because the interest rates under these programs were lower than commercially available interest rates; and 3) these programs are contingent upon export performance, and therefore constitute countervailable export subsidies under section 771(5A)(B) of the Act. No new information, evidence of changed circumstances or comments from interested parties were presented in this investigation to warrant any reconsideration of these findings. For further information, see comment 3 in the "Analysis of Comments" section of this memorandum. However, information collected during verification as well as comments from interested parties have led us to revise the manner in which we calculated the denominator in the calculation of the net subsidy rate for the pre-shipment export financing program. For further information, see comment 8 in the "Analysis of Comments" section of this memorandum. Accordingly, the net subsidy rate under the pre-shipment export financing program is 1.43 percent ad valorem for Ester, 2.05 percent ad valorem for Garware, and 0.50 percent ad valorem for Polyplex. The net subsidy rate under the post-shipment export financing program is 0.86 percent ad valorem for Ester, 0.85 percent ad valorem for Garware, and 0.48 percent ad valorem for Polyplex. 2. DEPS The DEPS enables exporting companies to earn import duty exemptions in the form of passbook credits rather than cash. Prior to the POI, exporting companies could obtain DEPS credits on a pre-export or on a post-export basis. The GOI reported that the pre-export DEPS program was abolished effective April 1, 2000. All exporters are eligible to earn DEPS credits on a post-export basis, provided that the GOI has established a standard input-output norm (SION) for the exported product. Post-export DEPS credits can be used for any subsequent imports, regardless of whether they are consumed in the production of an export product. Post-export DEPS credits are valid for twelve months and are transferable after the foreign exchange is realized from the export sales on which the DEPS credits are earned. With respect to subject merchandise, exporters were eligible to earn credits equal to fifteen percent of the FOB value of their export shipments during the fiscal year ending March 31, 2001. During the POI, Ester, Garware, and Polyplex all earned post-export DEPS credits. In the Preliminary Determination, 66 FR at 53992-53993, we determined the DEPS conferred countervailable subsidies on the respondents because 1) a financial contribution, as defined under section 771(5)(D)(ii) of the Act, is provided under the program because the GOI provides the respondents with credits for the future payment of import duties; 2) since the GOI does not have in place and does not apply a system to confirm which inputs, and in what amounts, are consumed in the production of the exported products that is reasonable and effective for the purposes intended, under section 351.519(a)(4) of the Department's regulations and section 771(5)(E) of the Act, the entire amount of import duty exemption earned by the respondents during the POI constitutes a benefit; and 3) this program can only be used by exporters and, therefore, is specific under section 771(5A)(B) of the Act. No new information, evidence of changed circumstances or comments from interested parties were presented in this investigation to warrant any reconsideration of these findings. For further information, see comments 1 and 2 in the "Analysis of Comments" section of this memorandum. At verification, we found that Polyplex did not earn DEPS credits on certain U.S. sales of the subject merchandise during the POI because Polyplex used these sales to count towards its export obligation under the Advance License Scheme. Since Polyplex did not benefit from the DEPS on these U.S. sales, pursuant to 19 CFR §351.525(b)(4), we excluded these U.S. sales from the denominator in the calculation of Polyplex's subsidy rate for this program. Accordingly, the net subsidy rate under the DEPS is 14.80 percent ad valorem for Ester, 14.61 percent ad valorem for Garware, and 14.76 percent ad valorem for Polyplex. 3. Special Import Licenses (SILs) During the POI, Ester and Garware sold two types of import licenses--SILs for Quality and SILs for Trading Houses. SILs for Quality are licenses granted to exporters which meet internationally-accepted quality standards for their products, such as the International Standards Organization (ISO) standards. SILs for Trading Houses are licenses granted to exporters that meet certain export targets. Both types of SILs permit the holder to import products listed on a "Restricted List of Imports" in amounts up to the face value of the SIL. Under the program, the SILs do not exempt or reduce the amount of import duties paid by the importer. In addition, Garware surrendered certain SILs to the GOI during the POI because it had not met its export obligation for materials that it had imported in previous years under the Advance License Scheme. (1) At verification, Garware also reported that it had used other SILs during the POI to import materials. In the Preliminary Determination, 66 FR at 53393, we determined that the sale of SILs constitutes a countervailable export subsidy because 1) pursuant to section 771(5)(D)(i) of the Act, the financial contribution in the sale of SILs consists of the revenue received on the sale of licenses; 2) the amount of the revenue constitutes the benefit from the sale of SILs under section 771(5)(E) of the Act; and 3) in accordance with section 771(5A)(B) of the Act, the receipt of benefits under this program is contingent upon export performance. We also determined that Garware's use of other SILs granted by the GOI to fulfill its export obligation under the Advance License scheme constitutes a countervailable export subsidy because 1) Garware's original receipt of these SILs (like its SILs sold during the POI) was contingent upon export performance under section 771(5A)(B) of the Act; 2) pursuant to section 771(5)(D)(i) of the Act, the financial contribution in the use of SILs consists of the expense that Garware avoided by not having to buy SILs on the open market; and 3) the amount of the financial contribution constitutes the benefit from the use of SILs under section 771(5)(E) of the Act. No new information, evidence of changed circumstances or comments from interested parties were presented in this investigation to warrant any reconsideration of these findings. Regarding Garware's use of other SILs to import materials, which Garware reported at verification, we determine that, by using SILs granted by the GOI to import certain materials, Garware avoided the expense of having to purchase SILs on the open market to import these items. Since Garware received these SILs (like its other SILs sold and used during the POI), because of its status as an exporter, we find that the use of these SILs constitutes a countervailable export subsidy in accordance with section 771(5A)(B) of the Act. Pursuant to section 771(5)(D)(i) of the Act, the financial contribution in the use of SILs consists of the expense that Garware avoided by not having to buy SILs on the open market, the amount of which constitutes the benefit from the use of SILs under section 771(5)(E) of the Act. We calculated the benefit for the use of SILs to import materials in the same manner that we calculated the benefit for Garware's other use of SILs. Specifically, we determined the expense that Garware avoided by not having to buy SILs on the open market, which we calculated based on the prices that Garware received for the sale of its SILs during the POI. We then added this amount into our calculation of the numerator for the calculation of Garware's net subsidy rate for SILs. For both Ester and Garware, information collected during verification as well as comments from interested parties have led us to revise the manner in which we calculated the denominator in the calculation of the net subsidy rate for the SILs Program. For further information, see comment 8 in the "Analysis of Comments" section of this memorandum. Accordingly, the net subsidy rate under the SIL program is 0.00 percent ad valorem for Ester and 0.02 percent ad valorem for Garware. 4. EPCGS The EPCGS is a GOI program that provides for a reduction of customs duties (2) 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 an amount of convertible foreign exchange equal to five times the value of the capital goods within a period of eight years. (3) For failure to meet the export obligation, a company is subject to payment of all or part of the duty reduction, depending on the extent of the export shortfall, plus penalty interest. In the Preliminary Determination, 66 FR at 53394, we found that the EPCGS conferred countervailable subsidies on subject merchandise because 1) the receipt of benefits under this program is contingent upon export performance in accordance with section 771(5A)(B) of the Act; 2) the GOI provided a financial contribution under section 771(5)((D)(i) of the Act in the two ways specified in the Preliminary Determination; and 3) all of the respondents benefitted under section 771(5)(E) of the Act in these same two specified ways. For further information, see comments 5, 12, and 16 in the "Analysis of Comments" section of this memorandum. However, information collected during verification as well as comments from interested parties concerning the appropriate treatment of deemed exports have led us to revise the manner in which we calculated the denominator in the calculation of the net subsidy rate for the EPCGS Program. See comment 8 in the "Analysis of Comments" section of this memorandum. Although no party included the following issue in their case or rebuttal briefs, we note that two of Ester's EPCGS licenses state that the product to be exported is polyester chips and that Garware Chemical's sole EPCGS license states that DMT is the merchandise to be exported. (DMT is one of the primary inputs used to produce polyester chips, and polyester chips is the primary input to PET film.) During verification, we examined these licenses and confirmed that the product to be exported is polyester chips and DMT, respectively. See Memorandum to the File from Mark Manning, Verification Report for Ester Industries Ltd., dated February 8, 2002, at verification Exhibit 17 (Ester Verification Report); and see Memorandum to the File from Alexander Amdur, Garware Polyester Limited and Garware Chemicals Limited: Report on the Verification of Information, dated January 31, 2002, at verification Exhibit 20, pages 27-32. Furthermore, we note that the EPCGS section of the GOI's Handbook of Procedures (Handbook), published by the Indian Ministry of Commerce and Industry, states that the "license holder under the EPCG scheme shall fulfill the export obligation over the specified period...." See Memorandum to the File from Alexander Amdur, Government of India: Report on the Verification of Information, dated January 31, 2002, at verification Exhibit 5, pages 25-31. Thus, the Handbook does not provide exporters the option of substituting exports of the product identified on the license as the merchandise to be exported with exports of the final product when the license covers an input. For these reasons, we find that the evidence on the record supports a conclusion that the GOI requires Ester and Garware to meet their export obligation for these specific licenses by exporting the merchandise listed on each license, in this case polyester chips and DMT, rather than with exports of the final product, PET film. Thus, given the evidence on the record, the benefit to Ester and Garware Chemicals through these particular EPCGS licenses is tied to their exporting polyester chips and DMT, rather than PET film. Since the benefit is not tied to PET film, we have not countervailed these specific licenses. Lastly, Ester also has two other EPCGS licenses for which the export obligation is polyester chips and PET film. See Ester Verification Report, at verification Exhibit 17. These licenses allow Ester to satisfy its export obligation through exporting polyester chips, PET film, or both. Because of this discretion, we did not change our methodology from the preliminary determination and continued to divided the benefit of these two licenses by Ester's total export sales. Accordingly, the net subsidy rate under the EPCGS is 2.32 percent ad valorem for Ester, 5.17 percent ad valorem for Garware, and 4.38 percent ad valorem for Polyplex. State of Maharashtra Programs 1. Sales Tax Incentives The State of Maharashtra (SOM) grants a package scheme of incentives for privately-owned (i.e., not one hundred percent owned by the GOI) manufacturers to invest in certain areas of Maharashtra. The package scheme of incentives broadly cover most industries, although the package schemes specifically exclude industries which are one hundred percent owned by the GOI. One of the incentives provides either an exemption or deferral of state sales taxes. Through this incentive, companies are exempted from paying state sales taxes on purchases, and collecting sales taxes on sales; or, as an alternative, are allowed to defer submitting sales taxes collected on sales to the SOM for ten to twelve years. After the deferral period expires, the companies are required to submit the deferred sales taxes to the SOM in equal installments over five to six years. The total amount of the sales tax incentive either exempted or deferred is based on the size of the capital investment, and the area in which the capital is invested. Garware and Garware Chemicals reported, and we verified, that they participate in the sales tax incentive program. Prior to 1997, Garware received a deferral through this program for submitting the state sales tax to the SOM that it collected on its sales, and during the POI, Garware still owed the SOM for part of the pre-1997 deferred taxes. After 1997, Garware received an exemption through this program from the payment and collection of state sales tax. Garware Chemicals also received an exemption through this program from the payment and collection of state sales tax. In the Preliminary Determination, 66 FR at 53395, we found that the SOM's sales tax incentives are countervailable because 1) this program is specific within the meaning of sections 771(5A)(D)(i) and (iv) of the Act because the benefits of this program are limited to privately-owned (i.e., not one hundred percent owned by the GOI) industries located within designated geographical regions; 2) the SOM provided a financial contribution under section 771(5)(D)(i) of the Act through the interest not collected on the deferred sales taxes, and on the sales taxes exempted on Garware's and Garware Chemicals' purchases; and 3) the respondents benefitted under section 771(5)(E) of the Act in these same specified two ways. No new information, evidence of changed circumstances or comments from interested parties were presented in this investigation to warrant any further reconsideration of these findings. For further information, see comment 9 in the "Analysis of Comments" section of this memorandum. In the Preliminary Determination, 66 FR at 53395, we also noted that, even though Garware and Garware Chemicals were also exempted from collecting sales taxes on their sales, this did not have the effect of Garware and its affiliate paying any less taxes from their own funds. However, upon further review of the data collected at verification, we found that Garware and its affiliate each used their exemption on collection of sales taxes for part of the sales between these two companies. Therefore, Garware and Garware Chemicals did pay less taxes during the POI on the sales purchased from each other as a result of the exemption on the collection of sales taxes. We therefore also find that the SOM provided a financial contribution under section 771(5)(D)(i) of the Act, and Garware and Garware Chemicals benefitted under section 771(5)(E) of the act, through the exemption of the collection of sales taxes on their sales to each other. We therefore added the amount of sales taxes that Garware Chemicals was exempted from collecting on its sales to Garware to the calculation of Garware's net subsidy rate for this program. (4) We calculated this amount by multiplying the value of the sales from Garware Chemicals to Garware on which Garware Chemicals was exempted from collecting sales taxes by 4.3 percent, the sales tax rate. See Garware verification report at 19. At the verifications of Garware and the SOM, we also found that part of Garware's deferred sales taxes that were still outstanding during the POI related to sales tax deferrals that Garware had received as incentives for its capital investment in facilities for the production of video tapes (non-subject merchandise). Under 19 CFR §351.525(b)(5)(i), if a subsidy is tied to the production of a particular product, the Department will attribute the subsidy only to that product. Since part of Garware's deferred sales taxes are tied to the production of video tapes, we are attributing those deferred sales taxes to video tapes, and are not including those deferred sales taxes in our calculations of Garware's subsidy rate for this program for the final determination. Moreover, at the verifications of Garware and Garware Chemicals, we also found that Garware Chemicals included in its reported sales tax exemptions those sales taxes exempted during the POI on its purchases from Garware. As previously noted, in our calculation of Garware Chemicals' subsidy rate for this program, pursuant to section 351.525(b)(6)(iv) of the Department's regulations, we are not including the value of the sales from Garware to Garware Chemicals in the denominator of this calculation. In order to make the numerator of the subsidy rate calculation (the exempted sales taxes) consistent with the denominator of this calculation (the collapsed sales of the two companies), for the final determination, we are not including the sales taxes exempted on Garware Chemicals purchases from Garware in this calculation. In addition, for the same reason, we are not including the sales taxes which Garware was exempted from collecting in its sales to Garware Chemicals (which are a benefit to Garware Chemicals) in the calculation of Garware Chemicals' subsidy rate for this program. Accordingly, the net subsidy rate under this program is 2.39 percent ad valorem for Garware (including both the net subsidy rates of Garware and Garware Chemicals). 2. Electricity Duty Exemption Scheme Another incentive that the SOM provides is an exemption from the payment of tax on electricity charges. This program is available to manufacturers located in certain regions of Maharashtra. Garware and Garware Chemicals reported, and we verified, that they received an exemption from the payment of tax on electricity charges through this program. In the Preliminary Determination, 66 FR at 53395, we stated that this program, like the sales tax incentives, was part of the package scheme of incentives. However, upon further review of the package schemes of incentives, and the legislation relating to the electricity duty exemption scheme, we have determined that the electricity duty exemption scheme at issue is separate from the refund of electricity duty scheme under the 1993 SOM package scheme of incentives. However, all of our other findings from the Preliminary Determination related to this program are still applicable, and remain unchanged. Specifically, in the Preliminary Determination, 66 FR at 53395, we found that the electricity duty scheme is countervailable because 1) this program is specific within the meaning of section 771(5A)(D)(iv) of the Act because the benefits of this program are limited to industries located within designated geographical regions within the SOM; 2) because the SOM has forgone or not collected revenue otherwise due, the tax exemption provided through this program constitutes a financial contribution within the meaning of section 771(5)(D)(ii) of the Act; and 3) pursuant to section 771(5)(E) of the Act, the benefit consists of the amount of tax exempted on electricity charges through this program during the POI. No new information, evidence of changed circumstances or comments from interested parties were presented in this investigation to warrant any further reconsideration of these findings. Accordingly, the net subsidy rate under this program is 0.36 percent ad valorem for Garware. 3. Capital Incentive Scheme In the Preliminary Determination, 66 FR at 53397, we determined, based on Garware's questionnaire responses, that this program had not been used. Subsequently, at verification, Garware and the SOM reported that, in fact, Garware had received grants under this program through the SOM's 1988 package scheme of incentives. The benefits of this program, grants of up to 3,000,000 rupees, are available, like the benefits of the other programs in the package schemes of incentives, to certain privately-owned (i.e., not one hundred percent owned by the GOI) industries that make capital investments in specific regions of Maharashtra. We find that this program, like the other programs under the package schemes of incentives, is specific within the meaning of sections 771(5A)(D)(i) and (iv) of the Act because the benefits of this program are limited to certain privately-owned (i.e., not one hundred percent owned by the GOI) industries located within designated geographical regions. We also find that the SOM provided a financial contribution under section 771(5)(D)(i) of the Act, and Garware benefitted under section 771(5)(E) of the Act, through the capital incentive grants received by Garware from the SOM. Under 19 CFR §351.524(c), we treat the grants provided by this program as non-recurring subsidies. To calculate the subsidy rate for this program, we performed the "0.5 percent test," as prescribed under 19 CFR §351.524(b)(2), for the year in which the SOM approved Garware's grants. Since the grants did not exceed 0.5 percent of Garware's total sales in this year, we expensed the grants in the years that the grants were received (prior to the POI). On this basis, we determine the net countervailable subsidy from this program to be 0.00 percent for Garware for the POI. 4. Waiving of Interest on Loan by SICOM Limited At the verification of Garware, we found that SICOM had made an intercorporate deposit (5) with Garware, and during the POI, SICOM waived interest owed by Garware on this intercorporate deposit. Based on the information obtained at verification, we determine that a financial contribution was provided by SICOM, a public entity, pursuant to section 771(5)(D)(i) of the Act, in the amount of the waived interest. Moreover, under 19 CFR §351.508(a) and section 771(5)(E)(ii) of the Act, a benefit exists equal to the amount of the unpaid interest that SICOM waived. Furthermore, since the interest was waived by SICOM on an intercorporate deposit that SICOM had specifically made with Garware, and no other record evidence indicates that SICOM waived interest on other intercorporate deposits, we find the waived interest was specific to Garware pursuant to section 771(5A)(D)(i) of the Act. Under 19 CFR §351.508(c)(1), we treat the amount of the waived interest as a non-recurring subsidy. Since the waived interest is less than 0.5 percent of Garware's total sales, pursuant to 19 CFR §351.524(b)(2), we allocated the total amount of the benefit to the POI, the year in which the benefit was received. To calculate the net subsidy rate for this subsidy, we therefore divided the total amount of the benefit by Garware's total sales during the POI. On this basis, we determine the net countervailable subsidy to be 0.02 percent for Garware. State of Uttar Pradesh (6) Programs Sales Tax Incentives The State of Uttar Pradesh (SUP), like the SOM, provides sales tax incentives for manufacturers that make capital investments. This incentive, established by section 4-A of the Uttar Pradesh Trade Tax Act, consists of a full or partial exemption on the collection of state sales taxes. The amount of the sales tax incentive is based on the size of the capital investment, and the area in which the capital is invested. (7) Thirteen specified industries are not eligible for any benefits under this program. (8) Ester and Polyplex reported that they participate in the sales tax incentive program, and received an exemption through this program from the payment and collection of state sales tax. In the Preliminary Determination, 66 FR at 53396, we also stated that this program provides for a deferral of the collection of sales taxes, and an exemption on the payment of sales taxes. However, at verification we found that companies in the SUP only receive an exemption on the payment of sales taxes on purchases inasmuch as that the purchases are from other companies that have been exempted from collecting sales taxes on their sales. In addition, in the Preliminary Determination, we also stated that eligibility for this program is also based on companies meeting certain employment percentages for specific castes, tribes, "backward classes," and minorities. However, at verification we found that these employment criteria were, in fact, criteria for a specific part of this program that were no longer in effect during the POI, as well as criteria for a separate sales tax exemption program that was not used by the respondents. In the Preliminary Determination, 66 FR at 53396, we found that the SUP sales tax incentives are countervailable because 1) this program is specific within the meaning of section 771(5A)(D)(i) and (iv) of the Act because the benefits of this program are limited to industries not otherwise excluded, and the benefits are based, in part, on the area in which companies invest capital; 2) because the SUP has forgone or not collected revenue otherwise due, the tax exemption provided through this program constitutes a financial contribution within the meaning of section 771(5)(D)(ii) of the Act and 3) pursuant to section 771(5)(E) of the Act, Ester and Polyplex benefitted in the amount of sales tax exempted on purchases. No new information, evidence of changed circumstances or comments from interested parties were presented in this investigation to warrant any further reconsideration of these findings. For further information, see comment 11 in the "Analysis of Comments" section of this Memorandum. Accordingly, the net subsidy rate under this program is 0.00 percent ad valorem for Ester and 0.00 percent ad valorem for Polyplex. B. Programs Determined Not to Confer Subsidies GOI Programs 1. Advance Licenses Under the Advance License scheme, exporters can import specified quantities of inputs duty free using advance licenses for use in production of goods that are subsequently exported. The specified quantities of imported inputs and exports are linked through product- specific SIONs. All advance licenses issued subsequent to March 31, 2000 are not transferrable, and inputs imported with such advance licenses may not be sold or transferred. In addition, exporters also can use an Advance License to purchase tax- free a domestically-manufactured input. During the POI, Polyplex purchased an input domestically using an Advance License in this manner. Under this use of the Advance License scheme, the GOI will invalidate an Advance License for importation of a certain quantity of inputs, and in return, allow the Advance License-holder to purchase tax free a corresponding quantity of a domestically-manufactured input. Furthermore, the domestic manufacturer of this input then receives an Advance License for Intermediate Supply (ALIS), which allows this manufacturer (rather than the original Advance License-holder) to import duty-free specified quantities of inputs to produce the domestically-manufactured input. Throughout this process, the export obligation on the original Advance License is never altered. As a result, the duty free imports of both the Advance License-holder and the ALIS-holder (used to produce the domestically manufactured input purchased by the Advance License-holder) remain linked to the exports of the Advance License-holder. In the Preliminary Determination, 66 FR at 53396, we found that the Advance License program during the POI contained the same features that we found in Certain Hot-Rolled Carbon Steel Flat Products From India, 66 FR 49635 (September 28, 2001) (Hot-Rolled from India), where we determined that the use of Advance Licenses related to items consumed in the production process was not countervailable. See Hot-Rolled from India, and accompanying Decision Memo, Analysis of Programs section, at paragraph C. Furthermore, we also determined that Polyplex did not benefit from the use of the Advance License under section 771(5)(E) of the Act because Polyplex did not use an Advance License during the POI to import or otherwise purchase an input that was not consumed in the production of the exported product. No new information, evidence of changed circumstances or comments from interested parties were presented in this investigation to warrant any further reconsideration of these findings. 2. Capital Subsidy At the verification of Polyplex, we found that in FY 1989 (during Polyplex's allocation period for non-recurring subsidies), Polyplex received a capital subsidy. According to Polyplex officials, this subsidy was a capital infusion from the GOI. Based on the information obtained at verification, we determine that a financial contribution was provided by the GOI, pursuant to section 771(5)(D)(i) of the Act, and a benefit received by Polyplex under section 771(E) of the Act, in the amount of the capital subsidy. However, there is insufficient time to determine whether this program is specific under section 771(5A)(D) of the Act. Therefore, for purposes of this investigation, we do not have sufficient information to determine whether this program is countervailable. If we issue an order in this case, we intend to reexamine this program in any future administrative review pursuant to 19 CFR §351.311(c)(2). State of Maharashtra Programs Octroi Refund Scheme Under this program, which is part of the SOM's package of incentives, industrial establishments that make capital investments in specific regions of Maharashtra are entitled to the refund of octroi duty, a tax levied by local authorities on goods that enter a town or district. Garware reported that it participates in this program, and that it has filed claims for the refund of octroi duty, but that it has not received any refund so far under this program. In the Preliminary Determination, 66 FR at 53996-53997, we preliminarily determined that Garware's participation in this program during the POI was not countervailable because the SOM had not yet provided a financial contribution to Garware within the meaning of section 771(5)(D) of the Act, and Garware had not yet received any benefit from this program under section 771(5)(E) of the Act. At verification, we found that Garware had taken out certain long-term loans that were secured on the future payment of the Octroi refund due to Garware from the SOM. Under the terms of these loans, Garware agreed to pay back the principal of these loans by paying the lenders the higher of either the loan amounts or the disbursement of the Octroi refund during the loan periods (if disbursed). As part of the loan, the SOM's disbursing authority, SICOM Limited (SICOM), a public entity that is forty-nine percent-owned by the SOM (and that had been one hundred percent owned by the SOM until June 1996), agreed to disburse the Octroi refund directly to the lending banks when the funds from the SOM became available. SICOM, in its commitment to disburse the Octroi refund to the lending banks, therefore provided a de facto guarantee for these loans. We find that this loan guarantee is specific within the meaning of sections 771(5A)(D)(i) and (iv) of the Act because Garware was only to receive this loan guarantee because of its eligibility for the Octroi refund scheme, which is limited (like the other benefits available through the package scheme of incentives) to certain privately-owned (i.e., not one hundred percent owned by the GOI) industries located within designated geographical regions. We also find that the SOM and SICOM provided a financial contribution under section 771(5)(D)(i) of the Act through the potential direct transfer of the Octroi refund to pay back Garware's loans. Under 19 CFR §351.506(a)(1), a benefit exists to the extent that the total amount Garware payed for the loans at issue is less than the total amount Garware would pay for a comparable commercial loan that Garware could obtain on the market absent the government-provided guarantee. Since Garware reported only these loans for the April 1999 to March 2000 period, Garware had no other concurrent rupee-denominated, long-term loans available for comparison purposes. Therefore, we compared the single interest rate charged on these loans to the long-term benchmark interest rates for the periods immediately before and after April 1999 to March 2000 and found that the interest rate on these loans is slightly higher than the interest rates on the loans in the before and after periods. We also compared the interest rate on these loans to the average interest rate for April 1999 to March 2000 period obtained from International Financial Statistics, published by the International Monetary Fund (IMF) and found that the interest rate charged on these loans is higher than the average interest rate calculated from the IMF data. Lastly, we compared the interest rate on these loans to the rupee-denominated, long-term benchmark interest rates from the other respondents for the April 1999 to March 2000 period, or when unavailable, to the periods immediately before or after the period in question. This comparison also shows that the interest rates charged on these loans is higher than the rates on comparable commercial loans obtained by the other respondents. For these reasons, we determine that the provision of the loan guarantee did not confer benefits on Garware during the POI. SUP Programs Sales Tax Incentives for Exports Under Section 4-B of the Uttar Pradesh Trade Tax Act Under this program, the SUP exempts from the state sales tax purchases of inputs required for the manufacture of goods that will ultimately be exported. Ester and Polyplex reported, and we verified, that they purchased such tax-free inputs during the POI. Through this program, the SUP provides a financial contribution pursuant to section 771(5)(D)(ii) of the Act. Under 19 CFR §351.518, (9) for an exemption of a prior-stage cumulative indirect tax on inputs used in the production of an imported product, a benefit exists to the extent that the exemption extends to inputs that are not consumed in the production of the exported product. Moreover, under 19 CFR §351.518(a)(4)(i-ii), the Department will consider the entire amount of the tax exemption, rebate or remission to confer a benefit unless the Department finds that: (i) The government in question has in place and applies a system or procedure to confirm which inputs are consumed in the production of the exported products and in what amounts, and to confirm which indirect taxes are imposed on these inputs, and the system or procedure is reasonable, effective for the purposes intended, and is based on generally accepted commercial practices in the country of export; or (ii) If the government in question does not have a system or procedure in place, if the system or procedure is not reasonable, or if the system or procedure is instituted and considered reasonable, but is found not to be applied or not to be applied effectively, the government in question has carried out an examination of actual inputs involved to confirm which inputs are consumed in the production of the exported product, in what amounts and which indirect taxes are imposed on the inputs. In the Preliminary Determination, 66 FR at 53397, we stated that the information on the record was not sufficient to evaluate whether the sales tax exemptions at issue confer a benefit under section 771(5)(E) of the Act, and at verification, we would seek additional information about how this program operates, and closely examine how the sales tax authorities assess whether exporters have claimed excess sales tax exemptions through this program. At verification, we found that the Government of the SUP has in place and applies a reasonable, effective system to confirm which inputs are consumed in the production of the exported products and in what amounts, and to confirm which indirect taxes are consumed on these inputs. At the verifications of Ester and Polyplex, the two respondent companies using this program, we also found that each company over utilized the tax exemption at issue to a small extent, and as a result, used the tax exemption on inputs that were not consumed in the production of the exported product. However, under the SUP's tax system, both Ester and Polyplex will have to pay the exempted tax on inputs not used in exports; essentially, the payment of this tax is being deferred until Ester's and Polyplex's tax assessment is completed. Under 19 CFR §351.518(a)(3) and (b)(3), for deferred prior-stage cumulative taxes, a benefit is received for such deferred taxes on the date the deferred taxes become due to the extent that the deferral extends to inputs that are not consumed in the production of the exported product, and the government does not charge appropriate interest on the taxes deferred. Therefore, since the deferred taxes were not due during the POI, no benefit was received through this program during the POI. (10) Since Ester and Polyplex did not benefit from this program during the POI under section 771(5)(E) of the Act, we determine that Ester's and Polyplex's participation in this program during the POI is not countervailable. We note however, that, if we issue an order in this case, and conduct an administrative review, or investigate this program in another case, we intend to closely examine whether the Indian tax authorities collect the taxes due resulting from the over utilization of this program. For further information, see comment 10 in the "Analysis of Comments" section of this memorandum. C. Programs Determined Not To Be Used GOI Programs 1. Exemption of Export Credit from Interest Taxes 2. Income Tax Exemption Scheme (Sections 10A, 10B and 80 HHC) 3. Loan Guarantees from the GOI 4. Benefits for Export Processing Zones / Export Oriented Units State of Uttar Pradesh Programs Capital Incentive Scheme State of Gujarat Programs Infrastructure Assistance Schemes D. Program-Wide Changes Respondents argue that, pursuant to 19 CFR §351.526 of the Department's regulations, the Department should take into account program-wide changes involving countervailable programs that were eliminated or changed by the GOI subsequent to the POI but before the preliminary determination when determining the final cash deposit rate for this investigation. Specifically, respondents argue that the Department should determine that no residual benefits continue to be bestowed from the Pre-Export DEPS and the Special Import License (SIL) program, and that reduced benefits continue to be bestowed by the post-export DEPS. Additionally, in the Preliminary Determination, 66 FR at 53393, we noted that, based on statements in the GOI's response, we would seek to confirm at verification whether the SIL program has been terminated, and whether its termination qualifies as a "program-wide change" under 19 CFR §351.526. As discussed in more detail in comments 6 and 7 of the "Analysis of Comments" section of this memorandum, we determine that the facts on the record of this investigation warrant a finding of program-wide change with respect only to the SIL program and the post-export DEPS. Thus, the final cash deposit rates that we have calculated will not include the net subsidy rate for the SIL program, and will take into account the program- wide change in the post-export DEPS. III. Analysis of Comments General Issues Comment 1: Countervailability of the DEPS Petitioners contend that the Department correctly determined that the DEPS is a countervailable export subsidy. Petitioners state that the GOI does not have in place and apply an effective or reasonable system or procedure to confirm which inputs are consumed in the production of the exported products and in what amounts. Petitioners state that this conclusion is based on an examination of the program on an aggregate basis, and the actual experience of the respondent companies during the POI. Petitioners contend that, on an aggregate basis, the verification of the GOI demonstrated that the DEPS provides an unreasonable procedure for determining which inputs are consumed in the production of PET film exports, and in what amounts. Petitioners note that at verification, GOI officials acknowledged that the DEPS rate for PET film is based, in part, on total imports of the inputs listed on the SION for PET film, including imports by both PET film and non-PET film producers. Petitioners also point out that, at verification, the GOI failed to provide any evidence that it maintains a procedure to monitor which inputs are actually imported by the PET film industry. Petitioners further state that GOI officials conceded at verification that they have never conducted a review of the PET film SION. Petitioners contend that, on a company-specific basis, the verification of the individual company respondents demonstrates that the DEPS SION norms do not reflect the actual import experience of PET film producer- exporters. Petitioners argue that verification demonstrated that each of the respondent companies received DEPS benefits far in excess in the value of the duties payable on their imported inputs. Petitioners conclude that, under 19 CFR §351.519(4)(i) and (ii), the Department is required to countervail the entire amount of DEPS credit earned by respondents during the POI. No other party commented on this issue. The Department's Position: We agree with the petitioners. Under 19 CFR §351.519, the entire amount of an import duty exemption is countervailable if the government does not have in place and apply a system or procedure to confirm which imports are consumed in the production of the exported product and in what amounts. During the course of this investigation, we extensively examined the systems and procedures of the GOI relating to the DEPS and whether the DEPS scheme is reasonable and effective in the context of the actual experience of the respondent companies in this investigation. At the verification of the GOI and the respondent companies, we devoted a significant amount of time to examine the DEPS to ensure that we fully understood how this program operates. As a result of these inquiries, we found that the GOI does not have in place and apply a system or procedure to confirm which imports are consumed in the production of the exported product, and in what amounts. The GOI provided no evidence demonstrating that it monitors whether Indian PET film exporters actually import the inputs in the SION for PET film production, even though the GOI uses the value all of the imports of these inputs to calculate the DEPS rate for PET film. In fact, we found that an official GOI publication, the 2000-2001 Annual Report of the Directorate of Revenue Intelligence, states that the "the DEPB scheme (i.e., DEPS) does not co- relate any inputs and outputs." See GOI Verification Exhibit 14. We further found that the GOI has never reviewed the SION covering PET film, and such reviews of SIONs for any product mainly occur only at the request of the relevant industry. See GOI Verification Report at 3. We also found that the DEPS scheme is not reasonable and effective in the context of the actual experience of the respondent companies in this investigation. Specifically, we found that the DEPS rate for PET film is not reflective of the actual import experience of Ester, Garware, or Polyplex in terms of both the quantity and breadth of the imports by these companies during the POI, and the two years preceding the POI. See Ester Verification Report at 13, Garware Verification Report at 13-14, and Polyplex Verification Report at 13-14. Thus, whether examined under an aggregate or company-specific approach, we find that, with regard to the DEPS program, the GOI does not have in place and does not apply a system to confirm which inputs, and in what amounts, are consumed in the production of the exported products that is reasonable and effective for the purposes intended. Therefore, consistent with 19 CFR §351.519(a)(4), we find that the entire amount of duty drawback confers a benefit to the recipient companies (see Comment 2). Comment 2: Calculation of Subsidy Rate for the DEPS Garware argues that the Department should offset any DEPS credit found in the POI which it intends to countervail by the amount of import duty paid within two years of the POI. Garware states that it is reasonable to assume that the imported inputs on which it paid import duties in the last two years were utilized in the POI. Garware also asserts that 19 CFR §351.519(a)(2)(i) provides for the offset of import duties within two years of exportation. No other party commented on this issue. The Department's Position: We disagree with Garware. If the Department determines that a drawback scheme confers a benefit pursuant to 19 CFR §351.519(a)(1) or (a)(2), then the Department normally would consider the amount of the benefit to be the difference between the amount of import charges remitted or drawn back, and the amount paid on imported inputs consumed in production for which remission or drawback was claimed. However, in this case, we have determined, pursuant to 19 CFR §351.519(a)(4), that the GOI does not have in place and apply a system or procedure to confirm which imports are consumed in the production of the exported product, and in what amounts (see Comment 1). Therefore, 19 CFR §351.519(a)(4) directs the Department to consider the entire amount of duty drawback to confer a benefit. Since, in this case, the Department's regulations direct us to consider the entire amount of duty drawback as the benefit, we have made no offset to the benefit for any import duties paid. Comment 3: Financial Contribution in the Pre- and Post-Shipment Export Financing Programs The GOI and Ester contend that the pre- and post-shipment export financing programs are not subsidies because there is no record evidence of any financial contribution by the GOI for these programs. The GOI and Ester argue that the GOI, besides setting the maximum interest rates for the pre- and post-shipment loans through the RBI, does not direct lending, require private banks to provide pre- or post-shipment financing, or direct the rates which the banks must charge for working capital loans and cash credit financing programs. The GOI and Ester conclude that banks are therefore free to set a basket of loan rates that ensure that they are profitable on their loan financing. The GOI and Ester also point out that, as shown at the verification of the GOI, since the interest rates charged on loans through the pre- and post-shipment export financing schemes were higher than the cost of funds incurred by Indian banks in 1998-2000 (the latest figures available), pre- and post-shipment financing, even taken alone, is profitable for the banks. The GOI and Ester also argue that the GOI does not run the pre- and post- shipment export financing programs and has no information regarding their usage. Rather, commercial banks directly administer the scheme in accordance with their own procedures under the supervision of the RBI. The GOI and Ester argue that, based on these facts, the record does not establish an adequate basis for determining a financial contribution under sections 771(5)(D)(i) or 771(5)(B)(iii) of the Act. The GOI and Ester state that there is no evidence on the record that the GOI has made a direct transfer of funds to the Indian respondents through the pre- and post-shipment export financing programs. The GOI and Ester further state that the GOI has not made any payment to a funding mechanism or entrusted or directed the banks to make a financial contribution. The GOI and Ester contend that the GOI does not require banks to offer pre- and post- shipment financing and does not limit banks to other elements of the financing package they may offer to a company. The GOI and Ester conclude that banks are thus free to establish a profitable financing package. The GOI and Ester note that, in the preamble to the Department's regulations, the Department acknowledges that indirect subsidies have taken the form of governments requiring or causing an intermediate party to provide a benefit to the industry producing the subject merchandise. See Countervailing Duties, Final Rule, 63 FR 65347, 65350 (November 25, 1998) (Final Rule). In the present case, the GOI and Ester contend that the record does not establish that the GOI required the banks to provide pre- and post-shipment loans. The GOI and Ester also contend that the record does not provide any evidence that the GOI provided the banks an inducement to persuade them to offer such loans. The GOI and Ester point out that such an inducement would be unnecessary, as the banks can adjust their other lending rates and make a healthy profit from the "basket" of loans. The GOI and Ester generally conclude that, under the circumstances of this case, it would be inappropriate to find that the GOI has made a financial contribution through intermediary banks. The GOI and Ester further argue that past Department decisions on the pre- and post-shipment financing programs, such as Hot-Rolled from India, 66 FR 49635, do not provide support or precedent for the legal findings necessary in this case. The GOI and Ester state that, although the Department has long countervailed the pre- and post-shipment financing programs, the Department has not considered the issue of financial contribution in light of the facts that banks are not required or provided an inducement to provide the financing, and banks provide this financing only in a context of a profitable package of lending. The GOI and Ester contend that other indirect subsidy loan cases where the Department has found a financial contribution differ from the present case. The GOI and Ester note that in other cases, the Department found that the foreign government at issue offered private banks an inducement to make the loans (Oil Country Tubular Goods from Korea, 49 FR 46776 (November 28, 1994) and Leather from Argentina, 55 FR 40212 (October 2, 1990)), or the Department found that the foreign government controlled the process of granting the loans or actually required the provision of the loans (Carbon Steel Wire Rod from Spain, 49 FR 19551 (May 8, 1994), Certain Steel Products from Korea, 58 FR 37338 (July 9, 1993), and Stainless Steel Sheet and Strip in Coils from the Republic of Korea, 64 FR 30636 (June 8, 1999)). The GOI and Ester contend that, in contrast, in the present case, there is no evidence on the record that the GOI has offered any inducement to banks, or required banks, to offer pre- and post- shipment financing. Petitioners argue that the Department's conclusions about these programs, as discussed in the Preliminary Determination, are supported by statute. Petitioners assert that the GOI dictates the maximum (below-market) interest rate that may be charged on such loans, and a financial contribution is therefore provided in the form of a government-regulated loan that confers a below-market interest rate benefit. Petitioners also state that section 771(5)(D)(iii) of the Act, the Statement of Administrative Action (SAA) accompanying the Uruguay Round Agreements Act, H.R. Doc. No. 103-316 at 257 (1994), and the Final Rule, 63 FR at 65351, all support the Department's finding of a financial contribution. Petitioners contend that the Department must conclude that the GOI's imposition of a mandatory interest rate ceiling on export financing provides a financial contribution to Indian exporters. The Department's Position: We agree with the petitioners that pre- and post-shipment export financing loans constitute a financial contribution. Under section 771(5)(B)(iii) of the Act, a subsidy exists when, inter alia, a government makes a payment to a funding mechanism to provide a financial contribution, or entrusts or directs a private entity to make a financial contribution. In the present case, the RBI, a public entity, establishes a ceiling on the interest rates that banks in India may charge on pre- and post-shipment export financing loans and requires commercial banks to lend a specified minimum of advances as export credit. Moreover, the respondent companies primarily received these loans during the POI from banks that are owned and/or controlled by the GOI or other authorities in India. When the government-owned and/or controlled banks provide the pre- and post-shipment export financing loans to the respondent companies at preferential rates, these public entities are providing a direct financial contribution to the respondent companies under section 771(5)(D)(i) of the Act. We also find that pre- and post-shipment export financing loans offered by private banks constitute an indirect financial contribution by the government to the respondent companies under section 771(5)(B)(iii) of the Act. The RBI requires commercial banks to "lend a minimum 12 per cent of advances as export credit." (11) As a type of export credit, pre- and post- shipment export financing loans constitute part of the RBI's explicit efforts to promote exports. Because the RBI caps the interest rates charged on these loans at below normal market interest rates, banks that provide pre- and post-export financing to Indian exporters confer a benefit upon these exporters by allowing them to obtain financing at below market interest rates. By explicitly requiring below-market interest rates on such loans, the GOI has entrusted the act of making a financial contribution under these programs to the institutions making pre-and post-shipment loans to exporters. While financial institutions may choose not to make pre- and post-shipment loans (apparently meeting the requirement that at least 12 percent of their advances must be export credit through offering other types of export financing), when these loans are made they provide a financial contribution to the exporter as a result of an explicit and affirmative action on the part of the GOI to require preferential interest rates on the loans. Respondents' argument focuses entirely on whether the government has "induced" such financing, stating that such an inducement would be unnecessary, because banks can adjust their other lending rates to make a profit from the "basket" of loans they provide. The ability of commercial banks to make a profit on their "basket" of loans is irrelevant to whether a government-induced discrimination in interest rates constitutes an indirect financial contribution and confers a countervailable benefit on exporters. The record indisputably establishes that such a discrimination exists, and that but for the GOI's mandated interest rate cap on export loans, Indian exporters would be paying significantly higher, market interest rates. Since, as explained in the "Analysis of Programs" section of this report, we have also determined that provision of this export financing conferred benefits on the respondents under section 771(5)(E)(ii) of the Act, and these programs are specific under section 771(5A) of the Act, we continue to find that pre- and post-shipment financing conferred countervailable subsidies on the subject merchandise during the POI. Comment 4: Calculation of the Benefit for the Pre- and Post-Shipment Export Financing Programs Notwithstanding their argument that these loans are not subsidies, the GOI and Ester argue that should the Department conclude otherwise, the Department in the preliminary determination miscalculated the benefit of the pre- and post-shipment export financing programs. The GOI and Ester state that, in comparing the interest rate charged on each program with the short-term benchmarks for each company, the Department compared pre- and post-shipment loans that are part of a financial package to other loans in the financial package. The GOI and Ester contend that, since the pre- and post-shipment loans offered to companies are subject to maximum rates, the banks had to recoup additional funds from these companies through the other loans in the package of financing offered to these companies. The GOI and Ester argue that by comparing these various loans from the same package, the Department ensured that a differential between the loans, and a benefit, would be found. The GOI argues that, since all the loans are offered as a single package, the correct benefit analysis would be based on a combined rate from the banks on all short-term loans, including pre- and post shipment loans, to calculate an appropriate short- term benchmark. Petitioners stress that, to properly measure the subsidy benefits under these schemes, the Department, pursuant to 19 CFR §351.505(a)(1), should independently analyze the allegedly subsidized loans and then compare them to market-based short-term rupee benchmarks, regardless of the source of such benchmark loans. Petitioners assert that since the GOI only imposes an interest rate ceiling on pre- and post-shipment export financing loans, it makes no sense for the Department to group these loans with unsubsidized loans for the purposes of measuring subsidy benefits The Department's Position: We agree with the petitioners. Under 19 CFR §351.505(a)(1), in the case of a loan, a benefit exists to the extent that the amount a firm pays on the government-provided loan is less than the amount the firm would pay on a comparable commercial loan(s) that the company could actually obtain on the market. Furthermore, under 19 CFR §351.505(a)(2)(ii), the Department will not consider a loan provided under a government program to be a commercial loan for purposes of selecting a loan to compare with the government-provided loan. Therefore, since we have determined that pre- and post-shipment export financing loans were provided under a government program, we will continue to not consider these loans for purposes of selecting a benchmark loan to compare with the pre- and post-shipment export financing loans. We note that we did not purposely select the benchmark loans used to calculate the benefit of this program in order to ensure that a benefit would be found, as alleged by the GOI and Ester. Rather, we selected the benchmark loans to ensure that we properly calculated the benefit conferred by these programs in accordance with the Department's regulations. All of the loans that we included in the calculation of the benchmark loans are comparable commercial loans as defined by 19 CFR §351.505(a)(2). We also point out that we did not only include loans from the respondent companies' financial packages in the calculation of the short-term benchmark interest rates, as further alleged by the GOI and Ester; in fact, we also included comparable commercial loans in our benchmark calculations that the respondent companies took out from banks outside their package of financing (see, e.g., comment 17). Comment 5: Calculation of the Benefit for EPCGS The GOI and Ester contend that the Department's methodology for calculating the benefit for this program fails to take into account the partial fulfillment of export commitments under this program. The GOI and Ester note that the Department treats the EPCGS benefits (the unpaid Customs duties) as long-term loans until the GOI issues a formal waiver stating that the entire export commitment has been met. After that point, the Department treats the benefits as a non-recurring grant. The GOI and Ester contend that since a portion of the contingent liability for the Customs duties not paid under the EPCGS is legally extinguished when an export commitment under the EPCGS is partially fulfilled, the Department should treat the benefits as a non-recurring grant at this point. The GOI and Ester explain that Indian producers with EPCGS licenses have annual or biannual export requirements that they must meet and fulfill. When companies using EPCGS fail to meet any of these annual or semi-annual export obligations, they must repay the import duties exempted, plus financial penalties. When companies meet such export obligations, the GOI may issue partial export completion certificates. The GOI and Ester stress that the fact that the GOI has a procedure for issuing partial export completion certificates underscores the fact that the liability is partially met when a portion of the export commitment is fulfilled. The GOI and Ester thus conclude that the record evidence demonstrates that the contingent liability for Customs duties in the EPCGS is eliminated annually when each license holder fulfills its partial export obligation. In other words, as the export obligations are met, the contingent liability also decreases. The GOI and Ester argue that linking the fulfillment of the contingency to the official act of the GOI could potentially lead the Department to use different dates for different respondents to establish when the contingency is fulfilled, and when the Department begins to treat the benefits as a grant. The GOI and Ester note that one respondent could receive partial export completion certificates, and the Department would treat the corresponding part of the unpaid Customs duties at that time as a grant. For a second respondent who receives a full export completion certificate, the Department would treat all of that respondent's unpaid Customs duties only at that later point as a grant. The GOI and Ester conclude that the Department logically should therefore tie the timing of its loan/grant distinction to the annual fulfillment of the export obligation. The GOI and Ester note that in the past, the Department, in Final Negative Countervailing Duty Determination: Elastic Rubber Tape From India, 64 FR 19125 (April 19, 1999) and Final Affirmative Countervailing Duty Determination: Certain Cut- to-Length Carbon-Quality Steel Plate From India, 64 FR 73131 (December 29, 1999) (Plate from India), has been reluctant to not tie the timing of the loan/grant distinction to the official waiver certificate. However, the GOI and Ester argue that the Department did not previously consider the circumstances at hand, where export obligations are fulfilled annually, and the GOI can issue a partial export obligation certificate. The GOI and Ester note that while none of the respondent companies received a partial exemption certificate, this does not negate the fact that the liability is in fact partially waived as exports occur. The GOI and Ester further argue that the Department's regulations and practice on the treatment of contingent liability interest-free loans indicate that the Department should treat the loan as having been turned into a grant whenever the company meets the contingency, or whenever it becomes clear that the company will not be able to meet its contingency. The GOI and Ester note that 19 CFR §351.505(d)(1) states, when the obligation for repayment of a loan is contingent on a future action or goal, the Department will treat any balance on the loan outstanding during the year as an interest-free, short-term loan. The GOI and Ester state that once an Indian producer meets a partial export obligation under the EPCGS, the balance of the amount that it owes to the GOI is reduced, and the balance of the amount that the Department may logically treat as a loan is reduced. The GOI and Ester also note that 19 CFR §351.505(d)(2) states that where the event upon which repayment depends is not a viable contingency, the Department treats the balance of the loan outstanding as a grant when this condition manifests itself. The GOI and Ester state that the Department should therefore not wait to treat the loan (of Customs duties) as a grant when it is clear, based on meeting annual export commitments, that a company will never have to repay the corresponding portions of the Customs duties. The GOI and Ester recommend that the Department take the EPCGS licenses that are still open for each respondent and determine, for each year of the license, what portion of that license's export obligation has been fulfilled. The corresponding portion of unpaid Customs duties should then be allocated over the average useful life of the assets of the respondent in question. Garware also argues that the unpaid Customs duties relating to the fulfilled part of the export obligation for the EPCGS scheme should be allocated over the AUL of assets (i.e., treated as a grant), regardless of whether the GOI has formally acknowledged either full or partial fulfillment of the scheme by an exporter. Garware points out that to do otherwise simply penalizes an exporter for the GOI's tardiness. Garware also argues that even if a particular export obligation has been partially fulfilled, the fulfilled part will not be susceptible to withdrawal of benefits, or payment of penalties. Moreover, Garware contends that if a company fails to fulfill its export commitment, the fulfilled portion may not be subject to the original duties owed, since the GOI may only collect duties and penalties on the unfulfilled portion. Garware therefore concludes that the Department should only treat the unfulfilled portion of the EPCGS benefits attributable to Garware as an interest-free loan, and allocate the benefit attributable to all fulfilled portions over the AUL of assets. Petitioners contend that the Department applied the correct methodology for measuring countervailable benefits under the EPCGS, and should apply the same methodology in the final determination. Petitioners state that the Department's conclusion that formal GOI waivers of import duty liability constitute non-recurring subsidies because they are tied to the capital assets of the respondent companies is consistent with the Department's practice and the preamble to its regulations. See Hot-Rolled from India, 66 FR at 20247, Plate from India, 64 FR at 73136, and Final Rule, 63 FR at 65393. Petitioners also state that the Department's approach in treating outstanding contingent import duty liability as an interest-free loan is consistent with the Department's practice in Hot- Rolled from India, 66 FR at 20247 and Plate from India, 64 FR at 73136, and is supported by 19 CFR §351.505(d)(1). Petitioners agree with respondents that, to the extent respondents receive a partial waiver of export obligation from the GOI, the benefit associated with this amount should be treated as a non-recurring grant. Petitioners maintain that the key point is that the issuance of the formal GOI partial or full waiver discharges a company's contingent liability. Petitioners claim that the issuance of a formal GOI waiver is not merely a ministerial act, but is evidence of a verification and certification that a company has legally discharged its obligations under the EPCGS. When no waiver certificates are issued, petitioners maintain that the amount of the benefit is a contingent liability and must be treated as an interest- free loan. The Department's Position: Under 19 CFR §351.505(d)(2), when the Department determines that the event upon which the repayment of a contingent liability loan depends is not a viable contingency, the Department treats the outstanding balance of the loan as a grant received in the year in which the condition manifests itself. As applied to the EPCGS in the present case, when the Department determines that the respondent companies have met their export obligations under this program, and are relieved of repaying the unpaid Customs duties, the Department treats the amount of the unpaid Customs duties as a grant. In order to determine when the respondent companies meet their full or partial export obligation, the Department relies on an official certification from the GOI. The Department, on its own, is not in a position to pass judgment on whether an Indian company has met the requirements of Indian law and regulations relating to the fulfillment of an export obligation under the EPCGS. For example, the Department is not in a position to review the export commitments related to the multiple EPCGS licenses held by each respondent company, or establish whether each EPCGS license-holder has realized the foreign currency proceeds from its export sales, as required under the EPCGS. Rather, the Department looks to the certification by the GOI (and specifically, the Director General of Foreign Trade of the GOI), the authority responsible for administering the EPCGS. The GOI's issuance of a formal waiver, as petitioners note, is evidence of a verification and certification that a company has legally discharged its obligations (i.e., its export obligations) under the EPCGS. It is upon issuance of such a formal waiver by the GOI that the Department can determine that the respondent companies have met their export obligations under this program. All of the respondent companies have presented waivers from the GOI issued during or before the POI certifying that the companies have met full export obligations under the EPCGS, and we have treated the corresponding unpaid Customs duties as a grant pursuant to 19 CFR §351.505(d)(2). None of the respondent companies have presented waivers or any other documentation from the GOI indicating that the companies have met partial export obligations under the EPCGS. If we examine this program again in a subsequent proceeding, and respondent companies submit such official documentation certifying that they have met partial export obligations under the EPCGS, we will examine at that point whether such documentation is certification that a company has legally discharged part of its export obligations under the EPCGS, and whether the Department should treat the corresponding part of a company's unpaid Customs duties under the EPCGS as a grant pursuant to 19 CFR §351.505(d)(2). Comment 6: Termination of the Pre-Export DEPS and the Special Import License Scheme The GOI and Ester state that the Department should find that the pre- export DEPS and the special import license scheme were terminated, and no cash deposit rate should be established for these programs in the final determination. The GOI and Ester contend that, at verification, the Department confirmed that these two programs were terminated. Specifically, for the pre-export DEPS, the GOI and Ester state that the pre-export DEPS ceased to exist on April 1, 2000, and all pending applications for the grant of pre-export DEPS on that date were rejected. The GOI and Ester note that in Hot-Rolled from India, 66 FR 49635, and the accompanying Decision Memo at Comment 8, the Department refused to find a program-wide change for pre-export DEPS on the grounds that the post- export DEPS continues. However, the GOI and Ester urge the Department to reconsider this decision. The GOI and Ester argue that since pre- and post- export DEPS are separable elements, and since pre-export DEPS has ceased to exist, there is no purpose to keeping this program "theoretically alive." The GOI and Ester state that there is no subsidy rate in this investigation attributable to the pre-export DEPS program, and keeping this program alive will only burden the Department in future proceedings. With respect to the SIL program, the GOI and Ester state that the date of termination of this program, March 31, 2001, was before the preliminary determination, the date of termination was verified, and this program meets the other requirements under 19 CFR §351.526 for a program-wide change that should be taken into account in establishing the estimated cash deposit rates. The GOI and Ester also state that the Department found in its preliminary determination that only Garware benefitted from this program, and only to a small extent. The GOI and Ester further argue that there is no evidence that residual benefits may continue to be bestowed under this program, as there is no market for the SILs since they are no longer needed to import previously restricted items, and there is no evidence that the GOI created a substitute program for SILs pursuant to 19 CFR §351.526(d)(2). The GOI and Ester point out that in Hot-Rolled from India, 66 FR 49635, and the accompanying Decision Memo at Comment 8, the Department found the elimination of the SILs was a program-wide change. Petitioners did not comment on this issue. The Department's Position: We agree, in part, with the GOI and Ester. At the verification of the GOI, we confirmed that the SIL scheme was abolished by reviewing the applicable sections of the Indian Department of Commerce's Handbook of Procedures (incorporating amendments made up to March 31, 2000), which stated that existing SILs were only valid until March 31, 2001, and which no longer contained any provisions for issuing SILs. Since the termination of the SIL scheme was not limited to an individual firm or firms, and was effectuated by an official act in the Handbook of Procedures, we determine that a program-wide change as defined under 19 CFR §351.526(b) has occurred with respect to the SIL scheme. Therefore, pursuant to 19 CFR §351.526, the net subsidy rates that we have calculated for this program will not be included in the final cash deposit rates issued by the Department. With respect to the pre-export DEPS, since none of the respondent companies reported using this program, there is no subsidy rate or cash deposit rate in this investigation attributable to this program. A program- wide change in this program would have no effect on the cash deposit rate in this investigation, and therefore, the question of whether a program- wide change has occurred with respect to the pre-export DEPS is moot. Comment 7: Program-Wide Change in the Post-Export DEPS The GOI and Ester contend that the change in the post-export DEPS rate for PET film from 15 percent to 14 percent, effective April 1, 2001, constitutes a program-wide change under 19 CFR §351.526. The GOI and Ester state that the date of the change was before the preliminary determination, the date of change was verified, and this change meets the other requirements for a program-wide change under the Department's regulations. The GOI and Ester therefore contend that the reduced DEPS rate should be used in calculating the cash deposit rate in the final determination. Petitioners maintain that an adjustment to the cash deposit rate is not appropriate in this case because the Department cannot reliably ascertain how (or whether) the change in the DEPS rate for PET film will affect actual subsidy benefits received by Indian PET film exporters. Petitioners note that, under 19 CFR §351.526, the Department may take a program-wide change into account if the Department determines a program-wide change has occurred before the preliminary determination, and the Department is able to measure the change in the amount of countervailable subsidies provided under the program in question. In the present case, the petitioners claim that the Department cannot use the new DEPS rate to reliably measure the change in the amount of subsidies provided under the DEPS. Petitioners note that, even though the DEPS rate in effect during the POI was 15 percent, in the preliminary determination, the Department calculated company-specific subsidy rates for the DEPS program ranging from 14.33 percent for Polyplex to 15.63 percent to Ester. Petitioners assert that these examples illustrate that the GOI's published DEPS rate does not establish the actual subsidies received by PET film exporters, and the Department therefore cannot reliably measure the change in the amount of countervailable subsidies provided under the post-export DEPS. Accordingly, the Department lacks the discretion to adjust the cash deposit rate based on a program-wide change. The Department's Position: We agree with the respondents that the change in the DEPS rate for PET film effective April 1, 2001 constitutes a program-wide change under 19 CFR §351.526. This change was effectuated by an official act in the Indian Department of Commerce's Handbook of Procedures, and listed in an official notification of the Director General of Foreign Trade. See Exhibit 33 of the GOI's October 1, 2001 response and Exhibit 11 of Ester's September 14, 2001 response. Furthermore, the change in the amount of countervailable subsidies provided under the DEPS program is measurable using the new DEPS rate of 14 percent. We note that the Department also found a program-wide change in a similar situation in Final Affirmative Countervailing Duty Determination: Honey from Argentina, 66 FR 50613, October 4, 2001, and accompanying Decision Memo, Programs Determined to Confer Subsidies section, at paragraph A, where the Department determined that a similar change in the rate of the Reintegro program was also measurable. Therefore, pursuant to 19 CFR §351.526, the cash deposit rates that we have calculated for this program account for the change in the DEPS rate. Comment 8: Deemed Exports in Calculation of Export Subsidies Petitioners contend that the Department should exclude deemed exports from the respondents' export figures when calculating their export subsidies. Petitioners state that the GOI's Export and Import Policy states that deemed exports do not leave the country, and at verification, Garware officials confirmed that deemed exports are domestic sales. Garware contends that the Department should classify deemed exports as export sales for purposes of calculating any countervailing duties. Garware asserts that deemed exports are sales of products which were shipped to export processing zones within India, which are outside of the Customs territory of India, and subsequently exported out of the physical boundaries of India after undergoing further manufacturing. Garware argues that since these products were legally exported, and since Garware's deemed exports are properly classified in its audited financial statements, the Department should continue to treat these sales as export sales. The Department's Position: 19 CFR §351.525(b)(2) directs the Department to attribute an export subsidy only to products exported by a firm. In addition 19 CFR §351.525(b)(4) states that if a subsidy is tied to sales to a particular market, the Department will attribute the subsidy only to products sold by the firm to that market. The preamble to the Department's regulations generally states that subsidies are attributed, to the extent possible, to the sales for which costs are reduced (or revenues increased). See Final Rule, 63 FR at 65400. In the present case, we have determined that the pre- and post-shipment financing programs, the DEPS, SILs, and the EPCGS are countervailable export subsidies. For the post-shipment financing program and the DEPS, since the respondents tied their benefits under these programs to specific exports to the United States, we attributed the benefits from this program in our preliminary calculations to the respondents' U.S. sales of subject merchandise during the POI. The record evidence indicates that all of the respondents' reported sales of subject merchandise to the United States are, in fact, such sales, so we have therefore continued to include all such relevant sales in our calculations for this program. For the pre-shipment financing program, SILs, and the EPCGS, since the respondents could not tie the benefits under these programs to specific exports to the United States, we attributed the benefits from these programs in our preliminary calculations to the respondents' total export sales pursuant to 19 CFR §351.525(b)(2). Subsequently, at verification, we found that Garware included its deemed exports (12) in its reported total export sales, and that Ester (in its corrections at verification) and Polyplex reported their deemed exports separately from their reported total export sales. In order to determine whether to include deemed exports in the calculations of the pre-shipment financing program, SILs, and the EPCGS, we reviewed the provisions of each of these programs to determine whether the respondents could receive benefits from these programs for their deemed exports. For the SIL program, we found that companies could not earn SILs based on deemed exports, which are specifically excluded from counting towards the licenses granted under this program. See, e.g., paragraphs 11.11 and 14.2 of previous versions of the Handbook of Procedures (when the SIL program was still in effect) in Exhibit 16 of the GOI's September 7, 2001 response, and Garware Verification Exhibit 22. Therefore, since the respondents could not receive any benefits from the SILs scheme from their deemed exports, in accordance with 19 CFR §351.525(b)(4), we attributed the subsidy from the SILs scheme only to the respondents' export sales net of the deemed exports. For the EPCGS, we found that deemed exports (with a few exceptions) (13) are counted towards the fulfillment of the export obligations under this program (see page 18 of the Export and Import Policy in GOI Verification Exhibit 4). Pursuant to 19 CFR §351.525(b)(4), we therefore have included deemed exports in the denominator of our calculations for the subsidy rate of the EPCGS. Finally, for the pre-shipment export financing program, we could not determine from the record evidence whether the respondents could benefit from this program through their deemed exports. None of the information on the record concerning the pre-shipment export financing program discusses deemed exports. Furthermore, it is not clear whether deemed exports are actually export sales. Although certain deemed exports leave the Customs territory of India, under the guidelines of the GOI's Export and Import Policy, they may also subsequently reenter the Customs territory of India. Because there is no clear evidence demonstrating that these sales are ultimately exported, we considered them to be domestic sales. While Garware may consider these sales as export sales, the fact that the other two responding companies reported these sales as domestic sales supports our conclusion, absent evidence to the contrary, that they are domestic sales. Since the deemed exports are not export sales, the respondents would not have been able to take out pre-shipment financing loans on their deemed exports. We therefore have excluded deemed exports from the denominator in our calculation of the subsidy rate for the pre-shipment financing program. Comment 9: State of Maharashtra's Package Scheme of Incentives Petitioners contend that the Department correctly determined that the various programs of the SOM's "Package Schemes of Incentives," including exemption from sales taxes on purchases, tax deferrals, and electricity duty exemption, were specific within the meaning of section 771(5A)(D)(iv) of the Act. Petitioners state that the benefits conferred by these schemes were limited to industries located in designated geographic regions within the State of Maharashtra, and the Department should again conclude in its final determination that these schemes are specific subsidies under the Act. Garware contends that the Department should find any domestic subsidies received by Garware from the SOM, including sales tax and electricity duty incentives, to be non-countervailable. Garware states that the benefits from the SOM's schemes are available to all companies in the backward areas of the SOM, and are thus generally available. Moreover, Garware contends that the Department's preliminary methodology failed to offset the added costs incurred by companies locating into the backward areas of the SOM, such as freight costs, and additional general and administrative expenses incurred in dealing with plants far from headquarters, from the gross amount of the subsidy. Garware states that it is the Department's "well-worn" policy to calculate the net subsidy for a company. The Department's Position: We disagree with Garware's assertion that the benefits from the SOM's package schemes of incentives are available to all companies in the backward areas of the SOM, and not specific. The package schemes specifically exclude industries that are one hundred percent owned by the GOI from any benefits, and the package schemes (and their component parts) are therefore specific within the meaning of section 771(5A)(D)(i) of the Act. In addition, the benefits of the package schemes are limited to industries located within designated geographical regions of the SOM; accordingly, the package schemes are further specific within the meaning of section 771(5A)(D)(iv) of the Act. Moreover, while we agree generally with Garware that it is the Department's policy to calculate a net subsidy for a company, section 771(6) of the Act does not provide for the subtraction of the costs cited by Garware in the calculation of a net subsidy. We have therefore made no adjustments for these costs in our calculations. Comment 10: Benefit of Sales Tax Incentives for Exports Under Section 4-B of the Uttar Pradesh Trade Tax Act The GOI and Ester contend that sales tax incentives for exports under section 4-B of the UP Trade Tax Act qualify on their face as an exemption of prior-stage cumulative taxes, and under 19 CFR §351.518, do not confer a benefit. The GOI and Ester contend that, at verification, the Department confirmed that 1) all inputs exempted from taxes during the POI are consumed in the production of the exported product; and 2) the SUP has in place and applies a system to confirm which inputs are consumed in the production of the exported products and in what amounts, as required by 19 CFR §351.518(a)(4)(i). The GOI and Ester specifically note that the Department confirmed that Ester and Polyplex underutilized this exemption on certain inputs, and over utilized the exemption (which would be subject to a tax assessment by the SUP) for other inputs. The GOI and Ester conclude that since all requirements have been met to find this program a proper exemption of prior stage cumulative indirect taxes under 19 CFR §351.518(a)(1), the Department should find this program non- countervailable in its entirety. The GOI and Ester stress that while Ester and Polyplex may have over utilized the exemption, the companies will be assessed taxes that would eliminate this underpayment of taxes. The GOI and Ester point out that the SUP has a system in place to collect any tax under- payments, and the Department verified that the SUP does in fact conduct tax assessments. The GOI and Ester, citing to Certain Pasta From Italy: Preliminary Results and Partial Rescission of Countervailing Duty Administrative Review, 66 FR 40987, 40994 (August 6, 2001) and Preliminary Affirmative Countervailing Duty Determination and Alignment of Final Countervailing Duty Determination With Final Antidumping Duty Determination: Stainless Steel Bar From Italy, 66 FR 30414, 30425 (June 6, 2001), further maintain that the minor amounts of Ester's and Polyplex's overutilization would not be countervailable until after Ester and Polyplex file the corresponding tax returns, and until the Department could verify whether the additional amounts had been repaid. Petitioners argue that the Department should determine that sales tax incentives under Section 4-B of the Uttar Pradesh Trade Act provide a countervailable subsidy. Petitioners contend that the Department verified that Ester and Polyplex received a benefit from this program through the excess tax exemptions that both companies received through this program for inputs not used in export production. Petitioners further state that 1) this program conferred a countervailable benefit to Ester and Polyplex under section 771(5)(E) of the Act; 2) the SUP made a financial contribution under section 771(5)(D) of the Act because it failed to collect tax revenue that as otherwise due; and 3) this program is specific under section 771(5A)(B) of the Act because eligibility for its benefits is contingent upon export. The Department's Position: Under 19 CFR §351.518, for an exemption of a prior-stage cumulative indirect tax on inputs used in the production of an imported product, a benefit exists to the extent that the exemption extends to inputs that are not consumed in the production of the exported product. Moreover, under 19 CFR §351.518(a)(4)(i-ii), the Department will consider the entire amount of the tax rebate or remission to confer a benefit unless the Department finds that: (i) The government in question has in place and applies a system or procedure to confirm which inputs are consumed in the production of the exported products and in what amounts, and to confirm which indirect taxes are imposed on these inputs, and the system or procedure is reasonable, effective for the purposes intended, and is based on generally accepted commercial practices in the country of export; or (ii) If the government in question does not have a system or procedure in place, if the system or procedure is not reasonable, or if the system or procedure is instituted and considered reasonable, but is found not to be applied or not to be applied effectively, the government in question has carried out an examination of actual inputs involved to confirm which inputs are consumed in the production of the exported product, in what amounts and which indirect taxes are imposed on the inputs. At verification, we found that the SUP has in place and applies a reasonable, effective system to confirm which inputs are consumed in the production of the exported products and in what amounts, and to confirm which indirect taxes are consumed on these inputs. Specifically, the Government of the SUP tracks the indirect taxes exempted pursuant to this program on purchases of materials through form 3-B. Exporters must apply quarterly to the SUP for form 3-B, and use form 3-B when making purchases without the payment of sales taxes. Exporters must make available these forms to the tax assessing authority at the time of their tax assessment. See Government of the SUP verification report at 5. Furthermore, under the regulations of the SUP, the purchases of material liable to taxation are determined in accordance with the ratio of the quantity of goods exported to the quantity of goods sold domestically, and the burden of proof rests with the exporter to demonstrate that the inputs exempted from taxes were used in exports. If the inputs are not used in exports, the exporter is liable to pay the exempted tax, plus interest from the date of purchase of the goods. See Id. and Exhibit 27 of the GOI's September 27, 2001 response. At the verifications of Ester and Polyplex, the two respondent companies using this program, we found, as acknowledged by the GOI and Ester, that each company over utilized the tax exemption at issue to a small extent, and as a result, used the tax exemption on inputs that were not consumed in the production of the exported product. However, as noted above, under the SUP's tax system, both Ester and Polyplex will have to pay the exempted tax on inputs not used in exports; essentially, the payment of this tax is being deferred until Ester's and Polyplex's tax assessment is completed. (14) Under 19 CFR §351.518(a)(3) and (b)(3), for deferred prior- stage cumulative taxes, a benefit is received for such deferred taxes on the date the deferred taxes become due to the extent that the deferral extends to inputs that are not consumed in the production of the exported product, and the government does not charge appropriate interest on the taxes deferred. Therefore, since the deferred taxes were not due during the POI, no benefit was received through this program during the POI. Since Ester and Polyplex did not benefit from this program during the POI under section 771(5)(E) of the Act, we determine that Ester's and Polyplex's participation in this program during the POI is not countervailable. Comment 11: Specificity of Sales Tax Incentives Under Section 4-A of the Uttar Pradesh Trade Tax Act Petitioners further contend that the Department correctly determined that sales tax incentives provided under Section 4-A of the Uttar Pradesh Trade Tax Act are specific under the Act, and should make this same determination in its final determination. Petitioners state that the record evidence supports the conclusion that this program is specific because the benefits conferred were limited to the industries not otherwise excluded and are based, in part, on the area in which companies invest capital. No other party commented on this issue. The Department's Position: We agree with the petitioners. The benefits of this program are limited to industries not otherwise excluded, and the benefits are based, in part, on the area in which companies invest capital. Therefore, this program is specific under sections 771(5A)(D)(i) and (iv) of the Act. Company-Specific Issues Comment 12: Calculation of EPCGS Benefit for Ester Ester argues that the Department inappropriately disregarded Ester's foreign currency loans in calculating the long-term loan benchmark for calculating the benefit under the EPCGS. Ester contends that these loans are specifically tied to financing its production lines and appropriately reflect Ester's cost of borrowing if it had to borrow to pay duties for the capital equipment imported under this program. Ester points out that it would have used these loans to pay for the forgiven Customs duties on the imports of its production lines. Ester states that these loans therefore more appropriately reflect the benefit received by Ester in not having to pay the duties on this equipment. Ester states that under 19 CFR §351.505, the Department, in selecting a comparable commercial loan, will look to the actual experience of the company. Ester argues that if the entire EPCGS duty waiver is considered to be a loan, the foreign currency loans at issue should be taken into consideration because they represent the actual borrowing experience of Ester to import the machinery in question. Ester also argues that if a portion of the EPCGS duty waiver is to be considered a grant, the Department should also consider the foreign denominated loans in determining the benchmark. Ester notes that in determining the discount rate used for non-recurring subsidies, under 19 CFR §351.524(3)(A), the Department uses the cost of (non-subsidized) long-term fixed rate loans of the firm in question. Petitioners assert that the relevant issue is what loans are most comparable to Ester's rupee-denominated contingent liability, and under 19 CFR §351.505(a)(2), Ester's rupee-denominated long-term loans is the most comparable benchmark. The Department's Position: We agree with the petitioners. Under 19 CFR 351.505(a)(2)(i), in selecting a loan that is comparable to a government- provided loan, the Department normally will place primary emphasis on similarities in the structure of the loan, the maturity of the loans, and the currency in which the loans are denominated. In the present case, the government provided rupee-denominated long-term loans to the responding companies by allowing these companies to import capital goods at reduced Customs duties under the EPCGS program. Since Ester's foreign currency loans are not denominated in rupees, these loans are not the most comparable loans under 19 CFR §351.505(a)(2)(i), and we have not used these loans as a benchmark for the loans made by the GOI through the operation of the EPCGS program. Comment 13: Calculation of Pre- and Post-Shipment Financing for Ester Ester states that, if the Department continues to find the pre-and post- shipment financing programs countervailable, the Department should adjust the benefit received by Ester from these programs by deducting the bank charges paid by Ester to participate in these programs. Ester notes that subsequent to the preliminary determination, it submitted the bank charges data in the format requested by the Department, and this data was subsequently verified by the Department. No other party commented on this issue. The Department's Position: We agree with Ester and, pursuant to section 771(6) of the Act, we have adjusted the benefit received by Ester for the post-shipment financing scheme by the bank charges paid by Ester to participate in this program. (15) Comment 14: Correction of Ester's Clerical Errors Ester states that the Department should correct for minor errors that Ester identified in its reported data at verification. No other party commented on this issue. The Department's Position: We agree with Ester and have corrected for all relevant minor errors that Ester identified in its reported data at verification. Comment 15: Application of Input Supplier Rule to Garware and Garware Chemicals Petitioners contend that the Department correctly applied the input supplier rule to Garware and Garware Chemicals pursuant to 19 CFR §351.525(b)(6)(iv). Petitioners state the relationship between Garware and Garware Chemicals satisfies the two criteria under 19 CFR §351.525(b)(6)(iv), namely that cross-ownership exists between the two companies and the input provided by Garware Chemicals is primarily dedicated to Garware's production of the exported product. First, petitioners note that cross-ownership "clearly" exists between the two companies pursuant to 19 CFR §351.525(b)(6)(vi) because Garware has the majority voting interest in Garware Chemicals, and has the ability to use or direct the individual assets (or subsidy benefits) of its subsidiary in essentially the same ways it can use its own assets (or subsidy benefits). Second, petitioners state that Garware Chemicals produces only one product, Dimethyl Terephthalate (DMT), and that it is primarily dedicated to Garware's production of PET film. As such, pursuant to 19 CFR §351.525(b)(6)(iv), petitioners state that the Department should calculate the subsidy rate for Garware Chemicals for each program by dividing Garware Chemicals' countervailable benefits during the POI under each program by the sum of the total sales (or export sales, where applicable) of both Garware and Garware Chemicals (excluding sales between the two companies). The petitioners also state that this subsidy rate should then be added to Garware's calculated subsidy rate for each applicable program to calculate Garware's total subsidy rate for a given program. Petitioners maintain that no allegation of upstream subsidies in this case is required for application of the input supplier rule. Petitioners point out that the preamble to the Department's regulations states that an allegation of upstream subsidies is not required in a case such as this where cross-ownership exists and the affiliate's input is primarily dedicated to the production of the subject merchandise. See Final Rule, 63 FR at 65401. Petitioners also assert that Delverde v. United States, 989 F. Supp. 218, 224 (CIT 1997), vacated on other grounds by Delverde v. United States, 202 F.3d 1360 (Fed. Cir. 2000), does not address a case such as this where the companies at issue are cross-owned and the input is primarily dedicated to the production of the subject merchandise. Rather, the Delverde case merely held that Commerce was not required to investigate affiliated upstream producers where there were no upstream subsidy allegations. Garware contends that the Department should exclude all data obtained from Garware Chemicals from its calculations. Garware states that the Department improperly based its decision to include Garware Chemicals in this investigation on 19 CFR §351.525(b)(6). Garware contends that this provision merely states how a subsidy is to be calculated once a related company is party to the investigation, and does not authorize the Department to conduct an investigation of a related, upstream company. Garware further argues, citing Delverde SrL v. U.S., 989 F. Supp 218 (CIT, 1997), that the Department's policy is not to include separately- incorporated but related upstream companies in an investigation. Garware claims that in Delverde, cross-ownership existed, but the Department found that the threshold standard requiring an allegation in the petition to investigate the related supplier was not met. Garware contends that the only way a related input-supplier can be investigated is through an upstream allegation in the petition, and the resulting investigation under 19 CFR §351.523(a). Garware points out that the petition in this investigation does not contain any allegation of upstream subsidies, and Garware Chemicals' data should be therefore deleted from the calculations used in the final determination. The Department's Position: We agree with petitioners. Under 19 CFR §351.525(b)(6)(iv), if there is cross-ownership between an input supplier and a downstream producer, and production of the input product is primarily dedicated to the production of the downstream product, the Department attributes subsidies received by the input producer to the combined sales of the input and downstream products produced by both corporations (excluding the sales between the two corporations). Furthermore, 19 CFR §351.525(b)(6)(vi) states that "cross-ownership exists between two or more corporations where one corporation can use or direct the individual assets of the other corporation(s) in essentially the same ways it can use its own assets. Normally, this standard will be met where there is a majority voting ownership interest between two corporations or through common ownership of two (or more) corporations." In the present case, given Garware's 80 percent ownership in Garware Chemicals, and Garware's substantial control over Garware Chemicals, cross-ownership as defined by 19 CFR §351.525(b)(6)(vi) clearly exists between Garware and Garware Chemicals. Moreover, since Garware Chemicals produces only one product, DMT, one of the major inputs to PET film, that is primarily dedicated to Garware's production of PET film, 19 CFR §351.525(b)(6)(iv) directs us to attribute subsidies received by Garware Chemicals to the combined sales of the input and downstream products produced by Garware and Garware Chemicals. The inclusion of Garware Chemicals in this investigation in this manner is clearly envisioned by the preamble to the Department's regulations. In the preamble, the Department explains that: The main concern we have tried to address is the situation where a subsidy is provided to an input producer whose production is dedicated almost exclusively to the production of a higher value added product--the type of input product that is merely a link in the production chain....We believe that in situations such as these, the purpose of the subsidy provided to the input producer is to benefit the production of both the input and downstream products. Final Rule, 63 FR at 65401. The preamble goes on to contrast these situations, which parallel the relationship between Garware Chemicals and Garware, with other situations where an upstream subsidy investigation is more appropriate. The preamble states: Where we are dealing with input products that are not primarily dedicated to the downstream products, however, it is not reasonable to assume the purpose of a subsidy to the input product is to benefit the downstream product...we will rely on the upstream subsidy provision to capture any...benefits which are passed to the downstream producer ....[I]f the relationship between the input and downstream producers meet the affiliation standards but falls short of cross-ownership, even if the input product is primarily dedicated to the downstream product, we will only consider subsidies in the context of an upstream subsidy investigation. Id. Here, we are dealing both with an input product (DMT) that is primarily dedicated to the downstream products (PET film), and a relationship between the input and downstream producer (Garware Chemicals and Garware) that meets the standard of cross-ownership. The Department's regulations therefore clearly indicate that the application of 19 CFR §351.525(b)(6)(iv) is appropriate, and that an upstream subsidy investigation (and corresponding allegation) is not necessary. Moreover, as the petitioners point out, Delverde v. United States, 989 F. Supp. 218, 224 (CIT 1997) merely relates to the requirements for upstream subsidy allegations, and does not address the present situation involving cross- ownership and an input primarily dedicated to the production of the subject merchandise. Accordingly, we have continued to attribute the subsidies received by Garware Chemicals to Garware in our final calculations. Comment 16: Ministerial Error in the Calculation of Garware's EPCGS Benefits Petitioners contend that the Department should correct the proprietary ministerial error in the calculation of Garware's EPCGS benefits during the POI. Garware asserts that no ministerial error was made, and the Department should not make any corresponding adjustment to its calculations for EPCGS benefits. The Department's Position: We agree with the petitioners and have corrected the ministerial programming error in our calculation of Garware's EPCGS benefit during the POI. Comment 17: Benchmarks for Garware's Pre- and Post-Shipment Export Financing Loans Garware contends that the Department should compare Garware's pre- shipment loans to its suppliers' bill discounting loans as a benchmark. Garware points out that both pre-shipment loans and supplier bills discounting loans are lines of credit used for the purchase of raw materials for production. Garware also notes that Garware's day-to-day financing is based largely on suppliers' bill discounting. Garware contends that, in contrast, cash credit loans, which were used by the Department as the benchmark for pre-shipment loans in the Preliminary Determination, were not used for purchases of raw materials. Garware states that cash credit loans were only used by the Department as a benchmark because, like pre-shipment loans, the cash credit loans were denominated in rupees and take the form of a line of credit. Garware argues that only by comparing loans with identical purposes will the Department achieve the most accurate and comparable result, and achieve the intent of the statute. Moreover, Garware states that it is "inexplicable" why the Department only used discounted bills as the benchmark for post-shipment loans, but not for pre-shipment loans, since both pre- and post-shipment loans are essentially "two sides of the same coin." With respect to the benchmark for post-shipment loans, Garware argues that the Department should use all discounted bills in the benchmark for such loans. Garware states that, in the Preliminary Determination, the Department only used bills discounted with one consortium of banks for its benchmark for its post-shipment loans. Garware states that no good reason exists to include only certain discounted bills in the benchmark while ignoring others. The Department's Position: We agree with Garware in part, in that we conclude that we should include most of the bill discounting loans in the benchmark for post-shipment financing, but disagree that we should use any of such loans as a benchmark for pre-shipment financing. As noted above, under 19 CFR 351.505(a)(2)(i), in selecting a loan that is comparable to government-provided loans, the Department normally will place primary emphasis on similarities in the structure of the loan, the maturity of the loans, and the currency in which the loans are denominated. The preamble to the Department's regulations further states, regarding the consideration of other loan characteristics, that we will consider arguments made by the parties based on the facts presented in the case. See Final Rule, 63 FR at 65363. In the present case, Garware's bill discounting loans, in most cases, are comparable to Garware's post- shipment financing loans: all of these loans are short-term, fixed rate, rupee-denominated loans taken out against receivables such as invoices and (for the supplier bill discounting loans) Garware's own letters of credit. (16) The only bill discounting loans that are not comparable to the post- shipment financing loans are those supplier bill discounting loans which are financed directly with Garware's suppliers; for these loans, unlike the other supplier bill discounting loans, the suppliers do not appear to be granting Garware a loan against a receivable. Rather, the suppliers appear to be accepting Garware's letter of credit as payment, and charging Garware interest until the letter of credit comes due (see Garware verification Exhibit 16). Furthermore, these financial arrangements, unlike the other supplier bill discounting loans, are financed directly with a supplier, and not with a bank. Therefore, for the final determination, we have included all of Garware's bill discounting loans, except those supplier bill discounting loans financed directly with Garware's suppliers, as benchmark loans for Garware's post-shipment financing loans. In regards to the pre-shipment financing loans, while both pre-shipment financing loans and supplier bill discounting loans are short-term, fixed rate rupee-denominated loans used to purchase raw materials, pre-shipment loans are in the form of a line of credit, while most of Garware's supplier bill discounting loans (like Garware's other bill discounting loans) are a loan against a receivable. Cash credit loans, which the Department used in its preliminary calculations as the benchmark for pre- shipment loans, are the most comparable of Garware's loans to pre-shipment loans because, like the pre-shipment loans, they are also short-term, fixed rate, rupee-denominated lines of credit. The Department also previously used cash credit loans as a benchmark for pre-shipment export financing in Plate from India, 64 FR at 73137 and Hot-Rolled From India, 66 FR 49635, and accompanying Decision Memo, Subsidies and Valuation Information, at paragraph C. We further note that Garware's statement that it did not use its cash credit loans for purchases of raw materials is not supported by the record. Therefore, we have continued to use Garware's cash credit loans as a benchmark for its pre-shipment financing loans for the final determination. IV. Recommendation: Based on our analysis of the comments received, we recommend adopting all of the above positions. If these recommendations are accepted, we will publish the final determination of this investigation in the Federal Register. __________ __________ Agree Disagree ______________________ Joseph A. Spetrini Acting Assistant Secretary for Import Administration ______________________ Date ________________________________________________________________________ footnotes: 1. In the Preliminary Determination, we had assumed that Garware had not met its export obligation under the pre-export DEPS scheme, but at the verification of Garware, we found that Garware's surrender of SILs was a penalty for not meeting export obligations under the Advance License scheme. 2. Prior to the POI, the GOI issued EPCGS licenses which provided for either a reduction or complete exemption of customs duties. 3. Prior to the POI, the GOI issued EPCGS licenses under which the exporters undertook to earn an amount of convertible foreign exchange equal to four or five times the value of the capital goods within a period of six or eight years 4. For the calculation of Garware Chemicals' subsidy rate, see below. 5. An intercorporate deposit is an interest-bearing deposit of funds that one company makes with another company, and is essentially a loan, since the recipient company has use of the deposited funds, and must pay back the deposited funds with interest. 6. The GOI, reported, and we verified, that in November 2000 (during the POI), the State of Uttar Pradesh (SUP) was re-organized into two states: the SUP and the State of Uttaranchal (SOU). The GOI further explained that, as a result of this reorganization, the facilities of the two respondents, Ester and Polyplex, that previously were located in the SUP were now located in the SOU. The GOI noted, and we verified, that the SOU continues to apply the same legislation and regulations underlying the programs at issue in this investigation that originated in the SUP. For the purposes of this notice, we will refer to both the SUP and SOU as the SUP, since the programs at issue originated in the SUP. 7. Companies that invest in most areas of the SUP can receive benefits through this program, and the level of benefits granted depends in part on the area where the capital is invested. Companies that invest in all areas of the SUP are eligible for these benefits, with smaller levels of benefits for industries located in one region of the SUP. 8. All industries in the SUP are eligible for this program, except for the thirteen specified industries located in one region of the SUP. 9. In our description of this program in the Preliminary Determination, 66 FR at 53397, we referenced 19 CFR §351.517, which relates to the exemption of indirect taxes. However, upon further review, we have determined that the applicable regulation is 19 CFR §351.518, concerning the exemption of prior-stage cumulative indirect taxes. Under 19 CFR §351.102(b), prior-stage indirect taxes are defined as indirect taxes "levied on goods or services used directly or indirectly in making a product," and the program at issue concerns the exemption of indirect taxes levied on goods used directly or indirectly in making a product. 10. Moreover, when the deferred taxes become due, a benefit would only exist to the extent that the SUP does not charge appropriate interest on the taxes deferred. 11. See Memorandum from Alexander Amdur to the File, "Government of India: Report on the Verification of Information," dated January 31, 2002, at Exhibit 3, page 52. 12. According to the GOI's Export and Import Policy, deemed exports are sales in India to duty free areas, such as special economic zones, and sales to companies that participate in such export schemes as the export oriented unit scheme and export processing zone scheme. In addition, sales to multilateral agencies, and sales of specified capital goods to certain entities, are also considered deemed exports. See GOI Verification Exhibit 4 at chapter 10. 13. The exceptions include sales of certain capital goods and marine freight containers, and sales to projects funded by UN agencies. See pages 18, 45 and 46 of the Export and Import Policy. These exceptions are not relevant to the sale of PET film. 14. Under the SUP's tax system, the SUP has up to two years to finalize a company's tax assessment, and both Ester and Polyplex have not yet been assessed any taxes related to this program, which commenced on February 12, 1999. See Ester verification report at 20 and Polyplex verification report at 22. 15. Although Ester argues in its February 26, 2002, case brief that we should adjust our calculations to account for bank charges for both the pre- and post-shipment export financing schemes, we note that Ester's October 23, 2001, submission provided information regarding charges only for the post-shipment export financing scheme. Since there is no information on the record concerning bank charges incurred to participate in the pre-shipment export financing scheme, we have not adjusted our calculations for this program. 16. For the supplier bill discounting loans, Garware takes out a letter of credit from one bank, and then takes out a loan against the letter of credit (which is a receivable to the payee of the letter of credit) from a second party. The only essential difference between Garware's discounting of invoices and letters of credit is that the invoices are receivables due from other companies, while Garware's letter of credits are receivables due from Garware itself.