The U.S. Court of International Trade today issued a decision in a case concerning the interplay of India’s foreign special economic zone (SEZ) and export oriented unit (EOU) programs with U.S. law that allows additional customs duties on certain imports entering the United States to offset “unfair competitive advantages” that certain foreign producers enjoy when subsidized by their governments.
The trade court concluded that a determination by the U.S. Commerce Department—in a countervailing duty investigation about pneumatic off-the-road tires from India, finding that incentives associated with Indian SEZ and EOU programs were “countervailable subsidies”—was supported by “substantial evidence.”
The case is: ATC Tires Pvt. Ltd. v. United States, Slip Op. 18-79 (CIT June 25, 2018). Read the trade court’s decision [PDF 564 KB]
The manufacturer of vehicle tires had production facilities in both an SEZ in India and in an EOU in India. The U.S. Commerce Department recognized that an SEZ may be estalished to manufacture goods and to serve as a free trade and warehousing area pursuant to India’s SEZ law. Under Indian law, companies operating in SEZ or EOU units are entitled to exemptions from custom duties and from various taxes on goods and services that are imported and exported from the SEZ or EOU facilities.
The U.S. Commerce Department, in a countervailing subsidy investigation, issued in 2016 a preliminary determination that the SEZ and EOU facilities were within the customs territory of India and that the programs were countervailable because: (1) program eligibility was contingent upon export performance; (2) India’s government had not provided evidence of sufficiently stringent recordkeeping; and (3) the same programs had previously been found to be contervailable. Commerce concluded that unpaid duty exemptions on capital goods and raw materials imported under the programs were interest-free loans (and thus countervailable benefits) made to the producer.
The tire producer then submitted an argument that the SEZ and EOU facilities were located outside the customs territory of India, and thus, any duties and taxes not paid to India could not be considered a countervailable benefit provided by India’s government. Ultimately, the U.S. Commerce Department announced its final determination that the SEZ and EOU units were within the customs territory of India and that these programs constituted countervailable subsidies.
The trade court today concluded that there was “substantial record evidence” to support the U.S. Commerce’s determination that India lacked sufficient monitoring systems to determine that the SEZs and EOUs operated outside India’s customs territory and that India lacked an adequate system to confirm which inputs and in what amounts are consumed in the production of exported products, making normal allowance for waste. The trade court, thus, sustained the final determination of the U.S. Commerce Department.
For more information on this topic or to learn more about KPMG’s Trade & Customs Services, contact:
Partner, Global Practice Leader
Partner, National Practice Leader
John L. McLoughlin
Principal, East Coast Leader
Luis (Lou) Abad
<p>© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.</p> <p>KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.</p>
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.