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U.S. trade court: Tires produced in Indian SEZ, EOU facilities

Tires produced in Indian SEZ, EOU facilities

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.

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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]

Summary

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:

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E: jlmcloughlin@kpmg.com

 

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