NOTICES DEPARTMENT OF COMMERCE International Trade Administration [C-557-803] Preliminary Affirmative Countervailing Duty Determination; Standard Pipe From Malaysia, and Preliminary Negative Countervailing Duty Determinations; Line Pipe, Heavy-Walled Rectangular Tubing and Light-Walled Rectangular Tubing From Malaysia Thursday, September 8, 1988 *34801 AGENCY: Import Administration, International Trade Administration, Commerce. ACTION: Notice. SUMMARY: We preliminarily determine that benefits which constitute bounties or grants within the meaning of the countervailing duty law are being provided to manufacturers, producers, or exporters in Malaysia of standard pipe, and that no benefits which constitute bounties or grants within the meaning of the countervailing duty law are being provided to manufacturers, producers, or exporters in Malaysia of line pipe, heavy-walled rectangular tubing (HWRT) and light-walled rectangular tubuing (LWRT). These products, which constitute four separate "classes or kinds" of merchandise, are fully described in the "Scope of Investigations" section of this notice. The estimated net bounty or grant for standard pipe is 1.17 percent ad valorem for all manufacturers, producers and exporters in Malaysia except Amalgamated Industrial Steel Bhd. (AIS) and Steel Pipe Industry of Malaysia Bhd. (SPIM). The rate for these two companies is zero. They are, therefore, excluded from this determination. To take into account a program-wide change that occurred before our preliminary determination, we are adjusting the duty deposit rate to reflect the termination of the "Allowance of a Percentage of Net Taxable Income Based on the F.O.B. Value of Export Sales." The company that was claiming the Allowance has now started claiming the "Abatement of Taxable Income Based on the Ratio of Export Sales to Total Sales." Therefore, we have used the information on the Abatement to calculate a duty deposit rate of 1.85 percent ad valorem for all manufacturers, producers and exporters in Malaysia of standard pipe, except AIS and SPIM, which are excluded from this determination. The estimated net bounty or grant for line pipe, HRWT and LWRT for all manufacturers, producers and exporters in Malaysia is zero. We are directing the U.S. Customs Service to suspend liquidation of all entries of standard pipe from Malaysia, except for entries from AIS and SPIM, that are entered, or withdrawn from warehouse, for consumption on or after the date of publication of this notice, and to require a cash deposit or bond for each such entry equal to 1.85 percent ad valorem. If these investigations proceed normally, we will make our final determinations on or before November 14, 1988. EFFECTIVE DATE: September 8, 1988. FOR FURTHER INFORMATION CONTACT: Kay Halpern or Barbara Tillman, Office of Countervailing Investigations, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC 20230; telephone: (202) 377-0167 or 377-2438. SUPPLEMENTARY INFORMATION: Preliminary Determinations Based on our investigations, we preliminarily determine that benefits which constitute bounties or grants within the meaning of section 303 of the Tariff Act of 1930, as amended (the Act), are being provided to manufacturers, producers, or exporters in Malaysia of standard pipe. In addition, we preliminarily determine that no benefits which constitute bounties or grants within the meaning of section 303 of the Act are being provided to manufacturers, producers, or exporters in Malaysia of line pipe, HWRT and LWRT. For purposes of these investigations, the following programs are preliminarily found to be countervailable: - Export Credit Refinancing - Allowance of Percentage of Net Taxable Income Based on the F.O. B. Value of Export Sales and Abatement of Taxable Income Based on the Ratio of Export Sales to Total Sales We preliminarily determine the estimated net bounty or grant for standard pipe to be 1.17 percent ad valorem for all manufacturers, producers and exporters in Malaysia except AIS and SPIM. The rate for these two companies is zero. We preliminarily determine the rate on standard pipe for duty deposit purposes to be 1.85 percent ad valorem for all manufacturers, producers and exporters in Malaysia except AIS and SPIM. The duty deposit rate for these two companies is zero. We preliminarily determine the estimated net bounty or grant for line pipe, HWRT and LWRT for all *34802 manufacturers, producers and exporters in Malaysia to be zero. Case History Since the publication of the Notices of Initiation in the Federal Register (53 FR 22682, June 17, 1988), the following events have occurred. On June 24, 1988, we presented a questionnaire to the Government of Malaysia in Washington, DC, concerning petitioners' allegations. On July 29, 1988, we received responses from the Government of Malaysia, AIS, Maruichi Malaysia Steel Tube Bhd. (Maruichi), and SPIM. On August 4 and 10, 1988, we delivered supplemental/deficiency questionnaires to the Government and the respondent companies, and received responses on August 18, 1988. We received additional information from respondents on August 25, 1988. According to the responses, AIS exported standard pipe, HWRT and LWRT to the United States during the review period, and Maruichi and SPIM exported only standard pipe to the United States during the review period. On July 22, 1988, petitioners filed a request that the preliminary determinations be postponed for 14 days. Pursuant to section 703(c)(1)(A) of the Act, we postponed the preliminary determinations to no later than August 31, 1988 (53 FR 29371, August 4, 1988). Scope of Investigations The products covered by these investigations constitute four separate "classes or kinds" of merchandise. The four separate "classes or kinds" are as follows: (1) Certain circular welded carbon steel pipes and tubes, 0.375 inch or more but not over 16 inches in outside diameter, generally known in the industry as standard pipe. This is a general-purpose commodity used in such applications as plumbing pipe, sprinkler systems, and fence posts. Standard pipe may be supplied with an oil coating (black pipe) or may be galvanized, and is sold in plain, threaded, threaded and coupled, or beveled ends. These products are generally produced to American Society of Testing Materials (ASTM) specifications A-53, A-120, or A-135. Imports of these products are classified under TSUSA categories 610.3231, 610.3234, 610.3241, 610.3242, 610.3243, 610.3252, 610.3254, 610.3256, 610.3258, and 610.4925, and are classified under HS categories 7306.30.1000, 7306.30.5025, 7306.30.5030, 7306.30.5040, 7306.30.5045, 7306.30.5050, 7306.30.5060, 7306.30.5065, 7306.30.5070, and 7306.30.5075. (2) Certain welded carbon steel American Petroleum Institute (API) line pipe, 0.375 inch or more but not over 16 inches in outside diameter known in the industry as line pipe. Line pipe generally is produced to API specification 5L. Line pipe is used for the transportation of gas, oil, or water, generally in pipeline or utility distribution systems. API line pipe not over 16 inches in outside diameter is classified under TSUSA categories 610.3208 and 610.3209, and is classified under HS categories 7306.10.1010 and 7306.10.1050. (3) Certain heavy-walled carbon steel rectangular tubing having a wall thickness of 0.156 inch or greater, which is generally used for support members for construction or load-bearing purposes in construction, transportation, farm, and material-handling equipment. The product is generally produced to ASTM specification A-500, Grade B. Imports of heavy-walled rectangular tubing are classified under TSUSA category 610.3955, and are classified under HS category 7306.60.1000. (4) Certain light-walled carbon steel rectangular tubing having a wall thickness of less than 0.156 inch, which is generally employed in a variety of end uses other than the conveyance of liquid or gas, such as agricultural equipment frames and parts, and furniture parts. The product is generally produced to ASTM specification A-513 or A-500, Grade A. Imports of light-walled rectangular tubing are classified under TSUSA category 610.4928, and are classified under HS category 7306.60.5000. Analysis of Programs We initiated investigations on four separate "classes or kinds" of merchandise (standard pipe, line pipe, HWRT, and LWRT). According to the Government of Malaysia, there were no exports of line pipe from Malaysia to the United States during the review period. However, U.S. import statistics indicate entries of line pipe. If we verify that producers and exporters in Malaysia produce and export only standard pipe, HWRT and LWRT, any potential countervailing duty order will not include line pipe. For purposes of these preliminary determinations, the period for which we are measuring bounties or grants ("the review period") is calendar year 1987, which corresponds to the most recently completed fiscal year of one of the respondent companies. The other two respondent companies each have different fiscal years which overlap this period. In accordance with our practice in such situations, we have chosen the most recently completed calendar year as our review period. Consistent with our practice in preliminary determinations, when a response to an allegation denies the existence of a program, receipt of benefits under a program, or eligibility of a company or industry under a program, and the Department has no persuasive evidence showing that the response is incorrect, we accept the response for purposes of the preliminary determination. All such responses, however, are subject to verification. If the response cannot be supported at verification, and the program is otherwise countervailable, the program will be considered a bounty or grant in the final determination. Based upon our analysis of the petition and the responses to our questionnaires, we preliminarily determine the following: I. Programs Preliminarily Determined to Confer Bounties or Grants We preliminarily determine that bounties or grants are being provided to manufacturers, producers or exporters in Malaysia of standard pipe under the following programs: A. Export Credit Refinancing The Bank Negara Malaysia, the central bank of Malaysia, provides short-term export credit refinancing through commercial banks. The Export Credit Refinancing (ECR) programs, as revised in January 1986, provide pre- and post- shipment financing of exports for periods of up to 90 days. In December 1986, the maximum periods for financing under these programs were extended to 120 and 180 days, respectively. Currently, ECR offers order-based pre- and Post- shipment financing and "certificate of performance" (CP) based pre-shipment financing. Order-based fnancing is provided on specific sales to specific markets. CP-based financing, which is a line of credit based on the previous 12 months' export performance, cannot be tied to specific sales in specific markets. According to the responses, AIS is the only respondent company that received financing under the order-based ECR loan programs for one shipment of standard pipe to the United States during the review period. Because only exporters are eligible for ECR loans, we preliminarily determine that they are countervailable to the extent that they are provided at preferential rates. In order to determine whether the loan received by AIS was provided at a preferential rate, we compared the interest rate charged to our short-term loan benchmark interest rate. As a benchmark for short-term loans, it is our *34803 practice to use the most comparable, predominant commercial rate for short-term financing. For purposes of these detemrinations, we are using the 90-day Bankers' Acceptance (BA) rate as the most comparable and commonly used alternative source of short-term financing. This is the benchmark that we applied in Final Affirmative Countervailing Duty Determination: Carbon Steel Wire Rod from Malaysia (53 FR 13303, April 22, 1988) (Wire Rod), the last investigation in which this program was used. Based on this comparison, we find that ECR loans are provided at preferential rates and, therefore, are countervailable. To calculate the benefit from the ECR loan on which AIS paid interest in 1987, we followed the short-term methodology which has been applied consistently in our past determinations and is described in more detail in the Subsidies Appendix attached to the notice of Cold-Rolled Carbon Steel Flat-Rolled Products from Argentina: Final Affirmative Countervailing Duty Determination and Countervailing Duty Order (49 FR 18006, April 26, 1984). We compared the amount of interest actually paid during the review period to the amount that would have been paid at the benchmark rate. Because order-based ECR loans are shipment-specific, we included only that loan which financed exports of the products under investigation to the United States (in this case, standard pipe). For this loan, we calculated the amount of interest that would have been paid using the BA benchmark and subtracted the amount of interest that was actually paid. We divided the result by AIS' exports of standard pipe to the United States during the review period. The result was a rate of 0.001 percent ad valorem. Since this is the only program preliminarily determined to be countervailable that AIS reported it used during the review priod, AIS' rate for standard pipe is de minimis (19 CFR 355.8). The estimated net bounty or grant for line pipe, HWRT and LWRT is zero for all manufactures, producers and exporters in Malaysia. B. Allowance of a Percentage of Net Taxable Income Based on the F.O.B. Value of Export Sales; Abatement of Taxable Income Based on the Ratio of Export Sales to Total Sales Effective in 1984, section 29 of the Investment Incentives Act of 1968 was amended to allow for a flat deduction or allowance of five percent of export revenues (based on F.O.B. value) from taxable income. Due to the enactment of the Promotion of Investments Act of 1986, this program, provided for under section 39 of the 1986 Act, currently applies only to trading companies and agricultural companies. It is not available to companies still participating in programs under the repealed Investment Incentives Act of 1968, including pioneer status, or to companies granted pioneer status or an investment tax allowance under the Promotion of Investments Act of 1986. Maruichi is the only respondent company which claimed this allowance on its tax return filed during the review period. Because only exporters are eligible for the program, we preliminarily determine that it is countervailable. To calculate the benefit from this program, we divided the tax savings from the program that Maruichi reported in the response by the company's total exports during the review period. We divided the savings over Maruichi's total exports because the program is not tied to specific export products, shipments or destinations. On this basis, we calculated an estimated net bounty or grant for the review period of 1.17 percent ad valorem for standard pipe, the only class or kind of merchandise under investigation which Maruichi exported to the United States during the review period. This rate is for all manufacturers, producers and exporters of standard pipe in Malaysia, except for AIS and SPIM. The estimated net bounty or grant for line pipe, HWRT and LWRT is zero for all manufacturers, producers and exporters in Malaysia. On January 1, 1986, the Government of Malaysia terminated the Allowance of a Percentage of Net Taxable Income Based on the F.O.B. Value of Export Sales, except with regard to trading and agricultural companies. This termination was implemented through the passage of the Promotion of Investments Act of 1986. The Government replaced the Allowance with a new program applicable to exports made on or after January 1, 1986. The new program is the "Abatement of Taxable Income Based on the Ratio of Export Sales to Total Sales." It provides for an abatement of adjusted income for exports. The amount of adjusted income to be abated is: (1) A rate equivalent to 50 percent of the ratio of export sales to total sales; and (2) five percent of the value of indigenous Malaysian materials incorporated in the manufacture of exported products. This program is not available to companies still participating in programs under the repealed Investment Incentives Act of 1968, including pioneer status, or to companies granted pioneer status or an investment tax allowance under the Promotion of Investments Act of 1986. According to the responses, Maruichi claimed the first section of the Abatement on its tax return filed on May 9, 1988, the year immediately following the review period. Because only exporters are eligible for the Abatement, we preliminarily determine that it is countervailable. Since the Abatement effectively replaced the Allowance, we consider that the Abatement is the appropriate basis for calculating the estimated net bounty or grant for duty deposit purposes. To take into account this program-wide change that occurred before our preliminary determinations, we calculated a benefit to reflect bounties or grants received due to the Abatement which are currently accruing on exports of standard pipe to the United States. To calculate the benefit from the program, we divided the 1988 tax savings attributable to it that Maruichi reported in its supplemental response by the company's total exports during the review period. We divided the savings over Maruichi's total exports because this program, like the export allowance program, is not tied to specific export products, shipments or destinations. Since 1988 export figures are not yet available, we used Maruichi's 1987 exports as best information available. On this basis, we calculated an estimated duty deposit rate of 1.85 percent ad valorem for all manufacturers, producers and exporters in Malaysia of standard pipe except for AIS and SPIM. The estimated duty deposit for line pipe, HWRT and LWRT is zero for all manufactures, producers and exporters in Malaysia. At verification, we will seek complete information from the relevant government agencies concerning the nature and effect of this program-wide change, and from the respondent companies concerning the use of the new Abatement program. II. Program Preliminarily Determined Not to Confer a Bounty or Grant We preliminarily determine that bounties or grants are not being provided to manufacturers, producers or exporters in Malaysia of the subject merchandise under the following program: Accelerated Depreciation Allowance In our initiation, we stated that we would investigate whether manufacturers, producers or exporters in Malaysia of the subject merchandise receive countervailable benefits from *34804 the Accelerated Depreciation Allowance (ADA). According to the responses, the ADA can be claimed by any company in Malaysia. There are no qualifying or application procedures associated with the claim and the government has no discretion to vary the level of the allowance (40 percent for all companies). We thus preliminarily determine that this program is not limited to a specific enterprise or industry or group of enterprises or industries and, therefore, is not countervailable. III. Programs Preliminarily Determined Not To Be Used We preliminarily determine that manufacturers, producers, or exporters in Malaysia of the subject merchandise did not apply for, claim or receive benefits during the review period for exports of the subject merchandise to the United States under the following programs: A. Export Tax Incentives 1. Abatement of Five Percent of the Value of Indigenous Materials Used in Exports The Investment Incentives Act of 1968 provided for an abatement of taxable income based on the ratio of export sales to total sales. This law was repealed effective January 1, 1986, and replaced by the Promotion of Investments Act of 1986. Among other incentives, the new law provides for an abatement of adjusted income for exports. The amount of adjusted income to be abated is: (1) A rate equivalent to 50 percent of the ratio of export sales to total sales; and (2) five percent of the value of indigenous Malaysian materials incorporated in the manufacture of exported products. According to the responses, Maruichi made a claim under the first section of this program on its tax return filed in 1988 (see section I.B. of the notice), but did not make a claim under the second. This program is not available to companies still participating in programs under the repealed Investment Incentives Act of 1968, including pioneer status, or to companies granted pioneer status or an investment tax allowance under the Promotion of Investments Act of 1986. 2. Allowance of Taxable Income of Five Percent for Trading Companies Exporting Malaysian-Made Products Under the Promotion of Investments Act of 1986, an allowance of five percent of the F.O.B. value of export revenues is available to trading companies and agricultural companies exporting Malaysian-made products. This program is not available to companies still participating in programs under the repealed Investment Incentives Act of 1968, including Pioneer Status, or to companies granted pioneer status or an investment tax allowance under the Promotion of Investments Act of 1986. 3. Double Deduction for Export Credit Insurance Payments The Income Tax Act of 1967, as amended, provides for a deduction to be taken on a company's tax return for the cost of export credit insurance in addition to a similar deduction allowed on a company's financial statement. 4. Double Deduction for Export Promotion Expenses Section 41 of the Promotion of Investments Act of 1986 allows companies to deduct expenses related to the promotion of exports twice, once on the financial statement and again on the income tax form. 5. Industrial Building Allowance Sections 63-66 of the Income Tax Act of 1967, as amended, allow an income tax deduction for a percentage of the value of constructed or purchased buildings used in manufacturing. In 1984, this allowance was extended to include buildings used as warehouses to store finished goods ready for export or imported inputs to be incorporated into exported goods. B. Other Export Incentive Export Insurance Program Export credit insurance is provided by Malaysian Export Credit Insurance, Bhd. (MECIB). Established under the Malaysian Companies Act of 1965, MECIB is owned jointly by the Government of Malaysia (53.6 percent) and by commercial banks and insurance companies (46.4 percent). MECIB provides insurance only to cover commercial and political risks. C. Other Tax Incentives 1. Pioneer Status Under the Investment Incentives Act of 1968 Pioneer status under this Act, as amended, is available to companies producing a product (1) with favorable prospects for further development, including development for export, or (2) currently being produced in insufficient quantities to meet the development needs of Malysia, including export. Benefits granted under pioneer status include exemptions on the portion of income derived from sales of the pioneer product from the following: (1) The 40 percent corporate income tax; (2) the five percent development tax; (3) the three percent excess profits tax; and (4) the 40 percent dividend tax. Pioneer status benefits are available for a period of up to five years and may be extended for up to an additional three years. This program is not available to companies granted pioneer status under the Promotion of Investments Act of 1986. According to the responses, all three respondent companies received pioneer status in the 1970s and completely utilized any residual benefits remaining from this program before the review period. At vertification, we will check to determine whether any residual benefits are still available and being used. 2. Pioneer Status Under the Promotion of Investments Act of 1986 As stated above, the Promotion of Investments Act of 1986 replaced the Investment Incentives Act of 1968. Companies which have received pioneer status under the 1968 Act may not receive it again under the 1986 Act for the same product. They may, however, receive it again under the 1986 Act for a different product. The primary changes in the pioneer status program under the new law are as follows: (1) The initial grant of pioneer status is five years for all companies, regardless of their level of investment; (2) the product must be on the "promoted product" or "promoted activities" list; (3) specific one-year extensions for location, priority products, and Malaysian content have been eliminated; (4) extensions are now granted for five years if the product is on the "promoted product" list for extensions and the company meets certain investment, employment, or development criteria; and (5) pioneer status may also be provided to non-corporate entities such as cooperative societies, associations, etc. This program is not available to companies granted pioneer status under the Investment Incentives Act of 1968. 3. Investment Tax Allowance The Promotion of Investments Act of 1986 provides for an investment tax allowance, limited by the amount of actual expenses, for qualifying capital expenditures. This program is not available to companies granted pioneer status under the Investment Incentives Act of 1968 or under the Promotion of Investments Act of 1986. 4. Reinvestment Allowance The Income Tax Act of 1967, as amended in 1979, provides for a reinvestment allowance of 25 percent for capital expenditures on a factory, plant or machinery. This program is not available to companies granted pioneer *34805 status under the Investment Incentives Act of 1968 or under the Promotion of Investments Act of 1986. D. Medium- and Long-term Government Financing Medium- and long-term financing is provided by the following institutions: - the Industrial Development Bank of Malaysia (IDBM) - the Development Bank of Malaysia (DBM) - the Borneo Development Corporation (BDC) - the Sabah Development Bank (SDB) IDBM, which is wholly owned by the Government of Malaysia, provides financing primarily to the shipping industry, whereas the main objective of DBM is to promote businesses owned by Bumitputras (native Malaysians not of Chinese or Indian descent). BDC was established to promote industrial development in the Sabah and Sarawak states; each state has a 50 percent ownership in the bank. SDB, wholly owned by the State of Sabah, was established to promote economic development in that state. According to the responses, none of the respondent companies had loans outstanding from any of these institutions during the review period. E. Reduction in the Cost of State Land for New Industry Certain states may reduce the price of state land in order to attract investment and development. According to the responses, none of the respondent companies has received state land at reduced cost. F. Preferential Financing for Bumiputras The DBM provides medium- and long-term financing as well as guarantees for industrial equipment loans to Bumiputras. According to the responses, none of the respondent companies had loans outstanding from the DBM during the review period. Verification In accordance with section 776(a) of the Act, we will verify the information used in making our final determinations. Suspension of Liquidation In accordance with sections 703(d) of the Act, we are directing the U.S. Customs Service to suspend liquidation of all entries of standard pipe from Malaysia (except as noted below) which are entered, or withdrawn from warehouse, for consumption on or after the date of publication of this notice in the Federal Register and to require a cash deposit or bond in the amounts indicated below: [In percent] ------------------------------------------------------------------------------- Manufacturers/producers/exporters Estimated net Estimated duty bounty or grant deposit rate ------------------------------------------------------------------------------- Standard Pipe: AIS .................................................. 0 [FN1] 0 SPIM ................................................. 0 [FN1] 0 Maruichi & all others ............................. 1.17 1.85 ------------------------------------------------------------------------------- 1 Excluded. Since the determinations on line pipe, HWRT and LWRT are negative, no suspension of liquidation will be required. Public Comment In accordance with 19 CFR 355.35, we will hold a public hearing, if requested, to afford interested parties an opportunity to comment on these preliminary determinations at 1:00 p.m. on October 25, 1988, at the U.S. Department of Commerce, Room 3708, 14th Street and Constitution Avenue NW., Washington, DC 20230. Individuals who wish to participate in the hearing must submit a request to the Assistant Secretary for Import Administration, Room B-099, at the above address within ten days of the publicaton of this notice in the Federal Register. Requests should contain: (1) The party's name, address, and telephone number; (2) the number of participants; (3) the reason for attending; and (4) a list of the issues to be discussed. In addition, ten copies of the business proprietary version and seven copies of the nonproprietary version of the pre-hearing briefs must be submitted to the Assistant Secretary by October 18, 1988. Oral presentations will be limited to issues raised in the briefs. In accordance with 19 CFR 355.33(d) and 355.34, written views will be considered if received not less than 30 days before the final determination is due or, if a hearing is held, within seven days after the hearing transcript is available. These determinations are published pursuant to section 703(f) of the Act (19 U.S.C. 167lb(f)). Jan W. Mares, Assistant Secretary for Import Administration. August 31, 1988. [FR Doc. 88-20405 Filed 9-7-88; 8:45 am] BILLING CODE 3510-DS-M