NOTICES DEPARTMENT OF COMMERCE [C-557-804] Preliminary Negative Countervailing Duty Determination: Certain Steel Wire Nails From Malaysia Thursday, June 22, 1989 AGENCY: Import Administration, International Trade Administration, Commerce. ACTION: Notice. SUMMARY: We preliminarily determine 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 certain steel wire nails ("the subject merchandise"), as described in the "Scope of Investigation" section of this notice. If this investigation proceeds normally, we will make our final determination on or before August 29, 1989. EFFECTIVE DATE: June 22, 1989. FOR FURTHER INFORMATION CONTACT:Vincent Kane or Carole Showers, 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) 377-2815 or 377-3217. SUPPLEMENTARY INFORMATION: Preliminary Determination Based on our investigation, we preliminarily determine that no 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 the subject merchandise. Case History Since the publication of the Notice of Initiation in the Federal Register (54 FR 15534, April 18, 1989), the following events have occurred. On April 21, 1989, we presented a questionnaire to the Government of Malaysia in Washington, DC, concerning petitioners' allegations. On May 30, 1989, we received responses from the Government of Malaysia and South Engineers Sdn. Bhd. Scope of Investigation The United States has developed a system of tariff classification based on the international harmonized system of customs nomenclature. On January 1, 1989, the U.S. tariff schedules were fully converted to the Harmonized Tariff Schedule (HTS), as provided for in section 1201 et seq. of the Omnibus Trade and Competitiveness Act of 1988. All merchandise entered, or withdrawn from warehouse, for consumption on or after that date is now classified solely according to the appropriate HTS sub-headings. The HTS sub-headings are provided for convenience and Customs purposes. The written description remains dispositive. The products covered by this investigation are certain steel wire nails from Malaysia. These nails are: Steel wire nails of one-piece construction as currently provided for in HTS items 7317.00.5505, 7317.00.5510, 7317.00.5520, 7317.00.5530, 7317.00.5540, 7317.00.5550, 7317.00.5560, 7317.00.5570, 7317.00.5580, 7317.00.5590, and 7317.00.6560; steel wire nails of two-piece construction, as currently provided for in HTS item 7317.00.7500; and steel wire nails with lead heads, as currently provided for in HTS item 7317.00.7500. Analysis of Programs 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 presuasive 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 conuntervailable, the program will be considered a bounty or grant in the final determination. For purposes of this preliminary determination, the period for which we are measuring bounties or grants ("the review period") is calendar year 1988, which corresponds to the fiscal year of the respondent company. Based upon our analysis of the petition and the responses to our questionnaires, we preliminarily determine the following: I. Programs Preliminarily Determined Not To Be Used We preliminarily determine that manufacturers, producers, or exporters in Malaysia of the subject merchandise did not 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 Taxable Income Based on the Ratio of Export Sales to Total Sales and an 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 used 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 *26230 under the Promotion of Investments Act of 1986. 2. Allowance of a Percentage of Net Taxable Income Based on the F.O.B. Value of Export Sales. Section 29 of the Investment Incentives Act of 1968, as amended in 1984, allows for a flat deduction of five percent of export revenues (based on f.o.b. value) from taxable income. This program has been superseded by section 39 of the Promotion of Investment Act of 1986. However, we are including this program in our investigation to determine whether companies received residual benefits during the review period from unused tax deuctions carried forward from years prior to 1986. This program is not available to companies still participating in other 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. Allowance of Taxable Income of Five Percent of the F.O.B. Value of Export Sales for Trading Companies Exporting Malaysian-made Products. Section 39 of the Promotion of Investments Act of 1986 provides for an allowance of taxable income in the amount of five percent of the f.o.b. value of export revenues for 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. South Engineers claimed the allowance of taxable income of five percent of the f.o.b. value of export sales on its tax return filed during the review period. According to the response, the Malaysian Department of Inland Revenue rejected the claim because South Engineers is not a trading company. Consequently, the firm was precluded from using this program. 4. 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. The deduction on the tax return is in addition to the deduction taken in a company's financial statement, in effect providing a double deduction for this export-related expense. 5. 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 return. 6. 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 Incentives 1. Export Credit Refinancing. The Bank Negara Malaysia, the central bank of Malaysia, provides pre- and post-shipment financing of exports through commercial banks for periods of up to 120 and 180 days, respectively. 2. Export Insurance Program. Export credit insurance is provided by Malaysian Export Credit Insurance Bhd. (MECIB) at premium rates allegedly inadequate to cover long-term operating costs and losses. Established under the Malaysian Companies Act of 1965, MECIB is jointly owned by the Government of Malaysia and by commercial banks and insurance companies. MECIB provides insurance to cover commercial and political risks only. 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 Malaysia, 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. 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. 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 in the amount of 15 to 100 percent of qualifying capital expenditures. Qualifying capital expenditures are those made to purchase capital goods used in the production of products which are included on the promoted products list. 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. Double Deduction for Operational Expenses. Manufacturing companies may take a double deduction for income tax purposes for specific training related expenses approved by the government. The goal of this program is to encourage manpower development for the manufacturing sector including the development of skills required to manufacture new products and work with new technologies. 5. Abatement of Five Percent of Adjusted Income. Manufacturing companies located in designated "promoted industrial areas" are eligible to receive an abatement for income tax purposes in the amount of five percent of adjusted income. The abatement is given for a period of not less than five years. 6. Reinvestment Allowance. The Income Tax Act of 1967, as amended in 1979, provides for a reinvestment allowance of 40 percent for capital expenditures on a factory, plant or machinery for any approved expansion project. 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. Petitioner included this program in its petition and we included it in our initiation in this investigation. Department practice requires that we not initiate on programs previously found not to be countervailable, unless changes in the program or its *26231 administration justify further investigation. In Certain Textile Mill Products and Apparel from Malaysia (48 FR 9852, March 12, 1985) (Textiles), we determined that the reinvestment allowance was not a a bounty or grant. We have received no new information justifying a change in the Textiles determination. Therefore, we are rescinding the investigation as it relates to the reinvestment allowance. 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 Bumiputras (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. Verification In accordance with section 776(b) of the Act, we will verify the information used in making our final determination. Public Comment In accordance with § 355.38, of the Commerce Regulations published in the Federal Register on December 27, 1989 (to be codified at 19 CFR 355.38), we will hold a public hearing, if requested, to afford interested parties an opportunity to comment on this preliminary determination on August 11, 1989, at 2:00 p.m., 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 publication 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 accordance with 19 CFR 355.38 (c) and (d), case briefs and rebuttal briefs must be submitted to the Assistant Secretary in ten copies of the business proprietary version and seven copies of the nonproprietary version by August 4, 1989, and August 9, 1989, respectively. Oral presentations will be limited to issues raised in the briefs. In accordance with 19 CFR 355.38, 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. This determination is published pursuant to section 703(f) of the Act [19 U.S.C. 1671b(f)]. June 14, 1989. Eric I. Garfinkel, Assistant Secretary for Import Administration. [FR Doc. 89-14790 Filed 6-21-89; 8:45 am] BILLING CODE 3510-DS-M