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[C-557-701]

Carbon Steel Wire Rod From Malaysis; Preliminary Results of Countervailing

Duty Administrative Reviews

Friday, April 12, 1991

AGENCY: International Trade Administration/Import Administration Department of Commerce.

ACTION: Notice of preliminary results of countervailing duty administrative reviews.

SUMMARY: The Department of Commerce has conducted two administrative reviews of the countervailing duty order on carbon steel wire rod from Malaysia. We preliminary determine the total bounty or grant to be 0.03 percent ad valorem for the review period April 22, 1988--December 31, 1988, and 0.46 percent ad valorem for the review period January 1, 1989--December 31, 1989. In accordance with 19 CFR 355.7, any rate less than 0.50 percent ad valorem is de minimis. We invite interested parties to comment on these preliminary results.

EFFECTIVE DATE: April 12, 1991.

FOR FURTHER INFORMATION CONTACT: Beth Chalecki or Maria MacKay, Office of Countervailing Compliance, International Trade Administration, U.S. Department of Commerce, Washington, DC 20230; telephone: (202) 377-2786.

SUPPLEMENTARY INFORMATION:

Background

On March 31, 1989, and April 10, 1990, the Department of Commerce (the Department ) published in the Federal Register notices of "Opportunity to Request Administrative Review" (54 FR 13211 and 55 FR 13302) of the countervailing duty order on carbon steel wire rod from Malaysia (53 FR 13303; April 22, 1988). On April 14, 1989, the respondents, the Government of Malaysia, Amalgamated Steel Mills Bhd (ASM), Southern Iron & Steel Works Sdn Bhd (SISW), and its related trading company Southern Iron & Steel Trading (SIST) requested that we conduct an administrative review of the order for the period April 22, 1988--December 31, 1988. On April 30, 1990, the petitioners,

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Armco Inc., Georgetown Steel Corp., and Raritan River Steel Co., requested that we conduct an administrative review for the period January 1, 1989--December 31, 1989. We published the initiation of the reviews on May 24, 1989 and June 1, 1990 (54 FR 22465 and 55 FR 22366), respectively. The Department has now conducted these administrative reviews in accordance with section 751 of the Tariff Act of 1930, as amended (the Tariff Act).

Scope of Review

Imports covered by this review are shipments from Malaysia of carbon steel wire rod, a coiled, semi-finished, hot-rolled carbon steel product of approximately round solid cross-section, not under 0.20 inch in diameter, not over 0.74 inch in diameter, tempered or not tempered, treated or not treated, not manufactured or partly manufactured, and valued over or under four cents per pound. Through 1988, such merchandise was classifiable under item numbers 607.1400, 607.1710, 607.1720, 607.1730, 607.2200, and 607.2300 of the Tariff Schedule of the United States Annotated (TSUSA). This merchandise is currently classifiable under item numbers 7213.20.00, 7213.31.30, 7213.31.60, 7213.39.00, 7213.41.30, 7213.41.60, 7213.49.00, and 7213.50.00 of the Harmonized Tariff Schedule (HTS). The TSUSA and HTS item numbers are provided for convenience and Customs purposes. The written description remains dispositive.

The reviews cover the periods from April 22, 1988 to December 31, 1988, and from January 1, 1989 to December 31, 1989, and 15 programs. There were three producers/exporters of wire rod in 1988 and one in 1989.

Analysis of Programs

(1) 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) program provides order-based pre-shipment or post-shipment financing of exports for periods of up to 120 and 180 days, respectively, and "Certificate of Performance" (CP) based pre-shipment financing. Order-based financing is granted for specific exports to specific markets. CP-based financing is a line of credit based on the previous 12 months' export performance and cannot be tied to specific exports to specific markets. Because only exporters are eligible for ECR loans, we determine that they are countervailable to the extent that they are provided at preferential rates.

In order to determine whether these loans were provided at preferential rates, we compared the interest rate charged to a benchmark interest rate. As a benchmark for short-term loans, it is our practice to use the most comparable, predominant commercial rate for short-term financing. For purposes of this determination, we are using the 90-day Bankers' Acceptance (BA) discount rate as the most comparable and commonly used alternative source of short-term financing. Based on this comparison, we find that ECR loans are provided at substantially lower rates and therefore are countervailable.

Of the three respondents, only ASM received CP-based ECR financing during either review period. To calculate the benefit, we first adjusted the BA discount rate taking into account the cost of pre-payment of interest. We then calculated the interest rate differential between the ECR rate paid on all ECR loans outstanding in 1988 and 1989 and the adjusted average BA rate. We then multiplied the amount repaid on each loan by the number of days each payment was outstanding and by the interest rate differential to derive the total benefit per payment in Malaysian ringgit. We divided the total benefit by total exports to all countries (since the CP-based loans are not shipment specific) for both respective review periods. Where appropriate, we weight- averaged the result by ASM's share of Malaysian total exports of subject merchandise. On this basis, we calculated a bounty or grant of 0.03 percent ad valorem for the 1988 review period, and 0.46 percent ad valorem for the 1989 review period.

(2) Pioneer Status Under the Promotion of Investments Act of 1986

In accordance with the Promotion of Investments Act of 1986, which replaced the Investments Incentives Act of 1968, pioneer status is available to companies producing a product (1) not currently produced in Malaysia, (2) favorable to further development and/or export, and (3) suitable to the public interest or economic development of Malaysia. Benefits granted under pioneer status include exemptions from the following on the portion of income derived from sales of the pioneer product: (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 orginally granted for five years, with a possible extension of up to five additional years. ASM was a participant in the pioneer program until 1987 and benefits accrued under this program can be carried forward indefinitely.

In order to determine whether benefits from the pioneer program are provided to a specific enterprise or industry, or group of enterprises or industries, in accordance with section 771(5)(B) of the Tariff Act, we have considered four factors: (1) The extent to which the Malaysian government acts (as demonstrated in the language of the relevant enacting legislation and implementing regulations) to limit the availability of the pioneer program; (2) the number of enterprises, industries, or groups thereof that actually use the pioneer program; (3) examination of any disproportionate or dominant users of the pioneer program; and (4) the extent and manner in which the government exercises discretion in making the pioneer program available. See Preliminary Results of Countervailing Duty Administrative Review: Live Swine from Canada (56 FR 5676; February 12, 1991).

With respect to the first factor, the language in the Promotion of Investments Act of 1986 does not limit pioneer benefits to any specific industries or companies. For example, part II, chapter 1, section 5(1) of this act states, "Any company * * * being desirous of establishing or participating in a promoted activity or of producing a promoted product and intending that a factory be constructed, or where the factory is already in existence, be occupied [sic] in Malaysia for that purpose, may make an application in writing to the Minister for pioneer status * * *." Thus we find that the Malaysian government did not de jure act to limit the availability of the pioneer program.

With respect to the second and third factors, at verification the Malaysian Industrial Development Authority (MIDA) provided us with documents listing all the pioneer contracts awarded from 1975-1989 and all the products that said pioneer contracts cover. From 1975-1979, 56 percent of all applicants for pioneer status received benefits, and we found no evidence to indicate that the administration of the program had changed during the 1980s. In addition, pioneer benefits have been approved for over two thousand companies and almost as many products cutting across numerous industrial sectors for the period 1980-1989. Because we found a substantial number of users in all industries, we find that no industry or group of industries used the pioneer program disproportionately.

With respect to the fourth factor, in Final Affirmative Countervailing Duty

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Determination and Countervailing Duty Order; Carbon Steel Wire Rod from Malaysia (53 FR 13303; April 22, 1988), we found the pioneer program to be specific and countervailable because, during our verfication in the investigation, we were not able to review documents pertaining to the approval or rejection of applications for this program and were therefore unable to determine that the provision of pioneer status is non-discretionary. However, during verification for the 1988 review period, the Government of Malaysia provided information documenting the general criteria and the process by which it judges applications for pioneer benefits. We reviewed a list of 13 case files of industries selected at random by MIDA as samples of the pioneer approval process. Upon examination, the selection criteria used matched the criteria given to use by MIDA. We then requested and were granted access to two other company files chosen at random. Based on our analysis of these files, we concluded that the MIDA selection criteria were applied objectively.

Based on our analysis of the four specificity criteria, we determine that pioneer status is not limited to a specific enterprise or industry, or group of enterprises or industries, and therefore is not countervailable under section 771(5)(B) of the Tariff Act.

(3) Accelerated Depreciation Allowance

The Income Tax Act of 1967, as amended, provides for accelerated depreciation of assets in manufacturing, processing, and other industries. Under this program, the Malaysian government set the annual allowance at 40 percent of qualifying plant and machinery expenditures. Taken with the 20 percent initial allowance, this rate allows a company to completely depreciate an asset in two years. SISW accrued a benefit under this program during the 1988 period of review. In Final Negative Countervailing Duty Determination; Standard Pipe, Line Pipe, Light-walled Rectangular Tubing, and Heavy-walled Rectangular Tubing from Malaysia (53 FR 46904; November 21, 1988), we examined the Accelerated Depreciation Allowance for the 1987 review period and determined that it is not countervailable because it is not limited to a specific enterprise or industry, or group of enterprises or industries. We have received no new information in the course of this review to alter that determination.

(4) Other Programs

We examined the following programs and preliminarily determine that exporters of wire rod did not benefit from them with respect to exports to the United States during either review period:

a. Abatement of Taxable Income Based on the Ratio of Export Sales and of Five Percent of the Value of Indigenous Materials Used in Exports;

b. Allowance of a Percentage of Net Taxable Income Under Section 29 of the IIA of 1968;

c. Allowance of Taxable Income of Five Percent for Trading Companies Exporting Malaysian-made Products;

d. Double Deduction for Export Credit Insurance;

e. Double Deduction for Export Promotion;

f. Industrial Building Allowance;

g. Export Insurance Program;

h. Long-term Loans from the Industrial Development Bank of Malaysia (IDBM);

i. Long-term Loans from the Development Bank of Malaysia (DBM);

j. Investment Tax Credit/ Investment Tax Allowance

k. Reinvestment Allowances

l. Reduction in the Cost of State Land for New Industry and Agriculture.

Preliminary Results of Review

As a result of our review, we preliminarily determine the total bounty or grant to be 0.03 percent ad volorem during the period April 22, 1988-December 31, 1988, and 0.46 percent ad volorem during the period January 1, 1989- December 31, 1989. In accordance with 19 CFR 355.7, any benefit less than 0.50 percent ad valorem is de minimis.

The Department intends to instruct the Customs Service to liquidate without regard to countervailing duties all shipments of Malaysian wire rod exported on or after April 22, 1988 and on or before December 31, 1989.

Further, the Department intends to instruct the Customs Service to waive the collection of a cash deposit of estimated countervailing duties on all shipments of Malaysian wire rod entered, or withdrawn from warehouse, for consumption on or after the date of publication of the final reuslts of this review.

Parties to the proceeding may request disclosure of the calculations methodology and interested parties may request a hearing not later than 10 days after the publication date of this notice. Interested parties may submit written arguments in case briefs on these preliminary results within 30 days of the date of publication. Rebuttal briefs, limited to arguments raised in case briefs, may be submitted seven days after the time limit for filing the case brief. Any hearing, if requested, will be held seven days after the scheduled date for submission of rebuttal briefs. Copies of case briefs and rebuttal briefs must be served on interested parties in accordance with 19 CFR 355.38(e). Representatives of parties to the proceeding may request disclosure of proprietary information under administrative protective order no later than 10 days after the representative's client or employer becomes a party to the proceeding, but in no event later than the date the case briefs, under s 355.38(c), are due. The Department will publish the final results of this administrative review including the results of its analysis of issues raised in any case or rebuttal brief or at a hearing.

This administrative review and notice are in accordance with section 751(a)(1) of the Tariff Act (19 U.S.C. 1675(a)(1)) and 19 CFR 355.22.

Dated: April 5, 1991.

Eric I. Garfinkel,

Assistant Secretary for Import Administration.