------------------------------------------------------------ [C-557-806] Extruded Rubber Thread From Malaysia; Final Results of Countervailing Duty Administrative Review AGENCY: Import Administration, International Trade Administration, Department of Commerce. ACTION: Notice of Final Results of Countervailing Duty Administrative Review. SUMMARY: On May 22, 1995, the Department of Commerce (the Department) published in the Federal Register its preliminary results of administrative review of the countervailing duty order on extruded rubber thread from Malaysia for the period January 1, 1993 through December 31, 1993. We have completed this review and determine the net subsidy to be 1.00 percent ad valorem. We will instruct the U.S. Customs Service to assess countervailing duties as indicated above. EFFECTIVE DATE: October 4, 1995. ---- page 51983 ---- FOR FURTHER INFORMATION CONTACT: Judy Kornfeld or Rick Herring, Office of Countervailing Compliance, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, N.W., Washington, D.C. 20230; telephone: (202) 482-2786. SUPPLEMENTARY INFORMATION: Background On May 22, 1995, the Department published in the Federal Register (60 FR 27080) the preliminary results of its administrative review of the countervailing duty order on extruded rubber thread from Malaysia. The Department has now completed this administrative review in accordance with section 751 of the Tariff Act of 1930, as amended (the Act). We invited interested parties to comment on the preliminary results. On June 21, 1995, a case brief was submitted by the Government of Malaysia (GOM) and Heveafil Sdn. Bhd., (Heveafil), Filmax Sdn. Bhd. (Filmax), Rubberflex Sdn. Bhd. (Rubberflex), Filati Lastex Elastofibre Sdn. Bhd., (Filati) and Rubfil Sdn. Bhd. (Rubfil), producers of the subject merchandise which exported extruded rubber thread to the United States during the review period (respondents). The review covers the period January 1, 1993 through December 31, 1993. The review involves 5 companies and 12 programs. Applicable Statute and Regulations The Department is conducting this administrative review in accordance with section 751(a) of the Tariff Act of 1930, as amended (the Act). Unless otherwise indicated, all citations to the statute and to the Department's regulations are in reference to the provisions as they existed on December 31, 1994. However, references to the Department's Countervailing Duties; Notice of Proposed Rulemaking and Request for Public Comments, 54 FR 23366 (May 31, 1989) (Proposed Regulations), are provided solely for further explanation of the Department's countervailing duty practice. Although the Department has withdrawn the particular rulemaking proceeding pursuant to which the Proposed Regulations were issued, the subject matter of these regulations is being considered in connection with an ongoing rulemaking proceeding which, among other things, is intended to conform the Department's regulations to the Uruguay Round Agreements Act. See 60 FR 80 (Jan. 3, 1995). Scope of the Review Imports covered by this review are shipments of extruded rubber thread from Malaysia. Extruded rubber thread is defined as vulcanized rubber thread obtained by extrusion of stable or concentrated natural latex of any cross sectional shape; measuring from 0.18 mm, which is 0.007 inch or 140 gauge, to 1.42 mm, which is 0.056 inch or 18 gauge, in diameter. Such merchandise is classifiable under item number 4007.00.00 of the Harmonized Tariff Schedule (HTS). The HTS item number is provided for convenience and Customs purposes. The written description is dispositive. Calculation Methodology for Assessment and Cash Deposit Purposes We calculated the net subsidy on a country-wide basis by first calculating the subsidy rate for each company subject to the administrative review. We then weight-averaged the rate received by each company using as the weight its share of total Malaysian exports to the United States of subject merchandise, including all companies, even those with de minimis and zero rates. We then summed the individual companies' weight-averaged rates to determine the subsidy rate from all programs benefitting exports of subject merchandise to the United States. Since the country-wide rate calculated using this methodology was above de minimis, as defined by 19 CFR 355.7 (1994), we proceeded to the next step, and examined the net subsidy rate calculated for each company to determine whether individual company rates differed significantly from the weighted-average country-wide rate, pursuant to 19 CFR 355.22(d)(3). None of the companies had net subsidy rates which were significantly different pursuant to 19 CFR 355.22(d)(3). Therefore, all companies are assigned the country-wide rate. Analysis of Programs Based upon our analysis of our questionnaire and written comments from the interested parties we determine the following: I. Programs Conferring Subsidies 1. Export Credit Refinancing In the preliminary determination we found that this program conferred countervailable benefits on the subject merchandise. Our analysis of the comments submitted by the interested parties, summarized below, has not led us to reconsider our findings in the preliminary determination. On this basis, the net subsidy for this program is 0.72 percent. 2. Pioneer Status In the preliminary determination we found that this program conferred countervailable benefits on the subject merchandise. Our analysis of the comments submitted by the interested parties, summarized below, has not led us to reconsider our findings in the preliminary determination. On this basis, the net subsidy for this program is 0.28 percent. II. Programs Found Not to be Used In the preliminary determination, we found the following programs to be not used: 1. Investment Tax Allowance 2. Abatement of Five Percent of Taxable Income Due to Location in a Promoted Industrial Area 3. Allowance of a Percentage of Net Taxable Income Based on the F.O.B. Value of Export Sales 4. Double Deduction of Export Credit Insurance Payments 5. Abatement of Taxable Income of Five Percent of Adjusted Income of Companies Due to Capital Participation and Employment Policy Adherence 6. Preferential Financing for Bumiputras 7. Abatement of Income Tax Based on the Ratio of Export Sales to Total Sales 8. Industrial Building Allowance 9. Double Deduction for Export Promotion Expenses Our analysis of the comments submitted by the interested parties, summarized below, has not led us to reconsider our findings in the preliminary determination. III. Programs Found to be Terminated In the preliminary determination we found the following program to be terminated and not to provide any residual benefits: - Abatement of Five Percent of the Value of Indigenous Malaysian Materials Used in Exports. Our analysis of the comments submitted by the interested parties, summarized below, has not led us to reconsider our findings in the preliminary determination. Analysis of Comments Comment 1: Respondents allege that the Department initiated the original investigation pursuant to Section 303(a)(2) of the Act, and, therefore, the Department can impose countervailing duties under this section only if there is an injury determination by the International Trade Commission (ITC). ---- page 51984 ---- (The ITC discontinued its injury determination under Section 303(a)(2) because the duty-free status of rubber thread from Malaysia was terminated.) Respondents contend that without an injury determination, the Department had no authority to issue a countervailing duty order and to require the payment of cash deposits. Respondents further maintain that the Department cannot simply transfer the jurisdiction for an investigation from Section 303(a)(2) to Section 303(a)(1) without issuing a public notice that it intends to proceed with the investigation under a different statutory provision. See, Certain Textile Mill Products and Apparel from Turkey (50 FR 9817; March 12, 1987); Certain Textile Mill Products and Apparel from the Philippines (50 FR 1195; March 26, 1985 and Certain Textile Mill Products and Apparel from Indonesia (50 FR 9861; March 12, 1985). Furthermore, because there was no initiation notice or a preliminary determination under section 303(a)(1), a final determination under that section was not appropriate. If the Department wanted to proceed with the investigation, it was required to re-initiate under the appropriate provision. Department's Position: As the Department pointed out in the previous review, respondents' challenge to the Department's authority to issue the order is untimely. Challenges to the issuance of an order must be filed within 30 days of the date the order is published. The countervailing duty order on extruded rubber thread from Malaysia was published on August 25, 1992. Respondents voluntarily withdrew a timely-filed complaint challenging the order on these same grounds. Respondents' attempt to revive that challenge in this proceeding is untimely. Comment 2: Respondents contend that the Department overstated the benefit received under the ECR program in its administrative review. They argue that the Department must use the ``cost of funds'' to the government as the benchmark as required by item ``k'' of the Illustrative List of Export Subsidies annexed to the Subsidies Code, and the appropriate ``cost of funds'' is the 90-day rate for government bonds. Respondents assert that if the Department continues to use the cost to the recipient as a benchmark, it should also continue its past practice and use the bankers' acceptances (BA) rates because they are identical to ECR financing in terms of risk, maturity and purpose. Respondents further contend that the Department should interpret the ``predominant'' form of financing as the most comparable form of financing. They assert that it makes no sense to compare trade financing to other financing such as short-term loans and overdrafts. Furthermore, if the Department uses the weighted-average of commercial rates, it should account for the differences in the terms of financing. Respondents further argue that if the Department does not use the BA benchmark, it should use the Average Lending Rate (ALR) provided in the Bank Negara Statistical Bulletin rather the Base Lending Rate (BLR) plus an estimated spread. If the Department, nevertheless, uses this method, then the spread should be calculated by deducting the average BLR rate calculated by the Department from the ALR published in the Bank Negara Statistical Bulletin. Department's Position: We disagree with respondents. As explained in the previous review, the Illustrative List identifies common forms of export subsidies but does not necessarily instruct the Department how to value them. The Department has a longstanding practice of valuing the benefit to the recipient rather than the cost to the government for the purpose of calculating countervailing duty rates. The Department's practice is to use the rate for the predominant form of short-term financing in the country under review as the benchmark for short-term loans. See, Proposed Regulations (19 CFR 23380; May 31, 1989). Where there is no single predominant source of short-term financing in the country in question, the Department may use a benchmark composed of the interest rates for two or more sources of short-term financing in the country in question. See, Final Affirmative Countervailing Duty Determination and Countervailing Duty Order; Steel Wire Rope from Thailand (56 FR 46299; September 11, 1991). BAs constitute an extremely small percentage of short-term financing in Malaysia and, therefore, it would be inappropriate to use the BA rates as a benchmark. The Bank Negara Statistical Bulletin, provided in Exhibit 4 to the Government of Malaysia's Questionnaire Response dated November 18, 1994, lists the commercial bank BLR rates prevailing during the review period. The rates ranged from 8.25 percent to 9.50 percent. According to commercial bank officials, the banks add a 1.00 to 2.00 percent spread to the BLR. (See Memorandum to the File from Chris Jimenez Regarding Conversation With Bank of America Official in Malaysia Regarding Spread Used by Commercial Banks in 1993 dated May 10, 1995, on file in the public file of the Central Records Unit, Room B-099 of the Department of Commerce). During verification of the 1992 administrative review, we found that ALR rates published in the Bank Negara Statistical Bulletin included both short-term and long-term rates, while the BLR rates are strictly based on short-term loans. (See Memorandum to the File from Judy Kornfeld and Lorenza Olivas Regarding Extruded Rubber Thread from Malaysia; Benchmark Information dated August 15, 1995, on file in the public file of the Central Records Unit, Room B-099 of the Department of Commerce). Therefore, we disagree with respondents that we should use the ALR rate because it would improperly include long-term rates. Rather, we have determined that it is appropriate to continue to use the average of the commercial BLR rates published in Bank Negara Statistical Bulletin, plus an average 1.5 percent spread, as a benchmark, in accordance with section 355.44(b)(3)(i) of the Department's Proposed Rules. Respondents' argument, that if the Department, nevertheless, uses this method, it should calculate the spread by deducting the average BLR rate from the average of the ALR rates, would again improperly include long-term rates in the benchmark calculation. Comment 3: Respondents argue that the Department overstated the net subsidy for the review period and for the duty deposit purposes because the Department failed to take account of the exclusion by Heveafil and Filmax of U.S. exports from the calculation of eligibility for the pre-shipment export financing. In addition, respondents claim that the two companies did not use funds from exports to the United States to repay any of the pre-shipment loans. They claim that in a similar situation, the Department concluded that exports to the United States did not receive benefits from short-term financing. See, Suspension of Countervailing Duty Investigation; Certain Forged Steel Crankshafts from Brazil (52 FR 28177, 28179; July 28, 1987) (Brazilian Crankshafts Suspension Agreement). Respondents' claim that in the first administrative review, the Department incorrectly rejected this method of eliminating the effect of a subsidy. Therefore, respondents maintain that Heveafil and Filmax received no benefit with regard to U.S. shipments. Respondents further assert that the Department found a subsidy in this case in part because there was no strict segregation of U.S. exports and the ---- page 51985 ---- materials used in their manufacture from materials and exports to other markets financed with ECR loans. However, according to the respondents, the Department was presented with exactly the same issue in Crankshafts from Brazil and in that case the Department did not require that the exporters segregate raw materials purchased with export financing. Department's Position: The GOM provides ECR financing based on export performance. The explicit purpose of this program is to promote the export of manufactured and approved agricultural products. Two types of ECR financing are available: pre-shipment and post-shipment financing. There is no evidence that the GOM limits these ECR loans to increase exports to markets other than the United States, nor is there evidence of a provision that prevents exporters from receiving ECR loans for exports to the United States. During the review period, both Heveafil and Filmax applied for and used pre-shipment financing based on certificates of performance (CP). Pre-shipment financing based on CPs is a line of credit based on previous exports and, when received, cannot be tied to specific sales in specific markets. Because pre-shipment loans were not shipment-specific, we included all loans in calculating the country-wide duty rate. By excluding exports to the United States from their application for export financing, the companies merely reduced the amount of financing they received. We disagree with respondents that in similar circumstances the Department has concluded that the exclusion of U.S. exports from applications in the manner described by respondents eliminates any countervailable subsidy that would otherwise be present. Where a benefit is not tied to a particular product or market, it is the Department's practice to allocate the benefit to all products exported by a firm where the benefit is received pursuant to an export program. See 19 C.F.R. 355.47(c) of the Proposed Regulations (54 FR 23375, May 31, 1989). A benefit is tied to a particular product or market at the time of receipt. Respondents cannot demonstrate that, at the time of receipt, ECR loans were tied solely to non-U.S. exports. Further, respondents' reliance on the Crankshafts from Brazil suspension agreement is misplaced. Suspension agreements are unusual, negotiated arrangements in which parties to a proceeding agree to renounce countervailable subsidies. As such, unlike final determinations, they do not serve as administrative precedent. Moreover, the Crankshafts from Brazil suspension agreement is consistent with our allocation practice, as described in the Proposed Regulations. Comment 4: Respondents argue that the Department previously found the Pioneer Status Program not countervailable. See, Carbon Steel Wire Rod from Malaysia; Final Results of Countervailing Duty Administrative Review (Wire Rod from Malaysia) (56 FR 14927; April 12, 1991). Respondents assert that it is not countervailable because tax benefits under this program are not limited to any sector or region of the Malaysian economy, nor is the program exclusively available to exporting companies. They contend that the Department confirmed in the first administrative review, both the de jure and de facto availability of this program to the entire Malaysian economy, and that the pioneer status tax benefits are not targeted to specific industries or companies in a discriminatory manner. Furthermore, the Department verified in the original investigation that the internal guidelines used to grant pioneer status are characterized by neutral criteria unrelated to exports, location or any other factors that could require a determination that the program is countervailable. Respondents further argue that the Department verified in the first administrative review that the GOM does not require export commitments, or view them as preponderant, in evaluating applications; that export potential is merely one of 12 factors considered in granting status; and that a product will not be accepted based on export potential alone. Furthermore, respondents argue that the Department verified in the first administrative review that the GOM commonly approves companies who do not make export commitments as well as some who do make them. Therefore, export performance is not viewed as a preponderant factor, but as one of many neutral criteria. Department's Position: We addressed this identical argument in the previous review. In Wire Rod from Malaysia, we concluded that benefits were not used by a specific industry or group of industries and that no industry or group of industries used the program disproportionately and found the program not to be countervailable. That determination, however, did not specifically address situations where companies had a specific export condition attached to their pioneer status approval. In the Wire Rod investigation, petitioner raised the issue of an export requirement. Although the requirement per se is not new, it was not at issue with the companies investigated in Wire Rod. As stated in the Final Affirmative Countervailing Duty Determination and Countervailing Duty Order; Extruded Rubber Thread from Malaysia, 57 FR 38472 (August 25, 1992) (Malaysian Final Determination), we continue to view the ``domestic'' side of the Pioneer Statue Program to be not countervailable. However, in this instance, recipients of the tax benefits conferred by this program can be divided into two categories: industries and activities that will find market opportunities in Malaysia and elsewhere, and those that face a saturated domestic market. At verification of the first administrative review, we established that an export requirement may sometimes be applied to certain industries after it is determined that the domestic market will no longer support additional producers. The extruded rubber thread industry is among these industries. The combination of the necessary export orientation of the industry due to lack of domestic market opportunities and the explicit export condition attached to pioneer status approval in the rubber thread industry lead us to conclude that the ``export'' side of the Pioneer Status Program constitutes an export subsidy to the rubber thread industry, Whether or not the commitment was voluntary, as respondents suggest, the company has obligated itself to export a very large portion of its production, and that commitment was a condition for approval of benefits. For further information, see Malaysian Final Determination. Comment 5: Respondents argue that the Department overstated the benefit from the Pioneer Status Program because it fails to deduct normal capital allowance that would have been allowed if the program had not been used. Respondents claim that Rubberflex, in fact, received no cash benefits from this program. Furthermore, they claim, the Department incorrectly allocated pioneer status tax benefits over only export sales even though pioneer status tax benefits are also applicable to profits on domestic sales. According to the respondents, this is consistent with the Department's practice to allocate benefits over total sales to which they are ``tied.'' Department's Position: We disagree with respondents. When a company receives pioneer status, it is allowed to accumulate normal capital allowance for use in future years. Thus, these allowances were not used to offset ---- page 51986 ---- current benefits during the review period. Moreover, export sales should form the denominator because receipt of pioneer status tax benefits for the companies under review is contingent upon exportation. Accordingly, we have not overstated the benefit from the Pioneer Status Program. See section 355.47(a)(2) of the Proposed Rules. See also Final Affirmative Countervailing Duty Determination; Oil Country Tubular Goods From Brazil (49 FR 46570; November 27, 1984) and Final Affirmative Countervailing Duty Determination; Certain Agricultural Tillage Tools From Brazil (50 FR 34525; August 26, 1985). Final Results of Review For the period January 1, 1993 through December 31, 1993, we determine the net subsidy to be 1.00 percent ad valorem for all companies. The Department will instruct the U.S. Customs Service to assess a countervailing duty rate of 1.00 percent. This countervailing duty order was determined to be subject to section 753 of the Act (as amended by the Uruguay Round Agreements Act of 1994). Countervailing Duty Order; Opportunity to Request a Section 753 Injury Investigation, 60 FR 27,963 (May 26, 1995), amended 60 FR 32,942 (June 26, 1995). In accordance with section 753(a), domestic interested parties have requested an injury investigation with respect to this order with the International Trade Commission (ITC). Pursuant to section 753(a)(4), liquidation of entries of subject merchandise made on or after January 1, 1995, the date Malaysia joined the World Trade Organization, is suspended until the ITC issues a final injury determination. We will not issue assessment instructions for any entries made after January 1, 1995; however, we will instruct Customs to collect cash deposits in accordance with the final results of this administrative review. Therefore, the Department will instruct the U.S. Customs Service to collect a cash deposit of estimated countervailing duties of 1.00 percent of the f.o.b. invoice price on all shipments of the subject merchandise from Malaysia entered, or withdrawn from warehouse, for consumption on or after the date of publication of the final results of this administrative review. This notice also serves as a reminder to parties subject to administrative protective order (APO) of their responsibility concerning the disposition of proprietary information disclosed under APO in accordance with 19 CFR 355.43(d). Timely written notification of return/destruction of APO materials or conversion to judicial protective order is hereby requested. Failure to comply with the regulations and the terms of an APO is a sanctionable violation. This administrative review and notice are in accordance with section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)) and 19 CFR 355.22. Dated: September 26, 1995. Susan G. Esserman, Assistant Secretary for Import Administration. [FR Doc. 95-24685 Filed 10-3-95; 8:45 am] BILLING CODE 3510-DS-P
The Contents entry for this article reads as follows: International Trade Administration NOTICES Countervailing duties: Extruded rubber thread from- Malaysia, 51982