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DEPARTMENT OF COMMERCE
[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 June 11, 1996, 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, 1994 through
December 31, 1994 (61 FR 29534). The Department has now completed this
administrative review in accordance with section 751(a) of the Tariff
Act of 1930, as amended. For information on the net subsidy for each
reviewed company, and for all non-reviewed companies, please see the
Final Results of Review section of this notice. We will instruct the
U.S. Customs Service to assess countervailing duties as detailed in the
Final Results of Review section of this notice.
EFFECTIVE DATE: October 25, 1996.
FOR FURTHER INFORMATION CONTACT: Judy Kornfeld, Office of CVD/AD
Enforcement VI, Import Administration, International Trade
Administration, U.S. Department of Commerce, 14th Street and
Constitution Ave., N.W., Washington, D.C. 20230; telephone: (202) 482-
2786.
SUPPLEMENTARY INFORMATION:
Background
Pursuant to section 355.22(a) of the Department's Interim
Regulations, this review covers only those producers or exporters of
the subject merchandise for which a review was specifically requested.
See Antidumping and Countervailing Duties: Interim Regulations; request
for comments, 60 FR 25130, 25139 (May 11, 1995) (``Interim
Regulations''). Accordingly, this review covers Heveafil Sdn. Bhd.,
Filmax Sdn. Bhd., Rubberflex Sdn. Bhd., Filati Elastofibre Sdn. Bhd.
(Filati), and Rubfil Sdn. Bhd. Heveafil and Filmax are affiliated
companies. This review also covers the period from January 1, 1994 to
December 31, 1994 and 13 programs.
Since the publication of the preliminary results on June 11, 1996
(61 FR 29534), the following events have occurred: We invited
interested parties to comment on the preliminary results. On July 11,
1996, case briefs were submitted by the Government of Malaysia (GOM)
and Heveafil, Filmax, Rubberflex, Filati and Rubfil, producers of the
subject merchandise which exported extruded rubber thread to the United
States during the review period (respondents).
Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute are
references to the provisions of the Tariff Act of 1930, as amended by
the Uruguay Round Agreements Act (``URAA'') effective January 1, 1995
(``the Act''). References to the 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 URAA. See Advance Notice of
Proposed Rulemaking and Request for Public Comments, 60 FR 80 (January
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.
Affiliated Parties or Trading Companies
Heveafil owns and controls Filmax and both companies produce
subject merchandise. Therefore, we determine them to be affiliated
companies under section 771(33) of the Act. As such, and consistent
with prior reviews of this order, we have calculated only one rate for
both of these companies. See Extruded Rubber Thread From Malaysia;
Preliminary Results of Countervailing Duty Administrative Review, 59 FR
46392 (September 8, 1994). For further information, see Memorandum to
File from Judy Kornfeld Regarding Status as Affiliated Parties dated
May 22, 1996, on file in the public file of the Central Records Unit,
Room B-099 of the Department of Commerce.
Verification
As provided in section 782(i) of the Act, we verified information
provided by the Government of Malaysia, and Heveafil, Filmax,
Rubberflex, Filati and Rubfil, producers/exporters of the subject
merchandise. We followed standard verification procedures, including
meeting with government and company officials, and examination of
relevant accounting and original source documents. Our verification
results are outlined in the public versions of the Verification
Reports, which are on file in the Central Records Unit (Room B-099 of
the Main Commerce Building).
Analysis of Programs
Based upon the responses to our questionnaires, the results of
verification, and written comments from interested parties we determine
the following:
I. Programs Conferring Subsidies
Programs Previously Determined to Confer Subsidies
A. Export Credit Refinancing (ECR)
In the preliminary results, we found that this program conferred
countervailable subsidies on the subject merchandise. Our analysis of
the comments submitted by the interested parties, summarized below, has
led us to modify our findings in the preliminary results for this
program. Accordingly, the net subsidies from pre-shipment loans are as
follows:
------------------------------------------------------------------------
Rate
Manufacturer/exporter (percent)
------------------------------------------------------------------------
Heveafil/Filmax............................................ 0.21
---- page 55273 ----
Rubberflex................................................. 0.19
Filati..................................................... 0.00
Rubfil..................................................... 0.15
------------------------------------------------------------------------
The net subsidies from post-shipment loans are as follows:
------------------------------------------------------------------------
Rate
Manufacturer/exporter (percent)
------------------------------------------------------------------------
Heveafil/Filmax............................................ 0.00
Rubberflex................................................. 0.00
Filati..................................................... 1.39
Rubfil..................................................... 0.08
------------------------------------------------------------------------
B. Pioneer Status
In the preliminary results, we found that this program conferred
countervailable subsidies on the subject merchandise. Our analysis of
the comments submitted by the interested parties, summarized below, has
not led us to change our findings from the preliminary results.
Accordingly, the net subsidies for this program are as follows:
------------------------------------------------------------------------
Rate
Manufacturer/exporter (percent)
------------------------------------------------------------------------
Heveafil/Filmax............................................ 0.00
Rubberflex................................................. 0.00
Filati..................................................... 0.00
Rubfil..................................................... 0.15
------------------------------------------------------------------------
C. Industrial Building Allowance
In the preliminary results, we found that this program conferred
countervailable subsidies on the subject merchandise. We did not
receive any comments on this program from the interested parties.
Accordingly, the net subsidies for this program are as follows:
------------------------------------------------------------------------
Rate
Manufacturer/exporter (percent)
------------------------------------------------------------------------
Heveafil/Filmax............................................ <0.005
Rubberflex................................................. 0.00
Filati..................................................... 0.00
Rubfil..................................................... 0.00
------------------------------------------------------------------------
D. Double Deduction for Export Promotion Expenses
In the preliminary results, we found that this program conferred
countervailable subsidies on the subject merchandise. We did not
receive any comments on this program from the interested parties.
Accordingly, the net subsidies for this program are as follows:
------------------------------------------------------------------------
Rate
Manufacturer/exporter (percent)
------------------------------------------------------------------------
Heveafil/Filmax............................................ 0.02
Rubberflex................................................. 0.00
Filati..................................................... 0.00
Rubfil..................................................... 0.00
------------------------------------------------------------------------
II. Programs Found to be Not Used
In the preliminary results, we found that the producers and/or
exporters of the subject merchandise did not apply for or receive
benefits under the following programs:
- Investment Tax Allowance,
- Abatement of a Percentage of Net Taxable Income Based on
the F.O.B. Value of Export Sales,
- Abatement of Five Percent of Taxable Income Due to
Location in a Promoted Industrial Area,
- Abatement of Taxable Income of Five Percent of Adjusted Income
of Companies due to Capital Participation and Employment Policy
Adherence,
- Double Deduction of Export Credit Insurance Payments,
- Abatement of Taxable Income of Five Percent of Adjusted Income
of Companies Due to Capital Participation and Employment Policy
Adherence, and
- Preferential Financing for Bumiputras.
Our analysis of the comments submitted by the interested parties,
summarized below, has not led us to change our findings from the
preliminary results.
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). (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 reinitiate under the appropriate
provision.
In addition, respondents argue that the Department's untimeliness
theory in previous reviews is misplaced. They state that the Department
has the power to modify its judgements or correct its errors and that
Ceramica Regiomontana v. United States, 64 F.3d 1579 (Fed. Cir. 1995)
(Ceramica 1995) confirmed the right to challenge the continuing
validity of an order during a review proceeding.
Department's Position: As the Department pointed out in the
previous reviews, 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. See 19
U.S.C. Sec. 1516a(a)(2). 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.
Contrary to respondents' assertions, there was no requirement that
the Department reinitiate its investigation as a result of the decision
by the United States to terminate the duty-free status of Malaysian
rubber thread. Indeed, respondents' interpretation could create an
impermissible gap in statutory coverage, which Congress did not intend.
See Techsnabexport, Ltd. v. United States, 802 F. Supp. 469, 472 (CIT
1992). Nor do the administrative cases relied upon by respondents
support their position. In those cases, the Department published notice
that authority to continue the particular investigations was
transferred from section 303 of the Tariff Act of 1930 to Title VII of
the Act.
In the course of administrative reviews conducted under this order,
respondents have misconstrued judicial precedent regarding the
correction of ``jurisdictional defects.'' Gilmore Steel Corp. v. United
States, 585 F. Supp. 670, 674 (CIT 1984) (Gilmore), involved a
challenge to the termination of a pending investigation based upon
information obtained in the course of that investigation. In
particular, the petitioner contended that the
---- page 55274 ----
Department lacked the authority to rescind the investigation based upon
insufficient industry support for the petition after the 20-day
initiation period had elapsed. 585 F. Supp. at 673. In upholding the
Department's determination, the court recognized that administrative
officers have the authority to correct errors, such as ``jurisdictional
defects,'' at anytime during the proceeding. Id. at 674-75. The court
did not state or imply that the Department may reverse a decision to
issue an antidumping duty order in the context of an administrative
review under section 751 of the Act. Indeed, the case did not even
involve an administrative review. The court simply held that the
administering authority may, in the context of the original
investigation, rescind an ongoing proceeding after expiration of the
20-day initiation period. In short, Gilmore says nothing to excuse
respondents' failure to timely challenge the issuance of the order in
this case.
Similarly, we disagree with respondents' reliance on Ceramica 1995.
Ceramica 1995 challenged the continued imposition of countervailing
duties following Mexico's change in status to a ``country under the
Agreement'' which entitled it to an injury test. Unlike respondents,
Ceramica 1995 did not challenge the validity of the original
countervailing duty order, nor did the Federal Circuit determine that
the issuance of the order was invalid. Consequently, Ceramica 1995 is a
similarly inappropriate basis to excuse respondents' failure to timely
challenge the issuance of the order.
Comment 2: Respondents argue that the Department must liquidate
entries during 1994 without regard to countervailing duties because the
URAA does not provide an injury test for 1994 entries as required under
the Agreement on Subsidies and Countervailing Measures (Subsidies
Agreement). Citing Article 32.3 of the Subsidies Agreement, respondents
argue that the Subsidies Agreement is applicable to all reviews,
including the instant review, initiated pursuant to requests made after
January 1, 1995. Respondents argue that the requirements of the
Agreement include the application of an injury test to entries covered
by such a review. According to respondents, however, the URAA did not
provide a mechanism to implement this obligation; rather, the URAA only
provides an injury test for merchandise entered on or after January 1,
1995. Therefore, respondents assert that assessment of countervailing
duties on 1994 entries would violate U.S. obligations under the
Subsidies Agreement.
Department's Position: Respondents have misinterpreted both U.S.
law and the Subsidies Agreement. There is no legal basis under U.S. law
for respondents' claim. Because Malaysia became a Subsidies Agreement
country on January 1, 1995, only entries made on or after January 1,
1995 are entitled to the injury test. See section 753 of the Act; 19
U.S.C. Sec. 1675b. Section 753(a)(4) makes this clear by suspending
liquidation of entries of subject merchandise made ``on or after * * *
the date on which the country * * * becomes a Subsidies Agreement
country * * *'' See, also, Ceramica Regiomontana, S.A. v. United
States, 64 F3d 1579 (Fed. Cir. 1995) (the right to an injury test is
conferred at the time of importation (entry) in the United States).
Therefore, countervailing duties may be assessed on Malaysian imports
entered before January 1, 1995, without regard to an injury test.
Moreover, Article 32.3 of the Subsidies Agreement does not require
an injury determination for merchandise entered prior to January 1,
1995. (See, also, Footwear from Brazil GATT Panel Decision confirming
that liability for countervailing duties attaches at the time of
importation, not assessment.) In sum, given that the subject
merchandise was not entitled to an injury determination when it was
entered in 1994, liability for countervailing duties attached at the
time of entry. Therefore, there is no obligation under the Subsidies
Agreement to supply an injury test to these 1994 entries.
Comment 3: Respondents argue that the Department improperly
assigned company-specific rates without first determining whether the
overall country-wide subsidy rate was above de minimis. They contend
that the Department acted contrary to its established practice of
applying its two-part test in measuring levels of subsidization.
According to respondents, the Department should first calculate the net
subsidy on a country-wide basis to determine whether the country-wide
rate was above de minimis, in accordance with Ceramica Regiomontana,
S.A. v. United States, 853 Supp. 431,439 (Ct. Int'l Trade 1994)
(Ceramica 1994). If the country-wide benefit is de minimis, the overall
subsidy level would be zero. Only if the country-wide rate was above de
minimis would the Department proceed to the second step of its test to
determine if individual rates would apply. Respondents cite Certain
Iron Metal Castings from India, Preliminary Results of Countervailing
duty Administrative Review (61 FR 25623; May 22, 1996); Carbon Steel
Butt-Welde Pipe Fittings from Thailand; Final Results of Countervailing
Administrative Review (61 FR 4959; Feb. 9, 1996); Extruded Rubber
Thread from Malaysia, Final Results of Countervailing Duty
Administrative Review (60 FR 51982, 51983; October 4, 1995), in which
the Department applied its two-step test.
According to respondents, as a precondition to imposing
countervailing duties, the statute requires subsidization to occur with
respect to imports of the subject merchandise on an overall or
aggregated basis. In addition, respondents contend that the URAA
altered the assessment provision but not the requirement to determine
whether subsidies were being provided on a country-wide basis.
Department's Position: There is no legal basis to support
respondents' argument. Pursuant to the URAA, there is no longer a
preference for calculating a single country-wide subsidy rate in
countervailing duty proceedings. The URAA replaced the former practice
of calculating subsidies on a country-wide basis in favor of individual
rates for reviewed companies. The procedures for countervailing duty
cases are now essentially the same as those in antidumping cases,
except as provided for in section 777A(e)(2)(B) of the Act. See also
section 355.22 of the Interim Regulations (60 FR 25130; May 11, 1995).
Section 777A(e) requires the calculation of an individual
countervailable subsidy rate for each known producer/exporter of the
subject merchandise, except where it is not practicable to determine
individual countervailable subsidy rates because of the large number of
exporters or producers involved in the investigation or review. This
exception was inapplicable in this review as there were only five known
producers/exporters.
As a result, the judicial and administrative precedents relied upon
by respondents are inappropriate as they refer to the requirements as
they existed prior to the URAA. All of the reviews cited by respondents
were requested and initiated prior to January 1, 1995, the effective
date of the URAA. More pertinent citations would be to reviews
conducted under the URAA. See, e.g., Certain Hot-Rolled Lead and
Bismuth Carbon Steel Products From the United Kingdom; Preliminary
Results of Countervailing Duty Administrative Review (61 FR 20,238,
20,242; May 6, 1996), since that review was initiated pursuant to
requests for administrative reviews filed after January 1, 1995.
Comment 4: Respondents argue that the Department cannot countervail
---- page 55275 ----
benefits under the ECR loan program or the Pioneer Industries program
because neither involves a financial contribution by the GOM. The WTO
Subsidies Agreement defined the term ``subsidy'' as one involving a
``financial contribution,'' therefore adding a new requirement to the
pre-existing notion of a subsidy. Accordingly, a program cannot be a
countervailable subsidy unless it involves a ``financial
contribution.'' In the case of the ECR loans, they argue that there is
no financial contribution because the funds that the GOM lends to
exporters generate a profit--the funds are lent on a short-term basis
at an interest rate higher than the cost of those funds. And in the
case of the Pioneer Industries program, they argue that because the
only company claiming the tax exemption would have paid the same amount
of taxes without the exemption, the GOM did not forgo or fail to
collect any revenues as a result of the program. Respondents believe
that the Department's preliminary determination overlooks this new
requirement.
Department's Position: We disagree with respondents that the
Department overlooked the requirement of financial contribution. Under
section 771(5)(D)(i) and (ii) of the Act, a financial contribution is
defined as ``the direct transfer of funds, such as grants, loans, and
equity infusions, or the potential direct transfer of funds or
liabilities, such as loan guarantees,'' or ``foregoing or not
collecting revenue that is otherwise due, such as granting tax credits
or deductions from taxable income.'' The ECR loan and Pioneer
Industries tax programs clearly fall within these definitions. We also
note that under Article 1.1(a)(1)(i) and (ii) of the Subsidies
Agreement, a financial contribution is defined as ``where government
practice involves a direct transfer of funds (e.g., grants, loans, and
equity infusions), potential direct transfers of funds or liabilities
(e.g., loan guarantees)'' or ``government revenue that is otherwise
due, is foregone or not collected (e.g., fiscal incentives such as tax
credits).''
Respondents mistakenly focus on the ``financial contribution''
concept in terms of the cost to the Malaysian government. As explained
in the previous reviews, 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.
This practice is now reflected in section 771(5)(E) of the Act, which
states that the subsidy benefit ``shall normally be treated as
conferred where there is a benefit to the recipient.'' In addition,
Article 14 of the Subsidies Agreement defines the method for
calculating the amount of a subsidy in terms of the benefit to the
recipient.
In the case of ECR loans, the funds that the GOM lends to the
exporters are lent on a short-term basis at an interest rate below the
commercial benchmark rate. In the case of the Pioneer Industries
program, a company that has received pioneer status is allowed not to
pay taxes otherwise due to the government. (Also, see Department's
Position to Comment 10 on Pioneer Status.) Therefore, under both
programs, financial contributions are provided to the recipients (the
respondents) and the Department properly treated those benefits as
countervailable subsidies.
Comment 5: Respondents contend that the Department overstated the
benefit received under the ECR program in its administrative review
because it used an inappropriate benchmark. They argue that the
Department should rely on its past practice of using 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's use of the ``predominant source'' of financing as a
benchmark is no longer authorized. Instead, the URAA requires that the
calculation of any benefits be based upon ``the amount the recipient of
the loan pays on the loan and the amount the recipient would pay on a
comparable commercial loan'' (citing 19 U.S.C. Sec. 1677(E)(ii)). They
assert that it makes no sense to compare trade financing to other
financing such as short-term loans and overdrafts and that BAs are the
most comparable form of financing.
Department's Position: We first note that the respondents are
incorrect when they state that the Department should rely on its past
practice of using BA rates as the benchmark. In each of the prior
administrative reviews of this order, the Department has used the Base
Lending Rate (BLR) as the commercial benchmark rather than the BA rate.
However, we do agree with respondents that the benchmark should be
comparable to the government loan in question. To the extent that the
predominant source of financing is not comparable to the loans in
question or could not actually be obtained by the exporter, then we
agree that the predominant source of financing cannot be used as a
benchmark under the new statute.
In Malaysia, ECR financing was provided in two different forms: it
was provided as a line of credit based on the company's previous 12
months' export performance, and it was also provided based on the
financing of the invoice, with the interest discounted. The maximum
period for a loan based on invoice financing is 180 days. However, if
the exporter receives early payment on the sale from its customer, then
the exporter is required to repay the loan at that time rather than at
the end of 180 days. The exporter also assumes the risk for late-
payment or non-payment. With financing under the line of credit, the
exporter is charged interest based on the outstanding balance and that
interest must be paid on a monthly basis.
Based upon the information on the record, we have determined that
BAs are a comparable form of alternative short-term financing available
to respondents for post-shipment loans under the ECR program. Both BAs
and post-shipment loans are short-term borrowing instruments used in
trade financing of exports. Therefore, we have used the 1994 BA rates
and commissions provided at verification (see, Verification Report for
the Government of Malaysia, Exhibit 10) as the benchmark for ECR post-
shipment loans and have recalculated the benefit conferred by these
loans using this revised benchmark. However, we disagree that BAs are
comparable to ECR pre-shipment loans. This is because pre-shipment
financing used by the respondents is based on a line of credit, much
like a general short-term loan in the Malaysian market. We are using
the BLR because we have verified, based on meetings with commercial
banks in Malaysia, that the BLR serves as the basis for determining the
interest rates charged by commercial banks in Malaysia on short-term
loans, which would include short-term borrowing using a line of credit.
Comment 6: Respondents 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 than the 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. The most
appropriate benchmark for pre-shipment financing under the ECR program
is based upon the BLR. During verification of the 1992 and 1994
administrative reviews, 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
---- page 55276 ----
Kornfeld and Lorenza Olivas Regarding Extruded Rubber Thread from
Malaysia; Benchmark Information (Public Document) 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. Finally, we disagree with respondents'
argument that we should calculate the spread by deducting the average
BLR rate from the average of the ALR rates because this would again
improperly include long-term rates in the benchmark calculation and it
does not reflect the spread that the commercial banks charge above the
BLR rate on short-term loans. During verification, commercial banking
officials stated that the BLR serves as the basis for determining the
short-term interest rates charged by commercial banks in Malaysia. The
commercial bank officials also stated that banks add a 1.00 to 2.00
percent spread to the BLR. (See, Verification Report of Commercial
Bank.) Accordingly, 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.
Comment 7: Respondents contend that the Department should not have
used a single annual average benchmark interest rate because it
distorts the analysis in a year characterized by steadily decreasing
interest rates. The Department previously used a semi-annual average
benchmark interest rate in the 1987 and 1988 reviews of Oil Country
Tubular Goods from Argentina; Final Results of Countervailing Duty
Administrative Reviews, 56 FR 38118 (August 12, 1991) (OCTG).
Respondents claim that because the loans in this review had a normal
maturity of 180 days and the rates were fixed at the time of the loan
initiation, they fit the same conditions as in OCTG.
Department's Position: We disagree with respondents. Our practice,
as reflected in section 355.44(b)(3)(ii) of the Proposed Regulations,
is that ``unless short-term interest rates in the country in question
have fluctuated significantly during the year in question, the
Secretary will calculate a single, annual average benchmark interest
rate.'' In the OCTG case relied upon by respondents, there was
significant hyperinflation and an average annual rate would therefore
have been distorted by the compounding of very high monthly interest
rates which varied widely from the first to the second half of the year
of review. See OCTG at 38118. Respondents have not shown any comparable
circumstances in Malaysia to warrant the use of semi-annual average
rates.
Comment 8: Respondents argue that the Department overstated the net
subsidy for the review period and for duty deposit purposes because in
calculating eligibility for the pre-shipment export financing, 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). Although in the first administrative review, the
Department rejected this method of eliminating the effect of a subsidy,
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 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 only 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. 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. Sec. 355.47(c) of
the Proposed Regulations (54 FR 23375, May 31, 1989). Because pre-
shipment loans were not shipment-specific, we included all loans in
calculating the company-specific 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. Reducing the pool of funds available for total
export financing does not eliminate financing to any particular market
or for any particular product. Tying occurs in the provision of the
subsidy, usually through government mandate requirements or in certain
limited situations where the application for the subsidy can be
isolated to specific shipments, e.g. post-shipment loans provided on a
shipment-by-shipment basis where the company can demonstrate through
source documentation that it did not apply for or receive loans on
shipments to the U.S. See Certain Iron Metal Castings from India;
Preliminary Results of Countervailing Duty Administrative Review (61 FR
25623; May, 22 1996). Hence, the companies did not eliminate financing
for U.S. exports.
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. As stated in
the last review, 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 9: 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; 56 FR 14927 (April 12, 1991) (Wire Rod). Respondents assert
that it is not countervailable because tax benefits under this program
are not limited to
---- page 55277 ----
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 that do not make export commitments as well as some that 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, 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.
In this case, recipients of the tax benefits conferred by Pioneer
Status 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 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.
Comment 10: Respondents argue that the Department overstated the
benefit from the Pioneer Status program because it failed to deduct the
normal capital allowances that would have been allowed if the program
had not been used. Respondents claim that Rubfil, 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 inconsistent 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 the normal capital
allowances for use in future years. Rubfil did not pay income taxes
during the period of review because of its pioneer status. Therefore, a
benefit has been conferred upon the company because it used its pioneer
status to offset income. Rubfil is also able to accumulate capital
allowances which can be used to offset taxable income in the future,
after its pioneer status expires. 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; Certain Agricultural Tillage Tools
From Brazil (50 FR 34525; August 26, 1985) and Certain Iron-Metal
Castings From India; Preliminary Results of Countervailing Duty
Administrative Review (60 FR 44839; August 29, 1995).
Comment 11: In calculating the benefit involving the industrial
building allowance and double deduction for export promotion expenses,
respondents claim that the Department used a different ``total export''
figure for Heveafil and Filmax than was used for calculating the
benefit involving ECR financing. The second ``total export'' figure
appears to be the result of a clerical error.
Department's Position: We agree with respondents. The second
``total export'' figure has been corrected in the final calculation.
Final Results of Review
In accordance with section 355.22(c)(4)(ii) of the Department's
Interim Regulations, we calculated an individual subsidy rate for each
producer/exporter subject to this administrative review. For the period
January 1, 1994 through December 31, 1994, we determine the ad valorem
net subsidies to be:
------------------------------------------------------------------------
Net subsidy
Net subsidies--producer/ exporter rate
(percent)
------------------------------------------------------------------------
Heveafil/Filmax............................................ 0.23
Rubberflex................................................. 0.19
Filati..................................................... 1.39
Rubfil..................................................... 0.38
------------------------------------------------------------------------
We will instruct the U.S. Customs Service (``Customs'') to assess
countervailing duties as indicated above. The Department will also
instruct Customs to collect cash deposits of estimated countervailing
duties in the percentages detailed above of the f.o.b. invoice price on
all shipments of the subject merchandise from reviewed companies,
entered, or withdrawn from warehouse, for consumption on or after the
date of publication of the final results of this review. As provided
for in the Act, any rate less than 0.5 percent ad valorem in an
administrative review is de minimis. Accordingly, for those producers/
exporters no countervailing duties will be assessed or cash deposits
required.
Because the URAA replaced the general rule in favor of a country-
wide rate with a general rule in favor of individual rates for
investigated and reviewed companies, the procedures for establishing
countervailing duty rates, including those for non-reviewed companies,
are now essentially the same as those in antidumping cases, except as
provided for in section 777A(e)(2)(B) of the Act. The requested review
will normally cover only those companies specifically named. See
section 355.22(a) of the Interim Regulations. Pursuant to 19 C.F.R.
Sec. 355.22(g), for all companies for which a review was not requested,
duties must be assessed at the cash deposit rate, and cash deposits
must continue to be collected, at the rate
---- page 55278 ----
previously ordered. As such, the countervailing duty cash deposit rate
applicable to a company can no longer change, except pursuant to a
request for a review of that company. See Federal-Mogul Corporation and
The Torrington Company v. United States, 822 F.Supp. 782 (CIT 1993) and
Floral Trade Council v. United States, 822 F.Supp. 766 (CIT 1993)
(interpreting 19 C.F.R. Sec. 353.22(e), the antidumping regulation on
automatic assessment, which is identical to 19 C.F.R. Sec. 355.22(g)).
Therefore, the cash deposit rates for all companies except those
covered by this review will be unchanged by the results of this review.
We will instruct Customs to continue to collect cash deposits for
non-reviewed companies at the most recent company-specific or country-
wide rate applicable to the company. Accordingly, the cash deposit
rates that will be applied to non-reviewed companies covered by this
order are those established in the most recently completed
administrative proceeding. See Extruded Rubber Thread From Malaysia;
Final Results of Countervailing Duty Administrative Review, 60 FR 51982
(October 4, 1995). These rates shall apply to all non-reviewed
companies until a review of a company assigned these rates is
requested. In addition, for the period January 1, 1994 through December
31, 1994, the assessment rates applicable to all non-reviewed companies
covered by this order are the cash deposit rates in effect at the time
of entry.
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.
This notice 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 C.F.R. Sec. 355.34(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)).
Dated: October 9, 1996.
Robert S. LaRussa,
Acting Assistant Secretary for Import Administration.
[FR Doc. 96-27358 Filed 10-24-96; 8:45 am]
BILLING CODE 3510-DS-P
The Contents entry for this article reads as follows:
International Trade Administration
NOTICES
Coutervailing duties:
Extruded rubber thread from--
Malaysia, 55272