NOTICES
DEPARTMENT OF COMMERCE
[C-538-801]
Preliminary Negative Countervailing Duty Determination; Shop Towels From
Bangladesh
Tuesday, April 16, 1991
AGENCY: Import Administration, International Trade Administration, Commerce
ACTION: Notice.
SUMMARY: We preliminarily determine that de minimis benefits which constitute bounties or grants within the meaning of the countervailing duty law are being provided to manufacturers, producers, or exporters in Bangladesh of shop towels as described in the "Scope of Investigation" section of this notice.
If this investigation proceeds normally, we will make a final determination on or before June 24, 1991.
EFFECTIVE DATE: April 16, 1991.
FOR FURTHER INFORMATION CONTACT:Kristal Eldredge, 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) 377-0631.
SUPPLEMENTARY INFORMATION:
Preliminary Determination
Based on our investigation, we preliminarily determine that de minimis 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 Bangladesh of shop towels. We preliminarily determine that the following programs confer bounties or grants:
- Concessional Export Credit Financing
- Income Tax Holiday
We determine the estimated net bounty or grant to be 0.02 percent ad valorem for all manufacturers, producers, or exporters in Bangladesh of shop towels. Since this rate is de minimis, our preliminary countervailing duty determination is negative.
Case History
Since publication of the notice of initiation in the Federal Register (56 FR 680, January 8, 1991), the following events have occurred. On January 11, 1991, we presented a questionnaire to the Embassy of the Government of the People's Republic of Bangladesh (GOB) in Washington, DC concerning petitioner's allegations. On March 4, 1991, we received responses from the GOB, Sonar Cotton Mills (Bangladesh), Ltd. (Sonar), Eagle Star Textile Mills, Ltd. (Eagle Star), Greyfab (Bangladesh), Ltd. (Greyfab), Khaled Textile Mills, Ltd. (Khaled), and Shabnam Textiles (Shabnam). On March 12, 1991, we received comments on the responses from petitioner and we issued a supplemental/deficiency questionnaire to the GOB and the respondent companies. We received responses to this Questionnaire on March 20 and March 22, 1991. Respondents submitted clarifications to their supplemental/deficiency response on March 26, 1991.
On February 7, 1991, petitioner filed a request that the preliminary determination be postponed. Pursuant to section 703(c)(1)(A) of the Act, we postponed the preliminary determination until April 8, 1991. See, Postponement of Preliminary Countervailing Duty Determination: Shop Towels from Bangladesh, (56 FR 7342, February 22, 1991).
Scope of Investigation
The products covered by this investigation are shop towels. Shop towels are absorbent industrial wiping
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cloths made from a loosely woven fabric. The fabric may be either 100 percent cotton or a blend of materials. Shop towels are
primarily used for wiping machine parts and cleaning ink, grease, oil, or other unwanted substances from machinery or
other items in industrial or commercial settings. Shop towels are currently provided for in subheadings 6307.10.2005
and 6307.10.2015 of the Harmonized Tariff Schedule (HTS). The HTS subheadings are provided for convenience and
customs purposes. The written description remains dispositive.
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 persuasive evidence showing that the response is incorrect, we accept the response for purposes of the preliminary determination. All such responses, however, are subject to verification. If the response cannot be supported at verification, and the program is otherwise countervailable, the program will be considered a bounty or grant in the final determination.
For purposes of this preliminary determination, the period for which we are measuring bounties or grants ("the review period") is calendar year 1990, which corresponds to the most recently completed fiscal year of the majority of the respondent companies. The other respondent companies each have different fiscal years which overlap this period. In accordance with our practice in such situations, we have chosen the most recently completed calendar year as our review period.
Based upon our analysis of the petition and the response to our questionnaires, we preliminarily determine the following:
I. Programs Preliminarily Determined to Confer Bounties or Grants
We preliminarily determine that bounties or grants are being provided to manufacturers, producers, or exporters in Bangladesh of shop towels under the following programs:
A. Concessional Export Credit Financing
Under Number One, Parts (i) and (ii) of the "Export Policy 1989-1991," the GOB provides for a concessional interest rate on export credit provided with respect to non-traditional exports. Shop towels are considered a non- traditional export and therefore, shop towel producers are eligible for concessional export financing. Under this program, the Banking Control Department (BCD) of Bangladesh Bank, the central bank of Bangladesh, sets interest rates for a particular period of time and creates bands of interest rates for preferential and commercial financing. Interest rates on every loan must fall within one of eleven bands. According to the responses, the band for exports of shop towels during the review period was 8 percent to 11 percent. BCD Circular Number 40 of December 9, 1990, changed these bands to 8.5 percent to 11.5 percent.
To utilize this program, a company applies for a loan from a commercial bank. If the commercial bank decides to make the loan, it is made within the band of acceptable interest rates (i.e., 8.5 percent to 11.5 percent). The Bangladesh Bank, in turn, subsidizes the lending bank to cover the difference between the band of interest rates charged to shop towel exporters and the band of interest rates charged for other short-term commercial loans.
The responses state that only one company, Shabnam, received a loan under this program on which interest was paid during the review period. Because only exporters are eligible for these loans, we preliminarily determine that they are countervailable to the extent that they are provided at preferential rates.
As the benchmark for short-term (less than one-year) loans, it is our practice to use the average interest rate for an alternative to source of short-term financing in the country in question. In determining this benchmark, we will normally rely upon the predominant source of short-term financing. In the absence of a single, predominant source of such financing, we may use a benchmark composed of the interest rates for two or more sources of short-term financing, weighted, wherever possible, according to the value of financing from each source.
As previously stated, in Bangladesh, bands of interest rates are established by the BCD of Bangladesh Bank. According to the response, the band of interest rates on short-term commercial loans is 12 percent to 20 percent per annum. According to the responses, during the review period, the average interest rate applicable to the predominant source of short-term commercial financing was between 17 percent and 18 percent. We, therefore, selected 17.5 percent as our benchmark rate.
Comparing the benchmark rate to the rate charged on the loan made under this program during the review period, we find that this loan is preferential and, therefore, confers a bounty or grant on exports of shop towels.
To calculate the benefit from the loan made under this program on which interest was paid during the review period, we followed the short-term loan methodology which has been applied consistently in our past determinations and which is described in more detail in the Subsidies Appendix attached to the notice of Cold-Rolled Carbon Steel Flat-Rolled Products from Argentina: Final Affirmative Countervailing Duty Determination and Countervailing Duty Order, 49 FR 18006, April 26, 1984; see also, Alhambra Foundry v. United States, 626 F. Supp. 402 (CIT, 1985). Accordingly, we compared the amount of interest actually paid during the review period to the amount that would have been paid at the benchmark rate of 17.5 percent.
Because the responses indicate that Shabnam exports the subject merchandise only to the United States, we divided the total interest savings by the value of total exports of the subject merchandise to the United States during the review period to obtain an estimated net bounty or grant of 0.02 percent ad valorem.
Furthermore, the GOB formerly provided an additional two percent incentive on interest rates when exporters of non-traditional goods exceeded export earning targets established on the basis of previous year earnings. According to the responses, however, this aspect of the program was discontinued under BCD Circular Number 33 of November 16, 1989.
In response to the Department's question concerning "Other Programs," the GOB stated that under Section 45 of the
Income Tax Ordinance, 1984, the GOB provides a tax holiday for industrial undertakings subject to the company
meeting certain conditions. The response states that all producers in Bangladesh who create a new manufacturing
operation which will in turn create jobs are eligible for an exemption from income taxes. However, the number of years
a company may benefit from this program differs by region. Under the current statute, there is a five year exemption in
developed areas; a seven year exemption in less developed areas; and a nine year exemption in the least developed
areas. Industrial undertakings in an Export Processing Zone (EPZ) are eligible for a ten year exemption from taxes
beginning with the first month the business commences. After ten years,
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the income tax holiday is converted
into a 50 percent tax rebate on export sales.
According to the responses, the availability of the tax holiday in the developed, less developed, and least developed areas is not dependent on the exportation of merchandise. The responses further state that this program is not limited to an enterprise or industry or group of enterprises or industries. However, as previously stated, the number of years a company may receive benefits from this program is based on the region in which it is located.
Therefore, we preliminarily determine that this program confers a bounty or grant to the extent that shop towel producers located in a lesser developed area, least developed area, or in an EPZ receive a greater number of years in which to claim an income tax holiday than they would have received had they been located in a more developed region.
According to the responses, Sonar, Greyfab, Khaled, and Shabnam received income tax holidays during the review period. Because Sonar and Greyfab are located in the Chittagong EPZ, they are eligible for a ten year exemption, while Khaled and Shabnam are eligible for a seven year exemption because they are located in a lesser developed region.
To determine whether countervailable benefits were provided under this program during the review period, we considered the number of tax holiday years available to all companies which meet the basic eligibility requirements (i.e., a new manufacturing operation which creates jobs) as a "benchmark" (i.e., five years). The years of income tax holidays beyond this benchmark would confer a countervailable benefit. Because (1) The companies under investigation who currently claim an income tax holiday have claimed this holiday for fewer than five years and (2) The responses state that these companies do not have taxable income during the review period, we preliminarily determine that the income tax holiday did not confer a benefit during the review period.
II. Program Preliminarily Determined Not to Confer a Bounty or Grant
We preliminarily determine that bounties or grants are not being provided to manufacturers, producers, or exporters in Bangladesh under the following program:
In Bangladesh, there is a dual exchange rate system made up of two legally recognized rates, the official exchange rate which is set by the GOB and the Secondary Exchange Market (SEM) rate which is determined by a committee of authorized dealers, and approved by the GOB. An authorized dealer is a bank authorized by the Exchange Control Department of Bangladesh Bank to deal in foreign exchange. The responses state that the official exchange rate overvalues the taka (the Bangladeshi currency) while the SEM rate is more reflective of a free market rate.
Under Number Four of the "Export Policy 1989-1991," the GOB allows exporters of non-traditional products to exchange a portion of their export earnings at a rate calculated by subtracting the difference between the official rate and the SEM rate from the official rate. According to the responses, this program, administered by the Bangladesh Bank, is meant to compensate exporters for the overvaluation of the domestic currency. Exporters who do not avail themselves of this program are required to exchange their export earnings at the official rate, while most imports are purchased using the SEM rate.
Depending on the amount of domestic value or content, exporters are entitled to a 100 percent, 70 percent, or 40 percent export performance benefit (XPB). A 100 percent entitlement means that the exporter can subtract 100 percent of the difference between the two rates from the official rate, in effect, granting the SEM rate. The 70 percent and 40 percent entitlements similarly mean that the exporter can subtract 70 percent or 40 percent of the difference between the two rates from the official rate.
Exporters apply for the XPB at the time of negotiation of their export documents by the authorized dealers. The authorized dealer pays out the XPB premium and then seeks reimbursement of the XPB from the Bangladesh Bank.
According to the responses, Eagle Star, Khaled, and Shabnam received the XPB during the review period. Eagle Star is entitled to a 70 percent XPB, while Khaled and Shabnam are entitled to a 100 percent XPB.
Because all exporters are required to convert their export earnings at the less favorable official exchange rate while most imports are purchased at the SEM or free market rate, the use of this program serves only to mitigate the exporter's losses. For example, when exporters go to an authorized dealer to exchange their export earnings from dollars to takas, they will have to exchange at the less favorable official rate and therefore, receive fewer takas per dollar than if they had been able to exchange at a free market exchange rate (SEM rate). This program allows exporters to exchange a percentage of their export earnings at a rate more reflective of a free market rate. Conversely, importers exchange their takas for dollars using the SEM rate and, therefore, must give the authorized dealer more takas per dollar than they would receive as exporters.
Since exporters must exchange either all or a percentage of their export earnings at a less favorable exchange rate than other currency exchange transactions, we preliminarily determine that this program does not confer a bounty or grant on the manufacturers, producers, or exporters of shop towels in Bangladesh.
III. Programs Preliminarily Determined Not To Be Used
Based on the responses, we preliminarily determine that manufacturers, producers, or exporters in Bangladesh of shop towels did not apply for, claim or receive benefits during the review period for exports of shop towels to the United States under the following programs:
A. Concessional Duty Treatment for Exporters
Under Number Six, Parts (i) and (iv) of the "Export Policy 1989-1990," the GOB offers industries concessional import duties on capital machinery and duty-free entry of samples for the handloom sector. This program, administered by the Ministry of Finance, is designed to help industries modernize or improve their plant facilities. The response states that in the first half of the review period, the duty rates on capital machinery varied between 2.5 percent and 15 percent. Statutory Rules and Orders dated July 25, 1990 (S.R.O. 282/L.1318/Cus.) revised the rate of duty to ten percent. An industry approved by the Bangladesh Small and Cottage Industries Corporation which either exports 70 percent or more of their production or uses a minimum of 70 percent indigenous raw materials is entitled to a total rebate of 7.5 percent of the ten percent duties paid at the time of importation.
According to the responses, none of the companies under investigation utilized this program during the review period.
Under Number Seven of the "Export Policy 1989-1991," the GOB offers exporters income tax rebates contingent upon individual export performance. This program, administered by the National Board of Revenue, is available
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to exporters of non-traditional products and other companies as the Board may designate. The response states that there is a differential between the amount of income tax rebate available to a company based on whether or not the exported goods were manufactured by the company seeking the rebate.
If the exported goods are not manufactured by the company, it is eligible for a 30 percent rebate of the income tax attributable to export sales. If, in the year in question, the export sales exceed the sales of the preceding year, then the company can earn an additional one percent rebate for every increase of ten percent in export sales over the proceeding year's export sales, subject to an overall cap of 40 percent of the income tax payable. In the reverse, if export sales do not exceed the export sales of the previous year, the company loses one percent rebate for every decrease of ten percent in export sales, up to ten percent, thus reducing the effective potential rebate to 20 percent.
If the exported goods are manufactured by the company, a rebate is available ranging from zero to 60 percent of income attributable to export sales. Export sales must exceed ten percent of total sales before any rebate is allowable. If export sales exceed 40 percent of total sales, then a company may receive a rebate of 60 percent of the income tax attributable to export sales. According to the responses, none of the companies under investigation utilized this program during the review period.
C. Cash Assistance for Exports
Under Number 13 of the "Export Policy 1989-1991," the GOB offers importers three options to ensure that exporters can procure necessary raw materials at world market prices. The first option is duty-free importation of raw materials utilizing a bonded warehouse arrangement. The second plan is the use of a duty drawback facility. The third option is cash assistance in lieu of the bonded warehouse or duty drawback facility. According to the responses, an importer may only take advantage of one of these three options.
In order to take advantage of the third option, the cash assistance for exports program, after export the exporter applies for cash assistance through an authorized dealer. The authorized dealer forwards the application with supporting documentation to Bangladesh Bank. Bangladesh Bank pays out the cash assistance (at a rate expressed as a percentage of the FOB export value) through the authorized dealer. The program is available to local or domestic manufacturers who procure materials in Bangladesh which are used in the product that is eventually exported.
According to the responses, Sonar and Greyfab are located in an EPZ, and Eagle Star, Khaled, and Shabnam all utilize a bonded warehouse facility. Therefore, the companies were ineligible for the cash assistance program during the review period.
IV. Program Preliminarily Determined Not To Exist
Based on the responses, we preliminarily determine that the following program does not exist:
A. Rebates on Insurance Premiums
Number Eight of the "Export Policy 1989-1991" provides for rebates on insurance premiums. However, according to the response of the GOB, this program has never been put into effect. The response states that the Saharan Bima Corporation, the state-owned general insurance corporation, never issued an order or circular putting this program into effect. Therefore, based on the responses, we preliminarily determine that this program does not currently exist.
Verification
In accordance with section 776(b) of the Act, we will verify the information used in making our final determination.
Suspension of Liquidation
Due to the fact that the estimated net bounty or grant rate is de minimis, we are not directing the U.S. Customs Service to suspend liquidation on entries of shop towels from Bangladesh.
Public Comment
In accordance with 19 CFR 355.38, we will hold a public hearing, if requested, to afford interested parties an opportunity to comment on this preliminary determination at 10 a.m. on Wednesday, June 12, 1991, 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 within ten days of the publication of this notice in the Federal Register to the Assistant Secretary for Import Administration, U.S. Department of Commerce, room B-099, 14th Street and Constitution Avenue, NW., Washington, DC 20230.
Requests should contain: (1) The party's name, address, and telephone number; (2) the number of participants; (3) the reason for attending; and (4) a list of the issues to be discussed. In addition, ten copies of the business proprietary version and five copies of the nonproprietary version of the case briefs must be submitted to the Assistant Secretary no later than June 4, 1991. Ten copies of the business proprietary version and five copies of the nonproprietary version of the rebuttal briefs must be submitted to the Assistant Secretary no later than June 10, 1991. An interested party may make an affirmative presentation only on arguments included in that party's case or rebuttal briefs. Written arguments should be submitted in accordance with s 355.38 of the Commerce Department's regulations and will be considered if received within the time limits specified in this notice.
This determination is published pursuant to section 703(f) of the Act (19 U.S.C. 1671b(f)).
Dated: April 8, 1991.
Eric I. Garfinkel,
Assistant Secretary for Import Administration.