C-570-921
Investigation
Public Document
Office 1: SH
DATE: September 2, 2008
MEMORANDUM TO: David M. Spooner
Assistant Secretary, Import Administration
THROUGH: Stephen J. Claeys
Deputy Assistant Secretary, Import Administration
Susan Kuhbach
Director, AD/CVD Operations, Office 1
FROM: Scott Holland
International Trade Compliance Analyst
Office of AD/CVD Operations, Office 1
RE: Countervailing Duty Investigation: Lightweight Thermal Paper
from the People’s Republic of China
SUBJECT: Post-Preliminary Findings for New Subsidy Allegation
Background
The Department of Commerce (“Department”) initiated an investigation with respect to
lightweight thermal paper (“LWTP”) from the People’s Republic of China (“PRC”) on October
29, 2007,/1/ and issued its Preliminary Determination on March 14, 2008./2/ In the Preliminary
Determination, the Department did not issue findings with respect to the programs listed below
(for which the allegations were received after the filing of the petition). Instead, we explained
that we intended to seek further information relating to these alleged subsidy programs/3/ and
then to issue an interim analysis describing our preliminary findings before the final
determination.
• Provision of Electricity for Less than Adequate Remuneration in Zhanjiang Economic
and Technological Development Zone (ZETDZ)
• Provision of Electricity for Less than Adequate Remuneration in the Long Gang District
of Shenzen City
• Provision of Certain Papermaking Chemicals (DPE, BPS, and ODB2) for Less than
Adequate Remuneration
• Provision of Land to Shenzhen Yuanming in the Li Lang Industrial Zone for Less than
Adequate Remuneration
• Provision of Land to Guangdong Guanho High-Tech Co., Ltd. (“GG”) and Zhanjiang
Guanlong Paper Industrial Co., Ltd. (“Guanlong”) for Less than Adequate Remuneration
• Grants from the ZETDZ for High and New Technology Enterprises
• Funding for Construction of Enterprise Technology R&D Centers from the Guangdong
Government
• Export Subsidies for Enterprises Registered in Shenzhen Municipality
• Various Subsidies Identified in the Financial Statements and/or Responses of GG and
Guanlong:
o Special Fund for Technology Innovation Projects in Guangdong Province;
o Zhanjiang Municipality Grants for Patents;
o Zhanjiang Municipality Grants to Famous Brand/Famous Trademark Enterprises;
o Government Interest Discounts;
o “Enterprise Innovation Funds” Grants;
o Grants under the Three Science and Technology Expenditure Fund;
o Zhanjiang Municipality Export Subsidies
Additionally, as explained further below, we discovered certain programs in the course of the
investigation or at verification:
• Environmental Subsidy to Guanlong
• Non-tradable Share Reform Program
• Exemption from Land-use Taxes and Fees for Foreign Invested Enterprises (“FIEs”)
The participating respondents in this proceeding are the GOC, GG, GG’s affiliated input supplier
Guanlong, and Shanghai Hanhong Paper Co., Ltd. (“Hanhong”). Shenzhen Yuanming Industrial
Development Co., Ltd. (“Shenzhen Yuanming”) and Xiamen Anne Paper Co. (“Xiamen”) were
chosen as respondents in this proceeding, but Shenzhen Yuanming did not respond to the
Department’s requests for information and Xiamen refused verification of its “no shipment”
response.
Programs
We first analyze the allegations that pertain to the responding companies and/or areas in which
they are located.
Provision of Electricity for Less than
Adequate Remuneration in Zhanjiang Economic and Technological Development Zone (ZETDZ)
In its response, the GOC provided the electricity rate schedules for the municipality of Zhanjiang
during the period of investigation (“POI”), showing the rates charged to the various categories of
users./4/ We verified that GG paid the rate assigned to large scale industrial users and that
Guanlong paid the rate assigned to “normal” industrial users./5/ Neither company received a
discounted rate due to its registration in the ZETDZ.
At verification, we learned that the Zhanjiang Pricing Bureau did not set or recommend
electricity rates for that jurisdiction./6/ Instead, pricing recommendations (more specifically,
recommendations for price adjustments) were made by the Guangdong (provincial) Pricing
Bureau and those recommendations were reviewed by the National Development and Reform
Committee (“NDRC”) (the national level government). For prices during the POI, the NDRC set
a different price adjustment than that recommended by the provincial authorities./7/ Also at
verification, we reviewed electricity rate schedules for other jurisdictions within Guangdong
Province./8/ These showed that rates in Guangzhou were higher than those in Zhanjiang for
similarly situated users (e.g., large-scale industrial users). Guangdong Pricing Bureau officials
explained that different rates were set for different jurisdictions within Guangdong because of
the different costs of supplying these jurisdictions./9/
Analysis: Specificity of domestic subsidies is determined by reference to the granting authority.
See section 771(5A)(D) of the Tariff Act of 1930 (the “Act”) (“The Department determines
whether a {domestic}subsidy … is a specific subsidy, in law or in fact, to an enterprise or
industry within the jurisdiction of the authority providing the subsidy …” (emphasis added)).
While contrary to our finding regarding Shandong Province in CWP,/10/ the facts in this
investigation indicate that electricity rates for enterprises located in Guangdong were set at the
national level. The record further shows that the NDRC set different rate adjustments for
different jurisdictions./11/ These facts support a finding of regional specificity with respect to
electricity rates in Guangdong Province.
To determine whether a benefit was conferred through the provision of electricity, we have
analyzed potential benchmarks in accordance with 19 CFR 351.511(a) to determine whether the
GOC received adequate remuneration. Under 19 CFR 351.511(a)(2)(i), we look first to whether
there are market-determined prices within the country. According to the GOC, private
ownership of power plants is increasing in China, but the two transmission companies (State
Grid and China Southern Power Grid) are state-owned and the prices for uploading electricity to
the power grid, transmitting and selling electricity to end users are generally regulated by the
GOC./12/ Also, the GOC has provided import prices for electricity imported into China, but has
noted that this electricity is uploaded onto the grid for distribution across the grid./13/ Therefore,
it is not a retail price and, hence, does not reflect a price that would be available to individual
enterprises. Moreover, the end-user prices of any imported electricity are likewise regulated by
the GOC. Therefore, we preliminarily determine that there are no “tier one” market-determined
prices in China to use as a benchmark.
Under 19 CFR 351.511(a)(2)(ii), we look next to world market prices, where we can reasonably
conclude that such a price would be available to users in China. However, the record contains
no such information for world market prices for electricity that would be available to users in
China.
Finally, under 19 CFR 351.511(a)(2)(iii), we look to whether the government price is consistent
with market principles. According to the preamble, this analysis can entail looking at the
government’s price-setting philosophy, costs (including rates of return sufficient to ensure future
operations), or possible price discrimination./14/ The GOC has submitted the regulations in
effect at the time of this investigation regarding reform of electricity prices in China./15/ The
regulations appear to address, inter alia, the government’s price-setting philosophy. However,
because a key aspect of our understanding of the level of government setting electricity rates
came to light only at verification, we did not have the opportunity to seek the extensive
information needed to analyze the government’s price-setting philosophy or its costs for
electricity. Nevertheless, the information that has been provided indicates that preferential
pricing exists within Guangdong Province.
Recommendation: We recommend preliminarily determining that the provision of electricity in
Zhanjiang municipality confers a countervailable benefit on GG and Guanlong. The provision of
electricity is a government financial contribution in the form of the provision of a good or
service (section 771(5)(D)(iii)). The facts available in this investigation indicate that this
electricity is being provided at preferential rates and, hence, for less than adequate remuneration
(section 771(5)(E)(iv)). Finally, the subsidy is provided regionally and, hence, is specific
(section 771(5A)(D)(iv)). Based on the facts available, we find that the amount of the
countervailable benefit is the difference in the rates for the applicable user category between
Guangzhou and Zhanjiang.
To calculate the benefit, we computed the amounts that GG and Guanlong would have paid for
electricity at the higher rate and subtracted the amounts they actually paid during the POI. We
divided these “savings” by the combined POI sales of GG and Guanlong (less any sales between
the two companies). Because this is the provision of a good or service for less than adequate
remuneration, the subsidy is recurring (see 19 CFR 351.524(c)).
On this basis, we preliminarily determine the countervailable subsidy to be 0.07 percent ad
valorem for GG/Guanlong.
We also recommend clearly indicating that, in light of the new evidence regarding the role of the
NDRC in setting prices discovered during the verification of this case, in any future
administrative review of this proceeding as well as in other China CVD proceedings (where
relevant and practicable), we intend to investigate and analyze further the electricity rate-setting
authority in China and the considerations that go into setting those rates. We may also consider
alternative approaches for determining a benefit, such as through an analysis of the government’s
price setting philosophy or its costs. See e.g., Final Affirmative Countervailing Duty
Determination: Steel Wire Rod from Trinidad and Tobago, 62 FR 55003 (October 22, 1997);
Final Affirmative Countervailing Duty Determination: Certain Hot-Rolled Carbon Steel Flat
Products from Thailand, 66 FR 50410 (October 3, 2001) and the accompanying “Issues and
Decision Memorandum.”
Provision of Certain Papermaking Chemicals (DPE, BPS, and ODB2) for Less than Adequate Remuneration
Of the responding companies, only GG used any of these chemicals, and it purchased only
ODB2 during the POI./16/ GG responded that its suppliers of ODB2 were Sino-foreign joint
ventures and not state owned enterprise (SOEs)./17/ The GOC provided ownership information
about the suppliers which shows that neither is majority owned by a Chinese government
entity./18/
Analysis: The ownership information submitted by GG and the GOC supports the parties’ claim
that these suppliers are not majority state-owned. One supplier has a major Chinese investor,
about whom we do not have further information at this point. With additional information, we
might find that this supplier is an authority within the meaning of section 771(5)(B). However,
at this point, the record does not support such a finding. Therefore, there is no financial
contribution and no subsidy.
Recommendation: We recommend preliminarily determining that the government is not
providing papermaking chemicals for less than adequate remuneration. We also recommend
seeking further information on the ownership of this supplier (to the extent that it is relevant) in a
future administrative review if this investigation results in a CVD order.
Provision of Land to GG and Guanlong for Less than Adequate Remuneration
GG reported that it has purchased land-use rights four times. One of the purchases occurred
before the “cut-off” date, December 11, 2001./19/ Another occurred after the POI. Guanlong
also purchased its land-use rights before the cut-off date. Therefore, we have limited our
analysis to two purchases of land-use rights by GG.
In 2005, GG purchased “granted” land-use rights in the ZETDZ. Although the site was located
in the zone (an area within the municipality), the Zhangjiang (municipal) Land Bureau
conducted the transaction. According to the GOC, there are no exceptional rules for selling
land-use rights in economic development zones/20/ and the process followed by the municipal
land bureau did not vary depending on whether the land was located in a zone or not./21/ At
verification, we were told that the land bureau set the price for GG’s purchase at the appraised
value and that it does so generally (as long as it is satisfied that the appraisal was properly
conducted)./22/ In response to our questions at the company verification regarding a reference to
preferential treatment in GG’s appraisal, GG provided an appraisal for land outside the zone that
contained similar language and an affidavit from the appraisal company stating that the
questioned language was “boilerplate.” /23/ GG also provided a contract for the land-use rights in
a location outside the zone where the price paid was lower than the price paid by GG./24/
Also in 2005, GG purchased land-use rights in the ZETDZ through a court-directed auction./25/
The details of this transaction are proprietary and, therefore, are discussed in a separate
memorandum “Auction of Land-Use Rights to Guangdong Guanhao High-Tech Co., Ltd.” (dated
September 2, 2008).
Analysis: In LWS,/26/ the Department found that the provision of land-use rights constitutes the
provision of a good within the meaning of section 771(5)(D)(iii)./27/ We also found that when
the land is in an industrial park located within the seller’s (e.g., county’s or municipality’s)
jurisdiction, the provision of the land-use rights is regionally specific (see section
771(5A)(D)(iv) of the Act)./28/ Thus, consistent with LWS, GG’s two purchases of land-use
rights in 2005 give rise to countervailable subsidies to the extent that a benefit was conferred.
With respect to the “granted” land-use rights purchased directly from the Zhanjiang Land
Bureau, we have analyzed potential benchmarks in accordance with 19 CFR 351.511(a). As
discussed above with respect to the provision of electricity, we look first to whether there are
market-determined prices within the country. See 19 CFR 351.511(a)(2)(i). The Department
recently determined that “Chinese land prices are distorted by the significant government role in
the market” and, hence, that tier one benchmarks do not exist./29/ We also found that tier two
benchmarks (world market prices that would be available to purchasers in China) are not
appropriate./30/ See 19 CFR 351.511(a)(2)(ii). Therefore, we determined the adequacy of
remuneration by reference to tier 3 and found that the sale of land-use rights in China was not
consistent with market principles because of the overwhelming presence of the government in
the land-use rights market and the widespread and documented deviation from the authorized
methods of pricing and allocating land./31/ See 19 CFR 351.511(a)(2)(iii). There is insufficient
new information on the record of this investigation to warrant a change from our earlier findings
in this regard.
With respect to the land-use rights purchased through auction, the available record indicates that
the government provided the land for the purpose of producing adhesive paper,/32/ which is nonsubject
merchandise. Based on a comparison of the benchmark described above with the price
paid by GG, there is no benefit. As there is no subsidy associated with this transaction, we do
not address it further.
Recommendation: With respect to the “granted” land-use rights, we recommend preliminarily
finding a countervailable subsidy to GG. The provision of land-use rights is a government
financial contribution in the form of the provision of a good or service (section 771(5)(D)(iii)).
For the reasons explained above, we are not able to use Chinese or world market prices as a
benchmark. Therefore, we recommend comparing the price paid by GG for its land-use right
with comparable market-based prices for land purchases in a country at a comparable level of
economic development that is reasonably proximate to, but outside of, China. Specifically, we
recommend comparing the price GG paid to sales of certain industrial land in industrial estates,
parks, and zones in Thailand, consistent with LWS,/33/ which results in a benefit. Finally, the
subsidy is provided regionally and, hence, is specific (section 771(5A)(D)(iv)).
To calculate the benefit, we computed the amount that GG would have paid for its granted landuse
rights and subtracted the amount it actually paid, and allocated the “savings” over the life of
the land-use rights contract using the discount rate described in the Preliminary Determination.
We divided the amount allocated to the POI by the combined POI sales of GG and Guanlong
(less any sales between the two companies).
On this basis, we preliminarily determine the countervailable subsidy to be 0.18 percent ad
valorem for GG/Guanlong.
Guangdong Province Intellectual Property “IP” Rights Grants
GG and the GOC reported that GG received a grant pursuant to Guangdong Province’s
“Measures of Identifying and Fostering Privately Owned Intellectual Property Stronghold
Enterprises in Guangdong” (YUEZHIGUIHAN {222003} No. 49)./ /34 The purpose of this
program is to increase awareness of intellectual property by private enterprises in Guangdong
Province, to increase their capability and knowledge of the intellectual property system, to
increase the quantity and quality of the patents they hold, and to increase their competitiveness at
home and abroad./ /35
Companies seeking assistance submit applications to their municipal level IP offices, which
review the applications and make recommendations to the provincial level IP office./36/ Under
the program regulations, the applicant must have: (1) managers who place a high priority on
intellectual property; (2) an IP office with full-time employees; (3) a relatively complete IP
management system; (4) employees who have basic IP knowledge; (5) increasing investment in
patent development and increasing sales of patented products; (6) increasing number of patents;
(7) no record of patent infringement./37/
Analysis: Our review of the regulation establishing the program shows that no industries are
excluded and that any company with “a fairly good basis in terms of intellectual properties” can
apply for assistance and potentially selected./38/ The GOC has also provided data showing that
the recipient enterprises are numerous and represent a wide variety of industries, and that neither
GG nor the papermaking industry was a predominant or disproportionate user of the program./39/
Recommendation: We recommend preliminarily determining that this program is neither
specific in law or in fact, and hence does not provide a countervailable subsidy. As noted above,
the program is open to all industries and the authority and legislation pursuant to which the
subsidy is provided is not otherwise limited to an enterprise or industry. Further, the recipients
are spread across numerous enterprises and industries, and neither GG nor the papermaking
industry is a dominant or disproportionate user of the program.
Zhanjiang Municipality and ZETDZ Export Related Assistance
GG reported receiving export assistance from the municipal government and ZETDZ in several
years./40/ The GOC has claimed that any benefits under this program are recurring and,
consequently, only assistance paid out in the POI is countervailable./41/ The GOC, however,
proffered no evidence in support of its claim.
Analysis: Under 19 CFR 351.524(c)(1), grants are normally treated as non-recurring subsidies.
Parties may present evidence addressing the factors listed in 19 CFR 351.524(c)(2) to argue that
grants should, instead, be treated as recurring subsidies, but the GOC has not done so in this
case.
Recommendation: We recommend preliminarily determining that the export assistance provided
by the municipal government and ZETDZ confers a countervailable subsidy on GG. The
assistance is a direct transfer of funds (section 771(5)(D)(i)), with the benefit equaling the
amount of the grant (19 CFR 351.504(a)). The subsidy is specific because it is contingent upon
export performance (section 771(5A)(B)). We further recommend treating these grants as nonrecurring
subsidies under 19 CFR 351.524(c)(1). Consequently, any grants that exceed 0.5
percent of export sales in the year the grant was approved will be allocated over time, while
grants that are less than 0.5 percent of export sales in the year of approval will be expensed in the
year of receipt./42/
To calculate the benefit, we allocated the grants that exceeded 0.5 percent of the export sales in
the years in which the grants were approved over the AUL, using the discount rates described in
the Preliminary Determination. We divided the amounts allocated to the POI by GG’s export
sales in the POI.
On this basis, we preliminarily determine the countervailable subsidy to be 0.06 percent ad
valorem for GG/Guanlong.
Environmental Subsidy to Guanlong
Guanlong reported receiving local government assistance for an environmental protection
project./43/
Analysis: At the company verification, we reviewed the Zhangjiang Finance Bureau’s award
notice listing the grant recipients for 2006./44/ This document indicated that awards were made
to “aquaculture and processing key industries” and that only two firms received such awards in
2006./45/
Recommendation: We recommend preliminarily determining that this environmental grant
confers a countervailable subsidy on Guanlong. The assistance is a direct transfer of funds
(section 771(5)(D)(i)), with the benefit equaling the amount of the grant (19 CFR 351.504(a)).
The subsidy is specific because the actual recipients are limited in number (section
771(5A)(D)(iii)(I)). Because the benefit is less than 0.5 percent of Guanlong’s sales in the year
the grant was approved, the subsidy would be expensed in the year of receipt.
To calculate the benefit, we divided the amount of the grant by the combined POI sales of GG
and Guanlong (less any sales between the companies).
On this basis, we preliminarily determine the countervailable subsidy to be 0.05 percent ad
valorem for GG/Guanlong.
Non-tradable Share Reform Program
At verification, Department officials found that GG converted 12 percent of its total shares from
non-tradable shares (“NTS”) to tradable shares (“TS”) with an even distribution to public
shareholders, pursuant to a pilot government marketization program (i.e., the Non-tradable Share
Reform program (“NTSR”)) in 2006. The ratio of free or bonus shares relative to the
outstanding public shares resulted from discussion and negotiation between the NTS and TS
shareholders. Company officials explained that stamp taxes for these transfers are specifically
waived under this program./46/
Furthermore, the shareholders were exempted from paying income tax on the share transfer.
However, company officials explained that these tax effects were borne by the shareholders
involved and not by the company itself, so it could provide no information on this aspect of the
NTSR./47/
Analysis: In Tires,/48/ the Department found aspects of the NTSR to be countervailable.
Specifically, we found that the GOC’s waiver of stamp taxes otherwise due upon transfer of
bonus shares was countervailable. With respect to the income tax exemption, the Department
found that it did not have sufficient information to reach a determination./49/
Recommendation: We recommend preliminarily determining that the waiver of stamp taxes
under NTSR confers a countervailable subsidy. The waiver of stamp taxes constitutes a
financial contribution in the form of revenue forgone within the meaning of section 771(5)(D)(ii)
of the Act, with the benefit equaling the tax savings (see 19 CFR 351.510(a)). With respect to
specificity, the record evidence shows that the underlying criterion for participation in NTSR is
that listed companies must have NTS, regardless of whether those NTS were issued by SOEs,
FIEs, or private enterprises. Accordingly, we find that the NTSR, including the stamp tax
exemption, is specific within the meaning of section 771(5A)(D)(i) of the Act, in that it is limited
to only those companies that participated in the NTSR.
To calculate the benefit, we divided the total amount of stamp tax waived during the POI by the
combined POI sales of GG and Guanlong (less any sales between the two companies). See
GG/Guanlong Calculation Memo./50/ Because this is an indirect tax exemption, the subsidy is
recurring (see 19 CFR 351.524(c)).
On this basis, we preliminarily determine the countervailable subsidy to be 0.02 percent ad
valorem for GG and Guanlong.
With regard to income tax exemption, there is insufficient evidence on the record to determine
whether this exemption confers a countervailable subsidy. Therefore, we plan to seek further
information on this aspect of the NTSR in a future administrative review, if this investigation
results in a CVD order.
Exemption from Land-Use Taxes and Fees
At verification, the Department learned that neither GG nor Guanlong paid land-use taxes and
fees during the POI./51/ According to the company officials, GG has never paid such taxes or
fees, and it was their understanding that no such taxes or fees were owed./52/ With regard to
Guanlong, company officials explained that the company was exempted from these taxes and
fees by virtue of its status as an FIE./53/ However, that exemption ended in 2007. Guanlong
officials provided copies of the government circular that originally granted the exemption to all
FIEs and the subsequent circular rescinding the exemption as of 2007./54/ As the government
verification occurred prior to the companies' verification, we did not pursue this issue with the
GOC.
Analysis: Evidence shows that Guanlong was exempted from land-use taxes and fees because it
is an FIE. The basis for GG’s exemption is not clear (GG is not an FIE) and, hence, whether the
taxes and fees were otherwise due is also unclear. Nor do we know the amount of taxes and fees
that GG might have owed.
Recommendation: We recommend preliminarily determining that the exemption of land-use
taxes and fees for Guanlong confers a countervailable subsidy. The exemption of land-use taxes
and fees constitutes a government financial contribution in the form of revenue foregone within
the meaning of section 771(5)(D)(ii) of the Act, with the benefit equaling the tax savings (see 19
CFR 351.510(a)). Regarding specificity, the exemption for Guanlong is de jure specific in that it
is limited by law to FIEs. Although it is possible that GG got an exemption because it was
located in an economic zone, the record with regard to GG, which is not an FIE, is insufficient to
make such a specificity finding.
To calculate the benefit, we treated the amount paid in 2007 (after the exemption had been
withdrawn) as the amount that would otherwise have been paid by Guanlong in 2006. We
divided these savings by the combined POI sales of GG and Guanlong (less any sales between
the two companies). Because this is an indirect tax exemption, the subsidy is recurring (see 19
CFR 351.524(c).
On this basis, we determine the countervailable subsidy rate to be 0.09 percent ad valorem for
GG and Guanlong.
With regard to GG’s non-payment of land-use taxes and fees, there is insufficient evidence on
the record to determine whether this exemption confers a countervailable subsidy. Therefore, we
plan to seek further information on this in a future administrative review, if this investigation
results in a CVD order.
Special Fund for Technology Innovation Projects in Guangdong Province
GG reported that an affiliated company received funds under this program./ /55
Analysis: We verified that the recipient company does not fall within any of the categories
described in 19 CFR 351.525(b)(6)(ii) – (iv)./ /56 Therefore, any subsidies to this company
would not be attributed to GG/Guanlong.
Recommendation: We recommend finding this program not used.
Zhanjiang Municipality Grants for Patents
GG reported that it received a grant under this program./57/ According to the GOC, this payment
was made pursuant to the “Measures of Identifying and Fostering Privately-Owned Intellectual
Property Stronghold Enterprises in Guangdong YUEZHIGUIHAN (2003) No. 49.”/58/
Analysis: Based on our calculations, the benefit of this grant would be expensed prior to the
POI, i.e., the grant was less than 0.5 percent of the relevant sales in the year in which the grant
was approved. See GG/Guanlong Calculation Memo.
Recommendation: We recommend finding this program was not used.
Zhanjiang Municipality Grants to Famous Brand/Famous Trademark Enterprises
GG reported that it received a grant under this program as a result of its carbonless paper having
been certified as a “well-known” or famous trademark product. GG claims that carbonless paper
is non-subject merchandise./59/
Analysis: Based on our calculations, the benefit of this grant would be expensed prior to the
POI, i.e., the grant was less than 0.5 percent of the relevant sales in the year in which the grant
was approved. (See GG/Guanlong Calculation memo.)
Recommendation: We recommend finding this program was not used.
Government Interest Discounts
GG responded that the amounts reported in its consolidated financial statements and cited by the
petitioner in it allegation were received under the “Special Fund for Technology Innovation
Projects in Guangdong Province.”/60/
Analysis: We verified that the amounts in question were reported under the “Special Fund for
Technology Innovation Projects in Guangdong Province.”/61/
Recommendation: We recommend preliminarily determining that all benefits were reported
under “Special Fund for Technology Innovation Projects in Guangdong Province.”
“Enterprise Innovation Funds” Grants
GG and Guanlong reported receiving grants under this program./62/ GG further reported that the
grants it received were provided for non-subject merchandise./63/ Guanlong claimed that one of
the grants it received was for a product that is neither subject merchandise nor an input for
subject merchandise./64/
Analysis: Certain reported grants were provided prior to December 11, 2001, and therefore the
Department is not considering. For the remaining grants, based on our calculations, the benefit
would be expensed prior to the POI, i.e., the grants were less than 0.5 percent of the relevant
sales in the years in which the grants were approved. (See GG/Guanlong Calculation memo.)
Recommendation: We recommend finding this program was not used.
Grants from the Zhanjiang Economic and Technology Development Zone for High and
New Technology Enterprises
GG, Guanlong, and the GOC reported that neither GG nor Guanlong applied for, used or
benefited from this program during the POI./65/
Analysis: We confirmed non-use of this program at verification./66/
Recommendation: We recommend preliminarily determining that this program was not used.
Funding For Construction of Enterprise Technology R&D Centers from the Guangdong
Government
GG reported that it received a grant for the construction of an R&D center in 2000./67/
Analysis: We verified that this grant was received prior to the cut-off date, December 11,
2001./68/
Recommendation: We recommend preliminarily determining that this program was not used.
Grants under the Three Science and Technology Expenditure Fund
GG reported it received eight grants under this program./69/ GG claimed that six of these grants
were received before the cut-off date and that the remaining two grants were used to fund
projects not related to the production of subject merchandise./ /70 Guanlong reported that it
received eight grants under this program, and that these grants were received before December
11, 2001, or benefitted the production of non-subject merchandise./71/
Analysis: We verified that certain of the reported grants were provided prior to December 11,
2001. For the remaining grants, based on our calculations, the benefit would be expensed prior
to the POI, i.e., the grants were less than 0.5 percent of the relevant sales in the years in which
the grants were approved. (See GG/Guanlong Calculation memo.)
Recommendation: We recommend finding this program was not used.
Research Assistance from the Local Government to GG
GG reported that it received research assistance from the local government during the POI./72/
GG explained that the local government provides project subsidies to enterprises that conduct
research on new and high technology projects and/or implements such technology into their
production processes./73/
Analysis: Based on our calculations, any benefit from this grant is less than 0.005 percent.
Where the countervailable subsidy rate for a program is less than 0.005 percent, the program is
not included in the total CVD rate. See, e.g., Final Results of Countervailing Duty
Administrative Review: Low Enriched Uranium from France, 70 FR 39990 (July 12, 2005), and
the accompanying Issues and Decision Memorandum at “Purchases at Prices that Constitute
‘More than Adequate Remuneration’” (citing Final Results of Administrative Review: Certain
Softwood Lumber Products from Canada, 69 FR 75917 (December 20, 2004), and the
accompanying Issues and Decision Memorandum, at “Other Programs Determined to Confer
Subsidies”).
Recommendation: We recommend preliminarily determining that this program was not used.
Selection of Adverse Facts Available Rate for Shenzhen Yuanming
As noted above, we also agreed to investigate three alleged subsidies relating to Shenzhen
municipality (or jurisdictions within Shenzhen):
• Provision of Electricity for Less than Adequate Remuneration in the Long Gang District
of Shenzen City
• Provision of Land to Shenzhen Yuanming in the Li Lang Industrial Zone for Less than
Adequate Remuneration
• Prohibited Export Subsidies for Enterprises Registered in Shenzhen Municipality
Analysis: GG and Guanlong are not located in Shenzhen. However, we could not confirm
Shenzhen Yuanming’s location because it failed to participate in this investigation and no
information has been submitted to demonstrate that Shenzhen Yuanming is not located in
Shenzhen.
As stated in LWS, for subsidies alleged after the mandatory respondents have been selected, we
only assign adverse rates for those provincial and local programs where the respondents are
allegedly located./74/ Thus, because petitioner alleged that Shenzhen Yuanming benefitted from
subsidies in Shenzhen and Li Lang Industrial Zone, we are not assigning rates to Shenzhen
Yuanming for the other programs addressed above (provided in Guangdong and Zhanjiang).
The rates listed below will be added to the rates assigned to Shenzhen Yuanming in the
Preliminary Determination.
Selection of Adverse Facts Available Rate
In deciding which facts to use as AFA, section 776(b) of the Act and 19 CFR 351.308(c)(1)
authorize the Department to rely on information derived from (1) the petition, (2) a final
determination in the investigation, (3) any previous review or determination, or (4) any
information placed on the record. It is the Department’s practice to select, as AFA, the highest
calculated rate for the same or similar type of program in any segment of the proceeding. Where
such information is not available, it is the Department’s practice to apply the highest calculated
subsidy rate for any program otherwise listed. See, e.g., Certain In-Shell Roasted Pistachios from
the Islamic Republic of Iran: Final Results of Countervailing Duty Administrative Review, 71
FR 66165 (November 13, 2006) (Pistachios from Iran), and accompanying Issues and Decision
Memorandum at “Analysis of Programs” and Comment 1; and Coated Free Sheet Paper from the
Republic of China: Final Determination of Countervailing Duty Investigation, 72 FR 60645
(October 25, 2007) (“CFS from the PRC”), and accompanying Issues and Decision
Memorandum at “Use of Adverse Facts Available” section and Comment 24.
The Department’s practice when selecting an adverse rate from among the possible sources of
information is to ensure that the margin is sufficiently adverse “as to effectuate the purpose of
the facts available rule to induce respondents to provide the Department with complete and
accurate information in a timely manner.” See Final Determination of Sales at Less than Fair
Value: Static Random Access Memory Semiconductors from Taiwan, 63 FR 8909, 8932
(February 23, 1998). The Department’s practice also ensures “that the party does not obtain a
more favorable result by failing to cooperate than if it had cooperated fully.” See SAA at 870. In
choosing the appropriate balance between providing a respondent with an incentive to respond
accurately and imposing a rate that is reasonably related to the respondent’s prior commercial
activity, selecting the highest prior margin “reflects a common sense inference that the highest
prior margin is the most probative evidence of current margins, because, if it were not so, the
importer, knowing of the rule, would have produced current information showing the margin to
be less.” See Rhone Poulenc, Inc. v. United States, 899 F. 2d 1185, 1190 (Fed. Cir. 1990).
Because Shenzhen Yuanming failed to cooperate to the best of its ability in this investigation, as
discussed in the Preliminary Determination, we made the adverse inference that Shenzhen
Yuanming benefitted from the three programs noted above. For the program involving the
provision of electricity for LTAR, the Department has preliminarily determined to use
GG/Guanlong’s rate calculated in this investigation for this program (which is 0.06 percent).
Similarly, for the program involving the provision of land for LTAR, the Department has
preliminarily determined to use GG’s rate calculated in this investigation for this program
(which is 0.18 percent). Because GG/Guanlong did not use the other alleged program (i.e.,
Prohibited Export Subsidies for Enterprises Registered in Shenzhen Municipality), the
Department would next look for the highest non-de minimis subsidy rate calculated for the same
or similar program in the China CVD investigation where available./75/ Absent an above-de
minimis subsidy rate calculated for the same or similar program, we are applying the highest
calculated subsidy rate for any program otherwise listed, which could conceivably be used by the
respondents in this investigation. The Department has reached affirmative final CVD
determinations in several investigations of products from the PRC. See CFS from the PRC;
CWP; LWP; and LWS. As such, we are including the subsidy rates calculated in those final
determinations in our AFA analysis in the instant investigation because those final
determinations were completed more than seven days prior to this post-preliminary analysis. In
applying the highest calculated subsidy rate for any program otherwise listed, we are
disregarding the rates calculated under the programs “Hot-Rolled Steel for Less Than Adequate
Remuneration” (see CWP and LWP) and “Government Provision of Inputs (i.e., biaxial-oriented
polypropylene) for Less than Adequate Remuneration” (see LWS), because the raw flexible
magnets industry clearly cannot use the products for which those rates were calculated (i.e., hotrolled
steel and biaxial-oriented polypropylene) in the production of subject merchandise. The
Department’s decision not to use, as AFA, these program rates is based on the particular facts of
this investigation and this particular set of facts may not be applicable or identifiable in another
proceeding./76/ Thus, for the Prohibited Export Subsidies for Enterprises Registered in Shenzhen
Municipality program, we applied the 13.36 ad valorem rate calculated for the “Provision of
Land for Less than Adequate Remuneration” in the LWS final. See Sacks Decision
Memorandum at “Provision of Land for Less than Adequate Remuneration.”
Due to Shenzhen Yuanming’s failure to participate, we are applying AFA to this company and
will include these programs in our AFA calculations. See summary of Shenzhen Yuanming’s
AFA rates on these programs in Appendix 1.
We recommend that you approve the individual program recommendations presented above.
________________ _________________
Agree
Disagree
______________________________
David M. Spooner
Assistant Secretary for Import Administration
_____________________________
Date
/1/ Notice of Initiation of Countervailing Duty Investigation: Lightweight Thermal Paper from the People’s
Republic of China, 72 FR 62209 (November 2, 2007).
/2/ Lightweight Thermal Paper from the People’s Republic of China: Preliminary Affirmative Countervailing Duty
Determination and Alignment of Final Countervailing Duty Determination with Final Antidumping Duty
Determination, 73 FR 13850 (March 14, 2008) (“Preliminary Determination”).
/3/ On March 14, April 9, 16, 22, 25, June 9 and 13, 2008, we received additional information relating to the
programs from the Petitioner (Appleton Papers Inc.), the responding companies, and the Government of the
People’s Republic of China (“GOC”).
/4/ GOC’s New Allegation Response (“GOC NAR”) (April 16, 2008) at exhibits NA-1 and NA-2
/5/ Verification Report of the Zhanjiang Municipal Government and the Guangdong Provincial Government of the
People’s Republic of China (“Zhanjiang/Guangdong VR”) (August 28, 2008) at pp. 37-38
/6/ Id. at p. 35
/7/ Id. at p. 35
/8/ Id. at exhibits 13 and 14.
/9/ Id. at p. 34
/10/ Circular Welded Carbon Quality Steel Pipe from the People’s Republic of China: Final Affirmative
Countervailing Duty Determination and Final Affirmative Determination of Critical Circumstances, 73 FR 31966
(June 5, 2008) (“CWP”) and the accompanying Issues and Decision Memorandum at comment 9
/11/ GOCs 3rd Supplemental Questionnaire Response (“GOC 3rd SQR”) (June 9, 2008) at exhibits S3-2 and S3-3
/12/ GOC NAR (April 16, 2008) at pp. 2-3
/13/ GOC NAR (April 16, 2008) at p. 5
/14/ Countervailing Duties; Final Rule, 63 FR 65348 (November 25, 1998) (“CVD Preamble”) at 65378
/15/ GOC 3rd SQR (June 9, 2008) at exhibit S3-1
/16/ GG New Subsidy Allegation Response (“GG NAR”) (April 9, 2008) at p.6; Guanlong’s New Subsidy
Allegation Response (“Guanlong NAR”) (April 9, 2008) at p.6; and Hanhong New Subsidy Allegation Response
(March 14, 2008) at pp. 1-2
/17/ GG NAR (April 9, 2008) at p.6
/18/ GOC NAR (April 16, 2008) at exhibits NA-6 and NA-7
/19/ In CWP, the Department determined that it would not find subsidies prior to this date, when the PRC joined the
WTO. See CWP and the accompanying Issues and Decision Memorandum at comment 2./ /
/20/ GOC NAR (April 16, 2008) at p.10
/21/ GOC 3rd SQR (June 9, 2008) at p.9
/2/2 Zhanjiang/Guangdong VR at p. 32
/23/ GG/ZG Report (“GG/Guanlong VR”) (August 20, 2008) at p. 18
/24/ Id. at p. 20
/25/ GG NAR (April 9, 2008) at p. 8
/26/ Laminated Woven Sacks from the People’s Republic of China: Final Affirmative Countervailing Duty
Determination and Final Affirmative Determination, in Part, of Critical Circumstances, 73 FR 35639, June 24,
2008 (“LWS”)
/27/ LWS and the accompanying Issues and Decision Memorandum at p. 14 and Comment 8
/28/ LWS and the accompanying Issues and Decision Memorandum at p. 14 and Comment 9
/29/ LWS and the accompanying Issues and Decision Memorandum at p. 15 and Comment 10
/30/ LWS and the accompanying Issues and Decision Memorandum at p. 15
/31/ LWS and the accompanying Issues and Decision Memorandum at p. 16 and Comment 10
/32/ GG/Guanlong VR at p. 20
/33/ LWS and the accompanying Issues and Decision Memorandum at p. 17
/34/ GG’s Response to the Department’s Original CVD Questionnaire (“GG QR”) (February 19, 2008) at p. 32; GG
NAR (April 9, 2008) at p.11 and exhibit 6; and GOC’s 3rd SQR (June 9, 2008) at pp.10–19 and ex S3-10
/35/ GOC 3rd SQR (June 9, 2008) at p. 11/
/36 GOC’s 3rd SQR at p. 12
/37/ GOC’s 3rd SQR at exhibit S3-10
/38/ GOC’s 3rd SQR at exhibit S3-10
/39/ GOC’s 3rd SQR at pp. 15-17
/40/ GG QR (Feb 19, 2008) at p. 32; Second Supplemental Questionnaire Response of GG (“GG 2nd SQR”) (April
22, 2008) at pp. 15-16; and Guanlong’s Response to the Department’s Original CVD Questionnaire (“Guanlong
QR”) (Feb 19, 2008) at pp. 25-26
/41/ GOC 3rd SQR (June 9, 2008) at p. 53
/42/ Preliminary Determination at 13850, 13854
/43/ Guanlong QR (Feb 19, 2008) at p.26
/44/ GG/Guanlong VR at p. 26
/45/ GG/Guanlong VR at exhibit 25
/46/ GG/Guanlong VR (August 20, 2008) at pp. 2-4 and VE-6
/47/ GG/Guanlong VR (August 20, 2008) at pp. 2-4 and VE-6
/48/ Certain New Pneumatic Off-the-road Tires from the People’s Republic of China: Final Affirmative
Cuntervailing Duty Determination and Final Negative Determination of Critical Circumstances, 73 FR 40480
(July 15, 2008) (“Tires”) and the accompanying Issues and Decision Memorandum at Comment G.3 (“Tires”)
/49/ Tires and the accompanying Issues and Decision Memorandum at Comment G.4
/50/ Calculations for the Post-Preliminary Analysis of Various Subsidy Programs for Guangdong Guanhao High-Tech
Co., Ltd. (“GG/Guanlong Calculation Memo”)
/51/ GG/Guanlong VR (August 20, 2008) at pp. 21 and 23
/52/ Id. at p. 21
/53/ Id. at p. 23
/54/ Id. at verification exhibit 27b
/55/ GG NAR (April 9, 2008) at pp. 10-11/
/56 GG/Guanlong VR (August 20, 2008) at p.5
/57/ Supplemental Information of GG and Guanlong (June 17, 2008) at p. 2
/58/ GOC 3rd SQR (June 9, 2008) at pp.10 and 25/
/59 GG NAR (April 9, 2008) at p. 12 and exhibit 7
/60/ GG NAR (April 9, 2008) at p. 12
/61/ GG/Guanlong VR at p. 26
/62/ GG NAR (April 9, 2008) at p. 13 and exhibit 8; Guanlong NAR (April 9, 2008) at p.10 and exhibit 4; and
Supplemental Information of GG and Guanlong (June 17, 2008) at pp. 2-3
/63/ GG NAR (April 9, 2008) at exhibit 8
/64/ Guanlong NAR (April 9, 2008) at exhibit 4
/65/ GG NAR (April 9, 2008) at p.14; Guanlong NAR (April 9, 2008) at p. 11; and GOC NAR (Aprl 16, 2008) at p.
14 /
/66 GG/Guanlong VR (August 20, 2008) at pp. 29-30
/67/ GG NAR (April 9, 2008) at pp. 14-15
/68/ GG/Guanlong VR (August 20, 2008) at p. 27
/69/ GG NAR (April 9, 2008) at pp. 13-14 and exhibit 9; and Supplemental Information of GG Guanlong (June 17,
2008) at p.3
/70/ GG NAR (April 9, 2008) pp. 13-14 and exhibit 9; and Supplemental Information of GG and Guanlong (June 17,
2008) at p.3
/71/ Guanlong NAR (April 9, 2008) at pp. 10-11 and exhibit 5; and Supplemental Information of GG and Guanlong
(June 17, 2008) at p. 3
/72/ GG QR (February 19, 2008) at p. 31; and GG 2nd SQR (April 22, 2008) at pp.11-14
/73/ GG QR (February 19, 2008) at p. 31
/74/ LWS, 73 FR 31966, on page 6 of the Issues and Decision Memorandum at (July 25, 2007).
/75/ Circular Welded Austenitic Stainless Pressure Pipe from the People’s Republic of China: Preliminary
Affirmative Countervailing Duty Determination, 73 FR 39657 (July 10, 2008).
/76/ Raw Flexible Magnets from the People's Republic of China: Final Affirmative Countervailing Duty
Determination and the accompanying Issues and Decision Memorandum at page 6, 73 FR 39667 (July 10, 2008)