[Federal Register: September 9, 2008 (Volume 73, Number 175)]
[Notices]
[Page 52297-52315]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09se08-43]
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DEPARTMENT OF COMMERCE
International Trade Administration
[C-570-936]
Circular Welded Carbon Quality Steel Line Pipe from the People's
Republic of China: Preliminary Affirmative Countervailing Duty
Determination
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
SUMMARY: The Department of Commerce (the Department) preliminarily
determines that countervailable subsidies are being provided to
producers and exporters of circular welded carbon quality steel line
pipe (line pipe) from the People's Republic of China (the PRC). For
information on the estimated subsidy rates, see the ``Suspension of
Liquidation'' section of this notice.
EFFECTIVE DATE: September 9, 2008.
FOR FURTHER INFORMATION CONTACT: Kristen Johnson or John Conniff, AD/
CVD Operations, Office 3, Operations,
[[Page 52298]]
Import Administration, U.S. Department of Commerce, Room 4014, 14th
Street and Constitution Avenue, NW, Washington, DC 20230; telephone:
(202) 482-4793 and (202) 482-1009, respectively.
SUPPLEMENTARY INFORMATION:
Case History
On April 3, 2008, the Department received the petition filed in
proper form by the petitioners.\1\ This investigation was initiated on
April 23, 2008. See Circular Welded Carbon Quality Steel Line Pipe from
the People's Republic of China: Notice of Initiation of Countervailing
Duty Investigation, 73 FR 23184 (April 29, 2008) (Initiation Notice),
and accompanying Initiation Checklist.\2\ On June 6, 2008, the
Department postponed the deadline for the preliminary determination by
65 days to no later than September 2, 2008. See Circular Welded Carbon
Quality Steel Line Pipe from the People's Republic of China: Notice of
Postponement of Preliminary Determination in the Countervailing Duty
Investigation, 73 FR 32290 (June 6, 2008).
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\1\ Petitioners are United States Steel Corporation, Maverick
Tube Corporation, Tex-Tube Company, and the United Steel, Paper and
Forestry, Rubber, Manufacturing, Energy, Allied Industrial and
Service Workers InternationalUnion, AFL-CIO-CLC.
\2\ A public version of this and all public Departmental
memoranda is on file in the Central Records Unit (CRU), room 1117 in
the main building of the Commerce Department.
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Due to the large number of producers and exporters of line pipe in
the PRC, we determined that it was not possible to investigate
individually each producer or exporter and, therefore, selected two
producers/exporters of line pipe to be mandatory respondents: Huludao
Steel Pipe Industrial Co., Ltd./Huludao City Steel Pipe Industrial Co.,
Ltd. and Liaoning Northern Steel Pipe Co., Ltd. (Northern Steel)
(collectively, respondents). See Memorandum from the Team through
Melissa Skinner, Director, Office 3, Operations, to Stephen J. Claeys,
Deputy Assistant Secretary for Import Administration, regarding
``Respondent Selection'' (May 16, 2008).\3\
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\3\ A public version of this memorandum is available in the CRU.
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On May 19, 2008, we issued the initial countervailing duty (CVD)
questionnaire to the Government of the People's Republic of China (the
GOC) and the mandatory respondents. On July 9, 2008, the Huludao Seven-
Star Steel Pipe Group Co., Ltd. (Huludao Seven Star Group), Huludao
Steel Pipe Industrial Co. Ltd. (Huludao Steel Pipe), and Huludao Bohai
Oil Pipe Industrial Co. Ltd. (Huludao Bohai Oil Pipe) (collectively,
the Huludao Companies) submitted their respective responses to the
initial CVD questionnaire. On July 10, 2008, the GOC submitted its
initial questionnaire response. On July 14, 2008, Northern Steel
submitted its response to the initial CVD questionnaire.
Regarding the GOC, we issued it supplemental questionnaires on
August 5 and August 6, 2008, to which the GOC submitted a response on
August 21, 2008.
Regarding the Huludao Companies, on July 17, 2008, we issued a
supplemental questionnaire, to which they responded on July 28, 2008.
On July 23, 2008, we issued a supplemental questionnaire to the Huludao
Seven Star Group, which submitted its response on August 11, 2008. On
July 24, 2008, we issued a supplemental questionnaire to Huludao Bohai
Oil Pipe, which submitted its questionnaire response on August 12,
2008. On July 30, 2008, we issued a supplemental questionnaire to
Huludao Steel Pipe, which submitted a response on August 18, 2008. On
July 31 and August 7, 2008, we issued supplemental questionnaires to
the Huludao Companies, which submitted their responses on August 15,
18, and 28, 2008, respectively.
On July 21, 2008, we issued a supplemental questionnaire to
Northern Steel, to which it responded on August 6, 2008. On August 6
and 12, 2008, we issued additional supplemental questionnaires to
Northern Steel; the company submitted its responses on August 14 and
26, 2008, respectively.
On June 24, 2008, petitioners submitted new subsidy allegations
regarding four programs. On August 5, 2008, the Department initiated
investigations of the four newly alleged subsidy programs pursuant to
section 775 of the Tariff Act of 1930, as amended (the Act). See
Memorandum to Melissa G. Skinner, Director, Office 3 Operations,
regarding ``New Subsidy Allegations'' (August 5, 2008). Questionnaires
regarding these newly alleged subsidies were sent to the GOC, Northern
Steel, and the Huludao Companies on August 6, 2008. The Huludao
Companies submitted their response to the questionnaire on the new
subsidy allegations on August 22, 2008. Northern Steel submitted its
response to the questionnaire on the new subsidy allegations on August
25, 2008. The GOC submitted its response on August 29, 2008.
On August 1, 2008, petitioners alleged that the Huludao Companies
are uncreditworthy and requested that the Department initiate an
uncreditworthy inquiry as described under 19 CFR 351.505(a)(4)(i). Due
to the timing of petitioners' submission, we are unable to address
their uncreditworthy allegation in the context of this preliminary
determination. Therefore, we will address the allegation after the
issuance of the preliminary determination.
Scope of the Investigation
The merchandise covered by this investigation is circular welded
carbon quality steel pipe of a kind used for oil and gas pipelines
(line pipe), not more that 406.4 mm (16 inches) in outside diameter,
regardless of wall thickness, length, surface finish, end finish or
stenciling.
The term ``carbon quality steel'' includes both carbon steel and
carbon steel mixed with small amounts of alloying elements that may
exceed the individual weight limits for nonalloy steels imposed in the
Harmonized Tariff Schedule of the United States (HTSUS). Specifically,
the term ``carbon quality'' includes products in which (1) iron
predominates by weight over each of the other contained elements, (2)
the carbon content is 2 percent or less by weight and (3) none of the
elements listed below exceeds the quantity by weight respectively
indicated:
(i)2.00 percent of manganese,
(ii) 2.25 percent of silicon,
(iii) 1.00 percent of copper,
(iv) 0.50 percent of aluminum,
(v) 1.25 percent of chromium,
(vi) 0.30 percent of cobalt,
(vii) 0.40 percent of lead,
(viii) 1.25 percent of nickel,
(ix) 0.30 percent of tungsten,
(x) 0.012 percent of boron,
(xi) 0.50 percent of molybdenum,
(xii) 0.15 percent of niobium,
(xiii) 0.41 percent of titanium,
(xiv) 0.15 percent of vanadium, or
(xv) 0.15 percent of zirconium.
Line pipe is normally produced to specifications published by the
American Petroleum Institute (API) (or comparable foreign
specifications) including API A-25, 5LA, 5LB, and X grades from 42 and
above, and/or any other proprietary grades or non-graded material.
Nevertheless, all pipes meeting the physical description set forth
above that is of a kind used in oil and gas pipelines, including all
multiple-stenciled pipe with an API line pipe stencil is covered by the
scope of this investigation.
Excluded from this scope are pipes that are multiple-stenciled to a
standard and/or structural specification and to any other
specification, such as the API-5L specification, when it also has one
or more of the following
[[Page 52299]]
characteristics: is 32 feet in length or less; is less than 2.0 inches
(50 mm) in outside diameter; has a galvanized and/or painted surface
finish; or has a threaded and/or coupled end finish. (The term
``painted'' does not include coatings to inhibit rust in transit, such
as varnish, but includes coatings such as polyester.)
The line pipe products that are the subject of this investigation
are currently classifiable in the HTSUS under subheadings
7306.19.10.10, 7306.19.10.50, 7306.19.51.10, and 7306.19.51.50. While
HTSUS subheadings are provided for convenience and customs purposes,
the written description of the scope of this investigation is
dispositive.
Scope Comments
In the Initiation Notice, we acknowledged that the scope of the
antidumping (AD) and CVD investigations of line pipe may include
certain merchandise potentially subject to the AD and CVD
investigations on circular welded carbon quality steel pipe (CWP) from
the PRC.\4\ See Initiation Notice, 73 FR 23184. In accordance with the
Department's regulations (see Antidumping Duties; Countervailing
Duties, 62 FR 27296, 27323 (May 19, 1997)), we set aside a period of
time for parties to raise issues regarding product coverage, and
encouraged all parties to submit comments within 20 calendar days of
publication of the Initiation Notice.
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\4\ See Notice of Final Determination of Sales at Less Than Fair
Value and Affirmative Final Determination of Critical Circumstances:
Circular Welded Carbon Quality Steel Pipe from the People's Republic
of China, 73 FR 31970 (June 5, 2008), see also 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).
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On May 13, 2008, Wheatland Tube Company (Wheatland), an interested
party in this proceeding, submitted comments on the scope of the AD and
CVD investigations on line pipe. Wheatland requested that the
Department modify the line pipe scope to reflect the scope definition
ultimately set out in the CWP investigations.\5\ Based on the comments
received and resolution of the CWP scope issue, we have modified the
scope of the line pipe investigations to eliminate the overlap that
existed between the scope of CWP and line pipe. See Memorandum to
Stephen J. Claeys, Deputy Assistant Secretary for Import
Administration, from Abdelali Elouaradia, Director, Office 4
Operations, regarding ``Antidumping and Countervailing Duty
Investigations of Circular Welded Carbon Quality Steel Line Pipe from
the People's Republic of China: Scope Modification'' (August 29, 2008).
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\5\ See Wheatland's submission to the Department entitled
``Scope of the Antidumping Duty investigations of Circular Welded
Carbon Quality Steel Line Pipe from the Republic of Korea and the
People's Republic of China and Countervailing Duty Investigation of
Circular Welded Carbon Quality Steel line Pipe from the People's
Republic of China - Comments on Scope of Investigations'' (May 13,
2008).
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Injury Test
Because the PRC is a ``Subsidies Agreement Country'' within the
meaning of section 701(b) of the Act, the International Trade
Commission (the ITC) is required to determine whether imports of the
subject merchandise from the PRC materially injure, or threaten
material injury to, a U.S. industry. On June 3, 2008, the ITC published
its preliminary determination finding that there is a reasonable
indication that an industry in the United States is materially injured
or threatened with material injury by reason of imports from the PRC of
the subject merchandise. See Certain Circular Welded Carbon Quality
Steel Line Pipe from China and Korea, Investigation Nos. 701-TA-455 and
731-TA-1149-1150 (Preliminary), 73 FR 31712 (June 3, 2008).
Period of Investigation
The period of investigation (the POI) for which we are measuring
subsidies is January 1, 2007, through December 31, 2007, which
corresponds to the PRC's most recently completed fiscal year. See 19
CFR 351.204(b)(2).
Application of the Countervailing Duty Law to Imports from the PRC
On October 25, 2007, the Department published Coated Free Sheet
Paper from the People's Republic of China: Final Affirmative
Countervailing Duty Determination, 72 FR 60645 (October 25, 2007) (CFS
Final), and accompanying decision memorandum (CFS Decision Memorandum).
In CFS Final, the Department found that
. . . given the substantial differences between the Soviet-style
economies and the PRC's economy in recent years, the Department's
previous decision not to apply the CVD law to these Soviet-style
economies does not act as a bar to proceeding with a CVD investigation
involving products from the PRC.
See CFS Decision Memorandum at Comment 6. The Department has affirmed
its decision to apply the CVD law to the PRC in subsequent final
determinations. See, e.g., 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 Final), and accompanying
decision memorandum (CWP Decision Memorandum).
Additionally, for the reasons stated in the CWP Decision
Memorandum, we are using the date of December 11, 2001, the date on
which the PRC became a member of the World Trade Organization (WTO), as
the date from which the Department will identify and measure subsidies
in the PRC for purposes of this preliminary determination. See CWP
Decision Memorandum at Comment 2.
Subsidies Valuation Information
The Department is investigating loans received by respondents from
Chinese banks, including state-owned commercial banks (SOCBs), which
are alleged to have been granted on a preferential, non-commercial
basis. Section 771(5)(E)(ii) of the Act explains that the benefit for
loans is the ``difference between the amount the recipient of the loan
pays on the loan and the amount the recipient would pay on a comparable
commercial loan that the recipient could actually obtain on the
market.'' Normally, the Department uses comparable commercial loans
reported by the company for benchmarking purposes. See 19 CFR
351.505(a)(2)(i). However, the Department does not treat loans from
government banks as commercial if they were provided pursuant to a
government program. See 19 CFR 351.505(a)(2)(ii). As explained below,
we have preliminarily determined that short-term and long-term loans of
the Huludao Companies were received under the GOC's preferential
lending program or constitute export-contingent loans and, thus,
constitute loans received under an export subsidy program. Similarly,
as explained below, we have preliminary determined that Northern
Steel's short-term loans were issued contingent on export performance
and, thus, constitute loans received under an export subsidy program.
Therefore, because we have preliminarily determined that respondents'
outstanding loans were issued pursuant to GOC programs, the loans are
the very loans for which we require a suitable benchmark.
Under 19 CFR 351.505(a)(3)(ii), if the respondent firm did not have
any comparable commercial loans during the period, the Department may
use a national interest rate for comparable commercial loans. However,
we
[[Page 52300]]
preliminarily determine that the Chinese national interest rates are
not reliable as benchmarks for these loans because of the pervasiveness
of the GOC's intervention in the banking sector. Loans provided by
Chinese banks reflect significant government intervention and do not
reflect the rates that would be found in a functioning market. See CFS
Decision Memorandum at Comment 10.
In our analysis of the PRC as a non-market economy in the AD
investigation of certain lined paper products from the PRC, the
Department found that the PRC's banking sector does not operate on a
commercial basis and is subject to significant distortions, primarily
arising out of the continued dominant role of the government in the
sector. See ``The People's Republic of China (PRC) Status as a Non-
Market Economy,'' (May 15, 2006) (May 15 Memorandum); and ``China's
Status as a Non-Market Economy,'' (August 30, 2006) (August 30
Memorandum), both of which are referenced in the Notice of Final
Determination of Sales at Less Than Fair Value, and Affirmative
Critical Circumstances, In Part: Certain Lined Paper Products From the
People's Republic of China, 71 FR 53079 (September 8, 2006). This
finding was further elaborated in CFS Final. See CFS Decision
Memorandum at Comment 10. In that case, the Department found that the
GOC still dominates the domestic Chinese banking sector and prevents
banks from operating on a fully commercial basis. See also Certain New
Pneumatic Off-the-Road Tires from the People's Republic of China:
Preliminary Affirmative Countervailing Duty Determination, 72 FR, 71365
(December 17, 2007) (Tires Prelim) and upheld in Certain New Pneumatic
Off-the-Road Tires From the People's Republic of China: Final
Affirmative Countervailing Duty Determination and Final Negative
Determination of Critical Circumstances, 73 FR 40480 (July 15, 2008)
(Tires Final) and accompanying decision memorandum (Tires Decision
Memorandum) at ``Subsidies Valuation'' section. We continue to find
that these distortions are present in the PRC banking sector and,
therefore, preliminarily determine that the interest rates of the
domestic Chinese banking sector do not provide a suitable basis for
benchmarking the loans provided to respondents in this proceeding.
Moreover, while foreign-owned banks do operate in the PRC, they are
subject to the same restrictions as the SOCBs. Further, their share of
assets and lending is negligible compared with the SOCBs. Therefore, as
discussed in greater detail in CFS Final, because of the
marketdistorting effects of the GOC in the PRC banking sector, foreign
bank lending does not provide a suitable benchmark. See CFS Decision
Memorandum at Comment 10.
The statute directs that the benefit is normally measured by
comparison to a ``loan that the recipient could actually obtain on the
market.'' See Section 771(5)(E)(ii) of the Act. Thus, the benchmark
should be a market-based benchmark, yet, we preliminarily determine
that there is not a functioning market for loans within the PRC.
Therefore, because of the special difficulties inherent in using a
Chinese benchmark for loans, the Department is selecting a market-based
benchmark interest rate based on the inflation-adjusted interest rates
of countries with similar per capita Gross National Income (GNI) to the
PRC, using the same regression-based methodology that we employed in
recent CVD proceedings involving the PRC. See e.g., CFS Decision
Memorandum at Comment 10 and Tires Decision Memorandum at Comment E.3
``Role of the GOC in the PRC Banking System and Whether to Use an
Internal or External Benchmark.''
We note that the use of an external benchmark is consistent with
the Department's practice. For example, in Softwood Lumber First
Review, the Department used U.S. timber prices to measure the benefit
for government-provided timber in Canada. See Notice of Final Results
of Countervailing Duty Administrative Review and Rescission of Certain
Company-Specific Reviews: Certain Softwood Lumber Products From Canada,
69 FR 75917 (December 20, 2004) (Softwood Lumber First Review) and
accompanying decision memorandum at ``U.S. Log Prices are a More
Appropriate Benchmark'' section. In the current proceeding, the
Department preliminarily finds that the GOC's predominant role in the
banking sector results in significant distortions that render the
lending rates in the PRC unsuitable as market benchmarks. Therefore, as
in Softwood Lumber First Review, where domestic prices are not
reliable, we have resorted to prices outside the PRC.
We now turn to the issue of choosing an external benchmark.
Selecting an appropriate external interest rate benchmark is
particularly important in this case because, unlike prices for certain
commodities and traded goods, lending rates vary significantly across
the world. Nevertheless, as discussed in CFS Final, there is a broad
inverse relationship between income levels and lending rates. In other
words, countries with lower per capita GNI tend to have higher interest
rates than countries with higher per capita GNI, a fact demonstrated by
the lending rates across countries reported in International Financial
Statistics (IFS). See Tires Prelim at ``Subsidies Valuation'' (upheld
in Tires Final). The Department has therefore preliminarily determined
that it is appropriate to compute a benchmark interest rate based on
the inflationadjusted interest rates of countries with similar per
capita GNI to the PRC, using the same regression-based methodology that
we employed in CFS Final and Tires Final. As explained in the CFS
Decision Memorandum at Comment 10, this pool of countries captures the
broad inverse relationship between income and interest rates. We
determined which countries are similar to the PRC in terms of per
capita GNI based on the World Bank's classification of countries as:
low income; lower-middle income; upper-middle income; and high income.
The PRC falls in the lower-middle income category, a group that
includes 55 countries as of July 2007, i.e., during the POI. See Tires
Prelim at ``Subsidies Valuation'' (upheld in Tires Final).
Many of these countries reported short-term lending and inflation
rates to IFS. With the exceptions noted below, we used this data set to
develop an inflation-adjusted market benchmark lending rate for short-
term renminbi (RMB) loans. We did not include those economies that the
Department considered to be non-market economies for AD purposes. The
benchmark necessarily also excludes any economy that did not report
lending and inflation rates to IFS.
Because these are inflation-adjusted benchmarks, it is also
necessary to adjust the interest paid by respondents on its RMB loans
for inflation. This was done using the PRC inflation figure as reported
to IFS. The Department then compared its benchmarks with respondents'
inflation-adjusted interest rate to determine whether a benefit existed
for the loans received by respondents on which principal was
outstanding or interest was paid during the POI. The lending rates
reported in IFS represent short-term lending, and there is not
sufficient publicly available long-term interest rate data upon which
to base a robust benchmark for longterm loans. Therefore, the
Department has derived long-term benchmark rates for a given year using
a formula that is a function of the Department's derived short-term
benchmark interest rate for the year in question, the inflation rate
for the year in question, long-term U.S. corporate BBrated bond rates,
and one-year U.S. corporate BB-rated bond rates. To calculate long-term
loan
[[Page 52301]]
benchmarks, the Department first developed a ratio of short-term and
long-term lending. The Department then applied this ratio to the
benchmark short-term lending figure (discussed above) to impute a long-
term lending rate. Specifically, the Department computed a ratio of
long-term U.S. corporate BB-rated bond rates and one-year U.S.
corporate BB-rated bond rates reported by the Federal Reserve for 2005.
This ratio serves to reflect the mark-up that typically exists on long-
term loans, as compared to short-term loans. In calculating long-term
benchmarks and discount rates, the Department has adjusted the long-
term U.S. corporate BB-rated bond rates to approximate as closely as
possible the terms of the long-term loans at issue. Thus, to calculate
the long-term loan benchmarks, we adjusted the short-term benchmark
lending rate for the year in question to reflect inflation in the PRC
and then applied the appropriate mark-up ratio. In our derivation of
long-term benchmark interest rates, we have not made any inflation
adjustment to interest paid by respondents on their long-term RMB-
denominated loans. This methodology is consistent with the Department's
practice. See Tires Decision Memorandum at ``Loan Benchmarks and
Discount Rates'' section and at Comment E.3 ``Role of the GOC in the
PRC Banking System and Whether to Use an Internal or External
Benchmark.''
In addition, the Department requires a U.S. dollar denominated
short-term interest rate. Consistent with past practice, for U.S.
dollar denominated loans, the Department used as the benchmark the one-
year dollar interest rates for the London Interbank Offering Rate
(LIBOR), plus the average spread between LIBOR and the one-year
corporate bond rates for companies with a BB rating, as provided by
Bloomberg. See Tires Prelim, 72 FR 71365 (upheld in Tires Final). For
this preliminary determination, we have determined that BB-rated bonds,
which are the highest non-investment-grade and near the middle of the
overall range, are the most appropriate basis for calculating the
spread over LIBOR. Furthermore, consistent with past practice, the
Department relied on corporate bond rates for the industrial sector in
the United States and the Eurozone, because the market for dollars and
euros is international in scope. Id.
The Department also requires an RMB-denominated long-term interest
rate to use as a discount rate for purposes of allocating benefits
received through the provision of certain landuse rights for less than
adequate remuneration (LTAR) over the relevant length of each land-use
agreement. The Department also requires an RMB-denominated interest
rate to use as a discount rate for certain countervailable long-term
loans. In calculating the appropriate long-term markup for the
provision of land-use rights for LTAR, we have used the 30-year
Bloomberg U.S. corporate BB-rated bond rate because this time period
most closely matches the 50-year terms of the leases at issue in this
investigation. We used the same approach when deriving our long-term
interest rate except that in calculating the long-term mark-up, we used
the Bloomberg U.S. corporate BB-rated bond rate that corresponded to
the duration of the countervailable loan. Our approach regarding the
derivation of discount rates is consistent with the Department's
practice. See Tires Decision Memorandum at ``Loan Benchmarks and
Discount Rates'' section.
Allocation Period
Under 19 CFR 351.524(b), non-recurring subsidies are allocated over
a period corresponding to the average useful life (AUL) of the
renewable physical assets used to produce the subject merchandise.
Pursuant to 19 CFR 351.524(d)(2), there is a rebuttable presumption
that the AUL will be taken from the U.S. Internal Revenue Service's
1977 Class Life Asset Depreciation Range System (IRS Tables), as
updated by the Department of Treasury. For the subject merchandise, the
IRS Tables prescribe an AUL of 15 years. No interested party has
claimed that the AUL of 15 years is unreasonable.
Further, for non-recurring subsidies, we have applied the ``0.5
percent expense test'' described in 19 CFR 351.524(b)(2). Under this
test, we compare the amount of subsidies approved under a given program
in a particular year to sales (total sales or total export sales, as
appropriate) for the same year. If the amount of subsidies is less than
0.5 percent of the relevant sales, then the benefits are allocated to
the year of receipt rather than allocated over the AUL period.
Company History
Northern Steel is a foreign invested enterprise that produces
electronic resistance welded pipes for the petroleum and natural gas
industry, including line pipe, casing pipe and tubing. The company is
located at the Economic Development Zone in Haicheng, Liaoning.
Northern Steel reports that it was formed on November 7, 2005, and that
in 2006, it purchased the assets of a defunct Chinese pipe company.
Northern Steel also reports that the sale of the assets took place in
an open auction held by a government-owned asset management company. We
are seeking additional information on this purchase.
As stated above, the Huludao Companies consist of the Huludao Seven
Star Group, Huludao Steel Pipe, and Huludao Bohai Oil Pipe. According
to its response, the Huludao Star Group was established in June 1999.
It is headquartered in the Longgang District of Huludao City in
Liaoning Province. The Huludao Seven Star Group is a domestically owned
enterprise that produces standard welded pipes. The Huludao Seven Star
Group states that it does not produce subject merchandise. The Huludao
Seven Star Group is owned by a group of individual shareholders.
The manufacturing facilities and headquarters of Huludao Steel Pipe
are also located in the Longgang District of Huludao City in Liaoning
Province. According to its response, Huludao Steel Pipe was established
in 1993. During the POI, the shareholders of the Huludao Seven Star
Group along with the Huludao Seven Star Group itself owned a majority
share of Huludao Steel Pipe. Huludao Steel Pipe is a domestically-owned
enterprise that produces standard welded pipe, line pipe (a.k.a.,
subject merchandise), casing, and rectangular pipe.
The manufacturing facilities and headquarters of Huludao Bohai Oil
Pipe are located in the Beigang Industrial Zone and Huludao Development
Zone of Huludao City in Liaoning Province. According to its response,
Huludao Bohai Oil Pipe was established in 2006. During the POI, Huludao
Bohai Oil Pipe was wholly owned by Huludao Steel Pipe. Huludao Bohai
Oil Pipe is a domestically owned enterprise that produces hot-rolled
steel strips, welded standard pipe, and line pipe.
Cross-Ownership
Under 19 CFR 351.525(b)(6)(vi) cross-ownership exists between
corporations if one corporation can use or direct the individual assets
of the other corporation(s) in essentially the same way it uses its
own. This section of the Department's regulations states that this
standard will normally be met where there is a majority voting interest
between two corporations or through common ownership of two (or more)
corporations. Based on the information supplied by the Huludao
Companies indicating that common ownership exists between the three
companies, we preliminarily determine that the Huludao Seven Star
Group, Huludao
[[Page 52302]]
Steel Pipe, and Huludao Bohai Oil Pipe are cross-owned under
351.525(b)(6)(vi).
As discussed in further detail below, the Huludao Seven Star Group
acquired two parcels of land from the Bureau of Land Resources of
Longgang District, Huludao City in Liaoning Province in 2004 and 2006.
The 2004 purchase was on behalf of Huludao Steel Pipe. The 2006
purchase was on behalf of Huludao Bohai Oil Pipe. Under 19 CFR
351.525(b)(6)(v), if a corporation producing non-subject merchandise
received a subsidy and transferred the subsidy to a corporation with
cross-ownership, the Department will attribute the subsidy to products
sold by the recipient of the transferred subsidy. Thus, we
preliminarily determine that the land purchased by the Huludao Seven
Star Group on behalf of Huludao Steel Pipe and Huludao Bohai Oil Pipe
constitutes a transfer of subsidies by a corporation producing non-
subject merchandise to cross-owned corporations that produce subject
merchandise. Therefore, in accordance with 19 CFR 351.525(b)(6)(ii), we
have attributed such subsidies received by Huludao Steel Pipe and
Huludao Bohai Oil Pipe under the Provision of Land For LTAR program to
the combined total sales of Huludao Steel Pipe and Huludao Bohai Oil
Pipe (net of their respective sales to affiliates).
We preliminarily determine that the Huludao Seven Star Group did
not transfer any other subsidies to Huludao Steel Pipe and Huludao
Bohai Oil Pipe during the POI. Therefore, given this preliminary
finding and based on the statements of the Huludao Seven Star Group
that it does not produce subject merchandise or provide any inputs to
Huludao Steel Pipe and Huludao Bohai Oil Pipe that are primarily
dedicated to the production of line pipe, we are not including any
other programs used by the Huludao Seven Star Group in our subsidy
analysis.
Adverse Facts Available
The GOC
As discussed below, the Department is investigating whether GOC
authorities provided hot-rolled steel (HRS), a major input in the
production of line pipe to respondents for LTAR. In our May 19, 2008
initial questionnaire, we asked the GOC to provide information
pertaining to the Department's de facto specificity analysis.
Specifically, we asked the GOC to:
Please provide a list by industry and by region of the number of
companies which have received benefits under this program in the year
the provision of benefits was approved and each of the preceding three
years. Provide the total amounts of benefits received by each type of
industry in each region in the year the provision of benefits was
approved and each of the preceding three years.
Concerning the GOC's alleged provision of HRS for LTAR, the GOC stated
that:
No such list exists, nor does any data exist from which to derive
such a list absent inquiring with every hot-rolled steel producer in
China. Such records would only reflect amounts sold and prices charged,
as opposed to any ``benefit'' conferred by the transaction.
See GOC's July 10, 2008 questionnaire response at 110.
On August 5, 2008, the Department issued a supplemental
questionnaire to the GOC in which it requested that the GOC respond to
Department's de facto specificity questions to the best of the GOC's
ability. In its response the GOC stated that its initial response
reflected its best effort. It added that:
The sale of hot-rolled steel in the Chinese market neither
constitutes a ``program'' nor does it confer any ``benefit'' within the
meaning of the U.S. CVD Law or the WTO SCM Agreement. The GOC
reiterates that the data sought by the Department simply do not exist,
nor would it be feasible to even assemble given the multitude of
companies that produce and consume hot-rolled steel in the Chinese
market.
As discussed below, the Department is also investigating whether
the GOC sold land for LTAR. In its May 19, 2008 initial questionnaire
the Department requested that the GOC respond to the Standard Questions
and Provision of Goods/Services Appendices as they pertained to the
GOC's alleged provision of land for LTAR. In its July 10, 2008
response, the GOC stated:
Based on the information presently available to the GOC, it does
not consider that land use rights provided to the producer respondents
and their reporting cross-owned affiliates was provided at ``no cost or
nominal cost.'' For this reason, the GOC does not respond to the
Standard Questions of Appendix 1 or the Provision of Goods/Services
questions at Appendix 5.
See GOC's July 10, 2008 questionnaire response at 101.
In its August 5, 2008 questionnaire, the Department requested that
the GOC respond to the information requested in the Standard Questions
and Provision of Goods/Services appendices. In its August 21, 2008
supplemental questionnaire response, the GOC responded to sections of
the appendices. However, the GOC did not provide the requested
information pertaining to the Department's de facto specificity
analysis. For example, in its August 5, 2008 supplemental
questionnaire, the Department asked the GOC to provide the following as
it pertained to the GOC's alleged provision of land for LTAR:
Please provide a list by industry and by region of the number of
companies which have received benefits under this program in the year
the provision of benefits was approved and each of the preceding three
years. Provide the total amounts of benefits received by each type of
industry in each region in the year the provision of benefits was
approved and each of the preceding three years.
In its August 21, 2008 response, the GOC stated that:
No such list exists regarding the receipt of ``benefits'' through
the administration of land use rights. At page 6 of Exhibit 54 of the
GOC's initial questionnaire response, data is reported on land use
rights - including allocated, granted, and secondary market transfers -
that moved over the 2000 - 2005 period. Additional data are publically
available and will be provided if requested.
See GOC's August 21, 2008 supplemental questionnaire response at 69.
We note that the data provided in Exhibit 54 of the GOC's initial
questionnaire response does not provide the information the Department
requested for purposes of its de facto specificity analysis.
Sections 776(a)(1) and (2) of the Act provide that the Department
shall apply ``facts otherwise available'' if, inter alia, necessary
information is not on the record or an interested party or any other
person: (A) withholds information that has been requested; (B) fails to
provide information within the deadlines established, or in the form
and manner requested by the Department, subject to subsections (c)(1)
and (e) of section 782 of the Act; (C) significantly impedes a
proceeding; or (D) provides information that cannot be verified as
provided by section 782(i) of the Act.
Where the Department determines that a response to a request for
information does not comply with the request, section 782(d) of the Act
provides that the Department will so inform the party submitting the
[[Page 52303]]
response and will, to the extent practicable, provide that party the
opportunity to remedy or explain the deficiency. If the party fails to
remedy the deficiency within the applicable time limits and subject to
section 782(e) of the Act, the Department may disregard all or part of
the original and subsequent responses, as appropriate. Section 782(e)
of the Act provides that the Department ``shall not decline to consider
information that is submitted by an interested party and is necessary
to the determination but does not meet all applicable requirements
established by the administering authority'' if the information is
timely, can be verified, is not so incomplete that it cannot be used,
and if the interested party acted to the best of its ability in
providing the information. Where all of these conditions are met, the
statute requires the Department to use the information if it can do so
without undue difficulties.
Because the GOC failed to provide the requested information by the
established deadlines, the Department does not have the necessary
information on the record to determine whether the GOC provided HRS
and/or land to producers of line pipe in a manner that was de facto
specific within the meaning of section 771(5A)(D)(iii) of the Act.
Therefore, the Department must base its determination on the facts
otherwise available in accordance with sections 776(a)(2)(A) and (B) of
the Act.
Section 776(b) of the Act further provides that the Department may
use an adverse inference in applying the facts otherwise available when
a party has failed to cooperate by not acting to the best of its
ability to comply with a request for information. Section 776(b) of the
Act also authorizes the Department to use as adverse facts available
(AFA) information derived from the petition, the final determination, a
previous administrative review, or other information placed on the
record. For the reasons discussed below, we determine that, in
accordance with sections 776(a)(2)(A) and (B) and 776(b) of the Act,
the use of AFA is appropriate for the preliminary determination with
respect to the GOC's alleged provision of HRS and land to producers of
line pipe for LTAR.
As noted, regarding the GOC's alleged provision of HRS and land for
LTAR, the GOC did not provide the information the Department requested
relating to its de facto specificity analysis. The Department issued
supplemental questionnaires in which it instructed the GOC to provide
the information relating to the Department's de facto specificity
analysis. However, in its response, the GOC continued to provide
insufficient information regarding the Department's questions
pertaining to de facto specificity. Therefore, consistent with sections
776(a)(2)(A) and (B) of the Act, we find that the GOC did not act to
the best of its ability and, therefore, we are employing adverse
inferences in selecting from among the facts otherwise available.
Accordingly, pursuant to section 776(b) of the Act, we find that the
provision of HRS and land to producers of line pipe by GOC authorities
is de facto specific within the meaning of section 771(5A)(D)(iii) of
the Act.\6\ Thus, we preliminarily determine that the provision of HRS
and land by GOC authorities to producers of line pipe is
countervailable to the extent that the provision of the goods
constituted a financial contribution in accordance with 771(5)(D)(iii)
of the Act and conferred a benefit upon producers of line pipe within
the meaning of 771(E)(iv) of the Act. The Department's decision to rely
on adverse inferences when lacking a response from a foreign government
is in accordance with its practice. See, e.g., Notice of Preliminary
Results of Countervailing Duty Administrative Review: Certain Cut-to-
Length Carbon-Quality Steel Plate from the Republic of Korea, 71 FR
11397, 11399 (March 7, 2006) (unchanged in the Notice of Final Results
of Countervailing Duty Administrative Review: Certain Cut-to-Length
Carbon-Quality Steel Plate from the Republic of Korea, 71 FR 38861
(July 10, 2006) (relying on adverse inferences in determining that the
Government of Korea directed credit to the steel industry in a manner
that constituted a financial contribution and was specific to the steel
industry within the meaning of the sections 771(5)(D)(i) and
771(5A)(D)(iii) of the Act, respectively).
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\6\ We note that it is not necessary to rely on this AFA finding
in instances in which respondents' land purchases are found to be de
jure specific.
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Analysis of Programs
I. Programs Preliminarily Determined To Be Countervailable
A. The ``Two Free, Three Half'' Program
The ``Foreign Invested Enterprise and Foreign Enterprise Income Tax
Law'' (FIE Tax Law), enacted in 1991, established the tax guidelines
and regulations for foreign invested enterprises (FIEs) in the PRC. The
intent of this law is to attract foreign businesses to the PRC.
According to Article 8 of the FIE Tax Law, FIEs that are
``productive'' and scheduled to operate not less than 10 years are
exempt from income tax in their first two profitable years and pay half
of their applicable tax rate for the following three years. FIEs are
deemed ``productive'' if they qualify under Article 72 of the
``Detailed Implementation Rules of the Income Tax Law of the People's
Republic of China of Foreign Investment Enterprises and Foreign
Enterprises.'' This provision specifies a list of industries in which
FIEs must operate in order to qualify for benefits under this program.
The activities listed in the law are: (1) machine manufacturing and
electronics industries; (2) energy resource industries (not including
exploitation of oil and natural gas); (3) metallurgical, chemical and
building material industries; (4) light industries, and textiles and
packaging industries; (5) medical equipment and pharmaceutical
industries; (6) agriculture, forestry, animal husbandry, fisheries and
water conservation; (7) construction industries; (8) communications and
transportation industries (not including passenger transport); (9)
development of science and technology, geological survey and industrial
information consultancy directly for services in respect of production
and services in respect of repair and maintenance of production
equipment and precision instruments; and (10) other industries as
specified by the tax authorities under the State Council. If an FIE
meets the above conditions, eligibility is automatic and the amount
exempted appears on the enterprise's tax return.
Northern Steel reported that it is a ``productive'' FIE and filed a
tax return for a ``free'' tax year under this program during the POI.
Consistent with CFS Final, we preliminarily determine that the
exemption or reduction in the income tax paid by ``productive'' FIEs
under this program confers a countervailable subsidy. See CFS Decision
Memorandum at ``Two Free/Three Half'' Program. The exemption/reduction
is a financial contribution in the form of revenue forgone by the GOC
and it provides a benefit to the recipients in the amount of the tax
savings. See Section 771(5)(D)(ii) of the Act and 19 CFR 351.509(a)(1).
We further preliminarily determine that the exemption/reduction
afforded by this program is limited as a matter of law to certain
enterprises, i.e., ``productive'' FIEs, and, hence, is specific under
section 771(5A)(D)(i) of the Act.
To calculate the benefit from this program, we treated the income
tax exemption enjoyed by Northern Steel as a recurring benefit,
consistent with 19 CFR 351.524(c)(1), and attributed the tax
[[Page 52304]]
savings received to the company's total sales. On this basis, we
preliminarily determine that Northern Steel received a net
countervailable subsidy of 4.18 percent ad valorem under this program.
B. Provision of Land for Less Than Adequate Remuneration
The Department is investigating whether Chinese government
authorities provided land use-rights to the respondents for LTAR.
Northern Steel is located in the Economic Development Zone in Haicheng.
The Economic Development Zone was established by the Anshan Municipal
Government in 1992, and upgraded to a province-level development zone
in 2002. In September 2006, Northern Steel purchased long-term land-use
rights for land in the coastal economic zone from the Haicheng State-
owned Land and Resources Bureau, which is a government agency. The
Haicheng State-owned Land and Resources Bureau controls the granting
and approval of land-use rights and sets the price for industrial land
within the Economic Development Zone.
Regarding the Huludao Companies, the Huludao Seven Star Group
reported making several land purchases. However, as discussed in the
``Cross-Ownership'' section, we are limiting our subsidy analysis to
those land purchases that we preliminarily determine constitute a
transfer of subsidies by the Huludao Seven Star Group, a corporation
producing non-subject merchandise, to Huludao Steel Pipe and Huludao
Bohai Oil Pipe, cross-owned corporations that produce subject
merchandise, as described under 19 CFR 351.525(b)(6)(v). Therefore, for
purposes of the preliminary determination, we limited our subsidy
analysis to the two parcels of land the Huludao Seven Star Group
purchased from the Bureau of Land Resources of Longgang District,
Huludao City in Liaoning Province in 2004 and 2006 on behalf of Huludao
Steel Pipe and Huludao Bohai Oil Pipe. Regarding the 2004 purchase, the
Huludao Seven Star Group acquired land-use rights from the local
government for land that Huludao Steel Pipe had been using since 1993.
Regarding the 2006 purchase, the Huludao Seven Star Group acquired land
use rights from the local government and subsequently leased the land
to Huludao Bohai Oil Pipe. This parcel of land was located in the
Beigang Industrial Zone. In addition, in 2004, Huludao Steel Pipe
acquired land-use rights from the local government.\7\
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\7\ In its August 18, 2008 supplemental questionnaire response,
the Huludao Steel Pipe indicates that the Seven Star Group made an
additional land purchase in 2006. However, at this time, information
on the record does not indicate that the land was purchased on
behalf of Huludao Steel Pipe or Huludao Bohai Oil Pipe. Therefore,
we have not conducted a benefit analysis with respect to this
transaction. In addition, information from the August 18, 2008
supplemental questionnaire response indicates that an additional
affiliate of the Huludao Companies (whose identity is business
proprietary) acquired land in 2004. However, information in the
questionnaire responses of the Huludao Companies indicates that the
affiliate does not produce subject merchandise or provide any member
of the Huludao Companies with inputs that are primarily dedicated to
the production of subject merchandise. Therefore, we have not
performed a benefit analysis regarding this affiliate's 2004 land
purchase.
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For the reasons described below, the Department preliminarily
determines that the provision of land-use rights to Northern Steel and
the Huludao Companies constitutes a countervailable subsidy in the form
of land-use rights provided for LTAR. Northern Steel received its land-
use rights from the Haicheng State-owned Land and Resources Bureau, a
government authority. According to the respondents, local governments
set the prices and were the party to the land-use rights agreements.
Thus, the sale of the land-use rights constitutes a financial
contribution from a government authority in the form of providing goods
or services pursuant to section 771(5)(D)(iii) of the Act. In addition,
in the case of Northern Steel and with regard to the land that the
Huludao Seven Star Group purchased in 2006, the Department
preliminarily determines that the sales of the land-use rights are
specific because they are limited to enterprises or an industry located
within a designated geographical region pursuant to section
771(5A)(D)(iv) of the Act. As discussed above, Northern Steel and the
land purchased in 2006 by the Huludao Seven Star Group are located
within an economic development zone that is within the jurisdiction of
the authorities that provided to the company its land-use rights and
set the terms of those rights.\8\ Regarding the Huludao Companies' 2004
land purchases, as discussed above in the ``Adverse Facts Available''
section, the GOC did not provide the information the Department
requested relating to its de facto specificity analysis. Therefore, in
accordance with section 776(b) of the Act, as AFA, we preliminarily
determine that the provision of land to the Huludao Companies in 2004
by the Bureau of Land Resources of Longgang District is de facto
specific pursuant to section 771(5A)(D)(iii) of the Act.
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\8\ The land Northern Steel purchased is within the authority of
Haicheng City of Liaoning Province. The land that the Huludao Seven
Star Group purchased in 2006 is located in the Beigang Industrial
Zone that is under the authority of the Bureau of Land Resources of
Longgang District, Huludao City in Liaoning Province.
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We further preliminarily determine that the sale of land-use rights
provides a benefit pursuant to 19 CFR 351.511(a). Pursuant to section
771(5)(E)(iv) of the Act, a benefit is conferred when the government
provides a good or service for LTAR. Section 771(5)(E) of the Act
further states that the
. . . adequacy of remuneration shall be determined in relation to
prevailing market conditions for the good or service being provided in
the country which is subject to the investigation or review. Prevailing
market conditions include price, quality, availability, marketability,
transportation, and other conditions of sale.
Under 19 CFR 351.511(a)(2), the Department sets forth the basis for
identifying comparative benchmarks for determining whether a government
good or service is provided for LTAR. These potential benchmarks are
listed in hierarchical order by preference: (1) market prices from
actual transactions within the country under investigation; (2) world
market prices that would be available to purchasers in the country
under investigation; or (3) an assessment of whether the government
price is consistent with market principles. This hierarchy reflects a
logical preference for achieving the objectives of the statute.
Consistent with the Sacks Final and Tires Final, we preliminarily
determine that a first tier benchmark cannot be applied. See 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) (Sacks
Final), and accompanying decision memorandum (Sacks Decision
Memorandum) at ``Government Provision of Land for Less Than Adequate
Remuneration'' and Comment 10 ``Whether the Department Should Select
Either a First-Tier or Third-Tier Benchmark for the Provision of Land-
Use Rights for Less Than Adequate Remuneration;'' see also Tires Final
and Tires Decision Memorandum at Comment H.7 ``Land Benchmark.''
As an initial matter, we note that private land ownership is
prohibited in the PRC and that all land is owned by some level of
government, the distinction being between land owned by the local
government or ``collective''
[[Page 52305]]
at the township or village level and land owned by the national
government (also referred to as state-owned or ``owned by the whole
people'').\9\ Noting that the GOC, either at the national or local
level, is the ultimate owner of all land in the PRC, the Department has
examined whether the GOC exercises control over the supply side of the
land market in the PRC as a whole so as to distort prices in the
primary and secondary markets.
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\9\ See GOC's July 9, 2008 questionnaire response at 100.
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Consistent with the Department's determinations in Sacks Final and
Tires Final, we preliminarily determine that a first tier benchmark is
not appropriate to measure the benefit from the sale of land-use rights
during the POI because Chinese land prices are distorted by the
significant government role in the market. The Preamble states that
``where it is reasonable to conclude the actual transaction prices are
significantly distorted as a result of the government's involvement in
the market, we will resort to the next alternative in the hierarchy.''
See Countervailing Duties; Final Rule, 63 FR 65348, 65377 (November 25,
1998) (Preamble)).
The second tier benchmark relies on world market prices that would
be available to the purchasers in the country in question, though not
necessarily reflecting prices of actual transactions involving that
particular producer. See 19 CFR 351.511(a)(2)(ii). In selecting a world
market price under this second approach, the Department examines the
facts on the record regarding the nature and scope of the market for
that good to determine if that market price would be available to an
in-country purchaser. As discussed in the Preamble (63 FR at 65377),
the Department will consider whether the market conditions in the
country are such that it is reasonable to conclude that a purchaser in
the country could obtain the good or service on the world market. We
preliminarily determine that land-use rights cannot be evaluated using
a second tier benchmark because they cannot be simultaneously
``available to an in-country'' purchaser'' while located and sold out-
of-country on the world market.
Since we are not able to conduct our analysis using a benchmark
identified under the second tier of the regulations, consistent with
the hierarchy, we next considered whether the GOC's pricing of land-use
rights is consistent with market principles. This approach is also set
forth under 19 CFR 351.511(a)(2)(iii) and is explained further in the
Preamble (63 FR at 65378):
(W)here the government is the sole provider of a good or service,
and there are no world market prices available or accessible to the
purchaser, we will assess whether the government price was set in
accordance with market principles through an analysis of such factors
as the government's price-setting philosophy, costs (including rates of
return sufficient to ensure future operations), or possible price
discrimination . . . In our experience, these types of analysis may be
necessary for such goods or services as electricity, land leases or
water, and the circumstances of each may vary widely.
The regulations do not specify how the Department is to conduct
such a market principle analysis. By its very nature, this analysis
depends upon available information concerning the market sector at
issue and, therefore, must be developed on a case-by-case basis. In the
instant case, we preliminarily determine that due to the overwhelming
presence of government involvement in the land-use rights market, as
well as the widespread and documented deviation from the authorized
methods of pricing and allocating land, the purchase of land-use rights
in the PRC is not conducted in accordance with market principles.
Consistent with the Department's decision in Sacks Final and Tires
Final, we preliminarily find that there is a wide divergence between
the de jure reforms of the market for land-use rights and the de facto
implementation of such reforms. See Memorandum to the File regarding
Land Benchmark Memorandum (Land Benchmark Memorandum) (dated September
2, 2008) at Attachment 2 (stating that the PRC's land laws,
regulations, and statements, although often vague and contradictory,
seem to support the provision of secure land-use rights to farmers and
an open, transparent system for transferring commercial land-use
rights).\10\ In practice, however, farmers' land-use rights are still
not secure and fair compensation for farmers is an ongoing, market-
distorting issue in PRC. In addition, laws and regulations are
routinely violated by individuals and local governments. While the
private market for land-use rights has grown, state-owned enterprises
(SOEs) received a significant portion of their land-use rights free of
charge. Also, commercial land sales are often conducted illegally. In
short, property rights remain poorly defined and weakly enforced. See
Sacks Decision Memorandum at ``Government Provision of Land for Less
Than Adequate Remuneration.''
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\10\ This public document is on file in the CRU.
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Also, consistent with the Department's determination in Sacks Final
and Tires Final, we preliminarily find that another de facto problem
with land supply in the PRC which causes market distortions is that of
local government corruption. Local governments most often transfer land
through non-transparent negotiations with investors despite guidance
that land should be transferred through a transparent bidding or
auction process. This has led to widespread corruption where much of
the compensation is retained by the local government officials. See
Land Benchmark Memorandum at Attachment 4 for article on ``Law to
Expose Illegal Land Deal,'' China Daily (dated August 1, 2006).
Given this preliminarily finding, we have looked for an appropriate
basis to determine the extent to which land-use rights are provided for
LTAR. We preliminarily find that a comparison of prices for land-use
rights in the PRC 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, is appropriate.
Consistent with Sacks Final and Tires Final, we preliminarily determine
that the most appropriate analysis in this case would be to compare the
respondents' purchase of land-use rights to the sales of certain
industrial land in industrial estates, parks, and zones in Thailand.
As a general matter, we note that the PRC and Thailand have similar
levels of per capita GNI, and that producers consider a number of
markets, including Thailand, as an option for diversifying production
bases in Asia beyond the PRC. Therefore, we preliminarily determine
that the ``indicative land values'' for land in Thai industrial zones,
estates, and parks provided in the Asian industrial Property Reports
present a reasonable and comparable benchmark to the land-use rights in
the economic zones at issue in this investigation.
Based on the methodology set out in Sacks Final and Tires Final, we
preliminarily determine that the land-use rights acquired by Northern
Steel and the Huludao Companies are granted land-use rights and, thus,
have employed the benefit calculation methodology described below.
In order to calculate the benefit, we first multiplied the Thai
benchmark land rate (deflated from 2007 to the year the transaction was
officially approved
[[Page 52306]]
by the government) by the total area of the respective parcels
purchased by Northern Steel and the Huludao Companies. We then
subtracted the price actually paid for these respective tracts by
Northern Steel and the Huludao Companies to derive the total
unallocated benefit. We next conducted the ``0.5 percent test''
pursuant to 19 CFR 351.524(b)(2) for the years in which the transaction
was approved by dividing the total unallocated benefit by the
appropriate sales denominator.\11\ As a result, we found that the
benefits were greater than 0.5 percent of relevant sales and that
allocation was appropriate. We allocated the total unallocated benefit
across the term of the land agreement using the standard allocation
formula in 19 CFR 351.524(d) and the discount rates discussed above in
the ``Subsidies Valuation Information'' section under ``Loan Benchmarks
and Discount Rates,'' to determine the amount attributable to the POI.
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\11\ Where the approval date and approved amount of the
unallocated benefit was not available, we used the date in which the
transaction was conducted for purposes of the 0.5 percent test.
---------------------------------------------------------------------------
For Northern Steel, we then divided the POI benefit by the total
sales of Northern Steel to calculate a net countervailable subsidy of
2.44 percent ad valorem. In the case of the Huludao Companies, as
discussed in the ``Cross-Ownership'' section, we preliminarily
determine that the land purchased by the Huludao Seven Star Group on
behalf of Huludao Steel Pipe and Huludao Bohai Oil Pipe constitutes a
transfer of subsidies by a corporation producing non-subject
merchandise to cross-owned corporations that produce subject
merchandise as described under 19 CFR 351.525(b)(6)(v). Therefore, in
accordance with 19 CFR 351.525(b)(6)(ii), we have attributed such
subsidies received by Huludao Steel Pipe and Huludao Bohai Oil Pipe
under the Provision of Land For Less Than Adequate Remuneration program
to the combined total sales of Huludao Steel Pipe and Huludao Bohai Oil
Pipe (net of their respective sales to affiliates). On this basis, we
calculated a net subsidy rate of 0.68 percent ad valorem for the
Huludao Companies.
C. Provision of Hot-Rolled Steel for Less Than Adequate Remuneration
The Department is investigating whether GOC authorities provided
HRS to producers of line pipe for LTAR. As instructed in the
Department's questionnaires, the Huludao Companies and Northern Steel
identified the suppliers from whom they purchased HRS during the POI.
In addition to the supplier names, the Huludao Companies and Northern
Steel indicated the date of payment, quantity, unit of measure, and
purchase price for the HRS purchased during the POI. Having obtained
permission from the Huludao Companies and Northern Steel to disclose
the proprietary names of their respective suppliers to the GOC, we
asked the GOC to provide certain information regarding the respondents'
domestic suppliers of hot-rolled steel (HRS) (e.g., percentage of
government ownership). See for Northern Steel, Memorandum to the File
from Kristen Johnson, Trade Analyst, Office 3, Operations, ``Consent to
Release Company-Specific Proprietary Information to the Government of
China'' (July 18, 2008), a public document on file in the CRU; See for
the Huludao Companies, Memorandum to the File from John Conniff, Trade
Analyst, Office 3, Operations, ``Consent to Release Company-Specific
Proprietary Information to the Government of China'' (August 1, 2008),
a public document on file in the CRU.
In order to assess whether an entity should be considered to be the
government for the purposes of a CVD investigation, the Department has
in previous cases considered the following factors to be relevant: 1)
the government's ownership; 2) the government's presence on the
entity's board of directors; 3) the government's control over the
entity's activities; 4) the entity's pursuit of governmental policies
or interests; and 5) whether the entity is created by statute. However,
the Department has found that conducting such a test is not necessary
absent information that calls into question whether government
ownership does not mean government control. See Tires Decision
Memorandum at 10. Further, not all of these criteria must be satisfied
for an entity to be considered a government entity, but taken together,
these five criteria can inform our decision. See e.g., Coated Free
Sheet Paper from the Republic of Korea: Final Affirmative
Countervailing Duty Determination, 72 FR 60639 (October 25, 2007) (CFS
from Korea), and accompanying decision memorandum (CFS from Korea
Decision Memorandum) at Comment 11. In addition, we instructed the GOC
to indicate whether the domestic suppliers of HRS to the Huludao
Companies and Northern Steel were trading companies, and if so, to
provide information related to the five factors listed above as it
pertains to the entities from whom the trading companies purchased the
HRS.
Based on our review of the information submitted by the GOC, we
preliminarily determine that certain domestic suppliers of HRS were
majority-owned by the GOC during the POI and, therefore, constitute
government authorities.
In addition, in its response the GOC identified which domestic HRS
suppliers of the Huludao Companies were trading companies.\12\
Regarding these domestic trading companies, the GOC was unable to
provide the requested information concerning the entities from which
the trading companies acquired the input, even in instances involving
government-owned trading companies. Further, the GOC was unable to
provide the requested information concerning the ``Five Factor Test''
as it pertains to the suppliers from whom the domestic trading
companies purchased the HRS. Thus, we preliminarily determine that the
necessary information is not on the record, and we are resorting to the
use of facts available (FA) within the meaning of sections 776(a)(1)
and (2) of the Act.
---------------------------------------------------------------------------
\12\ Northern Steel reported that it did not purchase HRS from
trading companies during the POI. See Northern Steel's August 14,
2008 questionnaire response at 2.
---------------------------------------------------------------------------
In its initial questionnaire response, the GOC provided information
on the amount of HRS produced by SOEs, collectives, and private
producers in the PRC. See GOC's July 9, 2008 questionnaire response at
page 102. Using these data, we derived the ratio of HRS produced by
government entities (SOEs and collectives) during the POI (60.77
percent). Thus, pursuant to sections 776(a)(1) and (2) of the Act, for
purposes of this preliminary determination we are resorting to the use
of FA with regard to the HRS sold to the Huludao Companies by domestic
trading companies. Specifically, we are assuming that the percentage
produced by government authorities is equal to the ratio of HRS
produced by SOEs and collectives during the POI.\13\ This approach is
consistent with the Department's practice. See CWP Decision Memorandum
at ``Hot-rolled Steel for Less Than Adequate Remuneration;'' see also
Light-Walled Rectangular Pipe and Tube From People's Republic of China:
Final Affirmative Countervailing Duty Investigation Determination, 73
FR 35642 (June 24, 2008) (LWP Final), and accompanying decision
memorandum (LWP Decision Memorandum) at ``Hot-rolled Steel for Less
Than Adequate Remuneration.'' For further discussion, see our
description of the benefit
[[Page 52307]]
calculations below. For purposes of the final determination, the
Department will seek additional information regarding the amount of HRS
purchased by domestic trading companies that was produced by SOEs and
collectives.
---------------------------------------------------------------------------
\13\ In other words, as FA, we are assuming that 60.77 of the
HRS purchased by domestic trading companies during the POI was
produced by SOEs.
---------------------------------------------------------------------------
Having identified the extent to which the Huludao Companies and
Northern Steel obtained HRS from GOC authorities, we preliminarily
determine that the GOC authorities' provision of HRS constitutes a
financial contribution under section 771(5)(D)(iii) of the Act.\14\
Furthermore, as discussed above in the ``Adverse Facts Available''
section, pursuant to section 776(b) of the Act, we find that the
provision of HRS to producers of line pipe by GOC authorities is de
facto specific within the meaning of section 771(5A)(D)(iii) of the
Act.
---------------------------------------------------------------------------
\14\ For purposes of this preliminary determination, we find
that private producers that provided HRS to the respondents during
the POI do not constitute government authorities and, thus, their
provision of HRS does not constitute a financial contribution within
the meaning of section 771(5)(D)(iii) of the Act.
---------------------------------------------------------------------------
The Department's regulations at 19 CFR 351.511(a)(2) set forth the
basis for identifying appropriate market-determined benchmarks for
measuring the adequacy of remuneration for government-provided goods or
services. These potential benchmarks are listed in hierarchical order
by preference: (1) market prices from actual transactions within the
country under investigation (e.g., actual sales, actual imports or
competitively run government auctions) (tier one); (2) world market
prices that would be available to purchasers in the country under
investigation (tier two); or (3) an assessment of whether the
government price is consistent with market principles (tier three). As
provided in our regulations, the preferred benchmark in the hierarchy
is an observed market price from actual transactions within the country
under investigation.\15\ because such prices generally would be
expected to reflect most closely the prevailing market conditions of
the purchaser under investigation.
---------------------------------------------------------------------------
\15\ See also Notice of Final Affirmative Countervailing Duty
Determination and Final Negative Critical Circumstances
Determination: Certain Softwood Lumber Products from Canada, 67 FR
15545 (April 2, 2002) (Softwood Lumber Investigation), and
accompanying decision memorandum at 36 (Softwood Lumber
Investigation Memorandum).
---------------------------------------------------------------------------
Based on the hierarchy established above, we must first determine
whether there are market prices from actual sales transactions
involving Chinese buyers and sellers that can be used to determine
whether the GOC authorities sold HRS to the respondents for LTAR.
Notwithstanding the regulatory preference for the use of prices
stemming from actual transactions in the country, where the Department
finds that the government provides the majority, or a substantial
portion of, the market for a good or service, prices for such goods and
services in the country will be considered significantly distorted and
will not be an appropriate basis of comparison for determining whether
there is a benefit.\16\
---------------------------------------------------------------------------
\16\ See Preamble, 63 FR at 65377.
---------------------------------------------------------------------------
As explained above, for purposes of this preliminary determination,
we find that SOEs and collectives account for approximately 60.77
percent of the HRS production in the PRC during the POI. Consequently,
because of the government's overwhelming involvement in the HRS market,
the use of private producer prices in the PRC would be akin to
comparing the benchmark to itself (i.e., such a benchmark would reflect
the distortions of the government presence).\17\ As we explained in
Softwood Lumber Investigation:
---------------------------------------------------------------------------
\17\ See Softwood Lumber Investigation Memorandum at ``There are
no market-based internal Canadian benchmarks'' section.
---------------------------------------------------------------------------
Where the market for a particular good or service is so dominated
by the presence of the government, the remaining private prices in the
country in question cannot be considered to be independent of the
government price. It is impossible to test the government price using
another price that is entirely, or almost entirely, dependent upon it.
The analysis would become circular because the benchmark price would
reflect the very market distortion which the comparison is designed to
detect.\18\
---------------------------------------------------------------------------
\18\ See Canadian Lumber Memorandum at 38-39.
---------------------------------------------------------------------------
For these reasons, prices stemming from private transactions within the
PRC cannot give rise to a price that is sufficiently free from the
effects of the GOC's actions and, therefore, cannot be considered to
meet the statutory and regulatory requirement for the use of market-
determined prices to measure the adequacy of remuneration.
The GOC also placed on the record aggregate import price data for
HRS from various countries for the POI. Information from the GOC
indicates that imports of HRS accounted for 0.63 percent of the volume
HRS available in the Chinese market during the POI. Because the volume
of imports of HRS into the PRC is small relative to Chinese domestic
production of HRS, we are not using the aggregate import price data in
our benchmark calculations. We note that this approach is similar to
the Department's approach in LWP Final, in which the Department
declined to use aggregate import price data supplied by the GOC for
benchmark purposes because of the small size of the import quantities
relative to Chinese domestic production. See LWP Decision Memorandum at
Comment 7.
Given that we have preliminarily determined that no tier one
benchmark prices are available, we next evaluated information on the
record to determine whether there is a tier two world market price
available to producers of subject merchandise in the PRC. We note that
petitioners provided data from the Steel Benchmarker Report which
contains monthly ``world'' prices for hot-rolled band. See Exhibit 4-A
of petitioners' April 21, 2008 amendment to the April 3, 2008,
petition. We preliminarily determine that data in the Steel Benchmarker
Report may serve as a world market benchmark price for HRS that would
be available to purchasers of HRS in the PRC. We note that the
Department has relied on pricing data from the Steel Benchmarker Report
in recent CVD proceedings involving the PRC. See CWP Final and LWP
Final.
The prices for HRS in the Steel Benchmarker Report are expressed in
U.S. dollars (USD) per metric ton (MT). Therefore, to calculate the
benefit, we first converted the benchmark prices from U.S. dollars to
renminbi (RMB) using USD to RMB exchange rates, as reported by the
Federal Reserve Statistical Release.
Under 19 CFR 351.511(a)(2)(iv), when measuring the adequacy of
remuneration under tier one or tier two, the Department will adjust the
benchmark price to reflect the price that a firm actually paid or would
pay if it imported the product, including delivery charges and import
duties. Therefore, when deriving the benchmark prices, we adjusted the
data from the Steel Benchmarker Report to include the value added tax
(VAT) and import duties that would have been levied on imports of HRS
during the POI. The GOC provided the applicable tax rates in its
questionnaire response. Regarding delivery charges, we note that the
data in the Steel Benchmarker Report do not include a freight cost
component. However, because no data regarding freight costs are
available on the record, we have not adjusted the benchmark prices of
HRS for freight. We invite interested parties to submit comments on
whether and, if so, how freight should be included in the derivation of
the HRS benchmark price.
We then compared the benchmark unit prices to the unit prices the
[[Page 52308]]
respondents paid to domestic suppliers of HRS during the POI that the
Department has preliminarily determined constitute government
authorities. In instances in which the benchmark unit price was greater
than the price paid to GOC authorities, we multiplied the difference by
the quantity of HRS purchased from the GOC authorities to arrive at the
benefit. As explained above, in instances in which the Huludao
Companies purchased HRS from government trading companies and/or
private trading companies, we multiplied the product of the price
difference per unit and the quantity of HRS purchased by 60.77 percent
to arrive at the benefit.
To calculate the net subsidy rate, we divided the total benefit by
each respondent's total sales during the POI. In the case of the
Huludao Companies, the total sales denominator consisted solely of
sales by Huludao Steel Pipe and Huludao Bohai Oil Pipe. On this basis,
we preliminarily calculated a net countervailable subsidy rate of 23.01
percent ad valorem for Northern Steel and 17.18 percent ad valorem for
the Huludao Companies.
D. Foreign Trade Development Fund Program\19\
---------------------------------------------------------------------------
\19\ This program was referred to as the Northeast
Revitalization Program in the Initiation Notice.
---------------------------------------------------------------------------
The GOC reports that Northern Steel and Huludao Steel Pipe received
grants during the POI under the ``Provisional Administration Measures
on Northeast Old Industrial Base Foreign Trade Development Fund of
Liaoning Province'' (No. 559), established on November 18, 2004. The
provisional measure states that the Foreign Trade Development Fund
supports projects undertaken by exporting enterprises to improve the
competitiveness of their exported products, to develop an export
processing base, to support the registration of trademarks in foreign
countries, to support the training of foreign trade professionals, and
to explore international markets.\20\The provisional measure states
that monies distributed by the fund are to be used only for the
approved project and that the funding proportion of the applied project
shall not exceed 50 percent of the total expense of the project.\21\
The fund is administered by the Liaoning Provincial Bureau of Foreign
Trade and Economic Cooperation and Liaoning Department of Finance.
Companies eligible for assistance are export enterprises with legal
person status and export performance in Liaoning Province,\22\ and are
required to submit a separate application to the authorities each time
assistance is requested.
---------------------------------------------------------------------------
\20\ See GOC's August 21, 2008 supplemental questionnaire
response at Exhibit 22, Chapter III ``Major Directions of Support,''
Article 6.
\21\ Id. at Chapter VI ``Supervision and Administration,''
Article 11 and 12.
\22\ Id. at Chapter IV ``Application Criteria,'' Article 7.
---------------------------------------------------------------------------
We preliminary determine that the export interest subsidies that
Huludao Steel Pipe and Northern Steel received from the Liaoning
provincial government constitute a financial contribution in the form
of a direct transfer of funds from the government bestowing a benefit
in the amount of the grants within the meaning of sections 771(5)(D)(i)
and 771(5)(E) of the Act. We also find that, because the receipt of the
export interest subsidies is contingent upon export performance, the
program is specific within the meaning of section 771(5A)(A) of the
Act.
In the case of Huludao Steel Pipe, it received grants under the
program in 2005, 2006, and 2007. The ``0.5 percent expense test''
calculation for Northern Steel and Huludao Steel Pipe, respectively,
demonstrate that the amounts of the subsidies were less than 0.5
percent of the relevant export sales denominator. Because the amounts
of the subsidies are less than 0.5 percent of the relevant sales, we
are expensing the benefit from the grant in the year of receipt. In
conducting the ``0.5 percent expense test'' for grants received by
Huludao Steel Pipe in 2005 and 2006, we used the exports sales of
Huludao Steel Pipe because Huludao Bohai Oil Pipe had no export sales
in those years. For grants received by Huludao Steel Pipe in 2007, we
used the combined exports sales of Huludao Steel Pipe and Huludao Bohai
Oil Pipe.
On this basis, we preliminarily determine that Northern Steel
received a net countervailable subsidy of 0.05 percent ad valorem under
this program and that the Huludao Companies received a net
countervailable subsidy of 0.08 percent ad valorem under the program.
Huludao Steel Pipe also reported that during the POI it received
VAT refunds on its purchases of fixed assets under Foreign Trade
Development Fund program. According to the GOC, the VAT program was
established on September 14, 2004 by the ``Circular of the Ministry of
Finance and State Tax Administration on Printing and Distributing the
Regulations on Relevant Issues with Respect to Expansion of VAT
Deduction Scope in the Northeast Areas.'' It is administered by the
Huludao State Tax Administration. Under the program, VAT tax payers
that are members of the equipment manufacturing, petrochemical,
metallurgical, ship building, automobile, and agricultural products
industries may deduct VAT for purchases of fixed assets from the VAT
for sales of finished goods. The cap for such VAT deductions is the
incremental increase in VAT liability from the previous year. According
to Article 2 of the ``Circular of the Ministry of Finance and State Tax
Administration on Printing and Distributing the Regulations on Relevant
Issues with Respect to Expansion of VAT Deduction Scope in the
Northeast Areas,'' the VAT exemption is limited to firms located in the
northeast region of the PRC. See GOC's July 9, 2008 questionnaire
response at Exhibit 67. The GOC states that the VAT program is not
contingent upon exports.
We preliminarily determine that this program constitutes a
financial contribution in the form of revenue forgone and a benefit in
the amount equal to the VAT refunds under sections 771(5)(D)(ii) and
771(5)(E) of the Act. We also preliminarily determine that this program
is specific under section 771(5A)(D)(iv) of the Act because the VAT
refunds provided under the program are limited to companies located in
a certain geographical region. Huludao Bohai Oil Pipe and the Huludao
Seven Star group did not use this program.
In accordance with 19 CFR 351.524(c), we find that VAT refunds
provided under the program constitute recurring benefits. Therefore, to
calculate the benefit, we divided the total amount of VAT refunds
Huludao Steel Pipe received under the program by the combined total
sales of Huludao Steel Pipe and Huludao Bohai Oil Pipe. On this basis,
we preliminarily determine that the Huludao Companies received a net
countervailable subsidy of 0.10 percent ad valorem.
E. Export Interest Subsidies
Huludao Steel Pipe and Northern Steel received export interest
subsidies from the Liaoning provincial government during the POI. The
GOC reports that the export interest subsidies are provided for under
the ``Provisional Administrative Measures on High-Tech Products and
Equipment Manufacturing Products Export Financial Interest Assistance
of Liaoning Province'' (No. 671), established on December 16, 2004.
This provisional measure provides assistance to companies to expand the
exportation of high-tech products and equipment manufacturing products,
and supports the development of enterprises
[[Page 52309]]
located in Liaoning Province.\23\ This program is administered by the
Liaoning Provincial Bureau of Foreign Trade and Economic Cooperation,
Liaoning Department of Finance, and the Economic Commission of Liaoning
Province.
---------------------------------------------------------------------------
\23\ Id. at 48 and Exhibit D-25.
---------------------------------------------------------------------------
The interest assistance provided to exporting enterprises is to be
used to pay interest on bank loans.\24\ The provisional measure states
that the Liaoning Department of Finance determines the interest
assistance amount in accordance with the short-term loan benchmark
interest rate of commercial banks, the term of the enterprise's short-
term loans, and the shortterm loan amounts.\25\ Specifically, Article 5
of the provisional measure refers to ``export loans,'' which means
``short-term loans obtained by enterprises that produc{e{time} high-
tech products and equipment manufacturing products in {the{time}
province from banks and non-bank financial institutions due to the
shortage of necessary funds for production and operation between
products export declaration and receipt of payment.''\26\
---------------------------------------------------------------------------
\24\ Id. at Exhibit D-25, Article 20.
\25\ Id. at Exhibit D-25, Article 18.
\26\ Id. at Exhibit D-25,Article 5.
---------------------------------------------------------------------------
The GOC states that to be eligible for interest assistance a
legally registered enterprise must have an annual exportation value
above $1,000,000, have exported products that fall in the scope of the
``China High-Tech Product Export Catalog'' or the scope of equipment
manufacturing products, and have short-term loans provided during the
period from the products' export declaration to receipt of payment.\27\
---------------------------------------------------------------------------
\27\ Id. at 51 and Exhibit D-25, Article 12.
---------------------------------------------------------------------------
To receive interest assistance, eligible companies must submit a
separate application each year assistance is requested accompanied with
export contracts, export declaration forms, a description of the
exported product, and bank loan contracts.\28\ Northern Steel reported
that it was eligible for the export interest subsidies because the
company's total export sales in 2006 was greater than $15,000,000,\29\
the company's loan interest rate was higher than the basic loan
interest rate of the People's Bank of China,\30\ and the company
exported high-technology products.\31\ Huludao Steel Pipe reported that
it was eligible for export interest subsidies because it belonged to
the equipment manufacturing industry and made export sales from
Liaoning Province.
---------------------------------------------------------------------------
\28\ Id. at 50-51 and Exhibit D-25, Article 13.
\29\ See Northern Steel's July 14, 2008 questionnaire response
at 11.
\30\ See Northern Steel's July 14, 2008 questionnaire response
at Attachment 8 and August 6, 2008 questionnaire response at 36.
\31\ See Northern Steel's August 26, 2008 questionnaire response
at 5.
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We preliminary determine that the export interest subsidies that
Huludao Steel Pipe and Northern Steel received from the Liaoning
provincial government constitute a financial contribution in the form
of a direct transfer of funds from the government bestowing a benefit
in the amount of the grants within the meaning of sections 771(5)(D)(i)
and 771(5)(E) of the Act. We also find that, because the receipt of the
export interest subsidies is contingent upon export performance, the
program is specific within the meaning of section 771(5A)(A) of the
Act.
Because neither Huludao Steel Pipe nor Northern Steel receive
export interest subsidies on an on-going basis and must submit a
separate application for consideration of the assistance, we are
treating the export interest subsidies as a non-recurring grant. In
accordance with 19 CFR 351.524(b)(2), we applied the ``0.5 percent
expense test.'' The calculation demonstrates that the total amount of
export interest subsidies approved during the POI is less than 0.5
percent of Northern Steel's 2007 total export sales. In the case of
Huludao Steel Pipe, the calculation demonstrates that the total amount
of export interest subsidies approved in 2006, the year of approval/
receipt, was less than 0.5 percent. Because the amount of subsidies is
less than 0.5 percent of the relevant sales, we are expensing the
benefit from the export interest subsidies in the year of receipt
rather than allocating the benefits over the AUL period.
On this basis, we preliminarily determine that Northern Steel
received a net countervailable subsidy of 0.43 ad valorem under this
program. Regarding the Huludao Companies, we preliminarily determine
that the grant received under the program was fully expensed prior to
the POI.
F. Export Loans
In its response to questions regarding this program and submission
of its short-term loan data, Northern Steel reported conflicting
information on the loans outstanding during the POI. Specifically,
Northern Steel reported that none of its outstanding loans were export
loans. However, as discussed above in the ``Export Interest Subsidies''
section, to be eligible to receive the export interest subsidies a
company must have export loans outstanding, specifically postshipment
export financing. Thus, we preliminarily determine that the record
lacks the necessary information needed to identify which loans,
provided by a government bank, are the export loans against which the
export interest subsidy was calculated. As a result, we are resorting
to the use of AFA within the meaning of section 776(b) of the Act.
Therefore, as AFA, we preliminarily find all of Northern Steel's short-
term loans outstanding in the POI, against which the company paid
interest, to be export loans. For the Huludao Companies, we have
evidence on the record that they had outstanding during the POI two
short-term export loans provided by a government bank. Therefore, as
AFA, we preliminarily find that these two export loans were used by the
Huludao Companies for the receipt of the export interest subsidies. We
will continue to seek information from Northern Steel and the Huludao
Companies regarding export-contingent loans the companies received from
government banks.
Pursuant to section 771(5A)(A) of the Act, we preliminarily
determine that the export loans received by the respondents are
specific because receipt of the financing is contingent upon exporting.
We also preliminarily determine that the export financing constitutes a
financial contribution in the form of a loan within the meaning of
section 771(5)(D)(i) of the Act and confers a benefit within the
meaning of section 771(5)(E)(ii) of the Act. We note that the
Department's finding in this regard is consistent with the Department's
current practice. See e.g., CFS from Korea Decision Memorandum at
``Export and Import Credit Financing from KEXIM,'' where the Department
found that export loans issued by government-owned banks like the Korea
Export Import Bank (KEXIM) constituted countervailable export
subsidies.
To calculate the benefit under this program, we compared the amount
of interest paid against the export loans to the amount of interest
that would have been paid on a comparable commercial loan. As our
benchmark, we used the short-term interest rates discussed above in the
``Subsidies Valuation Information'' section. To calculate the net
countervailable subsidy rate, we divided the benefit received by each
company's respective export sales value for 2007. On this basis, we
preliminarily determine the net countervailable subsidy rate for the
Huludao Companies to be 0.02 percent ad valorem and for Northern Steel
to be 1.54 percent ad valorem.
[[Page 52310]]
G. Liaoning Province Grants - Five Points One Line Program
The Huludao Companies report that Huludao Steel Pipe and Huludao
Bohai Oil Pipe received grants in the form of loan interest subsidies
in 2006 and 2007 under the Five Points One Line Program. The Huludao
Companies also report that Huludao Bohai Oil Pipe received certain fee
exemptions during the POI under the program. The program was introduced
on January 21, 2006 by the Liaoning Provincial Government pursuant to
the ``Opinion of Liaoning Province Encouraging the Expansion of
Opening-Up in Coastal Key Developing Areas.'' Interest subsidies
provided under the program are administered by the Liaoning Development
and Reform Commission and the Liaoning Finance Bureau. Fee exemptions
provided under the program are administered by the Huludao Beigang
Industrial Park, Industry, and Commerce Authority.
The GOC states that the goal of the Five Points One Line Program is
to accelerate the development of the coastal economic belt of Liaoning
Province. Eligibility under the program is limited to enterprises
located within designated industrial zones and other areas within
Liaoning Province, as specified under the program.
We preliminary determine that the grants and fees received by
Huludao Steel Pipe and Huludao Bohai Oil Pipeunder the program
constitute a financial contribution, in the form of a direct transfer
of funds from the government, which bestow a benefit equal to the
amount of the grants within the meaning of sections 771(5)(D)(i) and
771(5)(E) of the Act. We also find that, because the receipt of grants
under the program are limited to enterprises located in certain
geographical regions within the Liaoning Province, the program is
specific within the meaning of section 771(5A)(D)(iv) of the Act.
Because Huludao Steel Pipe and Huludao Bohai Oil Pipe did not
receive grants on an ongoing basis and must submit a separate
application to receive additional assistance under this program, we are
treating the assistance received under the program as a non-recurring
grant. In accordance with 19 CFR 351.524(b)(2), we applied the ``0.5
percent expense test.'' The calculation demonstrates that the grant
amounts received by Huludao Steel Pipe and Huludao Bohai Oil Pipe in
2006 and 2007 are less than 0.5 percent of the total sales
denominator.\32\ Because the amount of the subsidies is less than 0.5
percent of the relevant sales (total sales), we are expensing the
benefit from the grants in 2006 and 2007, the years of receipt, rather
than allocating the benefits over the AUL period. On this basis, we
preliminarily determine that the grants Huludao Steel Pipe and Huludao
Bohai Oil Pipe received in 2006 did not benefit the Huludao Companies
during the POI. Regarding the grant amount received by Huludao Steel
Pipe in 2007, we preliminarily determine the countervailable net
subsidy rate to be 0.30 percent ad valorem.
---------------------------------------------------------------------------
\32\ We note that Huludao Bohai Oil Pipe did not have any sales
in 2006. Therefore, in performing the ``0.5 percent expense test,''
we used the 2006 total sales of Huludao Steel Pipe.
---------------------------------------------------------------------------
In addition, we preliminarily determine that the fee exemptions
that Huludao Bohai Oil Pipe received during the POI constitute a
financial contribution in the form of revenue forgone under section
771(5)(D)(ii) of the Act and a benefit under section 771(5)(E) of the
Act in an amount equal to the fee exemption. We further preliminarily
determine that the fee exemptions are specific under section
771(5A)(D)(iv) of the Act because they are limited to enterprises
located in certain geographical regions. In accordance with 19 CFR
351.524(c), we find that the fee exemptions are recurring subsidies
and, thus, have expensed them to the POI. Specifically, we divided the
fee exemptions received during the POI by the combined total sales of
Huludao Steel Pipe and Huludao Bohai Oil Pipe. On this basis, we
preliminarily determine that the net subsidy rate from the fee
exemptions is less than 0.005 percent ad valorem.
H. Income Tax Credits on Purchases of Domestically-Produced Equipment
by Domestically Owned Companies
Huludao Steel Pipe reported receiving an income tax deduction on
the tax return it filed during the POI under the Income Tax Credits on
Purchases of Domestically Produced Equipment by Domestically Owned
Companies program. According to the GOC, this program was established
on July 1, 1999 by the ``Provisional Measures on Enterprise Income Tax
Credit for Investment in Domestically Produced Equipment for Technology
Renovation Projects.'' The GOC states that under the program a
domestically invested company may claim tax credits on the purchase of
domestic equipment if the project is compatible with the industrial
policies of the GOC. Tax credit up to 40 percent of the purchase price
of the domestic equipment may apply to the incremental increase in tax
liability from the previous year. The GOC further states that pursuant
to the ``Circular on Relevant Issues with Respect to Ceasing
Implementing of Income Tax Credit to Purchase of Domestically Produced
Equipment by Enterprises,'' the program was terminated effective
January 1, 2008.
We preliminarily determine that the income tax deductions provided
under the program constitute a financial contribution, in the form of
revenue forgone, and a benefit, in an amount equal to the tax savings,
under sections 771(5)(D)(i) and 771(5)(E) of the Act, respectively. We
further find that this program is specific under section 771(5A)(A) of
the Act because the receipt of the tax savings is contingent upon the
use of domestic over imported goods.
To calculate the benefit, we summed the amount of tax savings the
Huludao Steel Pipe received on the tax return it filed during the POI
in accordance with 19 CFR 351.509(a)(2)(b). In accordance with 19 CFR
351.509(c), we have allocated benefits received under the program to
the POI.
To calculate the net subsidy rate, we divided the benefit by the
combined 2007 sales of Huludao Steel Pipe and Huludao Bohai Oil Pipe.
On this basis, we calculated a net countervailable subsidy rate of 0.38
percent ad valorem for the Huludao Companies.
We will continue to examine whether the purported termination of
this program constitutes a program-wide change under 19 CFR 351.526.
I. Preferential Lending of Policy Loans to State-Owned Enterprises and
the Steel Industry by State-Owned and Controlled Banks
In CWP Final, the Department discussed its findings regarding the
GOC's policy lending. See CWP Decision Memorandum at Comment 8. The
Department described the various industrial plans that the GOC had
established in recent years in which policy goals pertaining to the
steel industry are discussed. Regarding the National and Economic and
Social Development 11\th\ Five-Year Plan (11\th\ Five-Year Plan), the
Department found that while the plan lists specific policy goals
relating to the steel industry, it did not provide for financing and
credit. Therefore, the Department found that the plan did not provide a
basis for finding that policy lending exists for the CWP industry. Id.
In the CWP Final, the Department also examined the ``Interim
Provisions on Promoting Industrial Structure Adjustment'' (ISA). Id.
Regarding this provision, the Department noted that
[[Page 52311]]
Article 17 of the ISA stated that with regard to ``encouraged
projects,'' all financial institutions shall provide credit in
compliance with credit principals. Id. The Department explained that
such ``encouraged projects'' covered under the ISA are listed in the
``Directory Catalogue on Readjustment of Industrial Structure''
(Directory Catalogue). Id. The Department further explained that though
pipe products were listed under the Directory Catalogue, the ISA did
not identify any specific financing tools that are provided to
``encouraged industries'' and, thus, the Department determined that no
preferential lending was received pursuant to the ISA or the Directory
Catalogue. Id.
Because the information on the record of the CWP investigation is
similar to the information on the record of the instant investigation,
we have, for purposes of the preliminary determination, reached the
same conclusion as those made by the Department in CWP Final as it
pertains to the industrial plans discussed above.
In addition, the Department examined the ``Council Circular on
Printing Circulating Certain Supporting Policies for Implementation of
the Outline of Medium and Long-Term Plan for National Scientific and
Technological Development'' (Technology Development Plan). In CWP
Final, the Department found that the Technology Development Plan
explicitly provides for policy lending to high technology enterprises.
Id. In particular, the Department found that Article 15 of the
Technology Development Plan states that the China Development Bank and
the Export-Import Bank of China may provide soft loans to high and new
technology enterprises for taking part in project investment, and
provide financial support to export and import key technologies. Id.
Also, the Department found that Article 16: (1) instructs commercial
banks to lend to high-tech projects ``in accordance with national
investment policy and credit policy;'' and (2) further encourages the
nominally ``commercial banks'' to ``prioritize'' loans to support the
exportation of the products of high technology enterprises.
For purposes of this preliminary determination, we find that there
is no information indicating that Northern Steel and the Huludao
Companies received any loans outstanding during the POI that were
issued pursuant to the Technology Development Plan. We will continue to
examine whether respondents received any such loans under this GOC
plan.
In CWP Final, the Department also examined the ``Development
Policies for the Iron and Steel Industry Plan'' (Iron and Steel
Policy). Id. The Department explained that as an initial matter, it was
unable to definitively determine what was meant by the GOC's use of the
term ``major iron and steel projects'' as specified under the Iron and
Steel Policy. Id. In an attempt to define the term, the GOC provided a
copy of a page from a 2006 metal products industry publication to
demonstrate that the term ``metal products'' relates exclusively to
``steel wire products'' and not steel products writ large. Id. However,
the Department concluded that the metal industry publication did not
provide sufficient proof to demonstrate that pipe products were not
covered by the Iron and Steel Policy.
Notwithstanding the lack of definitive evidence that the Iron and
Steel Policy was limited to steel wire products, the Department found
in CWP Final that the policy includes only one reference to using loans
to support particular producers or activities. Specifically, in CWP
Final, the Department noted that Article 16 of the Iron and Steel
Policy states:
For a major iron and steel product that is based on home-made
equipment as newly developed, that state shall grant policy supports in
such aspects as taxation, discounted interest rates, and scientific
research funds.
See CWP Decision Memorandum at Comment 8.
In CWP Final, the Department found that none of the respondents
received loans for ``home-made'' (e.g., domestically produced
equipment) that were outstanding during the POI. Id. Therefore, in CWP
Final, the Department concluded that producers of CWP did not receive
loans during the POI under the Iron and Steel Policy. Id.
In the instant investigation, the GOC has made similar claims
regarding the scope of the Iron and Steel Policy. In particular, the
GOC has placed the same page from the 2006 metal publication discussed
above in support of its contention that the scope of the Iron and Steel
Policy is limited to steel wire products. See Exhibit D-8 of the GOC's
August 21, 2008 supplemental questionnaire response. The GOC further
claims in the response that the term ``discounted interest rates,''
cited by the Department in CWP Final as part of Article 16 of the Iron
and Steel Policy, constitutes an inaccurate translation. In the instant
investigation, the GOC claims that the phrase involving loans in
Article 16 of the Iron and Steel Policy, in fact, refers to the
provision of lump sum interest subsidy payments by the GOC and not to
the provision of loans with discounted interest rates. On this basis,
the GOC claims that the Department cannot rely on Article 16 as the
basis for finding that the Iron and Steel Policy provides preferential
lending to steel producers, including producers of line pipe.
As in CWP Final, we continue to find that the information from the
2006 metal publication does not provide sufficient information to
enable to the Department to definitively conclude that line pipe
products are not considered ``major iron and steel proudcts'' covered
by the Iron and Steel Policy. Regarding the GOC's claims concerning the
translation of Article 16 of the policy, we note that the English
translation of Article 16 submitted by the GOC continues to make
reference to ``discounted loans.'' See GOC's August 21, 2008
questionnaire response at Exhibit D-12. Therefore, for purposes of the
preliminary determination, we find that line pipe products are covered
under the scope of the Iron and Steel Policy.
Given that Article 16 of the Iron and Steel Policy states that the
GOC ``shall grant policy supports in such aspects as . . . discounted
loans,'' we asked Northern Steel and the Huludao Companies to indicate
whether any of their loans outstanding during the POI were issued for
the purpose of acquiring or paying for domestically produced equipment.
In its August 6, 2008 questionnaire response, Northern Steel indicates
that none of its loans outstanding during the POI were received for the
purpose of acquiring or purchasing domestic equipment. Concerning the
Huludao Companies, in their August 28, 2008 questionnaire response,
they indicated that none of the loans issued to the Huludao Seven Star
Group and Huludao Steel Pipe that were outstanding during the POI were
for the purpose of acquiring domestically produced equipment. However,
in the case of Huludao Bohai Oil Pipe, information submitted by the
Huludao Companies indicates that the nature of all of the loans the
company had outstanding during the POI from GOC-owned banks could have
involved the acquisition of domestically equipment. See the Huludao
Companies' August 28, 2008 questionnaire response.\33\
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\33\ The exact nature of the loans Huludao Bohai Oil Pipe had
outstanding during the POI are business proprietary.
---------------------------------------------------------------------------
Based on the information supplied by respondents, we preliminarily
determine that Northern Steel, the
[[Page 52312]]
Huludao Seven Star Group, and Huludao Steel Pipe did not have any loans
received for the purpose of acquiring domestically produced equipment
that were outstanding during the POI. However, based on the information
supplied by the Huludao Companies, we preliminarily determine that
there is a sufficient basis to determine that Huludao Bohai Oil Pipe
had loans outstanding during the POI that would be covered under
Article 16 of the Iron and Steel Policy.
Based on the information in Article 16 of the Iron and Steel Policy
(e.g., that the ``state shall grant policy supports in such aspects as
. . . discounted interest rates'' for projects based on domestically
produced equipment), we preliminarily determine that the loans Huludao
Bohai Oil Pipe received from GOC-owned banks during the POI constitute
a financial contribution under section 771(5)(D)(i) of the Act. We
further preliminarily determine that the loans in question confer a
benefit under section 771(5)(E)(ii) of the Act to the extent that the
interest payments made on the government loans during the POI are less
than what would have been paid on a comparable commercial loan. In
addition, we preliminarily determine that the loans Huludao Bohai Oil
Pipe had outstanding during the POI from GOC-owned banks are specific
under the statute because financing provided under Article 16 of the
Iron and Steel Policy is limited to major iron and steel products,
which for purposes of this determination we find includes line pipe.
To calculate the benefit under this program, we compared the amount
of interest paid against the loans provided under the program to the
amount of interest that would have been paid on a comparable commercial
loan. As our benchmark, we used the short-term and long-term benchmark
interest rates discussed above in the ``Subsidies Valuation
Information'' section.
To calculate the net countervailable subsidy rate, we divided the
benefit received by Huludao Bohai Oil Pipe by the total sales of
Huludao Steel Pipe and Huludao Bohai Oil Pipe during the POI. On this
basis, we preliminarily determine the net countervailable subsidy rate
for the Huludao Companies to be 0.15 percent ad valorem.
II. Programs Preliminarily Determined Not To Confer Benefits During the
POI
A. Additional Grants Received by the Huludao Companies
In the Department's May 19, 2008 initial questionnaire response,
the Department instructed respondents to indicate whether the GOC or
any other local or provincial government provided them with any other
form of assistance. In its July 9, 2008 initial questionnaire response,
Huludao Steel Pipe reported that it received no other forms of
assistance apart from the assistance indicated in its initial response.
However, in response to the Department's request in its July 30, 2008
supplemental questionnaire for Huludao Steel Pipe to break out its
capital account, the company indicated that it received three
additional grants from certain provincial and municipal
institutions.\34\ Specifically, Huludao Steel Pipe reported that it
received grants in 2005 and 2006. The GOC did not provide any
information concerning these three grants in its August 21, 2008
supplemental questionnaire response.
---------------------------------------------------------------------------
\34\ The identity of the government institutions and the details
concerning the grant amounts are business proprietary. See Huludao's
August 18, 2008 supplemental questionnaire response.
---------------------------------------------------------------------------
Because the assistance reported by Huludao Steel Pipe was provided
in the form of grants, we have applied the ``0.5 percent expense test''
described in 19 CFR 351.524(b)(2). If the amount of subsidies is less
than 0.5 percent of the relevant sales, then the benefits are allocated
to the year of receipt rather than allocated over the AUL period.
However, Huludao Steel Pipe did not provide any information regarding
the amount of subsidies approved or the dates on which the relevant
government authority approved the subsidies. Lacking this information,
we have performed the ``0.5 percent expense test'' using the amount of
grants actually received and their corresponding dates of receipt.
Further, because we lack information from the GOC concerning the
eligibility requirements of the government programs under which the
grants were provided, we are not able to discern the corresponding
sales denominator that should be used in the denominator of the ``0.5
percent expense test.'' Therefore, in accordance with section 776(a) of
the Act, because the necessary information is not available on the
record, we have used the facts otherwise available in conducting the
``0.5 percent expense test.'' Specifically, we have used the smallest
available sales denominators for the Huludao Companies for the years in
which the grants were received. Specifically, we used the total export
sales of Huludao Steel Pipe as the denominator of the ``0.5 percent
expense test'' for years 2005 and 2006.\35\ The calculation
demonstrates that the grant amounts were less than 0.5 percent of their
relevant sales denominators. Because the amount of the grants is less
than 0.5 percent of the relevant sales, we have expensed the benefits
from the grants to the year of receipt. On this basis, we preliminarily
determine that, regardless of whether the grants were received under a
countervailable subsidy program, any such benefits are not attributable
to the POI.
---------------------------------------------------------------------------
\35\ Huludao Bohai Oil Pipe did not report any sales in 2005 or
2006.
---------------------------------------------------------------------------
B. No-Payment Loans
In 1996, Huludao Steel Pipe received two loans from government
institutions located in Liaoning Province.\36\ In its July 9, 2008
initial questionnaire response, Huludao Steel Pipe reported that had
not paid any interest on either of the two the loans since their
receipt in 1996. In addition, Huludao reported it had not made any
principal payments on one of the loans and only sporadic principal
payments on the other loan. Huludao Steel Pipe further reported that no
loan agreements or contracts were signed between the company and the
government institutions at the time of receipt of the loans.
Information supplied by Huludao Steel Pipe indicates that there have
been no agreements or contracts signed between the company and
government since receipt of the loans.
---------------------------------------------------------------------------
\36\ The names of the government institutions are business
proprietary.
---------------------------------------------------------------------------
As explained above, we are using the date of December 11, 2001, the
date on which the PRC became a member of the WTO, as the date from
which the Department will identify and measure subsidies in the PRC for
purposes of this preliminary determination. Because these loans were
received prior to the December 11, 2001 ``cut-off'' date, we
preliminarily determine that the loans did not confer benefits upon
Huludao Steel Pipe during the POI.
III. Programs For Which Additional Information Is Required
Liaoning Province Grant: Liaoning Enterprise Technology Renovation
Project Interest Assistance
Huludao Steel Pipe and Huludao Bohai Oil Pipe received grants from
the Government of Liaoning Province under the Liaoning Enterprise
Technology Renovation Project Interest Assistance program. The grant
received by Huludao Steel Pipe was approved in 2005 and disbursed in
2006 and 2007. Huludao Bohai Oil Pipe's grant was approved and received
in 2006. The GOC reports that grants under the program are provided for
under the ``Liaoning Administrative Measures on Enterprise Technology
Renovation Loan Interest
[[Page 52313]]
Subsidy Fund,'' which was enacted on December 22, 2005. The program is
designed to assist in technology upgrades by providing grants to cover
interest expenses companies incur in financing technology renovation
projects. The program is administered by the Economic Commission and
Financial Departments of the Government of Liaoning Province.
According to the GOC, in order to be eligible to receive assistance
under the program, firms must be located in Liaoning Province and
engage in technology renovation projects that pertain to the production
of raw materials and equipment or involve the following industries:
chemical, textiles, pharmaceutical, information technology, and
agricultural processing industries. The GOC states that this program is
not contingent upon export performance.
Huludao Steel Pipe and Huludao Bohai Oil Pipe did not receive
grants on an ongoing basis and submitted separate applications for
consideration of the assistance they received, thus we are treating the
assistance received under the Liaoning Enterprise Technology Renovation
Project Interest Assistance program as non-recurring grants.
We preliminarily determine that grants provided under the program
constitute a financial contribution, in the form of a direct transfer
of funds, and a benefit, in an amount equal to the grants received,
under sections 771(5)(D)(i) and 771(5)(E) of the Act, respectively.
Regarding specificity, at this time, we lack sufficient information to
determine whether this program is specific under section 771(5A)(A) of
the Act.
However, for purposes of the preliminarily determination, we find
that regardless of whether the program is found to be countervailable,
the grants received to Huludao Steel Pipe and Huludao Bohai Oil Pipe in
2006 are not attributable to the POI due to the fact that the approval
amounts of the grants were less than 0.5 percent of their relevant
sales denominator in the year of approval.\37\ Therefore, in accordance
with 19 CFR 351.525(b)(2), we have expensed the grants provided under
the program to their respective years of receipt rather than allocating
the benefits over the AUL period. As a result, we preliminarily
determine that the grants received by Huludao Steel Pipe and Huludao
Bohai Oil Pipe in 2006 were fully expensed prior to the POI.
---------------------------------------------------------------------------
\37\ Huludao Bohai Oil Pipe did not have any sales in 2006.
Therefore, in conducting the ``0.5 percent expense test'' under 19
CFR 351.524(c), we used the 2005 total sales of Huludao Steel Pipe.
---------------------------------------------------------------------------
Regarding the grant amounts disbursed to Huludao Steel Pipe, as
explained above, we lack sufficient specificity information for this
program at this time. Therefore, we will seek additional specificity
information regarding this program in order to allow the Department to
make a subsidy determination with respect to grant amounts disbursed to
Huludao Steel Pipe during the POI.
IV. Programs Preliminarily Determined To Be Not Countervailable
A. Provision of Electricity for Less Than Adequate Remuneration
According to the GOC, electricity in the PRC is produced by
numerous power plants and is transmitted for local distribution to
virtually all end users by two state-owned transmission companies, the
State Grid and China South Power Grid. The State Grid is responsible
for transmitting electricity to Liaoning Province. Generally, prices
for uploading electricity to the power grid and transmitting it are
regulated by the GOC, as are the final sales prices. The following
measures set forth the basic rules for determining electricity prices:
``Circular on Implementation Measures Regarding Reform of Electricity
Prices'' (FAGAIJIAGE {2005{time} No. 514, National Development and
Reform Commission), ``Provisional Administrative Measures on Prices for
Transmission of Electricity,'' and ``Provisional Administrative
Measures on Prices for Sales of Electricity'' (which states at Article
29 ``Government departments in charge of pricing at various levels
shall be responsible for the administration and supervision of
electricity sales prices.'').\38\ The GOC reports that all areas of
Liaoning Province are subject to the same electricity price
schedule.\39\
---------------------------------------------------------------------------
\38\ See GOC's July 9, 2008 questionnaire response at Exhibit
60.
\39\ The electricity price schedule was submitted at exhibit D-
17 of the GOC's August 21, 2008 questionnaire response.
---------------------------------------------------------------------------
Electricity consumers are divided into broad categories including
residential, commercial, large-scale industry, and agriculture. The
rates charged by the utilities vary across customer categories and
within customer categories based on the amount of electricity consumed.
The Huludao Companies and Northern Steel are subject to the standard
electricity price for largescale industries in Liaoning Province.
Within the industrial categories, there are different rates set based
on the level of kilowatt consumption. For certain industrial users, the
rates are specifically broken out and these industries receive special,
discounted rates. Based on our review of the rate schedules submitted
for Liaoning Province, specific discounted rates are not provided to
line pipe producers.
Northern Steel provided to the Department a chart of its
electricity rates and payments for the POI. The company explained that
its electricity rate is equal to the basic rate and actual costs. Based
on the information reported by Northern Steel, the electricity rates
paid by the company during the POI were higher than the large-scale
industries rate listed in the Liaoning Province electricity price
schedule.
The Huludao Companies reported that their electricity rates are
equal to three rates: offpeak, basic, and peak. Based on the
information reported by the Huludao Companies, the electricity rates
paid by Huludao Steel Pipe and Huludao Bohai Oil Pipe were equal to the
rate schedule applicable to the rate charged to large-scale industries
in the Liaoning Province.
Based on the record evidence, we preliminarily determine that the
provision of electricity to large-scale industries in Liaoning Province
is neither de jure nor de facto specific because all such industries
pay the same rate for their electricity, including the line pipe
producers we examined. However, we will continue to examine at
verification the electricity rates paid by the respondents during the
POI.
B. VAT Export Rebates
According to the GOC, the ``exemption, deduction, and refund'' of
VAT applies if a manufacturer exports its self-produced goods by itself
or via a trading company. See Article 1 of the ``Circular on Further
Promotion of Methodology of Exemption, Deduction, and Refund' of Tax
for Exported Goods'' (CAISHUI (2002) No. 7) at Exhibit 48 of the GOC's
July 9, 2008 questionnaire response. Under the VAT refund system, when
a producer/exporter purchases inputs (e.g., raw materials, components,
fuel, and power), it pays a VAT based on the purchase price of the
inputs. The GOC reported that VAT rates paid by line pipe producers/
exporters for inputs are as follows: raw materials (e.g., hot-rolled
steel strip) and electricity at a rate of 17 percent; fuel at 13
percent; and water at 6 percent.\40\ Once the producer/exporter exports
subject merchandise, a VAT payment and tax exemption form is prepared
and filed with the relevant tax
[[Page 52314]]
authority. Line pipe exporters receive a VAT refund of 13 percent of
the export price.\41\
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\40\ See GOC's July 9, 2008 questionnaire response at 89.
\41\ Id. at 88.
---------------------------------------------------------------------------
The Department's regulations state that in the case of an exemption
upon export of indirect taxes, a benefit exists only to the extent that
the Department determines that the amount exempted ``exceeds the amount
levied with respect to the production and distribution of like products
when sold for domestic consumption.'' See 19 CFR 351.517(a) and 351.102
(for a definition of ``indirect tax). Information in the respondents'
responses show that the Huludao Companies and Northern Steel paid the
VAT on their inputs and applied for and received a VAT refund on their
export sales.
To determine whether a benefit was provided under this program, we
analyzed whether the amount of VAT exempted during the POI exceeded the
amount levied with respect to the production and distribution of like
products when sold for domestic consumption. Because the VAT rate
levied on line pipe in the domestic market (i.e., 17 percent) exceeded
the amount of VAT exempted upon the export of line pipe (i.e., 13
percent), we preliminarily determine that, for the purposes of this
investigation, the VAT refund received upon export of line pipe by the
respondents does not confer a countervailable benefit. We note our
finding in this regard is consistent with the Department's practice.
See e.g., Tires Decision Memorandum at ``VAT Export Rebates'' section.
V. Programs Preliminarily Determined To Be Not Used
We preliminarily determine that the Huludao Companies and Northern
Steel did not apply for or receive benefits during the POI under the
programs listed below:
A. Preferential Loans
1. Preferential Loans for Key Projects and Technologies
B. Debt-to-Equity Swaps for State-Owned Enterprises
C. Tax Benefit Programs
1. Income Tax Reduction for Export-Oriented FIEs
2. Income Tax Reductions for FIEs Based on Location
3. Preferential Tax Programs for FIEs that Quality as Technology-
Intensive or Knowledge Intensive
4. Preferential Tax Programs for FIEs Recognized as High or New
Technology Enterprises
5. Preferential Tax Programs for FIEs that are Engaged in Research
and Development
6. Income Tax Reduction for FIEs that Reinvest Profits into Export-
Oriented Enterprises
7. Local Income Tax Exemption and Reduction Programs for
``Productive'' FIEs
8. Income Tax Credits on Purchases of Domestically-Produced
Equipment by FIEs
D. VAT Programs
1. VAT Exemptions for Use of Imported Equipment
E. Grant Programs
1. Interest Subsidies for Key Projects and Technologies
2. State Key Technologies Renovation Project Fund
3. Central Government's Famous Brands Program
4. Government of Guandong Province Provision of Grants to Companies
for Outward Expansion and Export Performance
5. Grants to SOEs Operating at a Loss
F. Provision of Water for Less Than Adequate Remuneration\42\
---------------------------------------------------------------------------
\42\ The Huludao Companies and Northern Steel obtain water
directly from their own ground wells. The GOC and Northern Steel
reported that the company paid water resource fees to the Haicheng
Water Resources Bureau during the POI. The GOC reported that the
Huludao Companies did not pay any water fees. (See GOC's August 21,
2008 questionnaire response at 33.) We will further examine the
payment of water fees at verification.
---------------------------------------------------------------------------
G. Provincial Programs
1. Liaoning Province Framework
2. Sub-Central Government Programs to Promote Famous Brands
H. New Subsidies Programs
The Huludao Companies and Northern Steel reported non-use of the
following programs. The GOC's response to the new subsidies
questionnaire was submitted to the Department on August 29, 2008. We,
therefore, will continue to examine these programs.
1. Preferential Income Tax Policy for Enterprises in the Northeast
Region (Northeast Tax Preference Policy)
2. Provisions on Expanding the Qualifications of Fixed Asset Input
VAT Deductions in the Northeast Region (Northeast Region VAT Deduction
Program)
3. Haicheng City Government VAT and Business Tax Incentives
4. Debt Forgiveness Provided to Huludao Companies
Verification
In accordance with section 782(i)(1) of the Act, we intend to
verify the information submitted by the Huludao Companies, Northern
Steel, and the GOC prior to making our final determination.
Suspension of Liquidation
In accordance with section 703(d)(1)(A)(i) of the Act, we have
calculated an individual rate for each producer/exporter of the subject
merchandise. We preliminarily determine the total estimated net
countervailable subsidy rate to be:
------------------------------------------------------------------------
Producer/Exporter Subsidy Rate
------------------------------------------------------------------------
Liaoning Northern Steel Pipe Co., Ltd................... 31.65 percent
ad valorem
Huludao Seven-Star Steel Pipe Group Co., Ltd. (Huludao 18.89 percent
Seven Star Group), Huludao Steel Pipe Industrial Co. ad valorem
Ltd. (Huludao Steel Pipe), and Huludao Bohai Oil Pipe
Industrial Co. Ltd. (Huludao Bohai Oil Pipe)
(collectively, the Huludao Companies)..................
All Others.............................................. 25.27 percent
ad valorem
------------------------------------------------------------------------
Sections 703(d) and 705(c)(5)(A) of the Act state that for
companies not investigated, we will determine an all-others rate by
weighting the individual company subsidy rate of each of the companies
investigated by each company's exports of the subject merchandise to
the United States. However, the all-others rate may not include zero
and de minimis net subsidy rates, or any rates based solely on the
facts available.
Notwithstanding the language of section 705(c)(1)(B)(i)(I) of the
Act, we have not calculated the all-others rate by weight averaging the
rates of the Huludao Companies and Northern Steel because doing so
risks disclosure of proprietary information. Therefore, for the all-
others rate, we have calculated a simple average of the two responding
firms' rates.
In accordance with sections 703(d) (1) (B) and (2) of the Act, we
are directing U.S. Customs and Border Protection (CBP) to suspend
liquidation of all entries of the subject merchandise from the PRC that
are entered or withdrawn from warehouse, for consumption on or after
the date of the publication of this notice in the Federal Register, and
to require a cash deposit or bond for such entries of the merchandise
in the amounts indicated above.
[[Page 52315]]
ITC Notification
In accordance with section 703(f) of the Act, we will notify the
ITC of our determination. In addition, we are making available to the
ITC all non-privileged and non-proprietary information relating to this
investigation. We will allow the ITC access to all privileged and
business proprietary information in our files, provided the ITC
confirms that it will not disclose such information, either publicly or
under an administrative protective order, without the written consent
of the Assistant Secretary for Import Administration.
In accordance with section 705(b) (2) of the Act, if our final
determination is affirmative, the ITC will make its final determination
within 45 days after the Department makes its final determination.
Disclosure and Public Comment
In accordance with 19 CFR 351.224(b), the Department will disclose
to the parties the calculations for this preliminary determination
within five days of its announcement. Case briefs for this
investigation must be submitted no later than one week after the
issuance of the last verification report. See 19 CFR 351.309(c) (for a
further discussion of case briefs). Rebuttal briefs, which must be
limited to issues raised in the case briefs, must be filed within five
days after the deadline for submission of case briefs. See 19 CFR
351.309(d). A list of authorities relied upon, a table of contents, and
an executive summary of issues should accompany any briefs submitted to
the Department. Executive summaries should be limited to five pages
total, including footnotes.
In accordance with 19 CFR 351.310(c), we will hold a public
hearing, if requested, to afford interested parties an opportunity to
comment on this preliminary determination. Individuals who wish to
request a hearing must submit a written request within 30 days of the
publication of this notice in the Federal Register to the Assistant
Secretary for Import Administration, U.S. Department of Commerce, Room
1870, 14\th\ Street and Constitution Avenue, NW, Washington, DC 20230.
Parties will be notified of the schedule for the hearing and parties
should confirm the time, date, and place of the hearing 48 hours before
the scheduled time. Requests for a public hearing should contain: (1)
party's name, address, and telephone number; (2) the number of
participants; and (3) to the extent practicable, an identification of
the arguments to be raised at the hearing.
This determination is issued and published pursuant to sections
703(f) and 777(i) of the Act and 19 CFR 351.221(b)(4).
Dated: September 2, 2008.
David M. Spooner,
Assistant Secretary for Import Administration.
[FR Doc. E8-20922 Filed 9-8-08; 8:45 am]
BILLING CODE 3510-DS-S