[Federal Register: September 19, 2008 (Volume 73, Number 183)]
[Notices]
[Page 54367-54384]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19se08-34]
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DEPARTMENT OF COMMERCE
International Trade Administration
[C-570-938]
Citric Acid and Certain Citrate Salts From the People's Republic
of China: Preliminary Affirmative Countervailing Duty Determination and
Alignment of Final Countervailing Duty Determination With Final
Antidumping Duty Determination
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
SUMMARY: The Department of Commerce preliminarily determines that
countervailable subsidies are being provided to producers and exporters
of citric acid and certain citrate salts from the People's Republic of
China. For information on the estimated subsidy rates, see the
``Suspension of Liquidation'' section of this notice.
DATES: Effective Date: September 19, 2008.
FOR FURTHER INFORMATION CONTACT: Damian Felton, David Neubacher, or
Shelly Atkinson, AD/CVD Operations, Office 1, Import Administration,
International Trade Administration, U.S. Department of Commerce, 14th
Street and Constitution Avenue, NW., Washington, DC 20230; telephone:
(202) 482-0133, (202) 482-5823, or (202) 482-0116, respectively.
SUPPLEMENTARY INFORMATION:
Case History
The following events have occurred since the publication of the
Department of Commerce's (``Department'') notice of initiation in the
Federal Register. See Notice of Initiation of Countervailing Duty
Investigation: Citric Acid and Certain Citrate Salts From the People's
Republic of China, 73 FR 26960 (May 12, 2008) (``Initiation Notice''),
and the accompanying Initiation Checklist.
On June 2, 2008, the Department selected three Chinese producers/
exporters of citric acid and certain citrate salts (``citric acid'') as
mandatory respondents, BBCA Group Corp., Shandong TTCA Biochemical Co.,
Ltd.
[[Page 54368]]
(``TTCA''), and Yixing Union Biochemical Co., Ltd. (``Yixing Union'').
See Memorandum to Stephen J. Claeys, Deputy Assistant Secretary for
Import Administration, ``Respondent Selection'' (June 2, 2008). This
memorandum is on file in the Department's Central Records Unit in Room
1117 of the main Department building (``CRU''). Subsequently, on June
4, 2008, the Department issued a correction to the respondent selection
memorandum, naming Anhui BBCA Biochemical Co., Ltd. (``Anhui BBCA'') as
a mandatory respondent, and not BBCA Group Corp. See Memorandum to the
File from Scott Holland, ``Correction to Respondent Selection
Memorandum--Selection of Anhui BBCA Biochemical Co., Ltd.'' (June 4,
2008). On June 9, 2008, we issued the countervailing duty (``CVD'')
questionnaires (``CVD questionnaire'') to the Government of the
People's Republic of China (``GOC''), Anhui BBCA, TTCA, and Yixing
Union.
On June 11, 2008, the International Trade Commission (``ITC'')
issued its affirmative preliminary determination that there is a
reasonable indication that an industry in the United States is
threatened with material injury by reason of allegedly subsidized
imports of citric acid from Canada and the People's Republic of China
(``PRC''). See Citric Acid and Certain Citrate Salts from Canada and
China; Determinations, Investigation Nos. 701-TA-456 and 731-TA-1151-
1152, 73 FR 33115 (June 11, 2008).
On June 13, 2008, the Department postponed the preliminary
determination of this investigation until September 12, 2008. See
Citric Acid and Certain Citrate Salts from the People's Republic of
China: Notice of Postponement of Preliminary Determination in the
Countervailing Duty Investigation, 73 FR 33805 (June 13, 2008).
On July 16, 2008, we were notified by counsel for Anhui BBCA that
the company would not be participating in the investigation.
We received responses to our questionnaire from the GOC, TTCA and
Yixing Union on July 23, 2008. See the GOC's Original Questionnaire
Response (July 23, 2008) (``GQR''); TTCA's Original Questionnaire
Response (July 23, 2008) (``TQR''); and Yixing Union's Original
Questionnaire Response (July 23, 2008) (``YQR''). We sent supplemental
questionnaires on the following dates: August 1, 2008 (TTCA and Yixing
Union); August 7, 2008 (TTCA); August 11, 2008 (Yixing Union); August
13 and 18, 2008 (GOC); and September 4, 2008 (GOC). We received
responses to these supplemental questionnaires as follows: TTCA's First
Supplemental Response (August 6, 2008) (``T1SR''); TTCA's Second
Supplemental Response (August 27, 2008) (``T2SR (8/27)''); TTCA's
Second Supplemental Response (August 28, 2008); Yixing Union's First
Supplemental Response (August 7, 2008); Yixing Union's Second
Supplemental Response (September 2, 2008) (``Y2SR''); GOC's First
Supplemental Response (August 27, 2007) (``G1SR (8/27)''); GOC's First
Supplemental Response (September 2, 2008) (``G1SR (9/2)''); GOC's
Second Supplemental Response (September 2, 2008) (``G2SR (9/2)'');
GOC's Second Supplemental Response (September 5, 2008) (``G2SR (9/
5)''); GOC's Third Supplemental Response (September 9, 2008); and
TTCA's Additional Translations of T1SR (8/27) (September 10, 2008).
On August 1, 2008, Archer Daniels Midland Company, Cargill,
Incorporated, and Tate & Lyle America, Inc. (collectively,
``Petitioners'') requested that the Department extend the deadline for
the submission of new subsidy allegations beyond the August 4, 2008,
deadline established by the Department's regulations. See 19 CFR
351.301(d)(4)(i)(A). The Department granted the request and Petitioners
submitted new subsidy allegations on August 8, 2008. The GOC and Yixing
Union submitted comments on Petitioners' new subsidy allegations on
August 18, 2008. We met with the GOC and Petitioners regarding the new
subsidy allegations on August 22, 2008, and August 28, 2008,
respectively.
On September 12, 2008, the Department determined to investigate
certain of the newly alleged subsidies, specifically those relating to
the Provision of TTCA's Plant and Equipment for Less Than Adequate
Remuneration (``LTAR''); Provision of Land to SOEs for LTAR; Provision
of Land in the YEDZ for LTAR; Provision of Land-use Fees in Jiangsu
Province for LTAR; Provision of Land in the Anqiu City Economic
Development Zone for LTAR; Administration Fee Exemption in Anqiu City;
Exemption of Water and Sewage Fees in Anqiu City; Tax Grants, Rebates
and Credits in the Yixing Economic Development Zone (``YEDZ'');
Provision of Water in the YEDZ for LTAR; Provision of Electricity in
the YEDZ for LTAR; Provision of Construction Services in the YEDZ for
LTAR; Administration Fee Exemption in the YEDZ; and Grants to FIEs for
Projects in the YEDZ. See Memorandum to Susan Kuhbach, Director, AD/CVD
Operations, Office 1, ``New Subsidy Allegations'' (September 12, 2008).
Questions regarding these newly alleged subsidies will be sent to the
GOC and the respondent companies after this preliminary determination
is issued.
On September 2, 2008, Petitioners requested that the final
determination of this CVD investigation be aligned with the final
determination in the companion antidumping duty (``AD'') investigation
in accordance with section 705(a)(1) of the Tariff Act of 1930, as
amended (the ``Act'').
The GOC filed comments in advance of the preliminary determination
on September 3, 2008 (``GOC Pre-Prelim Comments''). Petitioners
provided comments on September 10, 2008, regarding certain issues in
the GOC Pre-Prelim Comments.
On September 5, 2008, Petitioners submitted comments regarding the
rate to be assigned to BBCA and the all-others rate (``Petitioners
Comments on Anhui BBCA and the All-Others Rate''). The GOC responded to
Petitioners' comments on September 9, 2008 (``GOC's Response to
Petitioners'' Comments on Anhui BBCA and the All-Others Rate''). We
address Petitioners' comments and the GOC's response below.
Scope Comments
In accordance with the preamble to the Department's regulations, we
set aside a period of time in our Initiation Notice for parties to
raise issues regarding product coverage, and encouraged all parties to
submit comments within 20 calendar days of publication of that notice.
See Antidumping Duties; Countervailing Duties, 62 FR 27296, 27323 (May
19, 1997), and Initiation Notice, 72 FR at 62210.
Timely comments were filed concerning the scope of the AD and CVD
investigations of citric acid from Canada and the PRC on May 23, 2008,
by Chemrom Inc., and by L. Perrigo Company on June 3, 2008. Petitioners
responded to these comments on June 16, 2008.
On August 6, 2008, the Department issued a memorandum to the file
regarding Petitioners' proposed amendments to the scope of the
investigations. In response, on August 11, 2008, L. Perrigo Company and
Petitioners' submitted comments to provide clarification of the term
``unrefined'' calcium citrate. We have analyzed the comments of the
interested parties regarding the scope of this investigation. See
Memorandum to Stephen J. Claeys, Deputy Assistant Secretary for Import
Administration, re: Antidumping Duty Investigation of
[[Page 54369]]
Citric Acid and Certain Citrate Salts from Canada and the People's
Republic of China (PRC), and CVD Investigation of Citric Acid and
Certain Citrates Salts from the PRC, ``Whether to Amend the Scope of
these Investigations to Exclude Monosodium Citrate and to Further
Define the Product Referred to as 'Unrefined Calcium Citrate'''
(September 10, 2008). Our position on these comments is reflected in
the ``Scope of the Investigation'' section below.
Scope of the Investigation
The scope of this investigation includes all grades and granulation
sizes of citric acid, sodium citrate, and potassium citrate in their
unblended forms, whether dry or in solution, and regardless of
packaging type. The scope also includes blends of citric acid, sodium
citrate, and potassium citrate; as well as blends with other
ingredients, such as sugar, where the unblended form(s) of citric acid,
sodium citrate, and potassium citrate constitute 40 percent or more, by
weight, of the blend. The scope of this investigation also includes all
forms of crude calcium citrate, including dicalcium citrate
monohydrate, and tricalcium citrate tetrahydrate, which are
intermediate products in the production of citric acid, sodium citrate,
and potassium citrate. The scope of this investigation does not include
calcium citrate that satisfies the standards set forth in the United
States Pharmacopeia and has been mixed with a functional excipient,
such as dextrose or starch, where the excipient constitutes at least 2
percent, by weight, of the product. The scope of this investigation
includes the hydrous and anhydrous forms of citric acid, the dihydrate
and anhydrous forms of sodium citrate, otherwise known as citric acid
sodium salt, and the monohydrate and monopotassium forms of potassium
citrate. Sodium citrate also includes both trisodium citrate and
monosodium citrate, which are also known as citric acid trisodium salt
and citric acid monosodium salt, respectively. Citric acid and sodium
citrate are classifiable under 2918.14.0000 and 2918.15.1000 of the
Harmonized Tariff Schedule of the United States (HTSUS), respectively.
Potassium citrate and crude calcium citrate are classifiable under
2918.15.5000 and 3824.90.9290 of the HTSUS, respectively. Blends that
include citric acid, sodium citrate, and potassium citrate are
classifiable under 3824.90.9290 of the HTSUS. Although the HTSUS
subheadings are provided for convenience and customs purposes, the
written description of the merchandise is dispositive.
Alignment of Final Countervailing Duty Determination With Final
Antidumping Duty Determination
On May 12, 2008, the Department initiated the CVD and AD
investigations of citric acid from Canada and the PRC. See Initiation
Notice and Citric Acid and Certain Citrate Salts from Canada and the
People's Republic of China: Initiation of Antidumping Duty
Investigations, 73 FR 27492 (May 13, 2008). The CVD investigation and
the AD investigations have the same scope with regard to the
merchandise covered.
On September 2, 2008, Petitioners submitted a letter, in accordance
with section 705(a)(1) of the Act, requesting alignment of the final
CVD determination with the final determination in the companion AD
investigations of citric acid from Canada and the PRC. Therefore, in
accordance with section 705(a)(1) of the Act and 19 CFR 351.210(b)(4),
we are aligning the final CVD determination with the final
determination in the companion AD investigations of citric acid from
Canada and the PRC. Consequently, the final CVD determination will be
issued on the same date as the final AD determinations, which are
currently scheduled to be issued no later than January 26, 2009, unless
postponed.
Period of Investigation
The period for which we are measuring subsidies, i.e., the period
of investigation (``POI''), is January 1, 2007, through December 31,
2007.
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 from the PRC''), and the accompanying Issues and Decision
Memorandum (``CFS Decision Memorandum''). In CFS from the PRC, 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 from the
PRC''), and the accompanying Issues and 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, 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.
Use of Facts Otherwise Available and Adverse Inferences
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.
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.
Anhui BBCA
In the instant investigation, Anhui BBCA did not provide the
requested information that is necessary to determine a CVD rate for
this preliminary determination. Specifically, Anhui BBCA did not
respond to the Department's June 9, 2008, CVD questionnaire. On July
16, 2008, we were notified that Anhui BBCA would not participate in the
investigation. Thus, in reaching our preliminary determination,
pursuant to section 776(a)(2)(A) and (C) of the Act, we have based the
CVD rate for Anhui BBCA on facts otherwise available.
Petitioners argue that we should utilize reliable record evidence
to compute a ``non-adverse facts available'' rate for Anhui BBCA,
rather than follow the adverse facts available (``AFA'') methodology/
approach the Department
[[Page 54370]]
developed in recent cases. See Petitioners' Comments on Anhui BBCA and
the All-Others Rate, at page 5. Petitioners use record evidence to
compute rates for: Certain grants, preferential policy loans, long-term
loans provided to uncreditworthy companies, over rebate of VAT and the
provision of land for LTAR. See Petitioners' Comments on Anhui BBCA and
the All-Others Rate, at pages 7-15.
Alternatively, should the Department calculate a total AFA rate for
Anhui BBCA, Petitioners argue that we should not limit the computation
to the rates of programs used by the cooperating respondents or from
past cases. Petitioners believe that for certain programs, the rates
calculated using publicly available information form a better source
for facts available than does the information submitted by the
cooperating respondents. See Petitioners' Comments on Anhui BBCA and
the All-Others Rate, at page 16.
While the GOC agrees with Petitioners that the Department should
use neutral (non-adverse) facts available whenever possible, the GOC
notes that Petitioners' calculations for the aforementioned subsidy
programs rely on highly adverse inferences to compute a supposed non-
adverse rate. See GOC's Response to Petitioners' Comments on Anhui BBCA
and the All-Others Rate, at pages 5 and 6.
For the preliminary determination, we are not computing a ``non-
adverse facts available'' rate for Anhui BBCA. Instead, we determine
that an adverse inference is warranted, pursuant to section 776(b) of
the Act. By failing to submit a response to the Department's initial
questionnaire, Anhui BBCA did not cooperate to the best of its ability
in this investigation. Accordingly, we find that an adverse inference
is warranted to ensure that Anhui BBCA will not obtain a more favorable
result than had it fully complied with our request for information.
In deciding which facts to use as AFA, section 776(b) of the Act
and 19 CFR 351.308(c)(1) authorize the Department to rely on
information derived from: (1) The petition; (2) a final determination
in the investigation; (3) any previous review or determination; or (4)
any information placed on the record. It is the Department's practice
to select, as AFA, the highest calculated rate in any segment of the
proceeding. See, e.g., Certain In-shell Roasted Pistachios from the
Islamic Republic of Iran: Final Results of Countervailing Duty
Administrative Review, 71 FR 66165 (November 13, 2006), and the
accompanying Issues and Decision Memorandum, at ``Analysis of
Programs'' and Comment 1.
The Department's practice when selecting an adverse rate from among
the possible sources of information is to ensure that the margin is
sufficiently adverse ``as to effectuate the statutory purposes of the
adverse facts available rule to induce respondents to provide the
Department with complete and accurate information in a timely manner.''
See Notice of Final Determination of Sales at Less than Fair Value:
Static Random Access Memory Semiconductors From Taiwan, 63 FR 8909,
8932 (February 23, 1998). The Department's practice also ensures ``that
the party does not obtain a more favorable result by failing to
cooperate than if it had cooperated fully.'' See Statement of
Administrative Action (``SAA'') accompanying the Uruguay Round
Agreements Act, H. Doc. No. 316, 103d Cong., 2d Session (1994), at page
870. In choosing the appropriate balance between providing a respondent
with an incentive to respond accurately and imposing a rate that is
reasonably related to the respondent's prior commercial activity,
selecting the highest prior margin ``reflects a common sense inference
that the highest prior margin is the most probative evidence of current
margins, because, if it were not so, the importer, knowing of the rule,
would have produced current information showing the margin to be
less.'' See Rhone Poulenc, Inc. v. United States, 899 F.2d 1185, 1190
(Fed. Cir. 1990).
For the preliminary determination, consistent with the Department's
recent practice, we are computing a total AFA rate for Anhui BBCA
generally using program-specific rates determined for the cooperating
respondents or past cases. Specifically, for programs other than those
involving income tax exemptions and reductions, we will apply the
highest calculated rate for the identical program in this investigation
if the responding company used the identical program. If there is no
identical program match within the investigation, we will use the
highest non-de minimis rate calculated for the same or similar program
in another China CVD investigation. Absent an above-de minimis subsidy
rate calculated for the same or similar program, we are applying the
highest calculated subsidy rate for any program otherwise listed, which
could conceivably be used by Anhui BBCA. See Circular Welded Austenitic
Stainless Pressure Pipe From the People's Republic of China:
Preliminary Affirmative Countervailing Duty Determination and Alignment
of Final Countervailing Duty Determination With Final Antidumping Duty
Determination, 73 FR 39657, 39661 (July 10, 2008).
Also, as explained in Lawn Groomers from the PRC, where the GOC can
demonstrate through complete, verifiable, positive evidence that non-
cooperative companies (including all their facilities and cross-owned
affiliates) are not located in particular provinces whose subsidies are
being investigated, the Department does not intend to include those
provincial programs in determining the countervailable subsidy rate for
the non-cooperative companies. See Certain Tow-Behind Lawn Groomers and
Certain Parts Thereof from the People's Republic of China: Initiation
of Countervailing Duty Investigation, 73 FR 42324 (July 21, 2008)
(``Lawn Groomers from the PRC''), and the accompanying Initiation
Checklist. In this investigation, the GOC has provided the business
licenses of Anhui BBCA and its parent company, which indicate that
these companies are located only in Anhui Province. See G2SR (9/2), at
Exhibit S2-36. Therefore, we are including the Anhui Province programs
in the calculation of Anhui BBCA's rate, but not the other sub-national
subsidy programs. In addition, information supplied by Petitioners
indicates that all of Anhui BBCA's cross-owned affiliates are either
located in Anhui Province or outside the PRC. See Petitioners' Comments
on Anhui BBCA and the All-Others Rate, at Exhibit 2, page 26.
Therefore, we do not reach the issue of attributing subsidies received
by these cross-owned affiliates for sub-national subsidy programs,
pursuant to 19 CFR 351.525(b)(6)(ii).
For the following ten alleged income tax programs pertaining to
either the reduction of the income tax rates or exemption from income
tax, we have applied an adverse inference that Anhui BBCA paid no
income tax during the POI: (1) ``Two Free, Three Half'' program, (2)
Reduced income tax rates for foreign-investment enterprises based on
location, (3) Income tax exemption program for export-oriented foreign-
investment enterprises, (4) Reduced income tax rate for high or new
technology enterprises, (5) Reduced income tax rate for technology or
knowledge intensive foreign-investment enterprises, (6) Preferential
income tax rate for research and development at foreign-investment
enterprises, (7) Preferential tax programs for encouraged industries,
(8) Preferential tax policies for township enterprises, (9) Local
income tax exemption and reduction program for productive foreign-
investment enterprises, and (10)
[[Page 54371]]
Reduced income tax rates for encouraged industries in Anhui Province.
The standard income tax rate for corporations in the PRC is 30 percent,
plus a 3 percent provincial income tax rate. Therefore, the highest
possible benefit for these ten income tax rate programs is 33 percent
and we are assigning that rate to these ten programs.
This 33 percent AFA rate does not apply to income tax credit or
refund programs. For the ``Income Tax Credits on Purchases of
Domestically Produced Equipment,'' program, we have preliminarily
determined to use Yixing Union's rate from this investigation, which is
0.11 percent. Neither respondent used the ``Tax benefits to foreign-
investment enterprises for certain reinvestment of profits,'' program
and the Department has not calculated a rate for this program in any
prior investigation. Therefore, we have preliminarily determined to use
the highest non-de minimis rate for any indirect tax program from a
China CVD investigation because there were only de minimis rates for
income tax credit or refund programs from prior investigations. The
rate we selected is 1.51 percent, respondent GE's rate for the ``Value
added tax on Tariff Exemptions on Imported Equipment,'' program. See
CFS from the PRC and CFS Decision Memorandum, at pages 13-14.
For indirect tax and import tariff programs, we have preliminarily
determined to use TTCA's rate from this investigation for the ``Value
Added Tax Rebate for Purchases by Foreign-Investment Enterprises of
Domestically Produced Equipment,'' program (0.23 percent) and Yixing
Union's rate for ``Value Added Tax and Duty Exemptions on Imported
Equipment,'' program, (0.69 percent).
For loan programs, we have preliminarily determined to use TTCA's
rates from this investigation for the following programs: ``National-
Government Policy Loan Program,'' (0.01 percent); and ``Other Policy
Bank Loans,'' (0.48 percent). Neither respondent used the following
programs: ``Discounted Loans for Export-Oriented Industries,'' and
``Funds Provided for the Rationalization of the Citric Acid Industry,''
and the Department has not calculated rates for any of these programs
in prior investigations. Therefore, for these two programs, we have
preliminarily determined to use the highest non-de minimis rate for any
loan program from a China CVD investigation, which is 4.11 percent,
respondent GE's rate for the ``Government Policy Lending'' program. See
CFS from the PRC and CFS Decision Memorandum, at page 9-10.
For grant programs, we have preliminarily determined to use Yixing
Union's rate from this investigation for the ``Famous Brands'' program
(0.03 percent ad valorem). Neither respondent used the following
programs: ``State Key Technology Program Fund,'' ``National level
grants to loss-making state-owned enterprises,'' and ``Provincial level
grants to loss-making state-owned enterprises,'' and the Department has
not calculated rates for any of these programs in prior investigations.
Moreover, all previously calculated rates for grant programs have been
de minimis. Therefore, for each of these programs, we have
preliminarily determined to use the highest calculated subsidy rate for
any program otherwise listed, which could conceivably have been used by
Anhui BBCA. The rate was 13.36 percent for the ``Government Provision
of Land for Less Than Adequate Remuneration,'' program from Laminated
Woven Sacks from the People's Republic of China: Final Affirmative
Countervailing Duty Determination and Final Affirmative Determination,
in Part, of Critical Circumstances, 73 FR 35639 (June 24, 2008) (``LWS
from the PRC'') and the accompanying Issues and Decision Memorandum, at
14-18.
Finally, for the ``Provision of Land for Less than Adequate
Remuneration in Anhui Province'' program, we have preliminarily
determined to use the highest non-de minimis rate for the provision of
land from prior determinations (13.36 percent from LWS from the PRC).
For further explanation of the derivation of Anhui BBCA's AFA rate,
see the Memorandum to the File, ``Adverse Facts Available Rate for
Anhui BBCA Biochemical Co., Ltd'' (September 12, 2008) (``Anhui BBCA
AFA Calc Memo'').
Section 776(c) of the Act provides that, when the Department relies
on secondary information rather than on information obtained in the
course of an investigation or review, it shall, to the extent
practicable, corroborate that information from independent sources that
are reasonably at its disposal. Secondary information is ``information
derived from the petition that gave rise to the investigation or
review, the final determination concerning the subject merchandise, or
any previous review under section 751 concerning the subject
merchandise.'' See e.g., SAA, at page 870. The Department considers
information to be corroborated if it has probative value. See id. To
corroborate secondary information, the Department will, to the extent
practicable, examine the reliability and relevance of the information
to be used. The SAA emphasizes, however, that the Department need not
prove that the selected facts available are the best alternative
information. See SAA, at page 869.
When the Department applies AFA, to the extent practicable, it will
determine whether such information has probative value by evaluating
the reliability and relevance of the information used. With regard to
the reliability aspect of corroboration, we note that these rates were
calculated in prior final CVD determinations. No information has been
presented that calls into question the reliability of these calculated
rates that we are applying as AFA. Unlike other types of information,
such as publicly available data on the national inflation rate of a
given country or national average interest rates, there typically are
no independent sources for data on company-specific benefits resulting
from countervailable subsidy programs.
With respect to the relevance aspect of corroborating the rates
selected, the Department will consider information reasonably at its
disposal in considering the relevance of information used to calculate
a countervailable subsidy benefit. Where circumstances indicate that
the information is not appropriate as AFA, the Department will not use
it. See Fresh Cut Flowers from Mexico; Final Results of Antidumping
Duty Administrative Review, 61 FR 6812 (February 22, 1996).
In the absence of record evidence concerning these programs due to
Anhui BBCA's decision not to participate in the investigation, the
Department has reviewed the information concerning PRC subsidy programs
in this and other cases. For those programs for which the Department
has found a program-type match, we find that programs of the same type
are relevant to the programs of this case. For the programs for which
there is no program-type match, the Department has selected the highest
calculated subsidy rate for any PRC program from which Anhui BBCA could
conceivably receive a benefit to use as AFA. The relevance of this rate
is that it is an actual calculated CVD rate for a PRC program from
which Anhui BBCA could actually receive a benefit. Due to the lack of
participation by Anhui BBCA and the resulting lack of record
information concerning these programs, the Department has corroborated
the rates it selected to the extent practicable.
[[Page 54372]]
On this basis, we preliminarily determine that the AFA
countervailable subsidy rate for Anhui BBCA is 97.72 percent ad
valorem. See Anhui BBCA AFA Calc Memo.
Subsidies Valuation Information
Allocation Period
The average useful life (``AUL'') period in this proceeding as
described in 19 CFR 351.524(d)(2) is 9.5 years according to the U.S.
Internal Revenue Service's 1977 Class Life Asset Depreciation Range
System for assets used to manufacture the subject merchandise.
Consistent with the Department's practice, we have rounded the 9.5
years up to 10 years for purposes of setting the AUL. See Polyethylene
Terephthalate Film, Sheet, and Strip From India: Preliminary Results
and Rescission, in Part, of Countervailing Duty Administrative Review,
72 FR 43607 (August 6, 2007) (unchanged in final). No party in this
proceeding has disputed this allocation period.
Attribution of Subsidies
The Department's regulations at 19 CFR 351.525(b)(6)(i) state that
the Department will normally attribute a subsidy to the products
produced by the corporation that received the subsidy. However, 19 CFR
351.525(b)(6)(ii) directs that the Department will attribute subsidies
received by certain other companies to the combined sales of those
companies if (1) cross-ownership exists between the companies, and (2)
the cross-owned companies produce the subject merchandise, are a
holding or parent company of the subject company, produce an input that
is primarily dedicated to the production of the downstream product, or
transfer a subsidy to a cross-owned company. The Court of International
Trade (``CIT'') has upheld the Department's authority to attribute
subsidies based on whether a company could use or direct the subsidy
benefits of another company in essentially the same way it could use
its own subsidy benefits. See Fabrique de Fer de Charleroi v. United
States, 166 F. Supp. 2d. 593, 604 (CIT 2001).
According to 19 CFR 351.525(b)(6)(vi), cross-ownership exists
between two or more corporations where one corporation can use or
direct the individual assets of the other corporation(s) in essentially
the same ways it can use its own assets. This regulation 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.
TTCA
TTCA provided a questionnaire response on behalf of itself and one
affiliate (``affiliate A''). See TQR. The names and details of TTCA's
exact relationship with its affiliates are proprietary and, hence,
addressed separately. See Preliminary Determination Calculation
Memorandum for TTCA Co., Ltd., at page 2 (September 12, 2008) (``TTCA
Preliminary Calc Memo''). TTCA reported that none of its affiliates
produces subject merchandise, supplies any inputs to TTCA, or received
and transferred subsidies to TTCA. See TQR, at page 4. Based on the
questionnaire response for affiliate A, we preliminarily determine that
this company has not received any subsidies. Thus, we are preliminarily
excluding affiliate A from the subsidy calculation.
After reviewing TTCA's relationship with its reported affiliates
(i.e., comparing the list of common shareholders for the reported
affiliates), we requested that TTCA provide a complete questionnaire
response for an additional affiliate (``affiliate B''). We received
affiliate B's questionnaire response shortly before the deadline for
this preliminary determination, and have not been able to fully analyze
the response or affiliate B's relationship with TTCA. See T2SR (8/27),
at Exhibit 8. Consequently, for this preliminary determination, we are
limiting our investigation to subsidies received by TTCA, but will
continue to examine this issue for the final determination.
Yixing Union
Yixing Union responded to the Department's questionnaire by
providing information on the subsidies it received. In its response,
Yixing Union identified Yixing Union Cogeneration Co., Ltd.
(``Cogeneration'') as its parent and a supplier of energy. Based on
this information, we requested, and Yixing Union provided, a
questionnaire response on behalf of Cogeneration.
We preliminarily determine that Yixing Union and Cogeneration are
cross-owned within the meaning of 19 CFR 351.525(b)(6)(vi). We further
preliminarily determine that the energy supplied by Cogeneration to
Yixing Union is not primarily dedicated to the downstream product and,
consequently, that any subsidies received by Cogeneration should not be
attributed to Yixing Union under 19 CFR 351.525(b)(6)(iv). Instead,
because Cogeneration is the parent of Yixing Union, we are attributing
the subsidies received by Cogeneration to Yixing Union pursuant to 19
CFR 351.525(b)(6)(iii).
To calculate the benefit to Yixing Union from subsidies given to
Cogeneration, we would normally use the consolidated sales of
Cogeneration and its subsidiaries, pursuant to 19 CFR
351.525(b)(6)(iii). However, we do not have consolidated sales
information for Cogeneration on the record. Consequently, for the
purposes of the preliminary determination, we generally used the total
sales of Yixing Union and the total sales of Cogeneration less sales
between the two companies. For 2005, we did not have the amount of
sales between Yixing Union and Cogeneration. Therefore, we subtracted
the 2006 amount for sales between these two companies to arrive at the
2005 ``consolidated'' sales. See Preliminary Determination Calculation
Memorandum for Yixing Union Biochemical Co., Ltd. (September 12, 2008)
(``Yixing Union Preliminary Calc Memo''). We intend to seek
consolidated sales information for Cogeneration for the final
determination.
Yixing Union also identified several other affiliated companies.
However, Yixing Union reported that these affiliates do not produce the
subject merchandise and do not provide inputs to Yixing Union.
Therefore, because these companies do not produce subject merchandise
or otherwise fall within the situations described in 19 CFR
351.525(b)(6)(iii)-(v), we do not reach the issue of whether these
companies and Yixing Union are cross-owned within the meaning of 19 CFR
351.525(b)(6)(iii)-(vi), and we are not including these companies in
our subsidy calculations.
Benchmarks and Discount Rates
Benchmarks for Short-Term RMB Denominated Loans
The Department is investigating loans received by respondents from
policy banks and 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
[[Page 54373]]
purposes. See 19 CFR 351.505(a)(3)(i). If the firm did not have any
comparable commercial loans during the period, the Department's
regulations provide that we ``may use a national interest rate for
comparable commercial loans.'' See 19 CFR 351.505(a)(3)(ii).
The Department has previously determined that loan benchmarks must
be market-based and that Chinese interest rates are not reliable as
benchmarks because of the pervasiveness of the GOC's intervention in
the banking sector. Specifically, the Department found that the GOC's
predominant role in the banking sector results in significant
distortions that render lending rates in the PRC unsuitable as
benchmarks. This determination led us to rely on an external benchmark.
See e.g., 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 from the PRC''), and the accompanying Issues
and Decision Memorandum, at page 7 (``Tires Decision Memorandum'').
The GOC disputes the Department's prior findings and, in this
investigation, has argued that the Department should rely on the
Shanghai Inter-bank Offered Rate (``SHIBOR'') as its benchmark. This
rate was officially introduced in January 2007. According to the GOC,
it is an average of quotations submitted by 16 commercial banks and,
according to the GOC, these rates reflect the demand for and supply of
funds on the money market for maturities of up to one year. See GQR, at
pages 23-27. The GOC contends that this rate is more suitable than the
external benchmark the Department has relied upon to-date because: (i)
It is an in-country benchmark; (ii) the rate is unrelated to the
allocation of credit and preferential rates to specific borrowers;
(iii) the rate is a truly market-determined rate for unsecured funds
among banks operating in the Shanghai wholesale money market; and (iv)
the rate is determined in part by foreign-owned banks.
We have not adopted the SHIBOR as the benchmark for this
preliminary determination. We disagree that it is a market-determined
rate because the banks whose rates form the SHIBOR are subject to a
deposit rate cap and lending rate floor. These aspects of the banking
system, inter alia, led us to conclude in CFS from the PRC that ``the
way interest rate formation is regulated in China both distorts lending
rates and provides explicit recognition that banks in China are not yet
fully able to set interest rates on a market basis.'' See CFS Decision
Memorandum, at Comment 10. We also found in CFS from the PRC that
foreign banks account for a very small share of credit in the PRC,
operating mainly in niche markets, and, therefore, did not offer a
suitable benchmark. See id.
Therefore, we are calculating an external benchmark using the
regression-based methodology first developed in CFS from the PRC and
more recently updated in Tires from the PRC. This benchmark interest
rate is based on the inflation-adjusted interest rates of countries
with per capita gross national incomes (``GNIs'') similar to that of
the PRC, and takes into account a key factor involved in interest rate
formation, that of the quality of a country's institutions, that is not
directly tied to state-imposed distortions in the banking sector
discussed above.
As explained in the CFS Decision Memorandum, at Comment 10, to
derive this rate we determine which countries are similar to the PRC in
terms of 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. See TTCA Preliminary Calc Memo,
at page 3.
Many of these countries reported lending and inflation rates to the
International Monetary Fund and they are included in that agency's
International Financial Statistics (``IFS''). The GOC contends that
although the Department has characterized them as such, many of the
reported lending rates are not short-term rates. See GOC Pre-Prelim
Comments, at pages 26-28. We have reviewed the information submitted by
the GOC and agree that certain of the interest rates used in our
regression analysis may reflect maturities of longer than one-year.
Indeed, as the GOC points out, the head notes to the IFS state that
these rates apply to loans that meet short- and medium-term financing
needs. GOC's Pre-Preliminary Comments, at Exhibit B (International
Monetary Fund, International Financial Statistics Yearbook 2007, at
xix). Therefore, we believe that these rates should not be treated as
exclusively short-term in nature. See 19 CFR 351.102 (where ``short-
term loan'' is defined as having repayment terms of one-year or less).
To address this concern, we will continue to use the same interest
rate data and regression-based benchmark rate (after deleting deposit
rate data reported by Jordan and U.S. dollar-denominated interest rates
reported by Timor L'este), but will apply it to loans with terms of two
years or less. We invite interested parties to comment on what might be
a more appropriate cut-off for short- and medium-term loans, in view of
several factors. First, there are no data available on the term
structure of the loans underlying the IMF interest rate data. Second,
we could not find a definition of ``medium-term'' to which countries
reporting interest rate data to the IMF must adhere. And third, from a
review of the 2008 IFS country notes and EIU Country Finance country
reports, it appears that a majority of the countries in the basket
either report loans with terms of one year or less or have loan markets
where short-term lending predominates. See GOC Pre-Prelim Comments, at
Attachment B; see also, Memorandum to the File, ``Additional Lending
Benchmark Memo'' (September 12, 2008) (``Additional Lending Benchmark
Memo'').
With the exceptions noted below, we have used the interest and
inflation rates reported in the IFS for the countries identified as
``low middle income'' by the World Bank. See TTCA Preliminary Calc
Memo, at page 3. We did not include those economies that the Department
considered to be non-market economies for AD purposes for any part of
the years in question: the PRC, Armenia, Azerbaijan, Belarus, Georgia,
Moldova, Turkmenistan, and Ukraine (for Ukraine only, prior to 2007).
The benchmark necessarily also excludes any country that did not report
both lending and inflation rates to IFS for those years. Third, the
rate reported to the IMF by Jordan is based on deposit borrowings,
rather than lending rates and the rate reported by Timore L'este is
based on the U.S. dollar. See GOC Pre-Prelim Comments, at Attachment B;
see also, Additional Lending Benchmark Memo. Therefore, both countries'
rates have been excluded. Finally, for each year the Department
calculated an inflation-adjusted short-term benchmark rate, we have
excluded any aberrational country for the year in question. See TTCA
Preliminary Calc Memo, at page 4; see also, Yixing Union Preliminary
Calc Memo, at page 4.
The resulting inflation-adjusted benchmark lending rates are
provided in Yixing Union's and TTCA's preliminary calculation
memoranda. See TTCA Preliminary Calc Memo, at 4; see also, Yixing Union
Preliminary Calc Memo, at page 5. Because these are inflation-adjusted
benchmarks, it is necessary to adjust respondents' interest payments
and discount rates for inflation. This was done using the PRC inflation
figure as reported in IFS. See TTCA Preliminary Calc Memo, at 4; see
also,
[[Page 54374]]
Yixing Union Preliminary Calc Memo, at page 4.
In the GOC Pre-Preliminary Comments, the GOC argues that the
regression used by the Department to compute this benchmark is flawed
because there is no correlation between governance indicators and
interest rates. We addressed these concerns in the LWRP Decision
Memorandum, at Comment 12, which we hereby incorporate by reference.
See Light-walled Rectangular Tube and Pipe from the PRC: Final
Affirmative Countervailing Duty Determination, 73 FR 35642 (June 24,
2008) (``LWRP from the PRC''), and the accompanying Issues and Decision
Memorandum (``LWRP Decision Memorandum'').
Benchmarks for Long-Term Loans
The lending rates reported in IFS represent short- and medium-term
lending, and there are no sufficient publicly available long-term
interest rate data upon which to base a robust benchmark for long-term
loans. To address this problem, the Department has developed an
adjustment to the short- and medium-term rates to convert them to long-
term rates using Bloomberg U.S. corporate BB-rated bond rates. See
e.g., LWRP Decision Memorandum, at page 8.
In its pre-preliminary comments, the GOC argues that the Department
should not base its adjustment on BB-grade bonds because doing so is
inconsistent with the Department's own regulations, which identify
creditworthy companies as those having ratings of Aaa to Baa. If the
Department were to use data on U.S. borrowers rated Aaa to Baa, the
adjustment to convert to long-term rates would be downward, according
to the GOC.
We have not adopted the GOC's position with respect to this issue.
The regulations at 19 CFR 351.505(a)(3)(iii) specify a formula for the
interest rate benchmark, ib, for uncreditworthy companies.
The regulations essentially direct the Department to derive
ib by equating returns on loans to companies in the Aaa to
Baa and Caa to C ranges on a risk-adjusted basis. The fact that 19 CFR
351.505(a)(3)(iii) relies on interest rates and default rates for
companies in the Aaa to Baa range to calculate ib does not
in any way imply that the long-term interest rate benchmark under
351.505(a)(3)(i) or (ii) must be based on interest rates charged to
companies in the Aaa to Baa range. In fact, in cases where the
Department must rely on a national average long-term interest rate for
benchmarking purposes, there is no statutory or regulatory requirement
that the rate reflect only lending to companies in the Aaa to Baa
range. In addition, such a rate would likely reflect lending to
companies in a ratings range broader than Aaa to Baa.
In the instant investigation, given that the Department has decided
to reject all internal PRC interest rates for benchmarking purposes,
the question before the Department is what long-term mark-up to use to
construct the long-term RMB interest rate benchmark. In view of the
transitional nature of financial accounting and reporting standards and
practices in the PRC, as well as the PRC's underdeveloped credit rating
capacity, the Department has determined that company-specific mark-ups
(to account for investment risk) should not be the general rule.
Instead, the Department will rely on a single mark-up for all companies
not found to be uncreditworthy. That mark-up should therefore reflect
the average investment risk associated with companies in the PRC not
found uncreditworthy by the Department. Since the Department has (1) no
objective basis to determine this average investment risk and (2) no
basis to presume it is for companies with an investment-grade rating
only, we have preliminarily used rates for BB-rated bonds, the highest
non-investment grade, to calculate the mark-up. Alternatively, the
Department may consider using a mark-up derived from the average of
bonds rated from AAA to B minus and invite parties to comment for our
final determination.
In the GOC Pre-Prelim Comments, the GOC further argues that the
adjustment factor should be added to the short-term interest rate
rather than multiplied. We addressed these concerns in the LWRP
Decision Memorandum, at Comment 12, which we hereby incorporate by
reference.
However, we have made one change to the long-term adjustment to
correspond to the change described above regarding our regression-based
benchmark. Specifically, because the benchmark now covers loans up to
two years, we have calculated the long-term adjustment based on the
difference in the BB rates for bonds that match the maturity of the
loan in question and two-year bonds.
Discount Rates
Consistent with 19 CFR 351.524(d)(3)(i)(A), we have used as our
discount rate, the long-term interest rate calculated according to the
methodology described above for the year in which the government agreed
to provide the subsidy.
Creditworthiness
In their petition, Petitioners alleged that Anhui BBCA was
uncreditworthy for the years 2005 to 2006. On July 25, 2008, we
determined that Petitioners did not provide a reasonable basis to
believe or suspect that Anhui BBCA was uncreditworthy. See Memorandum
to Susan H. Kuhbach, Office Director, AD/CVD Operations, Office 1,
``Uncreditworthy Allegation for Anhui BBCA Biochemical Co., Ltd.''
(July 25, 2008).
On September 5, 2008, Petitioners submitted additional information
to support their allegation. See Petitioners' Comments on Anhui BBCA
and the All-Others Rate. Because the Department did not receive
Petitioners' allegation until September 5, 2008, one week prior to our
preliminary determination, we are still reviewing the allegation and
will decide whether to investigate Anhui BBCA's creditworthiness after
this preliminary determination.
Analysis of Programs
Based upon our analysis of the petition and the responses to our
questionnaires, we determine the following:
I. Programs Preliminarily Determined To Be Countervailable
A. Government Policy Lending
The Department is examining whether preferential loans were
provided to citric acid producers based on government plans promoting
modernization loans for encouraged projects. The GOC has asserted that
there must be evidence that the policy caused the loan to be provided
in order for the Department to find such a program countervailable. The
GOC has further claimed that: (1) None of the cooperating respondents'
loans or supporting documentation mentions any government policy or
plan; (2) no plan or policy for the chemical industry on the record
mentions targeted loans, or directs SOCBs to provide targeted project
loans; and (3) none of these plans mentions the citric acid industry or
citric acid producers, much less encourages modernization loans for the
chemical industry.
Based on our review of the information and responses provided by
the GOC, we preliminary determine that certain of the loans received by
TTCA from SOCBs were made pursuant to government policy directives.
National-Government Policy Lending Program
Record evidence demonstrates that certain GOC policy documents
outline
[[Page 54375]]
the government's goals regarding energy saving and pollution reduction,
and the manner in which these goals would be implemented. For example,
the PRC's Eleventh Five-Year Plan sets out as one of its policy goals
to ``{o{time} ptimally develop of fundamental chemical raw material,
actively develop fine chemical and eliminate high polluting chemical
enterprise.'' See GQR, at page 31. The GOC has stated that this is a
``non-binding'' goal and that the only binding goal in regard to
environment or pollution reduction is that ``energy consumption of unit
GDP would be lowered down about 20% and emission volume of main
pollutants would be decreased by 10% * * *'' See G2SR (9/2), at page
10. Further, according to the State Council Circular on Realizing the
Major Targets in the ``Outline of the Eleventh Five-Year Plan for
National Economic and Social Development of the People's Republic of
China and Division of Tasks'', the reduction of energy consumption was
to be the responsibility of the National Development and Reform
Commission (``NDRC'') while the State Environmental Protection
Administration (``SEPA'') was tasked with reducing major pollution
discharges.
Also in connection with these energy saving and pollution goals,
the NDRC formulated and the State Council approved the Notice of State
Council on Circulation of Comprehensive Work Plan on Energy Saving and
Emission Reduction (Guo Fa 2007) No. 15) (``State Council Circular'').
The GOC has described the purpose of this document as ``enabling
government departments at each level to understand the concrete tasks
of energy saving and emission reduction, and proposing detailed work
plans.'' See GQR, at page 41. In this document, there are a number of
recommendations that specifically address the government's energy
savings and emission goals, in particular with respect to financing:
Consummate financial policies promoting energy-saving and
emission reduction. The people's government at each level shall
allocate certain funds within the financial budget, by way of
subsidy and reward, to support major projects of energy-saving and
emission-reduction, promotion of high effective energy-saving and
new mechanism for energy-saving, construction of management ability
of energy-saving as well as construction of supervision system for
emission-reduction. We shall further promote financial basic
construction investment to incline to energy-saving and environment-
protection projects.
See GQR at Exhibit I-A-36, page 16. The State Council also recommends:
Enhance financial service for energy-saving and environment-
protection. We shall encourage and guide financial institutions to
enhance credit support to circular economy, environment-protection,
and reform projects for energy-saving and emission-reduction
technologies, first provide direct financing service for qualified
energy-saving and emission-reduction projects and circular economy
projects.
See id. at page 17. The GOC has explained in its responses that the
purpose of the cited passages was ``to enlarge the funding source for
energy-saving and environment-protection projects, to assist and
support the construction and promotion of energy-saving and emission
reduction projects.'' See G2SR (9/2), at page 12. In terms of specific
actions taken, the GOC explained that the first statement referred to a
special fund established by the Ministry of Finance for basic
infrastructure energy-saving and environmental-protection projects,
while the second statement involved the Ministry of Environmental
Protection (``MPE'') and the establishment of an information sharing
system which would provide technical advice to enable banks to better
assess the feasibility of and returns on pollution control projects.
See id. Although the GOC has related these particular actions to the
statements in the State Council Circular, it is unclear whether other
actions or policies may also be included. For example, the relationship
between the MPE sharing system and the provision of ``direct financing
service for qualified energy-saving and emission-reduction projects''
is unclear, and we intend to seek clarification of these statements
during the course of this investigation. For purposes of our
preliminary determination, however, we conclude that the record
evidence indicates that the purpose of the State Council Circular was
to provide details on achieving the energy-saving and pollution-
reducing goals and the means by which the goals would be fulfilled.
Additional record evidence indicates that specific guidance has
been issued to PRC banks regarding the government's energy-saving and
pollution-reduction goals. In particular, following the approval of the
State Council Circular, the People's Bank of China (``PBOC'') issued
the Guidelines on Improvement and Strengthening of Financial Services
in Energy Saving and Environmental Protection Areas (Yin Fa 2007 No.
215) (``PBOC Guidelines''). In its response, the GOC stated that the
document contains guidelines to banks and does not set concrete goals
and objectives. The PBOC Guidelines were created in accordance with the
State Council Circular and ``opinions in video conferences call
regarding national wide work on emission reduction, in order to further
improve industrial restructuring, evolution of economic growth mode as
well as enhancement of good and fast economic development.'' The key
sections of PBOC Guidelines state:
{a{time} ll banking institutions and branches of the People's
Bank of China shall fully recognize the importance of financial
services in energy saving and emission reduction, enhance the sense
of responsibility and mission, improve and strengthen the financial
services in energy saving and emission reduction areas, reasonably
control the increase of lending, pay attention to improvement of
credit structure, strengthen the credit risk management, and enhance
the coordinated and sustainable development of the economy and
finance.
See Petitioner's April 24, 2008, response (``PSR'') at Exhibit 111. In
regard to projects and lending, the PBOC Guidelines state:
{a{time} ll banking financial institutions shall follow the
national industry structure adjustment policy, and follow
differentiation principles in allocating the loan resources. For
investment projects encouraged by the government, a banking
institution shall simplify the lending procedures and proactively
provide lending supports; as to investment subject to restrictions *
* * For any other projects, the banking financial institutions shall
take into consideration of resource saving and environmental
protection factors and shall follow general credit principles when
providing lending supports.
See id.
Finally, the GOC has placed on the record several industrial
catalogues which list industries and/or activities considered
encouraged by the GOC. These catalogues include the Catalogue for the
Guidance of Industrial Structure Adjustment (2005 version), Catalogue
for the Guidance of Foreign-Invested Industries (amended in 2007),
Catalogue for the Guidance of Foreign-Invested Industries (amended in
2004), and Catalogue for Industries, Products, and Technologies
Currently Particularly Encouraged by the State for Development. The GOC
claims that citric producers are not identified in any of the
catalogues as an encouraged industry. See GQR at I-10--I-15 and G2SR
(9/2) at S2A2-S2A4.
TTCA reported a loan used to construct the Project on Electricity
Generator with Recycling Methane. See T2SR (8/27) at 18. TTCA and the
GOC provided supporting documentation regarding this loan. See T2SR, at
Exhibit S37; see also, G1SR (9/2), at Exhibit S1-7-a-2 and Exhibit S1-
8-b. This documentation is business proprietary
[[Page 54376]]
and, therefore, is discussed separately. See Memorandum to the File
regarding, ``BPI Memo for Government Policy Lending'' (``BPI Lending
Memo''). However, the documentation in relation to this loan received
by TTCA demonstrates that the TTCA project that is funded by the loan
was encouraged by the state and that, as shown above, there is a clear
link between the TTCA project and the binding goals contained in the
Eleventh Five-Year Plan and the subsequent documents issued by the
State Council and the PBOC. In the BPI Lending Memo, we explain the
relationship between the Eleventh Five-Year Plan and its implementing
documents and the TTCA loan documents in further detail.
Based on this information, we preliminarily determine that the GOC
has a policy in place to encourage and support preferential lending to
certain encouraged projects, as expressly reflected in the documents
described above. Consistent with our prior determinations, we also find
that the loan received by TTCA from a SOCB constitutes a direct
financial contribution from the government, pursuant to sections
771(5)(B) and 771(5)(D)(i) of the Act. See CFS from the PRC, at Comment
8. Furthermore, the loan provides a benefit equal to the difference
between what TTCA paid on its loan and the amount it would have paid on
comparable commercials loans. As the basis for specificity relies on
information designated business proprietary, we are unable to disclose
our analysis in the Federal Register Notice and, therefore, it is
discussed in the BPI Lending Memo.
To calculate the benefit under the national-government policy
lending program, we used the benchmarks described in the Benchmarks and
Discount Rates section above and the methodology described in 19 CFR
351.505(c)(1) and (2). On this basis, we preliminarily determine that
TTCA received a countervailable subsidy of 0.01 ad valorem under this
program.
Shandong Province Policy Loans Program
Policy lending by Shandong Province was not separately alleged by
the petitioners in the original petition. Record evidence, however,
indicates that the Shandong Province's industrial policy promoted: (1)
Financing and guarantees for key construction projects; (2) the
development of more key projects and programs to include in the
nation's plans; and (3) the active use of discount government loans to
support policy financing. See The Shandong Province Outline of the
Tenth Five-Year Plan for National Economic and Social Development
(``Shandong Province Tenth Five-Year Plan'') provided at G1SR (9/2), at
Exhibit S1-2-d. The GOC has stated in a supplemental questionnaire
response that the Shandong Provincial government will, ``under the
premise of considering the state industrial policies, * * * guide the
activity of local enterprises and promote the industrial upgrade.'' See
G2SR, at page 13. Thus, through the Shandong Province Tenth Five-Year
Plan, the Shandong Provincial government has developed a policy to
support the development of key projects to be included in national
industrial policy, and this policy is effectuated by promoting
financing and guarantees for these key construction projects.
The GOC has repeatedly stated that citric acid is not an industry
encouraged by the state. However, the GOC also concedes that there is
no uniform product classification used by all government agencies in
the PRC. Instead, different government agencies may classify citric
acid differently. See G2SR (9/2), at page 2.
Further, the Law of the People's Republic of China on Commercial
Banks (December 27, 2003) (``Commercial Banking Law''), at Article 34,
states that banks shall ``carry out their loan business upon the needs
of the national economy and the social development and under the
guidance of the state industrial policies.'' See Petition, at Exhibit
IV-32. We note that the Commercial Banking Law prescribes that lending
practices shall be based, at least in some measure, on the guidance of
government industrial policy. Further, as noted above, the Shandong
Province Tenth Five-Year Plan specifically directs bank financing to
key construction projects. Consequently, for purposes of this
preliminary determination, we conclude that record evidence
demonstrates that there is a link between national-government
industrial policies and the Shandong Province directives regarding
banking lending.
TTCA reported that a loan was used to construct a citric acid and
sodium citrate project. See T2SR, at page 18. The GOC and TTCA provided
supporting documentation for this loan, which was used to construct the
aforementioned project. See T2SR, at Exhibit S38; see also, G1SR (9/2),
at Exhibit S1-7-b and Exhibit S1-8-d. As the information contained in
the loan and project documentation is business proprietary, see BPI
Lending Memo for additional details. However, this document
demonstrates the link between the Shandong Provincial government's
policy to support the development of key projects through financing and
the company's loan documents.
On the basis of the above-cited record evidence, we preliminarily
determine that the GOC has a policy in place to encourage and support
preferential lending to key projects, as expressly reflected in the
Shandong Province Tenth Five-Year Plan. The Department further finds
that Shandong Province has a policy in place to provide lending in
accordance with the GOC's policies. We find that a loan from a SOCB
constitutes a direct financial contribution from the government,
pursuant to sections 771(5)(B) and 771(5)(D)(i) of the Act.
Furthermore, the loan provides a benefit equal to the difference
between what the recipients paid on their loans and the amount they
would have paid on comparable commercial loans. As our basis for
specificity relies on information designated business proprietary, we
are unable to disclose our analysis in the Federal Register Notice and,
therefore, it is discussed in the BPI Lending Memo.
To calculate the benefit under the provincial policy lending
program, we used the benchmarks described in the Benchmarks and
Discount Rates section above, as well as the methodology described in
19 CFR 351.505(c)(1) and (2). On this basis, we preliminarily determine
that TTCA received a countervailable subsidy of 0.41 ad valorem under
this program.
Other Policy Bank Loans
Certain loans reported by TTCA were received from a Chinese policy
bank, and the evidence indicates these loans were made under a
particular lending program operated by that bank. The information
regarding these loans is business proprietary and, therefore, is
discussed separately in the BPI Lending Memo.
The Department typically treats policy banks, i.e., special
purpose, government-owned banks, as ``authorities'' within the meaning
of section 771(5)(B) of the Act. See Final Affirmative Countervailing
Duty Determination: Dynamic Random Access Memory Semiconductors from
the Republic of Korea, 68 FR 37122 (June 23, 2003), and the
accompanying Issues and Decision Memorandum, at page16. Thus, we
preliminarily determine that these loans were provided by the GOC and
that they constitute financial contributions under section 771(5)(D)(i)
of the Act. We further determine preliminarily that these loans confer
a benefit because the
[[Page 54377]]
recipient is paying less than it would for a comparable commercial
loan. See section 771(5)(E)(ii) of the Act. As our basis for
specificity relies on information designated business proprietary, we
are unable to disclose our analysis in the Federal Register Notice and,
therefore, it is discussed in the BPI Lending Memo.
To calculate the benefit conferred by these loans, we used the
benchmarks described in the Benchmarks and Discount Rates section above
and the methodology described in 19 CFR 351.505(c)(1) and (2). We
divided the benefit by certain sales reported by TTCA during the POI.
On this basis, we preliminarily determine that TTCA received a
countervailable subsidy of 0.48 percent ad valorem under this program.
B. ``Famous Brands'' Program--Yixing City
According to the Implementing Opinions of City Government on
Further Advancing the Brand Construction of Enterprise, the Government
of Yixing City provides a lump sum award to enterprises that receive a
``famous brands'' certificate from either the Famous Brand Promotion
Committee of China or the Famous Brand Promotion Committee of Jiangsu.
To receive an award, the enterprise must present its ``famous brands''
certificate from either promotion committee to the Quality and
Technology Supervision Bureau of Yixing and the Finance Bureau of
Yixing. The Bureaus will then review the submitted certificate and
approve the award.
Yixing Union received a ``famous brands'' certificate from the
Jiangsu Famous Brand Promotion Committee and was granted the lump sum
award from the Government of Yixing City during the POI. See G1SR (9/
2), at page 8; see also, YQR, at pages 14-15.
We preliminarily determine that the grant under this program
constitutes a financial contribution under section 771(5)(D)(i) of the
Act and also provides a benefit in the amount of the grant (see 19 CFR
351.504(a)).
Regarding specificity, information submitted by the GOC shows that
grants provided under the program are available to any enterprise that
it certified as a certificate of Famous Product of China or a Famous
Product of Jiangsu Province. See G1SR (9/2), at Exhibit S1B-8. Further,
the GOC reported that eligibility is not limited by law to any
enterprise or group of enterprises, or to any industry or group of
industries. Therefore, we preliminarily determine that there is no
basis to find this program de jure specific under section 771(5A)(D)(i)
of the Act.
In determining whether this program is de facto specific, we must
examine the factors identified in section 771(5A)(D)(iii) of the Act.
The GOC provided program usage data for 2005 through 2007 showing the
industries that received the award and the number of companies per
industry that received the award. See G1SR (9/2), at Exhibit S1B-11-12.
Although the grants have been provided to a variety of industries, we
preliminarily determine that the number is limited in accordance with
section 771(5A)(D)(iii)(I) of the Act because only 34 companies
received this award from 2005 through 2007. Therefore, we find the
program to be de facto specific because the number of companies which
received the award is limited, within the meaning of section
771(5A)(D)(iii)(I) of the Act. We preliminarily find the ``Famous
Brands'' program provides a countervailable benefit to Yixing Union.
To calculate the benefit, we divided the amount of the grant by
Yixing Union's total sales in the year the benefit was approved and
found that the amount was less than 0.5 percent. Therefore, in
accordance with 19 CFR 351.524(b)(2), we are allocating the total
amount of the subsidy to the year of receipt. On this basis, we
preliminarily determine that a countervailable subsidy of 0.03 percent
ad valorem exists for Yixing Union.
C. Reduced Income Tax Rates to FIEs Based on Location
To promote economic development and attract foreign investment,
``productive'' FIEs located in coastal economic zones, special economic
zones or economic and technical development zones in the PRC receive
preferential tax rates of 15 percent or 24 percent, depending on the
zone, under Article 7 of the FIE Tax Law. See GQR, at Exhibit I-A-39.
This program was created June 15, 1988, pursuant to the Provisional
Rules on Exemption and Reduction of Corporate Income Tax and Business
Tax of FIEs in Coastal Economic Development Zone issued by the Ministry
of Finance. The March 18, 1988, Circular of State Council on
Enlargement of Economic Areas enlarged the scope of the coastal
economic areas and the July 1, 1991, FIE Tax Law continued this policy.
The Department has previously found this program to be countervailable.
See CFS from the PRC, LWRP from the PRC, and Tires from the PRC.
Yixing Union is located in a coastal economic development zone and
was subject to the reduced income tax rate of 24 percent during the
POI.
We preliminarily determine that the reduced income tax rate paid by
productive FIEs under this program confers a countervailable subsidy.
The reduced rate is a financial contribution in the form of revenue
forgone by the GOC and it provides a benefit to the recipient 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 determine preliminarily that the
reduction afforded by this program is limited to enterprises located in
designated geographic regions and, hence, is specific under section
771(5A)(D)(iv) of the Act.
To calculate the benefit, we treated the income tax savings enjoyed
by Yixing Union as a recurring benefit, consistent with 19 CFR
351.524(c)(1), and divided the company's tax savings received during
the POI by the company's total sales during that period. To compute the
amount of the tax savings, we compared the income tax rate Yixing Union
would have paid in the absence of the program (30 percent) with the
rate it paid (24 percent).
On this basis, we preliminarily determine that Yixing Union
received a countervailable subsidy of 0.17 percent ad valorem under
this program.
TTCA is also a productive FIE and is located in a coastal economic
development zone where the income tax rate is 24 percent. Based on
TTCA's response, we preliminary determine that TTCA did not use this
program during the POI. See TTCA Preliminary Calc Memo, at page 7.
D. ``Two Free, Three Half'' Program
Under Article 8 of the FIE Tax Law, an FIE that is ``productive''
and is scheduled to operate for more than ten years may be exempted
from income tax in the first two years of profitability and pay income
taxes at half the standard rate for the next three years.
The GOC reported that Yixing Union was in the last year of the
``three half'' period under this program during the POI. TTCA did not
use this program during the POI.
We preliminarily determine that the exemption or reduction of the
income tax paid by productive FIEs under this program confers a
countervailable subsidy. The exemption/reduction is a financial
contribution in the form of revenue forgone by the GOC and it provides
a benefit to the recipient in the amount of the tax savings. See
section 771(5)(D)(ii) of the Act and 19 CFR 351.509(a)(1). We also
preliminarily determine that the exemption/reduction
[[Page 54378]]
afforded by this program is limited as a matter of law to certain
enterprises, ``productive'' FIEs and, hence, is specific under section
771(5A)(D)(i) of the Act. See CFS Decision Memorandum, at Comment 14.
To calculate the benefit, we treated the income tax savings enjoyed
by Yixing Union as a recurring benefit, consistent with 19 CFR
351.524(c)(1), and divided the company's tax savings received during
the POI by the company's total sales during that period. To compute the
amount of the tax savings, we compared the income tax rate Yixing Union
would have paid in the absence of the program (24 percent, as described
above under ``Reduced Income Tax Rates for FIEs Based on Location'')
with the income tax rate the company actually paid (12 percent). On
this basis, we preliminarily determine that Yixing Union received a
countervailable subsidy of 0.35 percent ad valorem under this program.
E. Reduced Income Tax Rate for Technology or Knowledge Intensive FIEs
Article 73 of the Implementing Rules of the Foreign Investment
Enterprise and Foreign Enterprise Income Tax Law authorizes a reduced
income tax rate of 15 percent for ``productive'' FIEs located in
coastal economic zones, special economic zones, or economic and
technical development zones if they undertake: (1) Technology-intensive
or knowledge-intensive projects; (2) projects with foreign investment
of $30 million or more and a long payback period; or (3) energy,
transportation and port construction projects. Additionally, FIEs that
have been established in other zones specified by the State Council and
are engaged in projects encouraged by the State may qualify for the
reduced income tax rate of 15 percent upon approval by the State
Taxation Bureau.
Cogeneration paid the reduced income tax rate of 15 percent under
this program during the POI. TTCA did not use this program during the
POI.
We preliminarily determine that the reduction in the income tax
paid by ``productive'' FIEs under this program confers a
countervailable subsidy. The exemption/reduction is a financial
contribution in the form of revenue forgone by the government and it
provides a benefit to the recipient in the amount of the tax savings.
See section 771(5)(D)(ii) of the Act and 19 CFR 351.509(a)(1). We also
preliminarily determine that the reduction afforded by this program is
limited as a matter of law to certain enterprises, ``productive'' FIEs,
and, hence, is specific under section 771(5A)(D)(i) of the Act.
To calculate the benefit for Yixing Union, we treated the income
tax savings enjoyed by Cogeneration as a recurring benefit, consistent
with 19 CFR 351.524(c)(1), and divided the company's tax savings
received during the POI by the combined total sales of Yixing Union and
Cogeneration (less any sales between the two companies) during that
period. To compute the amount of the tax savings, we compared the rate
Cogeneration would have paid in the absence of the program (30 percent)
with the rate the company paid (15 percent). On this basis, we
preliminarily determine the countervailable subsidy attributable to
Yixing Union to be 2.07 percent ad valorem under this program.
F. Income Tax Credits on Purchases of Domestically Produced Equipment
The Circular of the Ministry of Finance and the State
Administration of Taxation of the People's Republic of China on
Distribution of Interim Measures Concerning the Reduction and Exemption
of Enterprise Income Tax for Investment in Chinese-made Equipment for
Technological Renovation, and CAISHUI (2000) No. 49, Circular of the
Ministry of Finance and the State Administration of Taxation on
Enterprise Income Tax Credits for Purchase of Domestic Equipment by
Foreign Invested Enterprises and Foreign Enterprises, permits FIEs to
obtain tax credits of up to 40 percent of the purchase value of
domestically produced equipment. Specifically, the tax credit is
available to FIEs and foreign-owned enterprises whose projects are
classified in either the Encouraged or Restricted B categories of the
Catalog of Industrial Guidance for Foreign Investment. The credit can
be taken for domestically produced equipment so long as the equipment
is not listed in the Catalog of Non-Duty-Exemptible Articles of
Importation. See GQR, at page 70.
Cogeneration claimed credits under this program on the tax return
filed in 2007. See Memorandum to the File, ``Correction to Appendix 1
of the Second Supplemental Questionnaire for Yixing Union Cogeneration,
Co., Ltd.'' (September 4, 2008). TTCA and Yixing did not use this
program during the POI.
We preliminarily determine that income tax credits for the purchase
of domestically produced equipment are countervailable subsidies. The
tax credits are a financial contribution in the form of revenue forgone
by the government and provide 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 these tax
credits are contingent upon use of domestic over imported goods and,
hence, are specific under section 771(5A)(C) of the Act.
To calculate the benefit, we treated the income tax savings enjoyed
by Cogeneration as a recurring benefit, consistent with 19 CFR
351.524(c)(1), and divided the company's tax savings by the combined
total sales of Yixing Union and Cogeneration (less any sales between
the two companies) during that period. On this basis, we preliminarily
determine that a countervailable subsidy of 0.11 percent ad valorem
exists for Yixing Union under this program.
G. VAT Rebate on Purchases by FIEs of Domestically Produced Equipment
As outlined in GUOSHUIFA (1999) No. 171, Notice of the State
Administration of Taxation Concerning the Trial Administrative Measures
on Purchase of Domestically Produced Equipment by FIEs, the GOC refunds
FIEs with the VAT on purchases of certain domestic equipment produced
if the purchases are within the enterprise's investment amount and if
the equipment falls under a tax-free category. Article 3 specifies that
this program is limited to FIEs with completed tax registrations and
with foreign investment in excess of 25 percent of the total investment
in the enterprise. Article 4 defines the type of equipment eligible for
the VAT exemption, which includes equipment falling under the
Encouraged and Restricted B categories listed in the Notice of the
State Council Concerning the Adjustment of Taxation Policies for
Imported Equipment (No. 37 (1997)) and equipment for projects listed in
the Catalogue of Key Industries, Products and Technologies Encouraged
for Development by the State. To receive the rebate, an FIE must meet
the requirements above and, prior to the equipment purchase, bring its
``Registration Handbook for Purchase of Domestically Produced Equipment
by FIEs'' as well as additional registration documents to the taxation
administration for registration. After purchasing the equipment, FIEs
must complete a Declaration Form for Tax Refund (or Exemption) of
Exported Goods, and submit it with the registration documents to the
tax administration. The Department has previously found this program to
be countervailable. See CFS from the PRC.
TTCA reported receiving VAT rebates on its purchases of
domestically produced equipment under this program. Yixing Union and
[[Page 54379]]
Cogeneration did not use this program during the POI.
We preliminarily determine that the rebate of the VAT paid on
purchases of domestically produced equipment by FIEs confers a
countervailable subsidy. The rebates are a financial contribution in
the form of revenue forgone by the GOC and they provide a benefit to
the recipients in the amount of the tax savings. See section
771(5)(D)(ii) of the Act and 19 CFR 351.510(a)(1). We further
preliminarily determine that the VAT rebates are contingent upon the
use of domestic over imported goods and, hence, specific under section
771(5A)(C) of the Act.
Normally, we treat exemptions from indirect taxes and import
charges, such as VAT rebates, as recurring benefits, consistent with 19
CFR 351.524(c)(1), and allocate these benefits only in the year that
they were received. However, when an indirect tax or import charge
exemption is provided for, or tied to, the capital structure or capital
assets of a firm, the Department may treat it as a non-recurring
benefit and allocate the benefit to the firm over the AUL. See 19 CFR
351.524(c)(2)(iii) and 19 CFR 351.524(d)(2).
We requested that TTCA identify the category/kind of equipment for
which it received VAT rebates from 2001 through the end of the POI. For
one year, the total amount of the VAT rebates approved was less than
0.5 percent of TTCA's total sales for that year. For that year,
therefore, we do not reach the issue of whether the VAT rebates were
tied to the capital structure or capital assets of the firm. Instead,
we expense the benefit to the year in which it is received, consistent
with 19 CFR 351.524(a).
In another year, however, the total amount of VAT rebates exceeded
0.5 percent of TTCA's total sales for that year. Based on TTCA's
reported information, the VAT rebates were for capital equipment. See
TQR, at Exhibit 39. Accordingly, the Department is treating the VAT
rebates for this year as a non-recurring benefit consistent with 19 CFR
351.524(c)(2)(iii).
To calculate the countervailable subsidy for TTCA, we used our
standard methodology for non-recurring benefits. See 19 CFR 351.524(b)
and the Allocation Period section of this notice. Specifically, we used
the discount rate described above in the Benchmarks and Discount Rates
section to calculate the amount of the benefit for the POI. On this
basis, we preliminarily determine that a countervailable subsidy of
0.23 percent ad valorem exists for TTCA.
H. VAT and Duty Exemptions on Imported Equipment
Enacted in 1997, the Circular of the State Council on Adjusting Tax
Policies on Imported Equipment (GUOFA No. 37) (``Circular No. 37'')
exempts both FIEs and certain domestic enterprises from the VAT and
tariffs on imported equipment used in their production so long as the
equipment does not fall into prescribed lists of non-eligible items.
Qualified enterprises receive a certificate either from the NDRC or its
provincial branch. The objective of the program is to encourage foreign
investment and to introduce foreign advanced technology equipment and
industry technology upgrades. To receive the exemptions, qualified
enterprises must adequately document both the product eligibility and
the eligibility of the imported article to the local Customs authority.
The Department has previously found this program to be countervailable.
See CFS from the PRC and Tires from the PRC.
TTCA, Yixing Union and Cogeneration reported receiving VAT and duty
exemptions under this program.
We preliminarily determine that VAT and tariff exemptions on
imported equipment confer a countervailable subsidy. The exemptions are
a financial contribution in the form of revenue forgone by the GOC and
they provide a benefit to the recipients in the amount of the VAT and
tariff savings. See section 771(5)(D)(ii) of the Act and 19 CFR
351.510(a)(1). We further determine the VAT and tariff exemptions under
this program are specific under section 771(5A)(D)(iii)(I) because the
program is limited to certain enterprises. See CFS Decision Memorandum,
at Comment 16.
Normally, we treat exemptions from indirect taxes and import
charges, such as the VAT and tariff exemptions, as recurring benefits,
consistent with 19 CFR 351.524(c)(1), and allocate these benefits only
in the year that they were received. However, when an indirect tax or
import charge exemption is provided for, or tied to, the capital
structure or capital assets of a firm, the Department may treat it as a
non-recurring benefit and allocate the benefit to the firm over the
AUL. See 19 CFR 351.524(c)(2)(iii) and 19 CFR 351.524(d)(2).
For TTCA, the total amount of the VAT and tariff exemptions for
each year approved was less than 0.5 percent of TTCA's total sales for
the respective year. Therefore, we do not reach the issue of whether
TTCA's VAT and tariff exemptions were tied to the capital structure or
capital assets of the firm. Instead, we expense the benefit to the year
in which the benefit is received, consistent with 19 CFR 351.524(a). On
this basis, we preliminarily determine that a countervailable subsidy
of 0.08 percent ad valorem exists for TTCA.
For Yixing Union, the total amount of the VAT and tariff exemptions
approved for some years was less than 0.5 percent of Yixing Union's
total sales. Therefore, we have expensed those amounts in the year in
which they were received, consistent with 19 CFR 351.524(a). For those
years in which the approved VAT and tariff exemptions were greater than
0.5 percent of Yixing Union's total sales for that year, we are
treating the exemptions as non-recurring benefits, consistent with 19
CFR 351.524(c)(2)(iii), and allocating the benefits over the AUL.
For Cogeneration, the total amount of the VAT and tariff exemptions
approved for some years was less than 0.5 percent of the combined total
sales of Yixing Union and Cogeneration (less any sales between the two
companies) in those years. Therefore, we have expensed those amounts in
the year in which they are received, consistent with 19 CFR 351.524(a).
In other years, the VAT and tariff exemptions approved for Cogeneration
were greater than 0.5 percent of the combined sales of Yixing Union and
Cogeneration (less any sales between the two companies) sales for that
year. Accordingly, we are treating the exemptions as non-recurring
benefits, consistent with 19 CFR 351.524(c)(2)(iii), and allocating the
benefit(s) over the AUL.
To calculate the benefit for Yixing Union, we used our standard
methodology for non-recurring benefits. See 19 CFR 351.524(b).
Specifically, we used the discount rate described above in the
``Benchmarks and Discount Rates'' section to calculate the amount of
the benefit for the POI. First, we divided Yixing Union's VAT and
tariff exemptions by Yixing Union's total sales during that period.
Next, we divided Cogeneration's VAT and tariff exemptions by the
combined total sales of Yixing Union and Cogeneration (less any sales
between the two companies) during that period. Finally, we summed these
two rates. On this basis, we preliminarily determine that Yixing Union
received a countervailable subsidy of 0.69 percent ad valorem under
this program.
I. Local Income Tax Exemption and Reduction Program for ``Productive''
FIEs
Under Article 9 of the FIE Tax Law, the provincial governments have
the authority to exempt the local income tax of three percent to FIEs.
According to
[[Page 54380]]
the Regulations on Exemption and Reduction of Local Income Tax of FIEs
in Jiangsu Province, (see GOC CVD Questionnaire Response at Exhibit I-
V-3) a ``productive'' FIE may be exempted from the 3 percent local
income tax during the ``Two Free, Three Half'' period. Additionally,
according to Article 6, FIEs eligible for the reduced income tax rate
of 15 percent can also be exempted from paying local income tax. The
Department has previously found this program to be countervailable. See
CFS from the PRC and Tires from the PRC.
Yixing Union and Cogeneration reported receiving an exemption from
local income tax during the POI. TTCA, however, did not use this
program during the POI.
We preliminarily determine that the exemption from the local income
tax received by ``productive'' FIEs under this program confers a
countervailable subsidy. The exemption is a financial contribution in
the form of revenue forgone by the government and it provides a benefit
to the recipient in the amount of the tax savings. See section
771(5)(D)(ii) of the Act and 19 CFR 351.509(a)(1). We also
preliminarily determine that the exemption afforded by this program is
limited as a matter of law to certain enterprises, ``productive'' FIEs,
and, hence, is specific under section 771(5A)(D)(i) of the Act.
To calculate the benefit for Yixing Union, we treated the income
tax savings enjoyed by Yixing Union and Cogeneration as a recurring
benefit, consistent with 19 CFR 351.524(c)(1). To compute the amount of
the tax savings, we compared the local income tax rate Yixing Union and
Cogeneration would have paid in the absence of the program (i.e., three
percent) with the income tax rate the companies actually paid. First,
we divided Yixing Union's tax savings received during the POI by Yixing
Union's total sales during that period. Second, we divided
Cogeneration's tax savings received during the POI by the combined
total sales of Yixing Union and Cogeneration (less any sales between
the two companies) during that period. Finally, we summed these two
rates. On this basis, we preliminarily determine that Yixing Union
received a countervailable subsidy of 0.50 percent ad valorem under
this program.
J. Anqiu Finance Bureau Grant
TTCA reported receiving three grants in 2007 related to technology
achievements and energy saving projects. See TQR, at page 49. Two of
the grants are discussed in the ``Programs Preliminarily Determined To
Be Not Countervailable'' section below. Current information on the
record does not indicate that these grants are tied to any of the other
programs discussed in this notice. Further, it does not appear that the
Department has previously investigated any of the programs.
TTCA reported receiving a non-recurring grant in 2007 from the
Anqiu Finance Bureau. See TQR, at page 49. The GOC reported that to
receive this grant an enterprise submits a project feasibility study to
the municipal government who then, in turn, recommends the project to
the Administration of Finance of Shandong Province and the Economic and
Trade Commission of Shandong Province for approval. See G1SR (8/27), at
Exhibit S1-18-3. We find that this grant is a direct transfer of funds
within the meaning of section 771(5)(D)(i) of the Act, providing a
benefit in the amount of the grant. See 19 CFR 351.504(a).
Regarding specificity, information submitted by the GOC shows that
grants provided under the program are available to enterprises whose
projects meet certain energy and water saving criteria and are deemed
to have economic and social benefit. See G1SR (8/27), at pages 27 and
29. The GOC reported that eligibility is not limited by law or in fact,
to any enterprise or group of enterprises, or to any industry or group
of industries. See G1SR (8/2), at page 28. Therefore, we preliminarily
determine that there is no basis to find this program de jure specific
under section 771(5A)(D)(i) of the Act.
In determining whether this program is de facto specific, we
examine the four de facto specificity factors under section
771(5A)(D)(iii) of the Act. Section 771(5A)(D)(iii) of the Act also
provides that we take into account the length of time during which a
subsidy program has been in operation when evaluating the four de facto
specificity factors. In the case of a new subsidy program, the first
three de facto specificity factors (i.e., limited number of users,
dominant users, or disproportionately large user) may provide little or
misleading indications regarding whether a program is de facto
specific. See Countervailing Duties; Final Rule, 63 FR 65348, 65356
(November 25, 1998) (``CVD Preamble''); SAA, at page 931. The GOC
provided partial program usage data for 2006 and 2007 (the GOC stated
that it had information on the number of grants but not the amount of
grants) because the program only began in 2006. See G1SR (9/2), at page
14. Consequently, in accordance with the CVD Preamble, we next consider
the fourth de facto specificity factor (i.e., discretion) because the
manner in which the GOC has exercised its discretion in the early
stages of this program (e.g., by excluding certain applicants and
limiting the benefit to a particular industry) might impact our
analysis of the first three de facto specificity factors. See CVD
Preamble, 63 FR at 65356; SAA, at page 931.
As noted above, in addition to meeting specified energy and water
saving criteria, projects submitted by enterprises must be recommended
by municipal levels of government and deemed to provide economic and
social benefit to receive the grant. See G1SR (8/27), at page 29. It
appears that the GOC has the ability to exercise discretion in the
decision to provide grants under this program. Consequently, in
contrast to the ``Investment Development Award'' program noted below,
at the early stage of this program, we are able to rely on the first
three de facto specify factors provided under 771(5A)(D)(iii) of the
Act to preliminarily determine whether this program is specific as a
matter of fact.
The GOC usage data indicates six enterprises comprising two
industries received grants in 2007. See G1SR (9/2), at page 14.
Consequently, we find that the actual recipients of the subsidy are
limited in number on both an enterprise and industry basis within the
meaning of section 771(5A)(D)(iii)(I) of the Act. Further, in
accordance with the Department's regulations, our de facto specificity
analysis is sequential and we will find a domestic subsidy to be
specific based on the presence of a single factor. See 19 CFR
351.502(a). Therefore, we are not performing an analysis to determine
whether the enterprise or industry is a dominant or disproportionately
large user. In addition, as noted above, the GOC did not provide the
amounts of benefits received by industry, which is required to
determine dominant or disproportionately large usage.
To calculate the benefit, we divided the amount received from the
non-recurring grant by TTCA's total sales in 2007. On this basis, we
preliminarily determine the countervailable subsidy to be 0.20 percent
ad valorem for this program.
II. Programs Preliminarily Determined To Be Not Countervailable
A. Excessive VAT Rebates on Export
The GOC began refunding the VAT for exported products in 1984. See,
GQR, at page 83. The current rules governing the program, Provisional
VAT Rules of China (Decree 134 of the State Council) (``Provisional VAT
Rules''), were
[[Page 54381]]
promulgated in 1993. See id., at Exhibit I-T-3. Article 25 of the
Provisional VAT Rules permits VAT rebates for exports.
The GOC argues that an excessive rebate of VAT upon exports is not
possible given the manner in which the system is structured.
The Department has consistently found that the GOC's program to
rebate VAT on exports does not result in an excessive VAT remission.
See CWP Decision Memorandum, at page 16; LWRP Decision Memorandum at
page 11; and Tires Decision Memorandum, at page 24. In those cases, we
found no subsidy because VAT was assessed on home market sales at a
rate of 17 percent, while the rebate was set at 13 percent. The same is
true with respect to citric acid. See GQR, at page 80. Therefore,
consistent with 19 CFR 351.517(a) and the above-cited determinations,
we preliminarily find the VAT remission upon export is not excessive
and does not confer a countervailable subsidy on the subject
merchandise.
In their allegation, petitioners additionally noted that citric
acid producers may not pay VAT on their agricultural inputs. The GOC
and the responding companies have reported that the VAT rate on corn
(the agricultural input used to produce citric acid) is 13 percent and
that this amount is paid by the citric acid producers on their
purchases. See id., at page 80; TQR, at page 30; and YQR, at page 21.
The GOC has further responded that: (i) Sellers of goods are
responsible for paying the VAT to the government (Article 1 of the
Provisional VAT Rules) and (ii) agricultural products sold by the
agricultural producers that produce them are exempt from VAT (Article
16 of the Provisional VAT Rules). See G1SR (8/27), at page 13. Thus,
citric acid producers pay a VAT on their corn purchases in the sense
that the VAT appears on the purchase invoices for corn and they deduct
this VAT in preparing their VAT reconciliations (to calculate the
amount of VAT they must remit on their sales of citric acid), but no
VAT is remitted to the government by the agricultural producers selling
the corn.
Because citric acid producers pay the VAT on their corn purchases
and it is the agricultural producers who are exempted from paying the
VAT on their sales, we preliminarily determine that any potential
subsidy arising from this exemption is conferred on the agricultural
producers and not on the purchasers (i.e., citric acid producers).
Therefore, we preliminarily determine that the VAT exemption on
agricultural products does not provide a countervailable subsidy on the
subject merchandise.
As noted above, the VAT rate set for corn is 13 percent. TTCA
reported that it was exempted from paying that VAT on its sales of corn
scrap during the POI. See TQR, at page 49. Because any potential
subsidy from such an exemption would be tied to sales of corn scrap, in
accordance with 19 CFR 351.525(b)(5)(i), we preliminarily determine
that there is no countervailable subsidy conferred on subject
merchandise from the VAT exemption on corn scrap sales.
B. Science and Technology Reward--Anqiu City
TTCA reported receiving a grant in 2007 as the result of a science
and technology award. See TQR, at page 49. To calculate the potential
benefit, we divided the amount received by TTCA's total sales in 2007.
On this basis, we preliminarily determine that a potential
countervailable subsidy of less than .005 percent ad valorem exists for
TTCA. See TTCA Preliminary Calc Memo, at page 9. Where the
countervailable subsidy rate for a program is less than .005 percent,
the program is not included in the total CVD rate. See, e.g., Final
Results of Countervailing Duty Administrative Review: Low Enriched
Uranium from France, 70 FR 39998 (July 12, 2005), and the accompanying
Issues and Decision Memorandum at ``Purchases at Prices that Constitute
`More than Adequate Remuneration''' (citing Final Results of
Administrative Review: Certain Softwood Lumber Products from Canada, 69
FR 75917 (December 20, 2004)). Consequently, we are exercising our
discretion to not investigate the benefit provided by this non-
recurring subsidy.
C. Investment Development Award--Government of Anqiu
TTCA was awarded the first grant under the ``Investment Development
Award'' program by the People's Government of Anqiu for TTCA's
investment in a technology project. See G1SR (8/27), at Exhibit S1-18-
1, page 3. We find that this grant is a direct transfer of funds within
the meaning of section 771(5)(D)(i) of the Act, providing a benefit in
the amount of the grant. See 19 CFR 351.504(a).
Regarding specificity, information submitted by the GOC shows that
grants provided under the program are available to any enterprise that
has productive fixed asset investment for a single project of more than
RMB 10 million. See G1SR (8/27), at Exhibit S1-18-1. If the
aforementioned criterion is met, any enterprise will receive a benefit
and there is no discretion to approve or disapprove. See id. Further,
the GOC reported that eligibility is not limited by law or in fact, to
any enterprise or group of enterprises, or to any industry or group of
industries. See G1SR (8/27), at page 17. Therefore, we preliminarily
determine that there is no basis to find this program de jure specific
under section 771(5A)(D)(i) of the Act.
In determining whether this program is de facto specific, we must
examine the four de facto specificity factors under section
771(5A)(D)(iii) of the Act. Section 771(5A)(D)(iii) of the Act also
provides that we take into account the length of time during which a
subsidy program has been in operation when evaluating the four de facto
specificity factors. In the case of a new subsidy program, the first
three de facto specificity factors (i.e., limited number of users,
dominant users, or disproportionately large user) may provide little or
misleading indications regarding whether a program is de facto
specific. See CVD Preamble at 65356; SAA, at page 931.
The GOC provided program usage data for 2007 only because the
``Investment Development Award'' program was created in 2006, with no
awards bestowed until 2007. See G1SR (8/27), at pages 14 and 18.
Although the number of users were not large during the period, in
accordance with the CVD Preamble, we also consider the fourth de facto
specificity factor (i.e., discretion) because the manner in which the
GOC has exercised its discretion in the early stages of this program
(e.g., by excluding certain applicants and limiting the benefit to a
particular industry) might impact our analysis of the first three de
facto specificity factors. See CVD Preamble, 63 FR at 65356; SAA, at
page 931.
As noted above, any enterprise will receive grants provided under
the ``Investment Development Award'' program if the enterprise meets a
specified project investment threshold. It appears that the GOC does
not have the ability to exercise discretion in the decision to provide
grants under this program. Therefore, due to the GOC's apparent lack of
discretion, at the early stage of this program, we preliminarily
determine that it is not appropriate to rely on an analysis of the
first three de facto specify factors provided under 771(5A)(D)(iii) of
the Act to determine whether this program is specific as a matter of
fact. Consequently, we do not find any basis to determine that the
program is specific.
[[Page 54382]]
III. Programs Preliminarily Determined To Be Not Used By TTCA and
Yixing Union
A. Discounted Loans for Export-Oriented Industries
B. Funds Provided for the Rationalization of the Citric Acid
Industry
C. Loans Provided to the Northeast Revitalization Program
D. State Key Technology Renovation Project Fund
E. National Level Grants to Loss-making SOEs
F. Reduced Income Tax Rate for High or New Technology Enterprises
G. Income Tax Exemption Program for Export-Oriented FIEs
H. Tax Benefits to FIEs for Certain Reinvestment of Profits
I. Preferential Income Tax Rate for Research and Development at FIEs
J. Preferential Tax Programs for Encouraged Industries
K. Preferential Tax Policies for Township Enterprises
L. Provincial Level Grants to Loss-making SOEs
M. Reduced Income Tax Rates for Encouraged Industries in Anhui
Province
N. Provision of Land for Less Than Adequate Remuneration in Anhui
Province
O. Funds for Outward Expansion of Industries in Guangdong Province
P. Income Tax Exemption for FIEs Located in Jiangsu Province
In our initiation, we included the program ``Income Tax Exemption
for FIEs located in Jiangsu Province.'' According to the GOC, the
Regulations on Exemption and Reduction of Local Income Tax of FIEs in
Jiangsu Province (Order of the People's Government of Jiangsu Province,
June 17, 1992) includes a ``basket'' of benefits which can be enjoyed
by FIEs located in Jiangsu province. See GQR, at Exhibit I-V-3.
Certain benefits under this program are already addressed under the
``Two Free, Three Half'' program and the ``Local Income Tax Exemption
and Reduction Program for 'Productive' FIEs.'' Therefore, we are
treating the ``Income Tax Exemption for FIEs located in Jiangsu
Province'' as not used during the POI to avoid the double-counting of
subsidies.
Q. Preferential Tax Programs for Enterprises Located in the Su Qian
Economic Development Zone
R. Provision of Land for LTAR in the Su Qian Economic Development
Zone
S. Provision of Electricity for LTAR in the Su Qian Economic
Development Zone
T. Loans and Interest Subsidies Pursuant to the Liaoning Province's
Five-Year Framework
U. Local Income Tax Exemptions and Reductions for Firms Located in
Qilu Chemicals Industry Park
V. Preferential Tax Program for Enterprises Located in Shanxi
Province
W. Funding for Enterprises under the Shanxi Province 10th Five-Year
Plan
X. Export Interest Subsidy Funds for Enterprises Located in Shenzhen
City
Y. Export Interest Subsidy Funds for Enterprises Located in Zhejiang
Province
Z. Exemptions and Reductions in Taxes and Fees for Chemical Research
and Development Institutions Located in Zhejiang Province
AA. Provision of Land for LTAR for Enterprises Located in Hangzhou
Bay Chemical Park
BB. Provision of Electricity for LTAR for Enterprises Located in
Hangzhou Bay Chemical Park
VI. Programs for Which More Information Is Required
As mentioned under the Case History section of this notice, the
Department recently determined to investigate several additional
alleged subsides including: The Provision of TTCA's Plant and Equipment
for LTAR; Provision of Land to SOEs for LTAR; Provision of Land in the
YEDZ for LTAR; Provision of Land-use Fees in Jiangsu Province for LTAR;
Provision of Land in the Anqiu City Economic Development Zone for LTAR;
Administration Fee Exemption in Anqiu City; Exemption of Water and
Sewage Fees in Anqiu City; Tax Grants, Rebates and Credits in the
Yixing Economic Development Zone (``YEDZ''); Provision of Water in the
YEDZ for LTAR; Provision of Electricity in the YEDZ for LTAR; Provision
of Construction Services in the YEDZ for LTAR; Administration Fee
Exemption in the YEDZ; and Grants to FIEs for Projects in the YEDZ. We
intend to seek information on these programs from the GOC and the
respondents, and issue an interim analysis describing our preliminary
findings with respect to these programs before the final determination
so that parties will have the opportunity to comment on our findings.
Verification
In accordance with section 782(i)(1) of the Act, we will verify the
information submitted by the respondents prior to making our final
determination.
Suspension of Liquidation
In accordance with section 703(d)(1)(A)(i) of the Act, we
calculated an individual rate for each producer/exporter of the subject
merchandise. We preliminarily determine the total estimated net
countervailable subsidy rates to be:
------------------------------------------------------------------------
Net subsidy
Exporter/manufacturer rate
------------------------------------------------------------------------
TTCA Co., Ltd.............................................. 1.41
Yixing Union Biochemical Co., Ltd.; and Yixing Union 3.92
Cogeneration Co., Ltd.....................................
Anhui BBCA Biochemical Co., Ltd............................ 97.72
All-Others................................................. 2.67
------------------------------------------------------------------------
In accordance with section 703(d)(1)(A)(i) of the Act, we have
calculated an individual rate for the companies under investigation,
Anhui BBCA, TTCA and Yixing Union. Sections 703(d) and 705(c)(5)(A)(i)
of the Act states that for companies not investigated, we will
determine an all-others rate equal to the weighted average
countervailable subsidy rates established for exporters and producers
individually investigated, excluding any zero and de minimis
countervailable subsidy rates, and any rates determined entirely under
section 776 of the Act.
Petitioners contend that because Anhui BBCA is owned by the
government, the Department cannot treat the GOC as cooperative and
Anhui BBCA as non-cooperative. See Petitioners' Comments on Anhui BBCA
and the All-Others Rate, at page 4. Consequently, Petitioners argue
that because the GOC is a fully cooperating respondent, Anhui BBCA's
rate cannot be excluded from the all-others rate. See Petitioners'
Comments on Anhui BBCA and the all-others Rate, at page 3. Finally,
Petitioners believe that Anhui BBCA is not participating in this
investigation in an attempt to avoid its inclusion in the calculation
of the all-others rate. See Petitioners' Comments on Anhui BBCA and the
All-Others Rate, at page 4. Petitions cite to Live Cattle From Canada,
where the Department included a non-cooperating respondent in the
calculation of the all-others rate to mitigate potential selective
participation by respondents. See Petitioners' Comments on Anhui BBCA
and the All-Others Rate, at pages 5 and 6, citing Notice of Final
Determination of Sales at Less Than Fair Value: Live Cattle From
Canada, 64 FR 56768, 56743 (October 21, 1999) (``Live Cattle From
Canada'').
The GOC notes that section 705(c)(5)(A)(i) of the Act explains that
the all-others rate must exclude any rates determined entirely under
section 776 of the Act (i.e., a rate determined using facts otherwise
available) and the statute affords the Department no discretion to do
otherwise. See GOC's Response to Petitioners' Comments on Anhui BBCA
and the All-Others Rate, at page 2. Also, the GOC believes that
Petitioners' reliance upon Live Cattle
[[Page 54383]]
From Canada is misplaced. See GOC's Response to Petitioners' Comments
on Anhui BBCA and the All-Others Rate, at pages 3-5. Finally, the GOC
argues that the Department has always treated the GOC and SOEs as
distinct entities. Otherwise, it would be difficult to understand how
the Department could evaluate a single entity providing a financial
contribution or benefit to itself. See GOC's Response to Petitioners'
Comments on Anhui BBCA and the All-Others Rate, at page 9.
As noted in the Use of Facts Otherwise Available section above,
because Anhui BBCA did not respond to the Department's questionnaire,
pursuant to section 776(a)(2)(A) and (C) of the Act, we have based the
CVD rate of Anhui BBCA entirely on facts otherwise available. The fact
that Anhui BBCA is an SOE does not mean that the GOC's participation
makes Anhui BBCA a cooperative respondent. Nor does it lead us to
conclude that the rate we have calculated for Anhui BBCA is based on
anything other than facts available.
With respect to Live Cattle From Canada, the Department is clearly
concerned when a company withdraws its response in order to manipulate
an all-others rate. However, those are not the facts we have here.
Anhui BBCA elected not to respond to the questionnaire. This occurs
frequently in our investigations (and administrative reviews). Section
776(b) establishes the means for addressing this, i.e., the application
of AFA, which is what we have done in this case. Therefore, because
Anhui BBCA's rate is based entirely on facts available, we are not
including it in the all-others rate, pursuant to section
705(c)(5)(A)(i) of the Act.
To calculate the all-others rate, we have taken a simple average of
the two responding firms' rates. We have not weight averaged the rates
of TTCA and Yixing Union because doing so risks disclosure of
proprietary information. Finally, because TTCA's rate includes export
subsidies, the all-others rate also includes export subsidies.
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 citric acid 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 merchandise in the
amounts indicated above.
Program-Wide Change
In the GOC Pre-Prelim Comments, the GOC argues that if the
Department preliminarily finds countervailable certain programs related
to the FIE Tax Law (e.g., ``Two Free, Three Half,'' ``Local Income Tax
Exemption and Reduction Program for 'Productive' FIEs,'' and ``Income
Tax Exemption for FIEs Located in Jiangsu Province''), it should
exclude these rates from the companies' cash deposit rate pursuant to
19 CFR 351.526, due to a program-wide change. Specifically, the law
that established these programs, the FIE Tax Law, was repealed
effective January 1, 2008. Thus, according to the GOC, the programs
terminated before the preliminary determination. The GOC further
contends that no respondent can receive residual benefits under the
``Two Free, Three Half'' program and that no companies can receive
residual benefits under the ``Local Income Tax Exemption and Reduction
Program for `Productive' FIEs'' or the ``Income Tax Exemption for FIEs
Located in Jiangsu Province.''
Under 19 CFR 351.526(b), a program-wide change: ``(1) Is not
limited to an individual firm or firms; and (2) is effectuated by an
official act * * * '' Moreover, 19 CFR 351.526(a) states that the
Department may take a program-wide change into account when
establishing the estimated CVD cash deposit rate if (1) the program-
wide change occurred subsequent to the POI, but prior to the
preliminary determination; and (2) the change in the amount of
countervailable subsidies provided under the program is able to be
measured. However, the Department will not adjust the cash deposit rate
for a terminated program if we determine that residual benefits may
continue to be bestowed pursuant to 19 CFR 351.526(d)(1).
For the ``Two Free, Three Half'' program, we agree with the GOC
that the FIE Tax Law was repealed prior to the date of the preliminary
determination and may meet the criteria under 19 CFR 351.526(b)(2).
However, in its responses to the Department's questions on the ``Two
Free, Three Half'' program, the GOC stated that once the FIE Tax Law
was repealed, the Corporate Income Tax Law became effective. See GQR at
I-64. According to Article 57 of the Corporate Income Tax Law, and
provisions of the State Council, enterprises established prior to the
promulgation of the Corporate Income Tax Law may enjoy reduced tax
rates and continue to enjoy preferential treatments within five years
after the law is promulgated. Additionally, companies that have not
been able to enjoy the preferential treatments of the FIE Tax Law,
before the termination of the law because the enterprise was
unprofitable, can still claim benefits under the new Corporate Income
Tax Law.
Although the GOC may be correct in its statement that no respondent
will enjoy residual benefits from this program, the Corporate Income
Tax Law allows FIEs within the PRC to continue to receive benefits from
this program beyond the termination date. The GOC makes note of this
fact in its response. See G1SR (8/27), at page 10. Thus, while benefits
to the two cooperating respondents in this investigation would be
terminated under the programs examined, the program's overall residual
benefits have not been terminated. Therefore, we preliminarily
determine that the criteria under 19 CFR 351.526(a) have not been met
and we decline to adjust Yixing Union's rate to reflect termination of
the program. See 19 CFR 351.526(d)(1).
For the ``Local Income Tax Exemption and Reduction Programs for
`Productive' FIEs,'' the GOC has stated in its response that there are
no provisions continuing this program in the Corporate Income Tax Law.
See GQR, at page 93. Based on our review of the Corporate Income Tax
Law, we are not able to confirm the GOC's claim. Moreover, the Notice
of the State Council on the Implementation of the Transitional
Preferential Policies in respect of Enterprise Income Tax (No. 39 of
the State Council) states that enterprises that previously benefited
from the ``Two Free, Three Half'' program and other preferential
treatment in the form of tax deductions and exemptions may continue to
enjoy those benefits. Therefore, it is unclear whether local income tax
reductions and exemptions will continue for some transition period.
Thus, we preliminarily determine that the criteria under 19 CFR
351.526(a) have not been met and decline to set Yixing Union's rate to
reflect termination of the program.
For the ``Income Tax Exemption for FIEs Located in Jiangsu
Province,'' the benefits received under this program have already been
captured under the ``Local Income Tax Exemption and Reduction Program
for `Productive' FIEs'' program, and ``Two Free, Three Half'' program.
Therefore, no rate has been set for this program.
ITC Notification
In accordance with section 703(f) of the Act, we will notify the
ITC of our determination. In addition, we are
[[Page 54384]]
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), we 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 must be filed within five days after the
deadline for submission of case briefs, pursuant to 19 CFR
351.309(d)(1). 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.
Section 774 of the Act provides that the Department will hold a
public hearing to afford interested parties an opportunity to comment
on arguments raised in case or rebuttal briefs, provided that such a
hearing is requested by an interested party. If a request for a hearing
is made in this investigation, the hearing will tentatively be held two
days after the deadline for submission of the rebuttal briefs, pursuant
to 19 CFR 351.310(d), at the U.S. Department of Commerce, 14th Street
and Constitution Avenue, N.W., Washington, DC 20230. Parties should
confirm by telephone the time, date, and place of the hearing 48 hours
before the scheduled time.
Interested parties who wish to request a hearing, or to participate
if one is requested, must submit a written request to the Assistant
Secretary for Import Administration, U.S. Department of Commerce, Room
1870, within 30 days of the publication of this notice, pursuant to 19
CFR 351.310(c). Requests should contain: (1) The party's name, address,
and telephone; (2) the number of participants; and (3) a list of the
issues to be discussed. Oral presentations will be limited to issues
raised in the briefs.
This determination is published pursuant to sections 703(f) and
777(i) of the Act.
Dated: September 12, 2008.
David M. Spooner,
Assistant Secretary for Import Administration.
[FR Doc. E8-21949 Filed 9-18-08; 8:45 am]
BILLING CODE 3510-DS-P