88-908

NOTICES

DEPARTMENT OF COMMERCE

International Trade Administration

[C-557-803]

Preliminary Affirmative Countervailing Duty Determination; Standard Pipe From
Malaysia, and Preliminary Negative Countervailing Duty Determinations; Line
Pipe, Heavy-Walled Rectangular Tubing and Light-Walled Rectangular Tubing From
Malaysia

Thursday, September 8, 1988

*34801

AGENCY: Import Administration, International Trade Administration,
Commerce.

ACTION: Notice.

SUMMARY: We preliminarily determine that benefits which constitute bounties or grants
within the meaning of the countervailing duty law are being provided to
manufacturers, producers, or exporters in Malaysia of standard pipe, and that no benefits
which constitute bounties or grants within the meaning of the countervailing duty law
are being provided to manufacturers, producers, or exporters in Malaysia of line pipe,
heavy-walled rectangular tubing (HWRT) and light-walled rectangular tubuing (LWRT).
These products, which constitute four separate "classes or kinds" of merchandise, are fully
described in the "Scope of Investigations" section of this notice.

The estimated net bounty or grant for standard pipe is 1.17 percent ad valorem for all
manufacturers, producers and exporters in Malaysia except Amalgamated Industrial
Steel Bhd. (AIS) and Steel Pipe Industry of Malaysia Bhd. (SPIM). The rate for these two
companies is zero. They are, therefore, excluded from this determination.

To take into account a program-wide change that occurred before our preliminary
determination, we are adjusting the duty deposit rate to reflect the termination of the
"Allowance of a Percentage of Net Taxable Income Based on the F.O.B. Value of Export
Sales." The company that was claiming the Allowance has now started claiming the
"Abatement of Taxable Income Based on the Ratio of Export Sales to Total Sales."
Therefore, we have used the information on the Abatement to calculate a duty deposit
rate of 1.85 percent ad valorem for all manufacturers, producers and exporters in
Malaysia of standard pipe, except AIS and SPIM, which are excluded from this
determination.

The estimated net bounty or grant for line pipe, HRWT and LWRT for all manufacturers,
producers and exporters in Malaysia is zero.

We are directing the U.S. Customs Service to suspend liquidation of all entries of standard
pipe from Malaysia, except for entries from AIS and SPIM, that are entered, or withdrawn
from warehouse, for consumption on or after the date of publication of this notice, and to
require a cash deposit or bond for each such entry equal to 1.85 percent ad valorem.

If these investigations proceed normally, we will make our final determinations on or
before November 14, 1988.

EFFECTIVE DATE: September 8, 1988.

FOR FURTHER INFORMATION CONTACT: Kay Halpern or Barbara Tillman, Office of
Countervailing Investigations, Import Administration, International Trade
Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue,
NW., Washington, DC 20230; telephone: (202) 377-0167 or 377-2438.

SUPPLEMENTARY INFORMATION:

Preliminary Determinations

Based on our investigations, we preliminarily determine that benefits which constitute
bounties or grants within the meaning of section 303 of the Tariff Act of 1930, as amended
(the Act), are being provided to manufacturers, producers, or exporters in Malaysia of
standard pipe. In addition, we preliminarily determine that no benefits which constitute
bounties or grants within the meaning of section 303 of the Act are being provided to
manufacturers, producers, or exporters in Malaysia of line pipe, HWRT and LWRT. For
purposes of these investigations, the following programs are preliminarily found to be
countervailable:
- Export Credit Refinancing
- Allowance of Percentage of Net Taxable Income Based on the F.O. B. Value of Export
Sales and Abatement of Taxable Income Based on the Ratio of Export Sales to Total Sales
We preliminarily determine the estimated net bounty or grant for standard pipe to be
1.17 percent ad valorem for all manufacturers, producers and exporters in Malaysia
except AIS and SPIM. The rate for these two companies is zero.
We preliminarily determine the rate on standard pipe for duty deposit purposes to be
1.85 percent ad valorem for all manufacturers, producers and exporters in Malaysia
except AIS and SPIM. The duty deposit rate for these two companies is zero.
We preliminarily determine the estimated net bounty or grant for line pipe, HWRT and
LWRT for all

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manufacturers, producers and exporters in Malaysia to be zero.

Case History

Since the publication of the Notices of Initiation in the Federal Register (53 FR 22682,
June 17, 1988), the following events have occurred. On June 24, 1988, we presented a
questionnaire to the Government of Malaysia in Washington, DC, concerning petitioners'
allegations. On July 29, 1988, we received responses from the Government of Malaysia,
AIS, Maruichi Malaysia Steel Tube Bhd. (Maruichi), and SPIM. On August 4 and 10, 1988,
we delivered supplemental/deficiency questionnaires to the Government and the
respondent companies, and received responses on August 18, 1988. We received
additional information from respondents on August 25, 1988.
According to the responses, AIS exported standard pipe, HWRT and LWRT to the United
States during the review period, and Maruichi and SPIM exported only standard pipe to
the United States during the review period.
On July 22, 1988, petitioners filed a request that the preliminary determinations be
postponed for 14 days. Pursuant to section 703(c)(1)(A) of the Act, we postponed the
preliminary determinations to no later than August 31, 1988 (53 FR 29371, August 4,
1988).

Scope of Investigations

The products covered by these investigations constitute four separate "classes or kinds" of
merchandise. The four separate "classes or kinds" are as follows:
(1) Certain circular welded carbon steel pipes and tubes, 0.375 inch or more but not over
16 inches in outside diameter, generally known in the industry as standard pipe. This is a
general-purpose commodity used in such applications as plumbing pipe, sprinkler
systems, and fence posts. Standard pipe may be supplied with an oil coating (black pipe)
or may be galvanized, and is sold in plain, threaded, threaded and coupled, or beveled
ends. These products are generally produced to American Society of Testing Materials
(ASTM) specifications A-53, A-120, or A-135. Imports of these products are classified
under TSUSA categories 610.3231, 610.3234, 610.3241, 610.3242, 610.3243, 610.3252,
610.3254, 610.3256, 610.3258, and 610.4925, and are classified under HS categories
7306.30.1000, 7306.30.5025, 7306.30.5030, 7306.30.5040, 7306.30.5045,
7306.30.5050, 7306.30.5060, 7306.30.5065, 7306.30.5070, and 7306.30.5075.
(2) Certain welded carbon steel American Petroleum Institute (API) line pipe, 0.375 inch
or more but not over 16 inches in outside diameter known in the industry as line pipe.
Line pipe generally is produced to API specification 5L. Line pipe is used for the
transportation of gas, oil, or water, generally in pipeline or utility distribution systems.
API line pipe not over 16 inches in outside diameter is classified under TSUSA categories
610.3208 and 610.3209, and is classified under HS categories 7306.10.1010 and
7306.10.1050.
(3) Certain heavy-walled carbon steel rectangular tubing having a wall thickness of 0.156
inch or greater, which is generally used for support members for construction or
load-bearing purposes in construction, transportation, farm, and material-handling
equipment. The product is generally produced to ASTM specification A-500, Grade B.
Imports of heavy-walled rectangular tubing are classified under TSUSA category
610.3955, and are classified under HS category 7306.60.1000.
(4) Certain light-walled carbon steel rectangular tubing having a wall thickness of less
than 0.156 inch, which is generally employed in a variety of end uses other than the
conveyance of liquid or gas, such as agricultural equipment frames and parts, and
furniture parts. The product is generally produced to ASTM specification A-513 or
A-500, Grade A. Imports of light-walled rectangular tubing are classified under TSUSA
category 610.4928, and are classified under HS category 7306.60.5000.

Analysis of Programs

We initiated investigations on four separate "classes or kinds" of merchandise (standard
pipe, line pipe, HWRT, and LWRT). According to the Government of Malaysia, there were
no exports of line pipe from Malaysia to the United States during the review period.
However, U.S. import statistics indicate entries of line pipe. If we verify that producers
and exporters in Malaysia produce and export only standard pipe, HWRT and LWRT, any
potential countervailing duty order will not include line pipe.
For purposes of these preliminary determinations, the period for which we are measuring
bounties or grants ("the review period") is calendar year 1987, which corresponds to the
most recently completed fiscal year of one of the respondent companies. The other two
respondent companies each have different fiscal years which overlap this period. In
accordance with our practice in such situations, we have chosen the most recently
completed calendar year as our review period.
Consistent with our practice in preliminary determinations, when a response to an
allegation denies the existence of a program, receipt of benefits under a program, or
eligibility of a company or industry under a program, and the Department has no
persuasive evidence showing that the response is incorrect, we accept the response for
purposes of the preliminary determination. All such responses, however, are subject to
verification. If the response cannot be supported at verification, and the program is
otherwise countervailable, the program will be considered a bounty or grant in the final
determination.
Based upon our analysis of the petition and the responses to our questionnaires, we
preliminarily determine the following:

I. Programs Preliminarily Determined to Confer Bounties or Grants

We preliminarily determine that bounties or grants are being provided to manufacturers,
producers or exporters in Malaysia of standard pipe under the following programs:

A. Export Credit Refinancing

The Bank Negara Malaysia, the central bank of Malaysia, provides short-term export
credit refinancing through commercial banks. The Export Credit Refinancing (ECR)
programs, as revised in January 1986, provide pre- and post- shipment financing of
exports for periods of up to 90 days. In December 1986, the maximum periods for
financing under these programs were extended to 120 and 180 days, respectively.
Currently, ECR offers order-based pre- and Post- shipment financing and "certificate of
performance" (CP) based pre-shipment financing. Order-based fnancing is provided on
specific sales to specific markets. CP-based financing, which is a line of credit based on the
previous 12 months' export performance, cannot be tied to specific sales in specific
markets.
According to the responses, AIS is the only respondent company that received financing
under the order-based ECR loan programs for one shipment of standard pipe to the
United States during the review period. Because only exporters are eligible for ECR loans,
we preliminarily determine that they are countervailable to the extent that they are
provided at preferential rates.
In order to determine whether the loan received by AIS was provided at a preferential
rate, we compared the interest rate charged to our short-term loan benchmark interest
rate. As a benchmark for short-term loans, it is our

*34803

practice to use the most
comparable, predominant commercial rate for short-term financing. For purposes of
these detemrinations, we are using the 90-day Bankers' Acceptance (BA) rate as the most
comparable and commonly used alternative source of short-term financing. This is the
benchmark that we applied in Final Affirmative Countervailing Duty Determination:
Carbon Steel Wire Rod from Malaysia (53 FR 13303, April 22, 1988) (Wire Rod), the last
investigation in which this program was used. Based on this comparison, we find that ECR
loans are provided at preferential rates and, therefore, are countervailable.
To calculate the benefit from the ECR loan on which AIS paid interest in 1987, we followed
the short-term methodology which has been applied consistently in our past
determinations and is described in more detail in the Subsidies Appendix attached to the
notice of Cold-Rolled Carbon Steel Flat-Rolled Products from Argentina: Final Affirmative
Countervailing Duty Determination and Countervailing Duty Order (49 FR 18006,
April 26, 1984). We compared the amount of interest actually paid during the review
period to the amount that would have been paid at the benchmark rate.
Because order-based ECR loans are shipment-specific, we included only that loan which
financed exports of the products under investigation to the United States (in this case,
standard pipe). For this loan, we calculated the amount of interest that would have been
paid using the BA benchmark and subtracted the amount of interest that was actually
paid. We divided the result by AIS' exports of standard pipe to the United States during
the review period. The result was a rate of 0.001 percent ad valorem. Since this is the
only program preliminarily determined to be countervailable that AIS reported it used
during the review priod, AIS' rate for standard pipe is de minimis (19 CFR 355.8).
The estimated net bounty or grant for line pipe, HWRT and LWRT is zero for all
manufactures, producers and exporters in Malaysia.

B. Allowance of a Percentage of Net Taxable Income Based on the F.O.B. Value of Export
Sales; Abatement of Taxable Income Based on the Ratio of Export Sales to Total Sales

Effective in 1984, section 29 of the Investment Incentives Act of 1968 was amended to
allow for a flat deduction or allowance of five percent of export revenues (based on F.O.B.
value) from taxable income. Due to the enactment of the Promotion of Investments Act of
1986, this program, provided for under section 39 of the 1986 Act, currently applies only
to trading companies and agricultural companies. It is not available to companies still
participating in programs under the repealed Investment Incentives Act of 1968,
including pioneer status, or to companies granted pioneer status or an investment tax
allowance under the Promotion of Investments Act of 1986.
Maruichi is the only respondent company which claimed this allowance on its tax return
filed during the review period. Because only exporters are eligible for the program, we
preliminarily determine that it is countervailable.
To calculate the benefit from this program, we divided the tax savings from the program
that Maruichi reported in the response by the company's total exports during the review
period. We divided the savings over Maruichi's total exports because the program is not
tied to specific export products, shipments or destinations. On this basis, we calculated an
estimated net bounty or grant for the review period of 1.17 percent ad valorem for
standard pipe, the only class or kind of merchandise under investigation which Maruichi
exported to the United States during the review period. This rate is for all manufacturers,
producers and exporters of standard pipe in Malaysia, except for AIS and SPIM.
The estimated net bounty or grant for line pipe, HWRT and LWRT is zero for all
manufacturers, producers and exporters in Malaysia.
On January 1, 1986, the Government of Malaysia terminated the Allowance of a
Percentage of Net Taxable Income Based on the F.O.B. Value of Export Sales, except with
regard to trading and agricultural companies. This termination was implemented through
the passage of the Promotion of Investments Act of 1986. The Government replaced the
Allowance with a new program applicable to exports made on or after January 1, 1986.
The new program is the "Abatement of Taxable Income Based on the Ratio of Export Sales
to Total Sales." It provides for an abatement of adjusted income for exports. The amount
of adjusted income to be abated is: (1) A rate equivalent to 50 percent of the ratio of
export sales to total sales; and (2) five percent of the value of indigenous Malaysian
materials incorporated in the manufacture of exported products. This program is not
available to companies still participating in programs under the repealed Investment
Incentives Act of 1968, including pioneer status, or to companies granted pioneer status
or an investment tax allowance under the Promotion of Investments Act of 1986.
According to the responses, Maruichi claimed the first section of the Abatement on its tax
return filed on May 9, 1988, the year immediately following the review period. Because
only exporters are eligible for the Abatement, we preliminarily determine that it is
countervailable. Since the Abatement effectively replaced the Allowance, we consider
that the Abatement is the appropriate basis for calculating the estimated net bounty or
grant for duty deposit purposes.
To take into account this program-wide change that occurred before our preliminary
determinations, we calculated a benefit to reflect bounties or grants received due to the
Abatement which are currently accruing on exports of standard pipe to the United States.
To calculate the benefit from the program, we divided the 1988 tax savings attributable to
it that Maruichi reported in its supplemental response by the company's total exports
during the review period. We divided the savings over Maruichi's total exports because
this program, like the export allowance program, is not tied to specific export products,
shipments or destinations. Since 1988 export figures are not yet available, we used
Maruichi's 1987 exports as best information available.
On this basis, we calculated an estimated duty deposit rate of 1.85 percent ad valorem for
all manufacturers, producers and exporters in Malaysia of standard pipe except for AIS
and SPIM.
The estimated duty deposit for line pipe, HWRT and LWRT is zero for all manufactures,
producers and exporters in Malaysia.
At verification, we will seek complete information from the relevant government agencies
concerning the nature and effect of this program-wide change, and from the respondent
companies concerning the use of the new Abatement program.

II. Program Preliminarily Determined Not to Confer a Bounty or Grant

We preliminarily determine that bounties or grants are not being provided to
manufacturers, producers or exporters in Malaysia of the subject merchandise under the
following program:

Accelerated Depreciation Allowance

In our initiation, we stated that we would investigate whether manufacturers, producers
or exporters in Malaysia of the subject merchandise receive countervailable benefits
from

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the Accelerated Depreciation Allowance (ADA). According to the
responses, the ADA can be claimed by any company in Malaysia. There are no qualifying
or application procedures associated with the claim and the government has no
discretion to vary the level of the allowance (40 percent for all companies). We thus
preliminarily determine that this program is not limited to a specific enterprise or
industry or group of enterprises or industries and, therefore, is not countervailable.

III. Programs Preliminarily Determined Not To Be Used

We preliminarily determine that manufacturers, producers, or exporters in Malaysia of
the subject merchandise did not apply for, claim or receive benefits during the review
period for exports of the subject merchandise to the United States under the following
programs:

A. Export Tax Incentives

1. Abatement of Five Percent of the Value of Indigenous Materials Used in Exports

The Investment Incentives Act of 1968 provided for an abatement of taxable income
based on the ratio of export sales to total sales. This law was repealed effective January 1,
1986, and replaced by the Promotion of Investments Act of 1986. Among other
incentives, the new law provides for an abatement of adjusted income for exports. The
amount of adjusted income to be abated is: (1) A rate equivalent to 50 percent of the ratio
of export sales to total sales; and (2) five percent of the value of indigenous Malaysian
materials incorporated in the manufacture of exported products. According to the
responses, Maruichi made a claim under the first section of this program on its tax return
filed in 1988 (see section I.B. of the notice), but did not make a claim under the second.
This program is not available to companies still participating in programs under the
repealed Investment Incentives Act of 1968, including pioneer status, or to companies
granted pioneer status or an investment tax allowance under the Promotion of
Investments Act of 1986.

2. Allowance of Taxable Income of Five Percent for Trading Companies Exporting
Malaysian-Made Products

Under the Promotion of Investments Act of 1986, an allowance of five percent of the
F.O.B. value of export revenues is available to trading companies and agricultural
companies exporting Malaysian-made products. This program is not available to
companies still participating in programs under the repealed Investment Incentives Act
of 1968, including Pioneer Status, or to companies granted pioneer status or an
investment tax allowance under the Promotion of Investments Act of 1986.

3. Double Deduction for Export Credit Insurance Payments

The Income Tax Act of 1967, as amended, provides for a deduction to be taken on a
company's tax return for the cost of export credit insurance in addition to a similar
deduction allowed on a company's financial statement.

4. Double Deduction for Export Promotion Expenses

Section 41 of the Promotion of Investments Act of 1986 allows companies to deduct
expenses related to the promotion of exports twice, once on the financial statement and
again on the income tax form.

5. Industrial Building Allowance

Sections 63-66 of the Income Tax Act of 1967, as amended, allow an income tax
deduction for a percentage of the value of constructed or purchased buildings used in
manufacturing. In 1984, this allowance was extended to include buildings used as
warehouses to store finished goods ready for export or imported inputs to be
incorporated into exported goods.

B. Other Export Incentive

Export Insurance Program

Export credit insurance is provided by Malaysian Export Credit Insurance, Bhd. (MECIB).
Established under the Malaysian Companies Act of 1965, MECIB is owned jointly by the
Government of Malaysia (53.6 percent) and by commercial banks and insurance
companies (46.4 percent). MECIB provides insurance only to cover commercial and
political risks.

C. Other Tax Incentives

1. Pioneer Status Under the Investment Incentives Act of 1968

Pioneer status under this Act, as amended, is available to companies producing a product
(1) with favorable prospects for further development, including development for export,
or (2) currently being produced in insufficient quantities to meet the development needs
of Malysia, including export. Benefits granted under pioneer status include exemptions
on the portion of income derived from sales of the pioneer product from the following: (1)
The 40 percent corporate income tax; (2) the five percent development tax; (3) the three
percent excess profits tax; and (4) the 40 percent dividend tax. Pioneer status benefits
are available for a period of up to five years and may be extended for up to an additional
three years. This program is not available to companies granted pioneer status under the
Promotion of Investments Act of 1986.
According to the responses, all three respondent companies received pioneer status in
the 1970s and completely utilized any residual benefits remaining from this program
before the review period. At vertification, we will check to determine whether any
residual benefits are still available and being used.

2. Pioneer Status Under the Promotion of Investments Act of 1986

As stated above, the Promotion of Investments Act of 1986 replaced the Investment
Incentives Act of 1968. Companies which have received pioneer status under the 1968
Act may not receive it again under the 1986 Act for the same product. They may,
however, receive it again under the 1986 Act for a different product. The primary changes
in the pioneer status program under the new law are as follows: (1) The initial grant of
pioneer status is five years for all companies, regardless of their level of investment; (2)
the product must be on the "promoted product" or "promoted activities" list; (3) specific
one-year extensions for location, priority products, and Malaysian content have been
eliminated; (4) extensions are now granted for five years if the product is on the
"promoted product" list for extensions and the company meets certain investment,
employment, or development criteria; and (5) pioneer status may also be provided to
non-corporate entities such as cooperative societies, associations, etc. This program is
not available to companies granted pioneer status under the Investment Incentives Act
of 1968.

3. Investment Tax Allowance

The Promotion of Investments Act of 1986 provides for an investment tax allowance,
limited by the amount of actual expenses, for qualifying capital expenditures. This
program is not available to companies granted pioneer status under the Investment
Incentives Act of 1968 or under the Promotion of Investments Act of 1986.

4. Reinvestment Allowance

The Income Tax Act of 1967, as amended in 1979, provides for a reinvestment allowance
of 25 percent for capital expenditures on a factory, plant or machinery. This program is
not available to companies granted pioneer

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status under the Investment
Incentives Act of 1968 or under the Promotion of Investments Act of 1986.

D. Medium- and Long-term Government Financing

Medium- and long-term financing is provided by the following institutions:
- the Industrial Development Bank of Malaysia (IDBM)
- the Development Bank of Malaysia (DBM)
- the Borneo Development Corporation (BDC)
- the Sabah Development Bank (SDB)
IDBM, which is wholly owned by the Government of Malaysia, provides financing
primarily to the shipping industry, whereas the main objective of DBM is to promote
businesses owned by Bumitputras (native Malaysians not of Chinese or Indian descent).
BDC was established to promote industrial development in the Sabah and Sarawak states;
each state has a 50 percent ownership in the bank. SDB, wholly owned by the State of
Sabah, was established to promote economic development in that state.
According to the responses, none of the respondent companies had loans outstanding
from any of these institutions during the review period.

E. Reduction in the Cost of State Land for New Industry

Certain states may reduce the price of state land in order to attract investment and
development. According to the responses, none of the respondent companies has
received state land at reduced cost.

F. Preferential Financing for Bumiputras

The DBM provides medium- and long-term financing as well as guarantees for industrial
equipment loans to Bumiputras.
According to the responses, none of the respondent companies had loans outstanding
from the DBM during the review period.

Verification

In accordance with section 776(a) of the Act, we will verify the information used in
making our final determinations.

Suspension of Liquidation

In accordance with sections 703(d) of the Act, we are directing the U.S. Customs Service
to suspend liquidation of all entries of standard pipe from Malaysia (except as noted
below) which are entered, or withdrawn from warehouse, for consumption on or after the
date of publication of this notice in the Federal Register and to require a cash deposit or
bond in the amounts indicated below:

[In percent]
-------------------------------------------------------------------------------
Manufacturers/producers/exporters Estimated net Estimated duty
bounty or grant deposit rate
-------------------------------------------------------------------------------
Standard Pipe:
AIS .................................................. 0 [FN1] 0
SPIM ................................................. 0 [FN1] 0
Maruichi & all others ............................. 1.17 1.85
-------------------------------------------------------------------------------
1 Excluded.

Since the determinations on line pipe, HWRT and LWRT are negative, no suspension of
liquidation will be required.

Public Comment

In accordance with 19 CFR 355.35, we will hold a public hearing, if requested, to afford
interested parties an opportunity to comment on these preliminary determinations at
1:00 p.m. on October 25, 1988, at the U.S. Department of Commerce, Room 3708, 14th
Street and Constitution Avenue NW., Washington, DC 20230. Individuals who wish to
participate in the hearing must submit a request to the Assistant Secretary for Import
Administration, Room B-099, at the above address within ten days of the publicaton of
this notice in the Federal Register.
Requests should contain: (1) The party's name, address, and telephone number; (2) the
number of participants; (3) the reason for attending; and (4) a list of the issues to be
discussed. In addition, ten copies of the business proprietary version and seven copies of
the nonproprietary version of the pre-hearing briefs must be submitted to the Assistant
Secretary by October 18, 1988. Oral presentations will be limited to issues raised in the
briefs. In accordance with 19 CFR 355.33(d) and 355.34, written views will be considered
if received not less than 30 days before the final determination is due or, if a hearing is
held, within seven days after the hearing transcript is available.
These determinations are published pursuant to section 703(f) of the Act (19 U.S.C.
167lb(f)).

Jan W. Mares,

Assistant Secretary for Import Administration.

August 31, 1988.

[FR Doc. 88-20405 Filed 9-7-88; 8:45 am]

BILLING CODE 3510-DS-M