NOTICES
DEPARTMENT OF COMMERCE
International Trade Administration
Preliminary Affirmative Countervailing Duty Determination; Canned Tuna
From the Philippines
Tuesday, August 16, 1983
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AGENCY: International Trade Administration, Commerce.
ACTION: Preliminary affirmative countervailing duty determination.
SUMMARY: We preliminarily determine that certain benefits which constitute bounties
or grants within the meaning of the countervailing duty law are being provided to
manufacturers, producers, or exporters in the Philippines of canned tuna, as described
in the "Scope of Investigation" section of this notice. The estimated net bounties or grants
are 1.30 percent ad valorem. Therefore, we are directing the U.S. Customs Service to
suspend liquidation of all entries of the product subject to this determination which are
entered, or withdrawn from warehouse, for consumption, and to require a cash deposit or
the posting of a bond on this product in an amount equal to the estimated net bounties or
grants.
If this investigation proceeds normally, we will make our final determination by October
24, 1983.
EFFECTIVE DATE: August 16, 1983.
FOR FURTHER INFORMATION CONTACT: John J. Kenkel or Melissa G. Skinner, Office of
Investigations, Import Administration, International Trade Administration, U.S.
Department of Commerce, 14th Street and Constitution Avenue NW., Washington, D.C.
20230, telephone: (202) 377-3464 or 377-3530.
SUPPLEMENTARY INFORMATION:
Preliminary Determination
Based upon our investigation, we preliminarily determine that there is reason to believe
or suspect that certain 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 the Philippines of canned tuna as described
in the "Scope of Investigation" section of this notice. The estimated net bounties or grants
are 1.30 percent ad valorem.
Case History
On March 11, 1983, we received a petition in proper form from the Tuna Research
Foundation, Inc., on behalf of the U.S. industry producing canned tuna. The petition
alleged that certain benefits which constitute bounties or grants within the meaning of
section 303 of the Act are being provided, directly or indirectly, to the manufacturers,
producers, or exporters in the Philippines of canned tuna.
Since the Philippines is not a "country under the Agreement" within the meaning of
section 701(b) of the Act, section 303 of the Act applies to this investigation. Under this
section, since the merchandise being investigated is dutiable, the domestic industry is not
required to allege that, and the U.S. International Trade Commission is not required to
determine whether, imports of this product cause or threaten to cause material injury to
a U.S. industry. We found the petition to contain sufficient grounds upon which to initiate
a countervailing duty investigation, and on March 31, 1983 we initiated a
countervailing duty investigation (48 FR 15505).
On April 20, 1983, we presented a questionnaire concerning the allegations to the
government of the Philippines at its embassy in Washington, D.C. Subsequently, on May
23, 1983, we determined that the case was "extraordinarily complicated" within the
meaning of 703 (c)(1)(B) of the Act, and we published a notice of the postponement of the
preliminary countervailing duty determination (48 FR 22976). On June 17, 1983, we
received the responses to the questionnaire. Verification of the responses was conducted
July 5-20, 1983, in the Philippines.
Of the eight producers which responded to the questionnaire, we selected for verification
the six companies which accounted for 85 percent, by value, of exports to the U.S. The six
companies were: Century Canning Corp., Judric Canning Corp., Philippine Tuna Canning
Corp., Pure Foods Corp., Sancanco Canning Corp., and Premier Canning Coporation. We
verified at the company and government levels the responses of the six companies,
except Premier, which refused to cooperate. Any additional information provided for use
in the final determination will be subject to verification. One additional exporter, Ayala
was discovered during verification and information for that company was collected.
Scope of Investigation
The product covered by this investigation is tuna packed or preserved in any manner, not
in oil, in airtight containers. The merchandise is currently classified under item numbers
112.3020, 112.3040, and 112.3400 of the Tariff Schedules of the United States Annotated
(TSUSA).
The Ayala Corporation, Century Canning Corp., Judric Canning Corp., Mar Fishing Corp.,
Philippine Tuna Canning Corp., Premier Canning Corp., Pure Foods Corp., Sancanco
Canning Corp., and South Pacific Export Company are the only known producers and
exporters in the Philippines of the subject product exported to the United States. Two
companies alleged in the petition (Diamond Seafoods Corp. and Santa Monica Canning
Corp.) were not producers or exporters of tuna during the period for which we are
measuring subsidization, which is the 1982 calendar year or 1982 corporate fiscal year, as
appropriate.
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Analysis of Programs
Based upon our analysis to date of the petition, the responses to our questionnaire and
verification, we have preliminarily determined 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 the Philippines of canned tuna under the programs listed
below.
A. Preferential Loans. Petitioners alleged benefits in the form of preferential loans
provided through the Central Bank's operation of a rediscounting facility for selected
loans. The Department requested from each of the companies under investigation
information on all loans outstanding during the period for which we are measuring
subsidization.
1. Export Packing Credits. The export packing credit (EPC) program is a rediscounting
program offered by the Central Bank of the Philippines, which provides credit on
eligible paper with original maturity of one year or less. Upon receipt of a letter of credit,
an exporter may request from a commercial bank a loan predicated on the letter of credit,
to finance working capital and other requirements. Exporters are charged a maximum
interest rate of 12 percent, including fees. The Central Bank rediscounts up to 80 percent
of the letter of credit at a rate of three percent. During the period of investigation, the
maximum commercial interest rate for non-rediscounted paper was 18 percent. Since this
program is available solely to exporters, and interest rates are less than those for
comparable commercially available loans, we preliminarily determine that this program
confers a bounty or grant upon exporters of canned tuna.
The benefit provided by this program was calculated by taking the difference between the
actual interest paid by the companies and the amount of interest they would have paid
using a comparable commercial interest rate. Since we could not identify a national
average commercial interest rate, we used as our benchmark the average of the alternate
rates (had rediscounting not been available) specifically set forth in each loan document.
This benchmark was then applied to the principal amount for the average number of days
which the loans were outstanding for each company, with the exception of Premier. Due
to the lack of cooperation by Premier, we assumed that Premier borrowed the maximum
amount for which they are eligible under the program. We applied the ceiling rate for
short-term loans to this amount of EPC principal for the maximum allowable length of
these loans. We allocated the amount of the benefit over the value of all exports of canned
tuna, because packing credits are available only to exporters. On this basis, we calculated
an ad valorem benefit of 1.03 percent.
3. Food Production Credits. Another type of loan for which rediscounting through the
Central Bank if available is food production credit. Loans which are rediscounted by
commercial banks with the Central Bank under this program are available to producers of
canned tuna at a ceiling interest rate of 12 percent, including fees. As provided in Central
Bank circular 784, this program is available only to members of the food industry. Since
this program appears to be limited to an industry or group of industries within the
meaning of section 771(5)(B) of the Act, we preliminarily determine that this program
confers a bounty or grant upon the canned tuna industry. We calculated the benefit from
these loans by applying the difference in the interest actually paid versus the interest that
would have been paid using a generally available commercial interest rate. As we were
unable to identify a national average commercial interest rate, we used as a benchmark
the average alternate rate of interest specifically listed on each of the loan documents of
the companies investigated. Because this program is available for both domestic and
export food production, we allocated the benefit over total sales of canned tuna. The use
of the food production credit resulted in a net bounty or grant of 0.06 percent ad
valorem.
B. Tax Incentives Available Under the Omnibus Investment Code. The petition alleges
that the Omnibus Investments Code--which provides a variety of investment incentives
only to registered enterprises--confers bounties or grants. The allegation includes: (1)
Incentives to registered enterprises (Article 45 of the Code); (2) incentives to registered
export producers (Article 48 of the Code); and (3) incentives to registered export traders
(Article 49 of the Code).
The Omnibus Investments Code, Presidential Decree 1789, establishes various tax
incentives for the purpose of accelerating development of the economy of the
Philippines by encouraging domestic and foreign investments in projects to develop
various sectors of the economy, achieving self-reliance in basic requirements, and
encouraging exports of Philippine products and services.
The Board of Investments (BOI) is responsible for the administration of the Omnibus
Investments Code. In this regard, the BOI prepares an annual Investment Priorities Plan
(IPP) listing the "preferred areas of investment" entitled to incentives under the Omnibus
Investments Code. In order to become registered with the BOI, and thus entitled to the
incentives offered in the Code, a company must be in an industry included in the IPP.
Processed food (fish and other seafood), which includes canned tuna, is included in the
1982 Investment Priorities Plan. Because registration is limited by government direction
to industries included in the IPP, and the criteria for such inclusion are not clear, we
preliminarily determine that the following incentives provided for in the Omnibus
Investments Code either are provided to a specific industry or group of industries or, as
indicated, are tied to exports, and therefore confer bounties or grants.
One or more of the canned tuna producers/export traders benefitted from the following
BOI incentives during the period of investigation:
1. Article 45(i) provides for a tax deduction for expansion reinvestment. This tax
deduction is allowable when a registered enterprise reinvests its undistributed profit or
surplus by transfer thereof to its capital account for procurement of machinery,
equipment and spare parts, under a plan previously approved by the BOI or for
expansion of machinery and equipment used in production or for the construction of
buildings, improvements and equipment. The amount so reinvested, to the extent of 25,
37 1/2 or 50 percent (37 1/2 percent for canned tuna) is allowed as a deduction from its
taxable income in the year in which such reinvestment is made subject to the conditions
in the Code. One canned tuna producer used this incentive. The beneift measured is the
tax savings which were claimed on the tax return filed during the period of investigation.
2. Article 48(b) provides for a tax deduction of direct labor costs and local raw materials.
A registered export producer may, for the first five years from its registration of
commercial operations, deduct from its taxable income from domestic and export sales
and from all registered operations an amount equivalent to the direct labor cost of the
product and the local raw material cost of its export products. This deduction may not
exceed 25 percent of a company's total export revenue. One canned tuna producer used
this incentive during the period for which we are measuring subsidization. The benefit
measured is the tax savings which were claimed on the tax return during the period of
investigation.
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3. Article 48(f) provides for export producers, a tax exemption on imported
capital equipment in the amount of: 50 percent of the tariff duties and compensating tax
payable on the imported capital equipment and accompanying spare parts for domestic
producers; and 100 percent of the tax for imports within seven years from the date of
registration with the BOI for export producers, respectively. One canned tuna producer
used this benefit during the period for which we are measuring subsidization. Because this
is an import tax exemption, the benefit is comprised of exemptions occuring during the
year for which we are measuring subsidization.
4. Article 49(d) provides for a tax deduction to export trading companies. For the first
five years from the date of registration of its commercial operations, a registered export
trading company may deduct an amount equal to 20 percent of its total export sales. This
deduction is made from taxable income attributable to all registered operations fo the
firm. However, the BOI may apportion up to one half of this deduction to the registered
export producer which is exporting through the registered trader. One canned tuna
producer and one export trading company shared this benefit. The benefit measured is
the tax savings which were claimed on the tax return filed during the period of
investigation.
Because Article 45(i) is available to all registered producers, not merely registered export
producers, we allocated the benefit received under this article over total sales of canned
tuna. The benefits received under Articles 48(b) and 49(d), because they are available
only to registered producers or registered export traders, constitute export subsidies and
were allocated over total export sales of canned tuna. The use of these BOI domestic and
export incentives resulted in a net bounty or grant of 0.07 percent and 0.14 percent ad
valorem, respectively.
II. Program Preliminarily Determined not to Confer Bounties or Grants
We preliminarily determine that bounties or grants are not being provided to
manufacturers, producers, or exporters in the Philippines of canned tuna under the
following programs.
A. Articles of the Omnibus Investments Code.
1. The petition alleges that Article 45(b) of
the Omnibus Investments Code--which allows registered enterprises to use accelerated
depreciation--confers bounties or grants. Some companies depreciate their equipment
over half its estimated useful life, as allowed under the Code, and others depreciate in the
same manner using the Philippines Bureau of Internal Revenue regulations. Since these
regulations have an identical provision for accelerated depreciation which is generally
available, we preliminarily determine that Article 45(b) of the Code does not confer
bounties or grants.
2. The petition alleges that Article 48(a) of the Omnibus Investments Code-- which allows
registered export producers to receive tax credits equal to the sales, compensating and
specific taxes and duties paid on the supplies, raw materials and semi-manufactured
products used in production, even if not physically incorporated in the exported
products--confers bounties or grants. In its response the government of the Philippines
stated that tax credits made available under this article are only for raw materials and
semi-manufactured products used in production and actually forming a part of the
product. They further stated that supplies that are not physically incorporated in the
product are not eligible for this tax credit. On verification, we found companies which
used Article 48(a) had received this tax credit for taxes paid on materials which are
physically incorporated in the exported product. Since the tax credit does not exceed
taxes actually paid, and the materials are physically incorporated in the product, we
preliminarily determine that Article 48(a) of the Code does not confer bounties or grants.
B. Marginal Deposit Requirements. The petition alleges that the Central Bank's relaxed
cash deposit requirements on letters of credit opened by Philippine importers confers
bounties or grants. The Philippine government's response states that the relaxed marginal
deposit requirements is a guideline issued by the Bankers Association of the Philippines
(BAP), which is not a government owned or controlled entity. On verification, we found
that the BAP is an independent association which is not owned or controlled by the
government. Since the BAP operates independently of the government and the Central
Bank, and the guidelines reflect the commercial considerations of the BAP, we
preliminarily determine that the BAP's guideline on relaxed marginal deposits does not
confer bounties or grants.
C. Philippine Export and Foreign Loan Guarantee Corporation. The petition alleges that
the Philippine Export and Foreign Loan Guarantee Corporation
(PHILGUARANTEE)--through which the government of the Philippines guarantees both
local and foreign banking and financial institutions against any loss that may be incurred
in connection with the grant of loans or credit accommodations to exporters or
producers of export products--confers bounties or grants in that the guarantees lower the
cost of credit available for Philippine exports. In its response the government of the
Philippines stated that PHILGUARANTEE provides guarantees on bid, performance and
advance payment bonds, as well as working capital loans. On verification, we found that
guarantees are available from private institutions at the same charges as from
PHILGUARANTEE. Also, these guarantees are generally available. Thus, we preliminarily
determine that guarantees provided by PHILGUARANTEE do not confer bounties or
grants.
D. Development Bank Loans. The petition alleges that loans are granted at preferential
interest rates to companies producing the products under investigation by the
Development Bank of the Philippines (DBP), a government- owned bank.
The Development Bank of the Philippines has the power to grant loans to any company
in the agricultural or industrial sectors. In addition, their charter also allows them to
grant loans to municipalities and individuals. On verification we found that in practice the
loans are generally available, and that the bank granted loans only on the basis of
commercial considerations. Thus, we preliminarily determine that loans from the
Development Bank of the Philippines are generally available and therefore, do not
confer bounties or grants.
III. Programs Preliminarily Determined Not To Be Used
We have preliminarily determined that the following programs which were identified in
the notice of "Initiation of Countervailing Duty Investigation, Canned Tuna from the
Philippines" are not being used by the manufacturers, producers, or exporters in the
Philippines of canned tuna.
A. Articles of the Omnibus Investments Code.
1. The petition alleges that Article 45(a) of
the Omnibus Investments Code confers a bounty or grant. Under this article, all
enterprises registered with the Board of Investments may take a deduction from taxable
income of all capitalized organizational and pre- operating expenses, over a period not
more than ten years from the beginning of operations. From the responses and
verification, we found that none of the companies deduct organizational and
pre-operating expenses under 45(a) of the Code. Those companies which did take a
deduction
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for pre-operating expenses did so under the Philippine Bureau of
Internal Revenue regulations. Thus, we preliminarily determine that Article 45(a) of the
Code has not been used.
2. The petition alleges that Article 45(c) of the Omnibus Investments Code confers a
bounty or grant. Under this article, a registered enterprise may carry forward all net
operating losses incurred in any of the first ten years of operation. Such losses may be
carried forward for six years immediately following the year in which the loss was
incurred, and may be used as a deduction from taxable income. In their responses, the
government of the Philippines and the companies stated that this program has not been
used by any of the companies under investigation. On verification we found that no
company has taken a deduction under this article. Thus, we preliminarily determine that
Article 45(c) of the Code has not been used.
3. Article 45(d) allows registered producers a tax exemption on imported capital
equipment in the amount of 50 percent of the tariff duties and compensating tax payable
on imported capital equipment and accompanying spare parts. Article 48(f) provides
registered export producers with a simlilar exemption. Although one producer did
receive a tax exemption on imported capital equipment, we were not able to ascertain at
verification under which article it took this exemption due to its lack of cooperation.
Therefore, the exemption was allocated to Article 48(f) and we preliminarily determine
that Article 45(d) was not used.
4. The petition alleges that Article 45(e) of the Omnibus Investments Code confers
bounties or grants. Under this article, a registered enterprise which has purchased
domestically produced equipment and received prior Board approval may take a tax
credit equivalent to 100 percent of the value of compensating tax and customs duties that
it would have paid had it imported the machinery, equipment and spare parts. In their
response, the government of the Philippines and the companies stated that this
program had not been used by any of the companies during 1982. On verification we
found that none of the companies had taken this tax credit on domestically purchased
capital equipment. Thus, we preliminarily determine that Article 45(e) of the Code had
not been used.
5. The petition alleges that Article 45(f) of the Omnibus Investments Code confers
bounties or grants. This Article allows a registered enterprise to take a tax credit for taxes
withheld on interest payments on foreign loans when no such credit is available to the
lender-remittee in its own country and the registered enterprise has assumed the liability
for payment of the tax due from the lender remittee.
The government of the Philippines and the companies stated in their responses that
Article 45(f) of the Code had not been used. Thus, we preliminary determined that Article
45(f) of the Code has not been used.
6. The petition alleges that Article 45(l) of the Omnibus Investments Code confers
bounties or grants. This allows registered enterprise to take an additional deduction from
taxable income of 50 percent of all expenses for labor training incurred for upgrading the
productivity and efficiency of unskilled labor, provided that such deduction does not
exceed 10 percent of all direct labor wages for a given year. The responses of the
government of the Philippines and the companies stated that they had not used this
program. Thus, we preliminarily determine that Article 45(l) of the Code has not been
used.
7. The petition alleges that Article 48(e) of the Omnibus Investments Code confers a
bounty or grant. This Article allows a registered export producer an additional deduction
from taxable income equal to one percent of the annual increase in its exports when it
uses a new brand name that distinguishes its products from non-Philippine products. In
their responses the government of the Philippines and the companies stated that none
of the companies used this program. Thus, we preliminarily determine that Article 48(e)
of the Code has not been used.
8. The petition alleges that Article 51 of the Omnibus Investments Code confers bounties
or grants. This article provides for financial assistance to registered enterprises through
the preferential granting of government loans. In its response, the government of the
Philippines stated that Article 51 of the Code merely sets forth a policy that government
financial institutions should accord priority to applications for financing made by BOI
registered firms. However, this policy is not binding on either government or other
financial institutions. On verification we found that the policy Article 51 is a policy which
in practice is not always followed. In addition, there is no evidence on the record that any
company had access to loans as a result of this Article. Thus, we preliminarily determine
that Article 51 has not been used.
9. The petition alleges that Article 52 of the Omnibus Investments Code confers bounties
or grants. This Article provides for financial assistance to registered enterprises through
preference for private financial assistance. Article 52 also authorizes the Insurance
Commissioner to allow insurance companies to invest in new issues of stock of registered
enterprises. In their responses the companies stated they had not received any
preferential loans. On verification we found that none of the outstanding company stock
was held by any insurance companies. Thus, we preliminarily determine that Article 52 of
the Code has not been used.
10. The petition alleges that Article 53 of the Omnibus Investments Code confers bounties
or grants. This Article provides for financial assistance to employees of registered
enterprises through government loans for the purchase of shares of stock in registered
enterprises, at a rate not to exceed six percent per annum. This article provides a benefit
to private individuals who wish to purchase stock. Thus, it is preliminarily determined
not to be used by any of the companies which produce or export canned tuna.
11. The petition alleges that Article 54 of the Omnibus Investments Code confers bounties
or grants. This Article provides for the creation of an Institute of Export Development
which promotes exports by providing government funded assistance. The government of
the Philippines stated in its response that the Institute of Export Development has not
been operational in the last three years. It further stated that the tuna producers had
never received any assistance from the Institute. In their responses, the companies
stated that they had not received any assistance from the Institute. On verification, we
found that the Institute had not been active for the past three years. Thus, we
preliminarily determine that Article 54 of the Code has not been used.
12. In addition to the articles discussed above, we investigated the remaining articles
which comprise Book I of the Omnibus Investments Code. Based on information received
in the responses and on verification, we preliminarily determine that the articles of the
Code which are not discussed supra are not used by the producers, manufacturers or
exporters of canned tuna from the Philippines.
B. The petition alleges the government of the Philippines confers bounties or grants
through the Export Credit Insurance and Guarantee Corporation which issues insurance
policies and certificates of guarantee against credit risks arising our of or in connection
with export transactions. In its response the
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government of the Philippines
stated that although the corporation was established, it has never become operational.
Thus, we preliminarily determine that the Export Credit Insurance and Guarantee
Corporation has not been used.
Verification
In accordance with section 776(a) of the Act, all data used in making our final
determinations subject to verification. We verified the data for five of the eight company
responses used in making our preliminary determination.
Suspension of Liquidation
In accordance with section 703 of the Act, we are directing the U.S. Customs Service to
suspend liquidation of all entries of tuna as defined in the "Scope of Investigation," supra,
which are entered, or withdrawn from warehouse, for consumption, on or after date of
publication of this notice in the Federal Register. The Customs Service shall require a cash
deposit or bond for each such entry of the merchandise in the amount of 1.30 percent ad
valorem of exports of canned tuna from the Philippines.
This suspension will remain in effect until further notice.
Public Comment
In accordance with § 355.35 of the Commerce Department Regulations, if requested, we
will hold a public hearing to afford interested parties an opportunity to comment on this
preliminary determination at 10:00 a.m. on September 8, 1983, at the U.S. Department of
Commerce, Conference Room D, 14th Street and Constitution Avene, N.W., Washington,
D.C. 20230. Individuals who wish to participate in the hearing must submit a request to
the Deputy Assistant Secretary for Import Administration Room 3099B, at the above
address within ten days of this notice's publication. Request 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, prehearing
briefs must be submitted to the Deputy Assistant Secretary by September 1, 1983. Oral
presentations will be limited to issues raised in the briefs. All written views should be filed
in accordance with 19 CFR 355.34, within thirty days of this notice's publication, at the
above address and in at least ten copies.
Dated: August 8, 1983.
Alan F. Holmer,
Deputy Assistant Secretary for Import Administration.
[FR Doc. 83-22329 Filed 8-15-83; 8:45 am]
BILLING CODE 3510-25-M