NOTICES
DEPARTMENT OF COMMERCE
[C-565-001]
Canned Tuna From the Philippines; Final Affirmative Countervailing Duty
Determination and Countervailing Duty Order
Monday, October 31, 1983
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AGENCY: International Trade Administration, Commerce.
ACTION: Notice.
SUMMARY: We have determined 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 net bounty or grant is 0.72
percent ad valorem.
EFFECTIVE DATE: October 31, 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.
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SUPPLEMENTARY INFORMATION:
Final Determination and Order
Based upon our investigation, we determine 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. We determine the net bounty or grant is 0.72 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 Industrial & Development
Corporation (Premier). We verified at the company and government levels the responses
of the six companies, except Premier, which refused to cooperate. One additional
exporter, Ayala, was discovered during verification and information for that company
was collected. We conducted an additional verification in September of Mar Fishing Co.,
South Pacific Export Company, and Premier Industrial & Development Corporation. In
addition, we verified new information received from several of the previously verified
companies.
We issued an affirmative preliminary determination on August 8, 1983 (48 FR 37051). We
preliminarily determined that there was reason to believe or suspect that certain benefits
which constitute bounties or grants within the meaning of the Act, are being provided to
manufacturers, producers, or exporters in the Philippines of canned tuna. We
preliminarily determined the net bounty or grant was 1.30 percent ad valorem. The
programs preliminarily determined to bestow countervailable benefits were: preferential
short-term rediscounted loans, certain tax incentives available under the Omnibus
Investments Code, including tax deduction for expansion reinvestment, tax deduction for
direct labor costs and local raw materials, tax exemption on imported capital equipment
and a tax deduction for export trading companies.
We directed the U.S. Customs Service to suspend liquidation of all entries of the product
subject to the preliminary determination which were 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.
Our notice of preliminary determination gave interested parties an opportunity to submit
oral or written views. We held a public hearing at which representatives of the Philippine
government, counsel for the petitioners, respondents and interested parties participated.
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 Premier Industrial & Development Corporation,
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 referred to in the petition (Diamond Seafood 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.
Analysis of Programs
Based upon our analysis of the petition, the responses to our questionnaire, two
verifications, the hearing and comments by interested parties, we have determined the
following:
I. Programs Determined to Confer Bounties or Grants
We determine that bounties or grants are being provided to manufacturers, producers, or
exporters in the Philippines of canned tuna under the programs of the government of
the Philippines listed below.
A. Preferential Export Loans. The petition alleges benefits in the form of preferential loans
provided through the Central Bank's operation of a loan rediscounting facility. The
Department requested from each of the companies under investigation information on all
loans outstanding during the period for which we are measuring subsidization.
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. This program is
government directed and controlled, available solely to exporters, and provides for
interest rates that are less than those for comparable commercially available loans.
Therefore, we 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
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companies on export packing credits predicated on
exports of tuna not in oil 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 interest rate on all
short-term loans, other than export packing credits, outstanding for all the tuna
companies in the Philippines in 1982. This benchmark was compared to the average
interest rate paid by each company on its EPCs. All but two companies paid an average
interest rate below the benchmark. We took the difference between the two interest rates
and applied it to the annualized principal amount of EPCs. The resulting figure was the
amount of benefit for all exports. We then multiplied that benefit amount by the
percentage that that company's exports to the U.S. of canned tuna not in oil were of its
total exports in order to determine the amount of benefit to be applied to U.S. sales. We
allocated the amount of the benefit over the value of all exports to the U.S. of canned
tuna, because export packing credits are available only to exporters. On this basis, we
calculated an ad valorem benefit of 0.03 percent.
B. Tax Incentives Available Under the Omnibus Investments Code. The petition alleges
that the Omnibus Investments Code (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 Code, Presidential Decree No. 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,
to achieve self-reliance in basic requirements of food and raw materials, to encourage
exports of Philippines products and services, and for other purposes.
The Board of Investments (Board) is composed of five governors appointed by the
President of the Philippines, and is responsible for administering the Code. In this
regard, the Board prepares an annual Investment Priorities Plan (Plan) listing the
"preferred areas of investment." These "areas" are areas of economic activity (rather than
geographic areas) and firms operating in these areas are entitled to apply for incentives
under the Code. The Board "registers" individual firms operating in the Philippines
which wish to take advantage of incentives. The Code incentives are limited to firms which
are "registered enterprises," "registered export producers," "registered export traders," or
"registered service exporters." Registration generally is limited by government direction
to firms in industries included in the Plan. The category "Processed food (fish and other
seafood)," which includes canned tuna, is included in the 1982 Plan.
A "registered export producer" is defined in the Code as a registered producer which
manufactures and exports or sells for export products that meet certain standards set by
the Board. A "registered export trader" is defined as a registered export trading company
that trades the product of registered export producers. We determine that the following
incentives are provided to registered export producers and export traders under the
Code and confer bounties or grants because they are contingent upon export
performance and/or stimulate export over domestic sales.
One or more of the canned tuna registered export producers/export traders benefited
from the following incentives during the period of investigation:
1. Article 48(b) provides a tax deduction for direct labor costs and local raw materials. A
registered export producer may, for the first five years from the date of its registration or
initial commercial operation, deduct from its total taxable income from domestic and
export sales by its registered operations an amount equivalent to the direct labor costs of
its domestic and export products and the local raw material costs incurred in the
production of its export products. The total deduction may not exceed 25 percent of the
company's total export revenue. One canned tuna producer used this incentive during the
period for which we are measuring subsidization. The benefit is the tax savings which
were claimed under this program on the tax return filed during the period of
investigation.
2. Article 48(f) provides that, within seven years of the date of its registration, a
registered export producer is exempt from payment of 100 percent of the tariff duties
and compensating tax payable on imported capital equipment and accompanying spare
parts, provided that it obtains advance Board approval for the importation. Two canned
tuna producers used this benefit during the period for which we are measuring
subsidization. The exemption for registered export producers under Article 48(f) is
granted "under the same conditions provided for in Article 45(d) of this Code," which is
discussed below in Section II of this final determination. The export subsidy, therefore, is
the difference between the total amount of the exemptions allowed under Article 48(f)
during the year for which we are measuring subsidization and the amount that would have
been allowed (50 percent of the total) had the claim been filed under Article 45(d).
3. Article 49(d) provides a tax deduction to export trading companies. For the first five
years from the date of its registration or initial commercial operation, 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 of the
firm. However, the Board 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 amount of the benefit
is the tax savings which were claimed on the tax return filed during the period of
investigation. The tax savings for one of these companies, however, was zero.
The benefits received under Articles 48(b), 48(f) and 49(d) constitute export subsidies
and, as such, were allocated by taking the amount attributable to U.S. sales over total
export sales of canned tuna to the U.S. The use of these export incentives resulted in a net
bounty or grant of 0. 69 percent ad valorem.
II. Programs Determined Not To Confer Bounties or Grants
We 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. Selected Articles of the Omnibus Investments Code. 1. The petition alleges that Article
45 of the Code--which grants registered enterprises certain incentives--confers bounties
or grants. We found at verification that nearly all industries in the Philippines, as
classified at the four-digit level of the Philippine Standard Industrial Code (PSIC), are
included in the 1982 Investment Priorities Plan. We determine that benefits granted by
Article 45 are in law and practice available to more than a specific enterprise or industry
or group of enterprises or industries in the Philippines. Therefore, none of the incentive
programs available under
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Article 45 are countervailable domestic subsidies. We
also determine that the incentives available under Article 45 are not contingent on
export performance and, therefore, are not export subsidies.
2. The petition also alleges that Article 48(a) of the Code confers bounties or grants. It
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 the production of, even if not physically incorporated in, the exported
products. 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 actually forming a part of the product. They further stated
that supplies not physically incorporated in the product are not eligible for this tax
credit. We verified that companies which used Article 48(a) had received this tax credit
for taxes paid on materials 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 determine that Article 48(a) of the Code does not confer bounties or
grants.
B. Rediscounted Food Production Credits. Article 1.2 of Central Bank Circular 784 also
provides for another type of loan known as "unsupervised credits". The credits are given
on basic food production and agricultural/industrial/commercial paper. 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 14 percent, including
fees. One tuna company obtained food production credits. We verified that loans obtained
under Article 1.2 are available to all industries in the Philippines. The fact that there are
two subsections under Article 1.2 is only of historical significance, because Circular 784
codifies earlier programs. Article 1.2 is intrinsically one program to which all industries
have equal access. It is broken down into subsections only so that companies eligible
under the various older programs will know that those programs still exist.
C. Marginal Deposit Requirements. The petition alleges that the Central Bank's relaxed
cash deposit requirement on letters of credit opened by Philippine importers confers
bounties or grants. The Philippine government's response states that the relaxed marginal
deposit requirement is a guideline issued by the Bankers Association of the Philippines
(BAP). We verified 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 its commercial considerations, we
determine that the BAP's guideline on relaxed marginal deposits does not confer bounties
or grants.
D. Philippine Export and Foreign Loan Guarantee Corporation. The petition alleges that
the Phillippine Export and Foreign Loan Guarantee Corporation (PHILGUARANTEE)
confers bounties or grants through guarantees lowering the cost of credit available for
Phillippine exports. Through PHILGUARANTEE, the government of the Philippines
guarantees both local and foreign banking and financial inistitutions against any loss that
may be incurred in connection with the grant of loans or credit accommodations to
Philippine exporters or producers of export products. 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. We verified that guarantees
are available from private institutions at the same charges as from PHILGUARANTEE.
Thus, we determine that guarantees provided by PHILGUARANTEE do not confer
bounties or grants.
E. 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, a government-owned bank. The Development
Bank can grant loans to any company in the agricultural or industrial sectors, to
municipalites and individuals. We verified that in practice the loans are available without
restriction, and that the loans are available without restriction, and that the bank granted
loans to one tuna producer only on the basis of commercial considerations. Thus, we
determine that loans from the Development Bank do not confer bounties or grants.
III. Programs Determined Not To Be Used
We have 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. Selected Articles of the Omnibus Investments Code.
1. The petition alleges that Article 45(a) of the Code confers a bounty or grant. Under this
article, all enterprises registered with the Board of Investments may deduct from taxable
income all capitalized organizational and pre-operating expenses, over not more than ten
years from the beginning of operations. We verified that none of the companies deduct
organizational and pre-operating expenses under 45(a) of the Code. Those companies
which did take a deduction for pre-operating expenses did so under the Philippine Bureau
of Internal Revenue regulations.
2. The petition alleges that Article 45(c) of the 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 deducted from
taxable income. We verified that no company under investigation has deducted losses
under this article.
3. The petition alleges that Article 45(d) of the code confers bounties or grants. 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 similar exemption. Two producers did receive a tax exemption
on imported capital equipment. We verified that they took this exemption under Article
48(f).
4. The petition alleges that Article 45(e) of the Code confers bounties or grants. Under
Article 45(e) a registered enterprise which has purchased domestically produced
equipment may take a tax credit equal 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. We verified that none of the companies under investigation had taken
this tax credit on domestically purchased capital equipment.
5. The petition alleges that Article 45(f) of the 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-
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remittee. We verified that none of the companies under
investigation claimed a tax credit under this program.
6. The petition alleges that Article 45(l) of the Code confers bounties or grants. Article
45(l) allows registered enterprises to deduct from taxable income 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. We verified that the companies under investigation had not
used this program.
7. The petition alleges that Article 48(e) of the 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 increase in its exports when it uses a new brand name that
distinguishes its products from non- Philippine products. We verified that none of the
companies used this program.
8. The petition alleges that Article 51 of the Code confers bounties or grants. This article
provides for financial assistance to registered enterprises through the preferential
granting of government loans. The government of the Philippines responded that
Article 51 of the Code merely sets forth a policy that government financial institutions
should accord priority to applications for financing made by Board-registered firms.
However, this policy is not binding on either government or other financial institutions.
We verified that the Article 51 policy is not always followed in practice. In addition, there
is no evidence on the record that any company had access to loans as a result of this
Article.
9. The petition alleges that Article 52 of the Code confers bounties or grants. Article 52
provides for financial assistance to registered enterprises through preference for private
financial assistance. It 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. We verified that none of
the outstanding company stock was held by any insurance companies.
10. The petition alleges that Article 53 of the Code confers bounties or grants. Article 53
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. We found no evidence of any use of this program at
verification.
11. The petition alleges that Article 54 of the 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
responded and we verified that the Institute of Export Development has not been
operational in the last three years. It further stated that the tuna producers never
received any assistance from the Institute. The companies responded that they had not
received any assistance from ithe Institute.
B. Export Credit Insurance and Guarantee Corporation. 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 out of or in connection with export transactions.
The government of the Philippines responded and we verified that although the
corporation was established, it has never become operational.
Petitioner's/Domestic Industry's Comments
Comment 1
Article 45 of the Code is a countervailable domestic bounty or grant because it is not
generally available to all firms similarly situated. The list of preferred areas of economic
activity entitled to investment incentives that constitute the Investment Priorities Plan
("The Plan") contains very few of the relevant "economic activities" included in either the
Philippine Standard Industrial Code (PSIC) or the United Nations Standard International
Trade Classification (UNSITC).
DOC Position
We have determined that the incentives of Article 45 of the Code are available to more
than "a specific enterprise or industry, or group of enterprises or industries." The code
does not by its terms limit availability to a specific group of enterprises or industries, and
the Plan includes a large number of diverse industries. Therefore, neither the Code nor
the Plan is a subsidy, as defined in Section 771(5) of the Act.
Comment 2
The incentives provided under the Code are countervailable export bounties or grants
because the Code limits the incentives primarily to certain export- oriented industries
listed in the Plan, the registration requirements for individual enterprises are
export-oriented, and the Board uses export-oriented criteria in selecting projects to
receive incentives under the Code.
DOC Position
Export promotion is an important consideration for the Board in the implementation of
the provisions of the Code, but it does not appear to be the dominant consideration in the
Board's designation of each "preferred area of investment" in the Plan, or in its registration
of each "registered enterprise" or each project to receive incentives. We have determined
that incentives under portions of Articles 48 and 49 are export subsidies, because they
are given contingent upon export performance (only to "registered export producers" or
registered export traders") and because they stimulate export over domestic sales. In
contrast, the programs under Article 45 of the Code have no such inherent limitations,
and in practice the Board makes them available to firms with varying degrees of export
capacity or none at all.
Comment 3
The Code incentives are countervailable because both the priority industry selection
process for the Plan and the company registration and project approval process depends
entirely on the subjective discretion of the Board.
DOC Position
We obtained a copy of the criteria used by Board to register companies under the Code.
We found overall that the criteria are objective. While some criteria by necessity must be
broad in order to be all encompassing and flexible, we found no instance of alleged
"subjective" criteria.
Comment 4
The government of the Philippines enacted into law two new incentives in April 1983.
These incentives were composed of two types of tax credits. The Department should
include the use of these benefits in its calculations.
DOC Position
The government of the Philippines requires that firms registered with the Board under
the Code must register again with Board to obtain the newly enacted tax credits.
However, companies which elect to receive benefits under the 1983 law must renounce
the benefits available under the old law. The Department verified that none of the tuna
canners has
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applied for registration under the 1983 law.
Comment 5
The Department should allocate tax benefits obtained by the tuna canners over the life of
the plant and capital equipment for which they were received.
DOC Position
The Department allocates tax benefits received in the period of investigation to that
period. Tax incentives provide a benefit to the extent that they reduce the firm's current
tax liability. As such, this is a benefit which is realized on an annual basis.
Comment 6
The Department should countervail the use of accelerated depreciation since it is
available only to firms registered with the Board of Investments for benefits available
under Article 45 of the Code.
DOC Position
The Department found that one firm used accelerated depreciation under the authority of
Article 45 of the Code during the period of investigation. In this case, the net benefit to
that firm, however, was negative during the period of investigation.
Comment 7
The Department should countervail the use of tax deductions for preoperating and
organizational expenses since they are available only to Board-registered firms.
DOC Position
In order for the Department to consider whether this program is a bounty or grant under
Article 45, we would have to first determine that one or more tuna companies had taken
such a deduction under that Article. None of the tuna firms in this investigation requested
a tax deduction for preoperating and organizational expenses under the authority of the
Code. They took this deduction under the authority granted by the Philippine Internal
Revenue Code, which is generally available. Therefore, we determine that this program
was not used.
Comment 8
The Department should countervail the food production credits available under Article
1.2 of the Central Bank Circular 784 concerning rediscounted loans, since by its very title
only companies producing food are eligible.
DOC Position
Article 1.2 of the Central Bank Circular 784 codifies several earlier programs. Because of
this, it is divided into two subsections: food production credits and credits for
agricultural/industrial/commercial paper. We found that all industries have equal access
to the loans offered in Article 1.2 without preference of one industry over another.
Comment 9
The Department used the wrong benchmark in comparing preferential loans to a national
average rate. The Department should not consider the maximum legal rate of 18 percent.
Instead, the Department should use a rate above the legal maximum because the banks in
the Philippines normally charge above the legal maximum, generally in the range of 18
to 27 percent. While there is no documentary evidence to support this higher rate,
bankers have admitted to the practice of increasing loans fees, etc., in order to increase
the effective rate of short-term loans.
DOC Position
For short-term commercial loans the Department found no evidence of interest rates in
excess of the legal maximum during the period of investigation. Because no statistics were
available on a national average short-term interest rate, we calculated an average interest
rate for the tuna canning industry. We calculated this rate by taking an average of all
short-term loans other than export packing credits used by all of the tuna canning
companies during the period of investigation.
Comment 10
The Department should use the current interest rates in existence today, not those
prevalent during the period of investigation.
DOC Position
In determinating whether bounties or grants, have been conferred, we consider the
situation of the companies and government during the period of investigation. In the
event of an affirmative determination, the Department may consider relevant changes in
circumstances since the period of investigation for the purpose of estimating the deposit
rate.
Comment 11
The Department should countervail the zero percent marginal deposit rate that exporters
pay on import letters of credit because this rate is set by the government, instead of by
the BAP predicated on commercial consideration, and acts as a benefit to those exporters
who first obtain permission from Board to import goods.
DOC Position
We verified that the BAP has the authority to set the marginal deposit rate on import
letters of credit. While the Central Bank is a member of this association, it does not have
authority to dicate the terms of these rates. We found that in fact, the BAP does issue
guidelines for the marginal deposit rates and that some banks do not follow those
guidelines. We found no evidence that the Central Bank either issued guidelines or
attempted to enforce thosed guidelines issued by the BAP against those banks failing to
adhere to them.
Comment 12
The Department should countervail loans given by the Development Bank of the
Philippines, since it gives loans to less than creditworthy firms based on non-
commercial considerations at interest rates lower than those given to its creditworthy
customers or given by commercial banks.
DOC Position
The Bank is authorized by its charter to grant loans to a broad cross section of industries.
The mere fact that it has extended loans to companies that are poor risks is not sufficient
reason to countervail them. During the period that one tuna producer received loans
from the DBP, the interest rates charged to that company were in line with those charged
by the Bank to other creditworthy customers, based on commercial considerations. At
that time the Bank was one of three banks in the Philippines that issued long-term loans.
All three banks obtained their funds from the same source and re-lent the money at
similar increments over their costs.
Comment 13
The Department should countervail the benefits given to Diamond Seafoods. Although
Diamond has not yet begun operations, it is believed that Century Canning has bought a
portion, if not all, of the company. Thus, the benefits accruing to Diamond should be
attributed to its new owner, Century.
DOC Position
We verified that Century has no equity interest in Diamond Seafoods. Since Diamond has
not produced or exported to the United States any tuna during the period of
investigation, we
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have not included any alleged benefits to it in our calculations.
Comment 14
The Department should countervail loan guarantees given by PHILGUARANTEE since
they were not given at commercial rates and the interest rates for the loans in question
would have been higher but for these guarantees.
DOC Position
We verified that PHILGUARANTEE has given its guarantees to firms at commercial rates.
We compared its fees to those of several Philippine banks for guarantees of similar loans.
Indeed, we found that commercial bank terms are in some respects less strict than those
of PHILGUARANTEE.
Respondent's Comments
Comment 1
Assuming that Article 45 of the Code is generally available, it should be used as the
benchmark for evaluating the provisions of Articles 48 and 49. In the event that a firm
would have been entitled to a deduction in question under a generally available tax
provision, then only the portion of the deduction which exceeds that generally available
should be considered countervailable.
DOC Position
Programs available under Article 48(b) and 49(d) are provided in addition to programs
generally available under other laws. Under Article 48(f) of the Code, the benefits were
provided "under the same conditions" as the generally available benefits under Article
45(d). Since the latter program was incorporated by reference into the former program,
we determined that the export subsidy is the additional amount of benefits available
under Article 48(f) to registered export producers.
Comment 2
If the Department views accelerated depreciation as countervailable, it should call it a tax
deferral and treat it as an interest-free loan. In addition, the Department should use
"negative accelerated depreciation" as an offset to other benefits received from the Board.
DOC Position
We did not find any countervailable benefit accruing on accelerated depreciation during
the period of investigation. While "negative accelerated depreciation" may be considered
an offset by the respondents, it is not provided for in the Act. Therefore, we have not
considered it.
Comment 3
The Department should take cognizance in its decision of any tax benefit which has been
re-computed, revoked or otherwise modified.
DOC Position
See the Department's position concerning the petitioner's/domestic industry's comment
ten.
Comment 4
The Department should calculate any ad valorem preferential loan benefits based upon
U.S. market share of the benefit recipients.
DOC Position
We agree that the purpose of a countervailing duty investigation is to determine the
subsidy amount (if any) on goods exported to the United States. Thus, the calculation of
benefits received by a firm under investigation should take account of the ratio of exports
to the U.S. to total exports or, in the case of domestic subsidies, total sales.
Comment 5
Neither section 1.2 nor 1.4 of the Central Bank Circular 784 confers bounties or grants
within the meaning of the Act because they are not government directed. Any incentive
given by the Central Bank to commercial banks as a result of rediscounting does not
convey a subsidy to the tuna canners.
DOC Position
We found the loans granted under Article 1.2 to be generally available. Therefore, they
are not countervailable and we have not included them in our calculations. Since the
government, through the Central Bank, is responsible for the rediscounting program for
export packing credits under Article 1.4, we deem the program to be government
directed and to confer a bounty or grant merely because it is available solely to
exporters.
A subsidy upon the exported merchandise exists to the extent that the program results,
as here, in terms and conditions more favorable to the exporter than are otherwise
available.
Comment 6
Even if Article 1.4 of Central Bank Circular 784 is countervailable, Article 1.2 is not
because it is generally available to all agricultural and industrial firms and, therefore,
should be used as the benchmark for any loans determined to be countervailable.
DOC Position
Normally we would use a national average interest rate as the benchmark to compare
with preferential loans. The Philippines did not keep statistics for such a rate for the
period of investigation. Therefore, we calculated a rate for the tuna canning industry as a
whole. We used as our benchmark the average short-term interest rate for all loans other
than export packing credits obtained by all the canned tuna producers during the period
of investigation.
Comment 7
A loan taken during the investigatory period which remains outstanding after the end of
the period should be considered only for the benefit bestowed during the period.
DOC Position
In order to facilitate computation of the countervailable benefit on short- term export
packing credits, we have ignored the portion of 1981 loans falling into 1982 and, instead,
taken the full amount of all loans obtained in 1982, even if they were not paid until 1983.
Verification
In accordance with section 776(a) of the Act, we verified the data used in making our final
determination. During this verification, we followed normal procedures, including
meetings with government officials and on-site inspection of the records and operations
of the appropriate government agencies and tuna companies.
Suspension of Liquidation
The suspension of liquidation ordered in our preliminary affirmative determination shall
remain in effect until further notice. The net bounty or grant for duty deposit purposes is
0.72 percent ad valorem for each manufacturer, producer or exporter.
As required by section 706(a)(3), we are directing the United States Customs Service to
require a cash deposit in the amount indicated above for each entry of the subject
merchandise entered or withdrawn from warehouse, for consumption, on or after the
date of publication of this notice in the Federal Register, and to assess countervailing
duties in accordance with sections 706(a)(1) and 751 of the Act. The net bounties or
grants for the period we are measuring subsidization are smaller than the 1.30 percent ad
valorem bounty or grant preliminarily determined. Therefore, according to section
707(a)(2) of the Act, if the amount of the cash deposit or bond required as security for
*50140
an estimated countervailing duty under section 703(d)(2) is different from
the amount determined under this countervailing duty order, then the difference shall
be refunded or released, to the extent that the cash deposit or bond or other security is
lower than the duty under the order.
Administrative Procedures
The Department has afforded interested parties an opportunity to present their views in
accordance with its regulations (19 CFR 355.34(a)). Oral and written views have been
received and considered.
The Department intends to conduct an administrative review within 12 months of
publication of this determination as provided in section 751 of the Act.
This notice is published pursuant to section 303 and 706 of the Act (19 U.S.C. 1303,
1671e).
Dated: October 24, 1983.
William T. Archey,
Acting Assistant Secretary for Trade Administration.
[FR Doc. 83-29529 Filed 10-28-83; 8:45 am]
BILLING CODE 3510-DS-M