AGENCY: Import Administration, International Trade Administration, Commerce.
ACTION: Notice.
SUMMARY: We determine that de minimis benefits which constitute subsidies within the meaning of the U.S. countervailing duty law are being provided to manufacturers, producers, or exporters in Korea of industrial belts and components and parts thereof, whether cured or uncured (industrial belts), as described in the "Scope of Investigation" section of this notice. The estimated net subsidy is 0.41 percent ad valorem. Since this rate is de minimis, our final countervailing duty determination is negative.
We have notified the United States International Trade Commission (ITC) of our determination.
EFFECTIVE DATE: April 18, 1989.
FOR FURTHER INFORMATION CONTACT:Roy A. Malmrose, 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) 377-5414.
SUPPLEMENTARY INFORMATION:
Final Determination
Based on our investigation, we determine that de minimis benefits which constitute subsidies within the meaning of section 701 of the Tariff Act of 1930, as amended (the Act), are being provided to manufacturers, producers or exporters in Korea of industrial belts. For purposes of this investigation, the following programs are found to confer subsidies:
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We determine the estimated net subsidy to be 0.41 percent ad valorem for all manufacturers, producers or exporters in Korea of industrial belts. Since this rate is de minimis, our final countervailing duty determination is negative.Case History
Since the last Federal Register publication pertaining to this investigation [Preliminary Affirmative Countervailing Duty Determination: Industrial Belts and Components and Parts Thereof, Whether Cured or Uncured, from the Republic of Korea (53 FR 48672, December 2, 1988) (Preliminary Determination)], the following events have occurred. On December 9, 1988, petitioner filed a request for alignment of the countervailing duty and antidumping final determinations. This postponement was approved under section 705 of the Act and published in the Federal Register on February 13, 1989 (54 FR 6562).
We conducted verification in Korea from January 23 through January 27, 1989, of the questionnaire responses of the Government of Korea (GOK), Dongil Rubber Belt Co., Ltd. (Dongil), and Taelim Moolsan Co., Ltd. (Taelim Moolsan), a trading company whose exports to the United States are purchased from Dongil. At the GOK we also verified information provided in the GOK responses with respect to another producer of industrial belts which exports to the United States, Hankook Belt Industry (Hankook). All the information submitted by the GOK concerning was received prior to verification.
Petitioner and respondents requested a public hearing in this case which was held on March 16, 1989. Both parties filed pre-hearing briefs on March 13, 1989, and post-hearing briefs on March 23, 1989. On March 29, 1989, in accordance with Article 5, paragraph 3 of the Agreement of Interpretation and Application of Articles VI, XVI and XXIII of the General Agreement on Tariffs and Trade (GATT Subsidies Code), we notified U.S. Customs to terminate the suspension of liquidation in this investigation as of April 1, 1989.
Scope of Investigation
The United States has developed a system of tariff classification based on the international harmonized system of customs nomenclature. On January 1, 1989, the U.S. tariff schedules were fully converted to the Harmonized Tariff Schedule (HTS), as provided for in section 1201 et seq. of the Omnibus Trade and Competitiveness Act of 1988. All merchandise entered, or withdrawn from warehouse, for consumption on or after that date is now classified solely according to the appropriate HTS sub-headings. The HTS sub-headings are provided for convenience and customs purposes. The Department's written description of the products under investigation remains dispositive as to the scope of the product coverage.
The products covered by this investigation are industrial belts and components and parts thereof, whether cured or uncured, formerly provided for under TSUSA item numbers 358.0210, 358.0290, 358,0610, 358.0690, 358.0800, 358.0900, 358.1100, 358.1400, 358.1600, 657.2520, 773.3510 and 773.3520; and currently classifiable under HTS sub-headings 3926.9055, 3926.9056, 3926.9057, 3926.9059, 3926.9060, 4010.1010, 4010.1050, 4010.9111, 4010.9115, 4010.9119, 4010.9150, 4010.9911, 4010.9915, 4010.9919, 4010.9950, 5910.0010, 5910.0090 and 7326.2000.
The merchandise covered by this investigation includes certain industrial belts for power transmission. These include V-belts, synchronous belts, round belts and flat belts, in part or wholly of rubber or plastic, and containing textile fiber (including glass fiber) or steel wire, cord or strand, and whether in endless (i.e., closed loop) belts, or in belting in lengths or links. This investigation excludes conveyor belts and automotive belts as well as front engine drive belts found on equipment powered by internal combustion engines, including trucks, tractors, buses and lift trucks.
Analysis of Programs
As mentioned above, we received and were able to verify the questionnaire respones of Dongil and Taelim. Another producer, Hankook, did not directly respond to our questionnaire. However, information with respect to Hankook, which we were also able to verify, was provided in the GOK response. This information was received prior to verification. A certain limited amount of information pertaining to Hankook was not provided by the GOK and could not be verified. For one program described below (see Section I.C.) where we did not have verified information with respect to Hankook, we used the best information available.
We calculated the country-wide estimated net subisdy rate by weight averaging the respective company-specific rates according to the respondent companies' share of exports of the subject merchandise to the United States. Because this rate is de minimis, despite Hankook's level of benefits, our final determination is negative. (See, Final Negative Counterailing Duty Determinations: Standard Line Pipe. Light-walled Rectangular Tubing and Heavy- Walled Rectangular Tubing from Malaysia (53 FR 46904, November 21, 1988); see also preamble discussion of s 355.20(d) of the Commerce Department's regulations published in the Federal Register on December 27, 1988 (53 FR 52306) (to be codified at 19 CFR 355.38), which codifies existing practice.) For informational purposes, at the end of the individual program descriptions below, we have included company-specific rates.
For purposes of this final determination, the period for which we are measuring subsidies ("the review period") is calendar year 1987 which corresponds to the fiscal year of Dongil.
Based upon our analysis of the petition, the responses to our questionnaires, verification, and written comments filed by petitioner and respondents, we determine the following:
I. Programs Determined to Confer Subsidies
We determine that subsidies are being provided to manufacturers, producers and exports in Korea of industrial belts under the following programs:
A. Short-Term Export FinancingShort-term export financing is available in Korea to finance three types of transactions: (1) Purchases of imported materials, (2) purchases of domestic material, and (3) production. Each type of transaction carries with it a "loan exchange ratio," This ratio, expressed in won, determines the maximum won loan amount per dollar value of the transaction. The ratio varied between small- and medium-sized companies on the one hand, and large-sized companies on the other. We verified that the exchange ratios in
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effect during the review period were reduced as of February 8, 1988.The BOK also establishes rediscount ratios that set the proportion of a short- term loan which the commercial bank may rediscount through the central bank. During the period of investigation, the rediscount ratio for short-term export financing was lowered from 60 percent to 40 percent for large-sized firm, and from 90 percent to 60 percent for small- and medium-sized firms. The rediscount ratio on domestic commercial financing remained at 60 percent for large-sized companies. Small- and medium-sized firms are defined as companies with fewer than 300 employees. We verified that both Dongil and Hankook are classified as large companies.
We verified that both Hankook and Dongil received financing under this program. Because only exporters are eligible to use short-term export financing, we determine these loans to be countervailable to the extent that they are provided on preferential terms. Moreover, we determine that the different rediscount ratios applicable to financing for the large firms during the review period resulted in the provisions of export financing on preferential terms for large firms. This is because in lending to large firms, commercial banks had an incentive to channel more funds to finance those firms' export transactions and, thus, fewer funds to finance their domestic transactions. This is the same analysis we employed in Certain Stainless Steel Cooking Ware from the Republic of Korea: Final Affirmative Countervailing Duty Determination (51 FR 42687, November 26, 1986) (Cooking Ware). At verification, we found that in September 1988, the BOK equalized the rediscount ratios.
To determine the extent to which these loans are provided on preferential terms, we used verified information provided by the GOK to construct a weighted-average short-term interest rate to represent what large firms pay to finance domestic transactions. Because, during the review period, commercial banks had an incentive to direct their loans to large firms for financing export transactions rather than domestic transactions, large firms would have needed to seek alternative sources for financing domestic sales.
The weighted-average interest rate we have computed is a best estimate measure of the preference created by the different rediscount ratios. It incudes the interest rates on commercial bank loans for domestic transactions; the issuance of commercial paper; and financing from investment and finance companies, merchant banking companies, and mutual savings and finance companies. We verified that these sources constitute all the forms of short- term commercial financing in Korea. They differ from those used in our Preliminary Determination in that we have deleted mutual credit cooperatives and included merchant banking companies. We verified that the former were used as a source of short-term finance almost exclusively by households and the latter were a source for companies.
The GOK does not maintain detailed statistical information concerning the weighted-average or average interest rate charged by commercial banks. The BOK annual report only lists the interest rate bands within which banks are permitted to make loans Therefore, to determine an average interest rate for commercial banks in Korea, we used as the best information available the results of a survey of Korean commercial banks conducted by the GOK. The survey provides the percentage of short-term loans offered by a number of Korean national and local commercial banks at half-percent intervals within the interest rate band allowed by the BOK. Local commercial banks are allowed to charge interest rates up to one percent higher than national commercial banks. We verified that local banks account for 9.1 percent of all commercial bank loans, and national banks, 90.9 percent. We then weight average the national and local commercial bank average interest rates to determine a single weighted-average commercial bank interest rate for the review period of 11.15 percent.
The weights assigned to each of the other sources of short-term domestic credit (i.e., commercial paper, financing from investment and finance companies, merchant banking companies, and mutual savings and finance companies) were derived from the BOK Monthly Bulletin. From the Monthly Bulletin, we determined the amount of, and interest rates charged on, short- term financing from each of these sources.
Using the above data, we calculated a weighted-average short-term interest rate benchmark of 11.79 percent. We compared this rate to the 10 percent interest rate on export loans received by Dongil and Hankook. (We verified that Taelim Moolsan did not receive any export loans during the period of review.) To determine the benefit of the preferential interest rate, we subtracted the interest paid on the export loans at 10 percent from the interest the companies would have paid if the loans had been contracted at the benchmark.
Because the benefit was not segregable by product or market, we divided the benefit by the total exports of the respective companies during the review period. On this basis, we calculated an estimated net subsidy of 0.14 percent ad valorem for Dongil and 0.17 percent ad valorem for Hankook. The country- wide rate equals 0.14 percent ad valorem.
B. Export Tax Reserves Under Articles 22 and 23Under Article 22, a corporation may establish a reserve amounting to the lesser of one percent of foreign exchange earnings or 50 percent of the foreign exchange earnings component of net income. It certain export losses occur, they may be offset by the reserve fund. Following the tax year in which the reserve amount was created, there is a one-year grace period. After the grace period, amounts remaining in the reserve that have not been offset by actual losses are returned to the taxable income account in three equal annual installments.
Article 23, which governs overseas market development funds, allows a corporation to establish a reserve fund amounting to one percent if its foreign exchange earnings in the respective tax year. Expenses incurred in development overseas markets may be offset from the reserve fund. Funds remaining in the reserve after the tax year are treated as under Article 22.
The balance in both reserve funds is not subject to corporate tax, although all moneys in the reserve funds, if not used to offset losses, are eventually returned to income and subject to corporate tax.
We determine that these export reserves programs confer benefits which constitute export subsidies because they provide a deferment, contingent upon export performance, of direct taxes. We verified that Dongil and Hankook, but not Taelim Moolsan, utilized the provisions under the export tax reserves.
To measure the benefit conferred by the deferments, we followed the same methodology previously use in Cooking Ware and calculated the tax savings by multiplying the amount maintained in the reserves by the companies' effective tax rates.
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We treated the tax savings on these funds as short-term interest- free loans. Accordingly, to determine the benefit, the amount of the companies' tax savings was multiplied by the average short-term national and local commercial bank interest rate (11.15%) which we calculated under the section above.On this basis, we calculated an estimated net subsidy of 0.13 percent ad valorem for Dongil and 0.00 percent ad valorem for Hankook. The country-wide rate is 0.12 percent ad valorem.
C. Duty Drawback on Non-Physically Incorporated Items and Allowances for Excessive Loss and Wastage RatesWe verified that recoverable scrap is factored into the usage rates and that, therefore, for Dongil, the loss and waste rates built into the input usage tables are not excessive. Moreover, we verified that Dongil does not have recoverable scrap from its production process. We also verified that Dongil did not receive any duty drawback on non-physically incorporated items. We were unable to make these determinations for Hankook since we could not conduct a complete on-side verification of Hankook and its production process.
We also verified that a fixed rate duty drawback system is used by the GOK for export shipments valued at less than $20,000. The fixed rate duty drawback is calculated yearly on a product-specific basis. The GOK determines the rate, on an industry-wide basis, based on the previous year's non-fixed rate duty drawback experience of a given product. The rate applicable in the review period was 22 won per dollar of export value.
Since we verified that Dongil has no recoverable scrap and that it has not received any duty drawback on non-physically incorporated items, we determine that Dongil receives no subsidy under this program.
We were unable to verify, however, that Hankook did not receive drawback on non-physically incorporated items or on recoverable scrap. Therefore, as the best information available, we assumed that the entire amount of duty drawback received by Hankook during the review period was excessive and therefore constitutes a countervailable subsidy.
We were able to verify the amount of drawback received by Hankook on its total exports of the subject merchandise. However, we could not verify the value of Hankook's total exports of the subject merchandise. Therefore, as the best information available, we used the fixed duty drawback rate of 22 won per dollar of export value to calculate the estimated net subsidy.
We applied the rate of 22 won per dollar to Hankook's total exports of the subject merchandise to the United States as an estimate of the total amount of duty drawback that Hankook received on its shipments of the subject merchandise to the United States. We then converted this won value to a dollar value using, as the best information available, the highest dollar/won exchange rate in effect during the review period. We allocated this amount over Hankook's total exports of the subject merchandise to the United States, a figure we had verified in dollars. The result of this calculation yields an estimated net subsidy of 2.78 percent ad valorem for Hankook. The country-wide rate is 0.15 percent ad valorem.
We also considered using as the best information available the highest estimated net subsidy found for this program in all previous Korean cases. However, the highest rate previously found for this program is smaller than the rate calculated above. Therefore, we used the methodology detailed above.
II. Programs Determined Not To Be Used
We determine, based on verified information, that the programs listed below were not used by manufacturers, producers and exporters in Korea of industrial belts during the review period. For a full description of these programs, see our Preliminary Determination.
III. Programs Determined To Have Been Terminated
We determine, based on verified information, that the progrmas listed below were terminated and that no benefits were conferred on producers and exporters in Korea of industrial belts during the review period. For a full description of these programs see our Preliminary Determination.
V. Program Determined To Not Exist
We determine that the following program does not exist.
Loans for Expansion or Construction of Manufacturing Facilities
Comment 1: Petitioner asserts that the Department's use of a weighted average of interest rates from various types of financial institutions as the benchmark for the short-term export financing program results in an underestimation of the full benefit. Specifically, petitioner states that, regarding commmercial banks, the Department incorrectly included in the calculation of the benchmark the rates on sources of funds targeted by the government for particular uses. Petitioner also asserts that insofar as Dongil received short-term loans from commercial banks during the review period, it received government-directed financing. In addition, petitioner contends that targeted funds are likely to be provided to a specific enterprise or industry and should not be considered by the Department to be appropriate bases for the benchmark rate. Petitioner also suggests that the Department should adjust the benchmark calculation by excluding the commercial lending rate and including the curb market rate, i.e., the rate charged by private money lenders.
Respondents claim that Dongil's sources of short-term export financing are commercial banks only, so the curb market should not be included in the benchmark rate.
DOC Position: Petitioner's allegation that all commercial bank loans are targeted to specific enterprises or industries was first raised in the March 13, 1989, pre-hearing brief, and is, therefore, untimely and cannot be
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considered for purposes of this final determination.The curb market has not been included in our calculation of the benchmark for the following reasons: (a) Information from verification and through discussions with officials of the U.S. Treasury Department, the International Monetary Fund, and the World Bank indicates that the curb market is a very marginal source of funds in the Korean financial markets; (b) these same sources indicate that the curb market is not a viable source of financing for any but the smallest companies; and (c) we do not have adequate information on interest rates in the curb market.
Comment 2: Respondents assert that the Department should use Dongil's company- specific cost of comparable short-term commercial bank financing as the short- term interest rate benchmark. Respondents argue that because short-term interest rates in Korea vary greatly depending on the creditworthiness of individual borrowers, a country-wide average rate would be higher since it includes less creditworthy companies. Moreover, respondents maintain that because Dongil is the only exporter of the subject merchandise and the Department already has information concerning Dongil's cost of alternative financing, the calculation of a company-specific rate would not be overly burdensome.
Petitioner claims that the Department should follow its precedent and its preference articulated in the Subsidies Appendix attached to the notice of Cold-Rolled Cabon Steel Flat-Rolled Products from Argentina: Final Affirmative Countervailing Duty Determination and Countervailing Duty Order (49 FR 18006, April 26, 1984) and use the country-wide short-term benchmark.
DOC Position: In order to administer the countervailing duty law in an administrably manageable way, it is necessary for uniformity that we use a country-wide benchmark for short-term financing programs instead of a company- specific benchmark. See, for example, Final Affirmative Countervailing Duty Determination and Order: Welded Carbon Steel Pipe and Tube Products from Argentina, (49 FR 37619, September 27, 1988).
Comment 3: Respondents assert that the Department has verified the actual distribution of commercial bank short-term interest rates in Korea through survey results of Korean banks submitted by the GOK at verification. They contend that the Department should ensure that the country-wide benchmark reflects this survey. Furthermore, respondents argue that the information was timely since it was submitted at verification and before the Department's new regulations took effect.
Petitioner claims that to the extent that the Department may use commercial bank rates in the benchmark for the final determination, the Department should maintain the rate used in the preliminary determination. Petitioner states that the information regarding the interest rate distribution within the regulated band may be incomplete. Moreover, the information, which was not submitted until verification, was untimely.
DOC Position: Although we recognize that the survey results provided by the GOK may not be a precise reflection of the country-wide weighted-average short-term commercial bank interest rate in Korea, we have decided to use the results as the best information available. We note that interest rate information provided in the survey was verified and that it is consistent with information provided in the GOK annual reports and monthly bulletins.
We find that the survey data is timely because we specifically asked the respondent for the data in our deficiency questionnaire of December 15, 1988. In any event, we agree with respondents that the information was timely since the new regulations were not in effect at the time of verification. Furthermore, our findings were in our verification report and petitioner had adequate time to comment.
Comment 4: Respondents assert that the short-term interest rate benchmark ought to be based exclusively on commercial bank lending rates in the final determination. Respondents state that the Department used a weighted-average basket of interest rates because it determined that the higher rediscount ratio for short-term commercial bank export financing conferred a preference on export financing relative to domestic short-term commercial bank financing. However, respondents assert that, as the rediscount ratios for export and domestic financing were equalized before the preliminary determination, there is no longer an incentive to prefer export financing to domestic financing.
DOC Position: We agree with respondents that the equalization of the rediscount ratios constitutes a program-wide change. However, it is the Department's policy to take into account only those program-wide changes which are measurable and verifiable. The equalization of the rediscount ratios took place in September 1988. The interval since then represents too short a time to measure adequately the effect of that change on the lending practices of Korean commercial banks. Moreover, we do not have the information to allow us to calculate a commercial bank short-term interest rate based on the period since September 1988. Therefore, for the purposes of this final determination, we are not taking this change into account because the effects of the change cannot be measured.
Comment 5: Respondents assert that the Department should take into account in the final determination another program-wide change which occurred, with respect to the short-term export financing program, prior to the preliminary determination. Specifically, the Department should take into account the information submitted during verification that the GOK effectively abolished the short-term export financing program by allowing all interest rates in the Korean economy to vary according to market forces.
Petitioner claims that the Department should not take into account the changes in the program because the effects are speculative and it is the Department's policy to take into account only those changes that are quantifiable and verifiable.
DOC Position: It is the Department's policy to take into account program-wide changes which occur prior to the preliminary determination and are both measurable and verifiable. The effective date for the liberalization of interest rates in the Korean economy was December 5, 1988, which was after the date of publication of the Preliminary Determination. Therefore, this program- wide change occurred too late to be taken into account.
Comment 6: Respondents assert that the Department should consider as a program-wide change the reduction in the loan exchange ratios in the short-term export financing program. According to respondents, the reduction is measurable and was verified and thus should be taken into account.
Petitioner claims that the Department, by ascribing 1988 loan exchange ratios onto Dongil's export borrowing in 1987 as proposed by respondents, would be indulging in speculation. The effect of the change in the loan exchange ratios, according to petitioner, is neither quantifiable nor verifiable. Hence, no adjustment should be made for the reduction in the loan exchange ratios.
DOC Position: We agree with petitioner. Although this particular change occurred prior to our preliminary determination and we were able to verify the change, we cannot measure the effect of the change on the benefit provided to Dongil under the program. The review period for this investigation
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is calendar year 1987. Consequently, we do not have verifed information with respect to Dongil's 1988 sales, nor its level of borrowing in 1988. Thus, any calculation performed by the Department would be too speculative.Comment 7: Petitioner asserts that the Department erred in not finding Dongil's long-term loans countervailable in the preliminary determination. Petitioner claims that long-term financing is regulated by the GOK through various financial institutions and loans received from regulated sources are at interest rates below the benchmark rate and as such are on preferential terms. Also, petitioner maintains that approximately 55 percent of commercial loans are directed loans and on this basis, as best information available, the Department should find the long-term loans of Dongil to be provided to a specific enterprise or industry.
DOC Position: Petitioner first raised this argument in its pre-hearing brief.
It is untimely and cannot be considered for purposes of this final determination because the argument was raised after verification and, consequently, we do not have the information to evaluate the argument.
Comment 8: Petitioner asserts that deductions from taxable income through export tax reserves should be treated solely as tax savings in the year received and not as an interest-free loan. Respondents claim that the export tax reserves programs are tax deferrals and the Department should follow its longstanding practice of treating tax deferrals as short-term interest-free loans. Respondents argue that the actual losses of a company in Korea may be used to reduce ordinary income or to reduce the export tax reserves, but not both. Thus, the tax reserves programs do not result in tax savings, it only creates a tax deferral for a specific, limited period of time.
DOC Position: We agree with respondents. We find that the tax reserves programs provide a tax deferral, not tax savings. All money in the reserves, if not used to offset losses, is eventually added back to income and subject to tax. If used to offset losses, the reserve is reduced by the loss amount.
Comment 9: Petitioner states that Dongil's effective tax rate as reported in its response includes the effects of the subsidy benefit from the export tax reserves programs. Therefore, use of this rate understates Dongil's tax savings resulting from their use of the export tax reserves programs. As an alternative effective tax rate, petitioner proposes a "national" effective tax rate for large corporations as reported in an outside source. Respondents deny that there is a national effective tax rate. Further, they claim that the Department should use company-specific effective tax rates in calculating any benefits received under the export tax reserves programs.
DOC Position: We agree with petitioner that the effective tax rate used to calculate the benefit from the export tax reserves programs should not reflect the benefit from the programs. We disagree, however, with the substitution of an unverified tax rate from an outside source. Instead, we recalculated Dongil's and Hankook's respective effective tax rates by increasing their taxable income by the amount of the reserves set aside under the export tax reserves programs and also increasing the amount of taxes that the companies would have paid absent their use of the tax reserves programs.
Comment 10: Respondents assert that the Department must distinguish between "special exports" and "general exports" in the export tax reserves programs because the amount of export income that can be contributed towards a reserve depends on the country to which the goods have been exported. Thus, respondents claim that, for Dongil, the Department should calculate any subsidy margin by dividing the amount of Dongil's reserves attributable to U.S. exports by Dongil's total U.S. exports. Petitioner claims that the information segregating the tax benefit according to the destination of the exports was provided for the first time at verification. Therefore, under the new procedural regulations, the data submitted was not timely and should not be considered.
DOC Position: The actual benefit attributable to exports to the United States is better measured by the amount of the reserves attributable to the United States and not to worldwide exports. Respondents were able to segregate benefits attributable to exports to the United States at verification and we were able to verify this information. The information provided at verification was not a major change to respondent's original submission, but rather was a clarification to their original submission. We fully described the information submitted by respondent in our verification report. Consequently, petitioner had adequate time to comment. Finally, we note that the new procedural regulations were not in effect at the time of verification and therefore, are not controlling.
Comment 11: Petitioner asserts that the appropriate calculation of the rate for Hankook based on the best information available would be to divide Dongil's total drawback by Hankook's exports. Respondents claim that the GOK supplied Hankook's total duty drawback amount on all exports of the subject merchandise in response to the Department's questionnaires. Additionally, there are no non-physically incorporated inputs in the production of industrial belts and Korea eliminated its practice of permitting drawback on non- physically incorporated items. Therefore, neither Dongil nor Hankook received a countervailable benefit from this program.
DOC Position: We verified the total amount of duty drawback received by Hankook on the subject merchandise. Therefore, there is no justification for substituting Dongil's drawback amount for Hankook's drawback amount. However, because Hankook did not respond to our questionnaires and did not permit a complete on-site verification, as the best information available, we have assumed that Hankook's drawback amount was excessive and calculated the estimated net subsidy as described in Section I.C.
Comment 12: Petitioner asserts that since Hankook's failure to respond to the Department's questionnaires led the Department to the use of the best information available for the preliminary determination, the Department should continue to use best information available for the final determination. Respondents argue that information regarding Hankook's export data and program participation was submitted in the GOK responses and that the only new information submitted at verification related to the type of belt exported. Therefore, the Department should not use best information available.
DOC Position: Prior to our preliminary determination, we received incomplete information on Hankook from the GOK. Therefore, for the purposes of the preliminary determination, some of the information we used for Hankook was the best information available. Subsequent to the preliminary determination, but prior to verification, the GOK provided Hankook's export data and additional information on its program participation. At verification for the first time, Hankook claimed that the belts it exported to the United States were not covered by the scope of the investigation. Since this was new information first submitted at verification we did not accept this information. Moreover, discussions with the ITC product experts suggested that the belts produced by Hankook may be within the scope of the investigation.
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We used the verified information to compute Hankook's estimated net subsidy with respect to the short-term export financing and export tax reserves programs. For the duty drawback program, however, we lacked verified data on Hankook's total exports of the subject merchandise to all markets. As best information available, therefore, we derived an estimate of the amount of duty drawback received by Hankook on its exports of the subject merchandise to the United States. We made this calculation as described in Section I.C.As mentioned above, the only new information submitted at verification related to the type of belt exported by Hankook. We did not use this information for purposes of this final determination (see DOC Position on Comment 15).
Comment 13: Petitioner asserts that although Dongil did not benefit from the accelerated depreciation program under Article 25 of ACTRE during the review period, it did use the program during the review period and the benefit was reported on its tax return filed in 1988. As such, petitioner states, a separate duty deposit rate should be established. Respondents claim that there was no program-wide change before the preliminary determination; that participation in a program in one year but not in another does not constitute a change in the program; and that changes in levels of participation by individual companies are taken into account in an administration review, not in the duty deposit rate. Therefore, respondents argue that a separate duty deposit rate should not be established.
DOC Position: It is the Department's practice to provide for a separate duty desposit rate only to take into account program-wide changes which occur prior to the preliminary determination and which are measurable and verifiable. We do not consider participation in a program in one year, but not in another, to constitute a program-wide change. The accelerated depreciation provision under Article 25 was claimed by Dongil on its tax return filed after the review period. According to our standard practice, we use a cash-flow analysis for determining when the benefits of a countervailable tax program are received. Under this analysis, we consider the benefit from a tax program to be received when the tax return is filed. Therefore, we have determined that Dongil did not benefit from Article 25 during the review period.
Comment 14: Petitioner asserts that the Department's preliminary finding of critical circumstances should be upheld in the final determination. Petitioner states that a comparison of imports three months prior to the filing of the petition to imports for three months after that point demonstrates that there have been massive imports of the subject merchandise over a relatively short period of time. Respondents claim that critical circumstances did not exist at the time of the preliminary determination and do not exist presently. In fact, they state, Dongil's exports of the subject merchandise have declined since 1987. Therefore, the Department should not find critical circumstances in this case.
DOC Position: As we have found the benefits in this investigation to be de minimis, critical circumstances do not exist (see Critical Circumstances section below).
Comment 15: Respondents assert that Hankook exports only hexagonal belts used in riding lawnmowers to the United States. They state that hexagonal belts are not covered in the description of the subject merchandise under investigation and in fact are expressly excluded from the scope of the investigation. Therefore, Hankook should be excluded from the final determination.
Petitioner claims that hexagonal belts are within the scope of the investigation and are covered in the general description of the scope. Although certain belts used in integral combustion engines are excluded from the investigation, hexagonal belts do not fall into this category. Therefore, Hankook is an exporter of subject merchandise and should be included in the final determination.
Doc Position: Discussions with product experts at the ITC and information submitted by petitioner indicate that the belts exported by Hankook are not used in the engine of the lawmower, but rather to turn the mowing blades. Given this fact, hexagonal belts we considered as industrial, not automotive, belts. Furthermore, we note that Hankook did not permit a complete verification, and did not provide until verification, the information on the type of belt the company exports. Therefore, information regarding the type of belt manufactured by Hankook was untimely and not verified.
Comment 16: Petitioner asserts that, in its scope of investigation at the preliminary determination, the Department listed only four of the 18 HTS items corresponding to the nine TSUSA numbers. Petitioner requests that the Department list all 18 HTS numbers in its final determination.
DOC Position: The scope of this investigation has not changed since the initiation. The petition included nine TSUSA item numbers and, at the time, four HTS sub-headings that petitioner believed would correspond to the TSUSA numbers when the HTS system would become effective.
The Harmonized Tariff Schedule went into effect on January 1, 1989. Based on a concordance between TSUSA item numbers and HTS sub-heading listed in the January 1989 ITC publication "The Continuity of Import and Export Trade Statistics After Implementation of the Harmonizied Commodity Description and Coding System", petitioner requested that the Department expand the four HTS sub-headings and listed in our preliminary determination to eighteeen sub- headings.
We asked for comments from the interested parties in this investigation concerning industrial belts covered by the eighteen HTS sub-headings. We have received no objections in this particular determination.
In our preliminary determination, as now, we note that the written descriptions of the products covered by the investigation is dispositive. The HTS numbers are provided for convenience and customs purposes as to the scope of the product coverage. Accordingly, we do not view this as a broadening of the scope of this investigation.
Critical Circumstances
Petitioner alleges that "critical circumstances" exist within the meaning of section 703(e)(1) of the Act, with respect to imports of industrial belts from Korea. In determining whether critical circumstances exist, we must examine whether there is a reasonable basis to believe or suspect that (1) the alleged subsidy is inconsistent with the GATT Subsidies Code, and (2) there have been massive imports of the subject merchandise over a relatively short period.
Because we determine that the benefit provided to manufacturers, producers, or exporters of industrial belts in Korea is de minimis, the final determination is negative. Therefore, critical circumstances do not exist.
Verification
In accordance with section 776(b) of the Act, we verified the information used in making our final determination. As mentioned previously, when we could not verify the information, we used the best information available. During verification, we followed standard verification procedures, including meeting with government and company officials; inspecting documents and ledgers; tracing information in the response to source documents, accounting ledgers, and financial
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statements; and collecting additional information that we deemed necessary for making out final determination.Suspension of liquidation
The estimated net subsidy rate for industrial belts is 0.41 percent ad valorem. Under section 355.7 of our regulations, an aggregate net subsidy of less than 0.5 percent ad valorem is considered de minimis.
Since the suspension of liquidation was discontinued on April 1, 1989, 120 days after our preliminary determination, there is no need to instruct the U.S. Customs Service to discontinue the suspension of liquidation. However, we are instructing the U.S. Customs Service to refund all estimated countervailing duties deposited on all unliquidated entries, or withdrawals from warehouse, for consumption of the subject merchandise entered between September 3, 1988, and March 31, 1989.
ITC Notification
In accordance with section 705(d) of the Act, we will notify the ITC of our determination. Since we have determined that only de minimis countervailing benefits are being provided to manufacturers, producer or exporters in Korea of industrial belts, this investigation will be terminated upon the publication of this notice in the Federal Register. Hence, the ITC is not required to make a final injury determination.
This determination is published pursuant to section 705(d) of the Act (19 U.S.C. 1671d(d)).
Timothy N. Bergan,
Acting Assistant Secretary for Import Administration.
April 11, 1989.