(Cite as: 46 FR 53201)
NOTICES
DEPARTMENT OF COMMERCE
Bicycle Tires and Tubes from Taiwan: Reopened Investigation--Final
Countervailing Duty Determination
Wednesday, October 28, 1981
*53201 AGENCY: International Trade Administration, Commerce.
ACTION: Reopened investigation--final countervailing duty determination.
SUMMARY: This notice is to advise the public that, as ordered by the United States Court of
International Trade, a reopened countervailing duty investigation has resulted in a final determination
that Taiwan authorities have given benefits on the manufacture, production, or exportation of bicycle
tires and tubes, with respect to one manufacturer, which constitute bounties or grants. With regard to the
remaining companies, the Taiwan authorities have given benefits on the manufacture, production, or
exportation of bicycle tires and tubes, but we have determined that these benefits are de minimis in
amount, and thus do not constitute countervailable bounties or grants, within the meaning of section 303
of the Tariff Act of 1930, as amended (19 U.S.C. 1303).
EFFECTIVE DATE: October 28, 1981.
FOR FURTHER INFORMATION CONTACT:
Raymond Busen, Office of Investigations, International Trade Administration, U.S. Department of
Commerce, Room 2120, Washington, D.C. 20230 (202-377-1276).
Reopening of Investigation
On August 3, 1981, a notice of "Reopening of Countervailing Duty Investigation" was published in the Federal Register (46 FR 39464). The notice stated that, as ordered by the United States Court of International Trade, we were reopening the countervailing duty investigation on bicycle tires and tubes from Taiwan for the purpose of seeking the additional information on two programs specifically required by the Court in its order of June 19, 1981. We were directed to report our redetermination to the Court.
Scope of Investigation
For the purposes of both the previous determination and this redetermination the term "bicycle tires and tubes" means pneumatic bicycle tires and tubes of rubber or plastics, whether such tires and tubes are sold together as units or separately. Bicycle tires and tubes currently are covered under Items 772.48 and 772.57, respectively, of the Tariff Schedules of the United States (TSUS). The period we investigated covers calendar year 1977, which is the same period covered in the original investigation.
Background
On January 8, 1979, a notice of "Final Countervailing Duty Determination" was published in the Federal
Register (44 FR 1815). The notice stated that the Department of the Treasury ("Treasury") had
determined that benefits had been paid by Taiwan authorities on the manufacture/exportation of bicycle
tires and tubes, but that the benefits involved an aggregate amount considered to be de minimis in size,
and that, therefore, no bounty or grant was being paid or bestowed, directly or indirectly, within the
meaning of section 303 of the Tariff Act of 1930, as amended (19 U.S.C. 1303), upon the manufacture,
production or exportation of bicycle tires and tubes from Taiwan.
The notice further stated that the Taiwan bicycle tire and tube manufacturers received benefits from
Taiwan authorities under the following programs: (1) Preferential income tax ceiling--weighted-average
benefit of .27 percent ad valorem, (2) preferential export financing--no firm received a benefit greater
than .03 percent ad valorem, and the weighted-average benefit for all manufacturers/exporters was only
.005 percent, and (3) deferred payment of duties on machinery and equipment imported into Taiwan--only one firm received benefits, and the benefit was only .002 percent ad valorem. The notice also
indicated that Treasury determined that the "aggregate weighted-average benefit received by the industry
during the period investigated was .28 percent ad valorem, with no single firm receiving more than .44
percent". Treasury determined that those benefits were de minimis.
On March 8, 1979, counsel for the petitioner filed suit in the United States Customs Court to challenge
the Secretary of the Treasury's final countervailing duty determination (Carlisle Tire and Rubber Co. v.
United States, No. 79-3- 00423). Specifically, plaintiff alleged that (1) a de minimis benefit must be
countervailed, and (2) the amount of the benefits received were substantially larger than those found by
the Secretary of the Treasury.
On June 19, 1981, the United States Court of International Trade held that the de minimis doctrine was
applicable to cases arising under the countervailing duty statute. In addition, the Court stayed the
proceedings and vacated Treasury's negative countervaling duty determination. Further, the Court
remanded the case to the Secretary of Commerce for "further inquiries as may be needed to determine the
ad valorem benefit provided the Taiwanese bicycle tire and tube manufacturers by * * * Taiwan" with
respect to portions of two programs--(1) preferential income tax ceiling and (2) preferential export
financing.
We visited the following Taiwan bicycle tire and tube manufacturers, located in Taichung and surrounding areas: Kenda Rubber Industrial Co., Ltd. (Kenda); Li-Hsin Rubber Industrial Co., Ltd. (Li-Hsin); and Seven-Stars Rubber Co., Ltd. (Seven-Stars). We also visited the Taichung branch of the International Commercial Bank of China (ICBC), and the Tax Audit Department of Taiwan's Central Region, located in Taichung City.
Results of the Investigation
Preferential Income Tax Ceiling (More)
The Federal Register notice of January 8, 1979, stated that
under the Statute for the Encouragement of Investment, firms whose establishment or expansion was approved before December 31, 1973, qualify for a tax ceiling equivalent to 25 percent of the firms' taxable income. The usual tax rate is 35 percent of taxable income.
In conducting the countervailing duty investigation, the Secretary of the Treasury had received two sets
of figures, virtually identical, from the Taiwan authorities and the Taiwan Bicycle Tire and Tube
Manufacturers Association (the "Association"), respectively.
The Court stated that there had been insufficient data to substantiate the correct figures, and thus it could neither approve the Secretary of the Treasury's findings as to the ad valorem benefit of the 25 percent tax rate, nor could it accept plaintiff's computations based on the Taiwanese authorities' figures. Consequently, the Court remanded the case to the Department of Commerce for futher inquiry to resolve this issue.
*53202 Preferential Export Financing (More)
The Federal Register notice of January 8, 1979, stated that
Several firms exporting bicycle tires and tubes received advantageous loan rates, in connection with an export loan program, for the purchase of raw materials. The preferential loan rate is 6.5 percent (per annum) for a term not to exceed six months. The regular commercial loan rate varies between 10.5 to 10.75 percent for loans for similar terms.
The Court directed Commerce to obtain additional information on the amount of the loans, the actual duration of each loan, and the actual amounts of interest paid, and to redetermine the benefits based on that additional information.
We did afford interested parties an opportunity to comment on the two issues discussed in the August 3, 1981 notice.
Results of the Reopened Investigation
Preferential Income Tax Ceiling
We verified the numbers submitted in the latest response, including the actual amount of taxes paid. In order to verify these numbers, we examined the officially audited tax returns of each company. The tax audits on these returns were performed by local Taiwan tax authorities. As a result of our re- investigation and verification we have determined that the overall weighted- average benefit under this program is .43 percent ad valorem. Only one firm, however, Cheng Shin, received benefits whose aggregated ad valorem benefit was greater than de minimis.
Several firms exporting bicycle tires and tubes received preferential loan rates, in connection with an
export loan program, for the purchase of raw materials. Only Taiwan banks appointed by the Central
Bank of China (CBC) to handle foreign exchange matters could apply for discounts from CBC under
regulations governing discounts on short-term (6-month or less) export loans. The preferential interest
rate for such discounted loans ranged from 6.5 percent (per annum) to 7 percent (per annum). The
commercial interest rates ranged from 11.5 percent (per annum) to 12.75 percent (per annum). These
commercial interest rates applied to those situations where the CBC had not yet approved the preferential
rate, the letter of credit used to secure the preferential rate had expired, or 6 months had expired
following the CBC approval of the preferential rate.
Our invetigation determined the actual loan amount and the interest paid on a per loan and per manufacturer basis. The amount of benefits received by the four Taiwan manufacturers which benefited from this program ranged from .007 percent to .026 percent for an overall weighted-average ad valorem benefit of . 0045 percent.
Issues
1. Counsel for the Association and counsel for the Bicycle Manufacturers Association of America, Inc. (BMA), who filed as amicus curiae in the court proceeding, contended that even if the preferential income tax ceiling provided significant benefits, it would not constitute a countervailable subsidy. Citing Taiwan's Statute of Encouragement and Investment (SEI), counsel for both argued that the tax ceiling benefit is not industry specific, is generally available to any productive enterprises, and does not deviate from Taiwan's normal tax laws. Counsel for BMA further argued that tax provisions that allow a reduction in a company's tax liability and that are unrelated to export performance are only countervailable if they benefit a specific industry.
Response
Under Article 10 of the SEI, the profit-seeking-enterprise income tax on a "productive enterprise" which
had started operation on or before December 31, 1973, was limited to 25 percent. We found that this
preferential income tax ceiling rate is not available to all industries and thus constitutes a countervailable
subsidy.
The regulations issued to implement the SEI outline eligibility criteria and are clearly written to benefit
only certain industries. These regulations specifically list "categories of industries." Businesses which
fall within these "categories of industries" are considered to be eligible under the SEI as "productive
enterprises." Businesses in some other industries which are not included in this list must meet certain
minimum performance levels or development criteria in order to qualify as a "productive enterprise"
under the statute, and thus to benefit from the 25 percent maximum tax rate of Article 10 of the SEI.
Because only certain categories of industry may benefit from this maximum tax rate, we determine this
program to be a countervailable subsidy.
While certain articles of the statute are clearly intended to act as export incentives, we interpret Article
10 to be a broad incentive for increased investment in eligible industries established prior to a given date.
We therefore determine this program to be a domestic subsidy and thus have allocated the tax savings
over total sales revenue.
2. Prior to reviewing our final calculations, counsel for the plaintiff raised two issues--(1) the separate
computations as shown in the questionnaire response regarding Cheng Shin were computed incorrectly
with respect to benefits received under the preferential income tax ceiling and (2) benefits received by the
firms under the preferential income tax ceiling program are countervailable.
Plaintiff's counsel argued that Cheng Shin broke out its bicycle tire and tube sales from total sales,
contending that its bicycle tire and tube sales were a relatively small percentage of total sales. Those
benefits attributable to the bicycle tire and tube sales were then allocated to total sales, rather than to
bicycle tire and tube sales. Plaintiff's counsel argued that since bicycle tire and tube sales were broken
out from total sales, the savings attributable to bicycle tire and tube sales should have been divided by the
value of bicycle tire and tube sales, rather than total sales, in order to obtain the ad valorem benefit with
respect to bicycle tire and tube sales.
Response
Plaintiff's counsel argued correctly that the amount of tax savings should be allocated to bicycle tire and
tube sales and not to total sales in this case. Our final calculations reflect that the ad valorem benefit to
Cheng Shin was allocated only to bicycle tire and tube sales.
In regard to counsel's contention that the preferential income tax ceiling is countervailable, we have
determined that this program is countervailable for the reasons we have stated.
3. Counsel for BMA argued that Commerce erred in its calculations of the non- preferential tax rate by
failing to consider certain additional deductions, such as loss carryovers, which counsel argued would
have been available under the non-preferential 35 percent tax rate. BMA argued that the failure to take
these additional deductions into account exaggerated the benefit received under this program.
Response
We computed the taxes which would have been paid at the non-preferential rate of 35 percent by using
the alternative tax formula furnished by the Association's counsel. The alternative tax formula was
confirmed by the *53203 cognizant Taiwan tax official as the formula which is used to calculate the tax
payable under the 35 percent tax rate.
4. Counsel for BMA argued that Commerce erroneously calculated the regular commercial rate for
short-term loans against which the preferential loans were measured. Commerce used commercial rates
of 11.5 to 12-75 percent for an average rate of 12.125 percent. Counsel indicated that Commerce instead
should have averaged two short-term commercial loans extended to two bicycle tire and tube companies
at 11.5 percent and 8.5 percent, respectively. Counsel also argued that Commerce erred in not taking into
account the fact that interest rates dropped as low as 10.5 percent on secured loans, and 11.25 percent on
unsecured loans.
Response
We used and verified commercial rates furnished in the response by the Association to determine the
applicable commercial rates for short-term loans. Those verified commercial loans carried a rate of 11.5
percent to 12.75 percent during 1977, and applied to unsecured loans. Furthermore, the 8.5 percent loan
which BMA argued we should have used was a loan from a non-Taiwan bank which carried a 3 percent
lower rate of interest than rates charged by Taiwan banks.
Verification
We verified the information used in reaching this determination through on- site examination of the records and audited tax returns of the various companies, and records of the International Commercial Bank of China; meetings with company officials, local tax officials, and bank officials; and examination of randomly selected documents containing information pertinent to this investigation.
Determination
On the basis of information supplied subsequent to the notice of Reopening of Countervailing Duty
Investigation published August 3, 1981 in the Federal Register (44 FR 1815), I hereby determine that
benefits have been paid by Taiwan authorities under the Preferential Income Tax Ceiling program and
the Preferential Export Financing program on the manufacture, production, or exportation of bicycle tires
and tubes, but that, with the exception of Cheng Shin, the benefits involve an aggregate amount
considered to be de minimis. Although the firms investigated received benefits under the two programs
re- investigated, the weighted-average ad valorem benefit was only .43 percent and .0045 percent for the
preferential income tax ceiling and preferential export financing, respectively.
The final countervailing duty determination of January 8, 1979 found only one other program to be
countervailable--deferred payment of duties on imported machinery and equipment. Only one company
benefited under this program, a company other than Cheng Shin. Furthermore, this program was not the
subject of this reopened investigation. The average ad valorem benefit received under that program
amounted to only .0118 percent, as stated to the Court in defendant's cross-motion for summary judgment
in the current court proceeding. Thus, even when this amount is added to the benefit received under the
two programs re-investigated in this reopened investigation, the aggregate as valorem benefit received is
.45 percent, which is still de minimis. Therefore, with the exception of Cheng Shin, no bounty or grant is
being paid or bestowed, directly or indirectly, within the meaning of section 303 of the Tariff Act of
1930, as amended (19 U.S.C. 1303) upon the manufacture, production, or exportation of bicycle tires and
tubes from Taiwan.
As a result of our review, I hereby determine that bicycle tires and tubes manufactured by Cheng Shin
received bounties or grants within the meaning of section 303 of the Tariff Act of 1930, as amended,
since benefits received by Cheng Shin were in an amount considered to be more than de minimis. The net
amount of the bounty or grant has been ascertained and determined to be 0.893 percent ad valorem.
Accordingly, pending an affirmation of the results of this final countervailing duty determination by the
U.S. Court of International Trade, we will instruct the U.S. Customs Service to suspend liquidation on
entries of bicycle tires and tubes from Taiwan, manufactured by Cheng Shin, if entered or withdrawn
from warehouse for consumption on or after October 28, 1981, and if exported after October 28, 1981.
We will also instruct the Customs Service to collect a deposit of estimated countervailing duties in the
amount of .893 percent ad valorem with respect to those entries for which liquidation has been
suspended. If the Court affirms this final countervailing duty determination, we anticipate it will order
the Department to issue a countervailing duty order with respect to bicycle tire and tubes manufactured
by Cheng Shin.
This notice is published pursuant to section 303 of the Act (19 U.S.C. 1303).
Lawrence J. Brady,
Assistant Secretary for Trade Administration.
October 23, 1981.
[FR Doc. 81-31277 Filed 10-27-81; 8:45 am]
BILLING CODE 3510-25-M
46 FR 53201-01, 1981