(Cite as: 48 FR 43366)

NOTICES

DEPARTMENT OF COMMERCE

[C-580-002]

Countervailing Duties; Bicycle Tires and Tubes From Taiwan; Final Results of

Administrative Review

Friday, September 23, 1983

*43366 AGENCY: International Trade Administration, Commerce.

ACTION: Notice of final results of administrative review of countervailing duty order.

SUMMARY: On December 9, 1982, the Department of Commerce published in the Federal Register the preliminary results of its administrative review of the countervailing duty order on bicycle tires and tubes from Taiwan. The review covered the period October 28, 1981 through December 31, 1981. The notice stated that the Department had preliminarily determined the amount of the net subsidy to be 0.90 percent ad valorem.

Interested parties were invited to comment on the preliminary results. After review of all comments received, the final results of our administrative review remain the same as those presented in our preliminary results of review.

EFFECTIVE DATE: September 23, 1983.

FOR FURTHER INFORMATION CONTACT:Charles Anderson or John McKean, Office of Compliance, International Trade Administration, U.S. Department of Commerce, Washington, D.C. 20230; telephone: (202) 377-2786.

*43367 SUPPLEMENTARY INFORMATION:

Background

On December 9, 1982, the Department of Commerce ("the Department") published in the Federal Register (47 FR 55406) the preliminary results of its administrative review of the countervailing duty order on bicycle tires and tubes manufactured by one Taiwanese company, Cheng Shin Rubber Company Ltd. (47 FR 6913, February 17, 1982). The Department has now completed that administrative review.

Scope of the Review

Imports covered by the review are pneumatic bicycle tires and tubes, of rubber or plastic, whether such tires and tubes are sold together as units or separately, manufactured by Cheng Shin. Bicycle tires and tubes are currently classifiable under items 772.4800 and 772.5700, respectively, of the Tariff Schedules of the United States Annotated. The review covers the period October 28, 1981, the date of suspension of liquidation, through December 31, 1981, and the two programs found countervailable in the "Reopened Investigation--Final Countervailing Duty Determination" (46 FR 53201, October 28, 1981): a program of preferential income tax rate ceilings and a program of preferential export financing.

Analysis of Comments Received

We provided interested parties with an opportuntiy to comment on our preliminary results. At the request of the petitioner, Carlisle Tire and Rubber Company, we held a hearing on January 24, 1983.

Comment 1: Cheng Shin argues that the 25 percent income tax rate ceiling provided for in Article 15 of the "Statute for the Encouragement of Investment" ("the SEI") is not countervailable because it is generally available. Cheng Shin contends that every Taiwanese company "limited by shares" is eligible for the lowered income tax rate ceiling. The Department is mistaken in its understanding that the implementing regulations ("the Categories and Criteria. . .") for the SEI, which limit the eligibility for certain benefits to targeted sectors, also apply to the benefit of a 25 percent income tax rate ceiling.

Department's Position: During the review, Cheng Shin submitted information which indicated that the preferential income tax rate ceiling of 25 percent is generally available to all firms limited by shares and hence not countervailable. In earlier investigations of Taiwanese products, the Departments of Treasury and Commerce based their determinations of the countervailability of this program largely upon the apparent existence of limiting criteria for eligibility as listed in the implementing regulations, the Categories and Criteria. The information submitted by Cheng Shin claims that these limiting criteria do not apply to the 25 percent income tax rate ceiling. However, the statements submitted by Cheng Shin in support of its contention do not conclusively show that the 25 percent income tax ceiling is generally available. They do not address the issue of why there appears to be a two-tiered corporate income tax in Taiwan, with the standard rate set at 35 percent, and a preferential rate set at 25 percent. We will investigate the criteria for eligibility for this program in the next administrative review.

Comment 2: Carlisle contends that the Department must determine whether Cheng Shin receives the preferential tax rate ceiling because it is one of those manufacturers specifically listed in the Categories and Criteria, that is: (1) Manufacturers of synthetic rubber, (2) manufacturers of tires for "special purpose vehicles", or (3) producers of certain chemicals used in rubber production.

Department's Position: Because we are continuing in this review to consider this program countervailable, we need not examine the correctness of Carlisle's buttressing argument. We will look into this allegation when we review the question of availability of Article 15 benefits in the next administrative review.

Comment 3: Cheng Shin claims that if the Department finds Article 15 of the SEI countervailable, then the benefit for 1981 should be calculated on the basis of 1981 tax-year data. The rationale underlying the Department's general decision to lag income tax benefits does not apply here, because: (1) Cheng Shin is required by law to estimate its tax liability as the tax-year progresses, for purposes of prepayments, and (2) Cheng Shin in 1981 know and accounted for the magnitude of tax savings realized on 1981 income. Finally, Cheng Shin maintains that the Department, in using 1977 tax data as the best information available in the absence of tax data for 1980, inconsistently applied its policy by dividing the 1977 tax benefit by 1977 sales, instead of by 1981 sales.

Department's Position: Even though it estimated its tax liability twice during the tax year, Cheng Shin did not know its exact income tax liability until it closed its 1980 books. The Department therefore maintains that it must allocate Cheng Shin's 1980 income tax benefits to 1981, the year in which the tax liability became known. To accept Cheng Shin's argument that benefits should be considered conferred when a firm is able to estimate its tax liabilities would saddle the Department with the prohibitive burden of determining exactly when each company under review may or should be able to account for potential benefits, and determining when subsequent reconciliations are possible. We doubt the wisdom of attempting such a subjective approach.

We have divided 1977 tax benefits by 1977 sales, as best information otherwise available, because we did not know Cheng Shin's total sales for 1978. Using 1981 sales as the denominator, as Cheng Shin suggests, would have resulted in a substantial underestimate of the 1981 benefit because of the company's substantial increase in sales between 1977 and 1981.

Comment 4: Carlisle has submitted its own estimate of Cheng Shin's profits for 1980, and asks that we use this information, instead of Cheng Shin's 1977 invome tax data, as the best information available to determine the company's income tax benefit.

Department's Position: We are receptive to Carlisle's approach; however, we have not adopted its proposal for this review because the model has certain methodological problems.

Comment 5: Cheng Shin maintains that instead of allocating its total income tax benefit over total sales, the Department should calculate the tax benefit on income earned on bicycle tire and tube sales and allocate that benefit over sales of bicycle tires and tubes.

Department's Position: This program is based upon Cheng Shin's total income and is, therefore, a benefit bestowed on all of Cheng Shin's production, not just bicycle tire and tube production. Consequently, the Department has allocated the total income tax benefit over total sales.

Comment 6: Carlisle argues that, before the Department can determine a commercial loan benchmark for measuring the benefit from preferential loans through the Export Financing Program, it must first assess the creditworthines of Cheng Shin and then examine the prevailing rate for firms of comparabl;e creditworthiness.

Department's Position: Because we found that Cheng Shin had no preferential loans attributable to bicycle tires and tubes during the review period nor any united preferential loans outstanding, we need not address the question of the creditworthiness of the firm.

*43368 Comment 7: Carlisle argues that we should countervail against Cheng Shin's four preferential loans, based on moped and motorcycle letters of credit, which were outstanding during the review period. Carlisle maintains that because capital is fungible, Cheng Shin received an indirect benefit on the production of bicycle tires and tubes from these loans. Carlisle further contends that two potentially countervailable income tax deductions Cheng Shin reported on 1981 taxable income, but which were tied to products other than bicyle tires and tubes, also bestow an indirect benefit. Carlisle argues that, at the least, the Department should investigate Cheng Shin's accounting procedures to determine whether funds for bicycle tire and tube production are co-mingled with funds from other operations.

Department's Position: We do not view benefits received for particular purposes to be fungible and equally beneficial to all products made by the firm in question. While the law clearly envisions reaching subsidies which benefit a product indirectly as well as directly, it would be inconsistent with the clear intent of the statute, as reflected in its legislative history, to allocate to products under review any portion of benefits clearly tied to products not under review. We allocate fully to products under review any subsidies directly tied to them. To allocate tied subsidies fully to the products to which they were tied and simultaneously to allocate any part of the same subsidies to other products would result in double-counting, which would be inconsistent with both the statute and the Subsidies Code.

Comment 8: Carlisle claims that commercial loans in Taiwan often carry compensating balance requirements, thus raising the effective interest rates for such loans. Carlisle asks that we attempt to determine whether compensating balances are required for preferential loans, and if not , to increase the ad valorem benefit to reflect this additional cost for benchmark loans.

Department's Position: This issue is moot, for Cheng Shin has no preferential loans, tied to bicycle tires and tubes or united, outstanding during the review period.

Comment 9: Carlisle asks that we determine whether Cheng Shin received loans at preferential rates for the financing of imports of raw materials.

Department's Position: Carlisle's market research study in support of this request indicates that preferential loans for raw materials is not a separate program, but a constituent of the Export Financing Program investigated by the Department in this review and found not to have been used by Cheng Shin.

Comment 10: Based upon information Carlisle has gathered, Carlisle concludes that Cheng Shin must have dramatically increased its production capacity from 1977, the year under review in the original investigation, through 1981. Carlisle surmises that this production capacity increase made Cheng Shin eligible for certain tax benefits, in particular, a tax exemption for new investment or accelerated depreciation pursuant to Article 6 of the SEI, tax deductions for production equipment investment pursuant to Article 10, and deferment of duty on imported machinery pursuant to Article 21. Carlisle argues that the Department must determine whether any such benefits were received in years prior to 1981, and then decide whether any residual benefits were still accruing to Cheng Shin during the period.

Department's Position: Articles 6 and 10 of the SEI allow firms to take yearly tax deductions. In its questionnaire response, Cheng Shin reported that it did not take advantage of these programs during the 1981 tax year. Article 21 allows a firm deferral or exemption from duties on the purchases of certain types of machinery for a limited number of years. Once again, Cheng Shin stated that it did not take advantage of this program for this merchandise during 1981. If used, tax exemptions and deductions for accelerated depreciation would have bestowed discrete, yearly benefits. We do not consider the possibe use of these programs prior to the review period to have bestowed residual benefits. Therefore, it was unnecessary to ask for information on use during prior years. Again, with regard to Article 21, Cheng Shin only reported use with regard to moped production.

Comment 11: Carlisle claims that the Department did not investigate whether Cheng Shin took advantage of Articles 29, 31, and 33 of the SEI, which provide for potentially countervailable export incentives.

Department's Position: Rather than rebate indirect taxes, Article 29 of the SEI exempts firms from the payment of an indirect tax on exports. This practice does not constitute a subsidy under section 771 of the Tariff Act of 1930 (" the Tariff Act"). Article 31 is a new provision of the SEI for which the Department has very little information. The provision allows firms to set aside 1 percent of their previous year's export earnings to compensate for export losses during the next year. Because Carlisle raised this issue for the first time in its pre-hearing brief, we will investigate it in the next administrative review. Article 33 allows for the reduction of a final stage indirect tax (a stamp tax) upon export, a practice which is also not countervailable.

Comment 12: Carlisle argues that, even though "the business tax" is nominally an indirect tax, making exemption from payment upon export not countervailable, the Department nevertheless should determine whether it actually functions as an indirect tax. If absorbed by the firm rather than passed on to purchasers, Carlisle argues that the Department should consider it a direct tax and its exemption or rebate upon export a countervailable subsidy.

Department's Position: Annex A to the Subsidies Code, cited in section 771(5) (A) of the Tariff Act, defines indirect taxes as any "sales, excise, turnover, value added, franchise, stamp, transfer, inventory and equipment taxes, border taxes, and all taxes other than direct taxes and import charges." The business tax is a sales tax and thus by definition an indirect tax. Exemption from such a tax does not constitute a subsidy within the meaning of section 771.

Comment 13: Carlisle asks that we determine whether Cheng Shin took advantage of the Taiwanese customs regulation which allows firms that export to defer payment of import duties on raw materials used in goods ultimately sold by those firms in the domestic market.

Department's Position: This is a new issue first raised by Carlisle at the hearing. We will investigate this allegation in the next administrative review.

Final Results of the Review

As a result of our review, we determined that the net subsidy conferred on the manufacture of bicycle tires and tubes by the programs cited above during the period of review is 0.90 percent ad valorem.

Accordingly, the Department will instruct the Customs Service to assess countervailing duties of 0.90 percent of the f.o.b. invoice price on all shipments by Cheng Shin entered, or withdrawn, from warehouse, for consumption on or after October 28, 1981 and exported on or before December 31, 1981.

Because the International Trade Commission ("the ITC") determined that no industry in the United States would be injured by importations of this merchandise if this countervailing duty order were revoked (48 FR 24795), the Department has revoked this order effective December 30, 1982, the date the ITC notified the Department that the *43369 Government of Taiwan had requested an injury determination.

The Department is now commencing the next administrative review of the order, which will cover the period January 1, 1982 through December 29, 1982. The Department encourages interested parties to review the public record and submit applications for protective orders, if desired, as early as possible after the Department's receipt of the information in the next administrative review.

This administrative review and notice are in accordance with section 751(a)(1) of the Tariff Act (19 U.S.C. 1675(a)(1)) and s 355.41 of the Commerce Regulations (19 CFR 355.41).

Dated: September 17, 1983.

Alan F. Holmer,

Deputy Assistant Secretary for Import Administration.

[FR Doc. 83-26011 Filed 9-22-83; 8:45 am]

BILLING CODE 3510-25-M