(Cite as: 50 FR 53363)
NOTICES
DEPARTMENT OF COMMERCE
[C-583-503]
Final Negative Countervailing Duty Determination; Welded Carbon Steel Line
Pipe From Taiwan
Tuesday, December 31, 1985
*53363 AGENCY: Import Administration, International Trade Administration, Commerce.
ACTION: Notice.
SUMMARY: We determine that no benefits which constitute subsidies within the meaning of the countervailing duty law are being provided to manufacturers, producers, or exporters of welded carbon steel line pipe (line pipe) in Taiwan. The net subsidy is 0.02 percent ad valorem. This rate is de minimis, and therefore this determination is nagative. We have notified the United States International Trade Commission (ITC) of our determination.
EFFECTIVE DATE: December 31, 1985.
FOR FURTHER INFORMATION CONTACT:Laurel LaCivita or Mary Martin, Office of Investigations, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC 20230; telephone: (202) 377-0189 (LaCivita) or 377-2830 (Martin).
SUPPLEMENTARY INFORMATION:
Final Determination
Based on our investigation, we determine that the following programs are countervailable:
- Preferential Export Financing
We determine that not countervailable benefits for line pipe to be 0.02 percent ad valorem. Although we have determined these programs to be countervailable, the respondent received de minimis benefits during the review period. Therefore, we determine that no benefits which constitute subsidies within the meaning of secton 701 of the Tariff Act of 1930, as amended, are being provided to manufacturers, producers or exporters of line pipe in Taiwan.
Case History
On July 16, 1985, we received a petition in proper form filed by the Line Pipe Subcommittee of the Committee of Pipe and Tube Imports (CPTI) and each of its member companies who produce line pipe. In compliance with the filing requirements s 355.26 of our regulations (19 CFR 355.26), the petition alleged that manufacturers, producers or exporters of line pipe in Taiwan directly or indirectly receive benefits which constitute subsidies within the meaning of section 701 of the Act, and that these imports materially injure, or threaten material injury to, a U.S. industry.
We found that the petition contained sufficient grounds upon which to initiate a countervailing duty investigation, and on August 5, 1985, we initiated such an investigation (50 FR 32751). We stated that we expected to issue a preliminary determination by October 19, 1985.
Since Taiwan is entitled to an injury determination under the secton 701(b) of the Act, the ITC is required to determine whether imports of the subject merchandise from Taiwan materially injure, or threaten material injury to, a U.S. industry. Therefore, we notified the ITC of our initiation. On August 30, 1985, the ITC perliminarily determined that there is a reasonable indication that these imports materially injure a U.S. industry (50 FR 36159).
On August 15, 1985, we presented a questionnaire concerning the petitioners' allegations to the American Institute on Taiwan in Washington, DC. Responses to the questionnaire were received on September 20, 1985 and September 23, 1985.
There are two known producers of welded carbon steel line pipe in Taiwan, the Far East Machinery Company. Ltd. (FEMCO) and Kao Hsing Chang Iron and Steel Corporation (KHC). China Steel Corporation (China Steel) responded to the Department questionnaire concerning preferentially-priced inputs.
On the basis of information contained in these responses, we made a preliminary determination on October 9, 1985 (50 FR 41924). We verified the responses of the Taiwan authorities, KHC, FEMCO and China Steel in Taiwan from October 15, 1985, to November 5, 1985
At the request of both petitioners and respondents, we held a hearing on November 19, 1985, to allow the parties opportunities to address the issues arising in the investigation. Both petitioners and respondents filed briefs discussing these issues before and after the hearing.
Scope of the Investigation
The product covered by this investigation is welded carbon steel line pipe, with an outside diameter of 0.375 inch or more but not over 16 inches, and with a wall thickness of not less than 0.065 inch, currently classified in the Tariff Schedules of the United States, Annotated (TSUSA) under items 610.3208 and 610.3209. This product is produced to various American Petroleum Institute (API) specifications for line pipe, most notably API-5L or API-5X.
Analysis of Programs
Throughout this notice, we refer to certain general principles applied to the facts of the current investigation. These principles are described in the "Subsidies Appendix" attached to the notice of "Cold-Rolled Carbon Steel Flat- Rolled Products from Argentina; Final Affirmative Countervailing Duty Determination and Countervailing Duty Order," which was published in the April 26, 1984, issue of the Federal Register (49 FR 18006).
For purposes of this determination, the period for which we are measuring subsidies (the review period) is calendar year 1984.
Based upon our analysis of the petition, the responses to our questionnaires submitted by the Taiwan authorities, FEMCO, KHC, China Steel, the verification, and the amended response submitted after verification, we determine the following:
I. Programs Determined To Be Countervailable
We determine that the following programs provide countervailable benefits to manufacturers, producers, or exporters of line pipe in Taiwan:
A. Preferential Export Financing
The Export Loan Discount Regulations of the Central Bank of China permit registered exporters in possession of a letter of credit to apply for low-cost export loans covering up to 85 percent of the value of the export transaction. Export loans are arranged through authorized foreign-currency banks, which may apply for an interest-rate reduction from the Central Bank. Exporters settle the loan with foreign exchange within 180 days or pay an interest-rate penalty on the full amount of the loan.
The Central Bank sets the maximum and minimum interest rates for commercial lending in Taiwan. Export loans are set at rates equal to or below the minimum rates established for commercial lending.
FEMCO obtained export loans to finance exports of the products under investigation to the United States. Because these loans are contingent upon *53364 export performance and provide funds to borrowers at interest rates lower than those available for other purposes, we determine that this program confers a benefit which constitutes an export subsidy.
To calculate the benefit, we compared the Central Bank's export-loan rate with its maximum short-term loan rate. We then multiplied the difference by the principal amount and allocated the benefit over the value of FEMCO's and KHC's 1984 exports of the products under investigation to the United States. KHC did not provide verifiable information with respect to their exports of line pipe to the U.S. Therefore, we used the best information available to arrive at KHC's portion of the denominator. The net subsidy is 0.002 percent ad valorem.
Article 31 of the Statute for Encouragement of Investment (SEI) permits exporters to establish an export loss reserve of up to one percent of the previous year's export exchange settlement to be used exclusively to compenate export losses. Companies treat the export loss reserve as a business expense and deduct it from taxable income in one year, then settle the account and carry the reserve funds forward as taxable income for the next year. FEMCO and KHC received benefits from export loss reserves during the review period.
Because this program is contingent upon export sales, we determine that it confers a benefit which constitutes an export subsidy. To calculate the benefit received in 1984, we treated tax savings from the export loss reserve as a one-year interest-free loan received mid-1983 at the time the income tax forms were filed. We compared the interest-free rate with the maximum lending rate set by the Central Bank. We divided the benefit by the value of KHC's and FEMCO's total 1984 exports and found the net subsidy to be 0.02 percent ad valorem.
II. Programs Determined not to Confer Subsidies
We determine the following programs do not confer subsidies on the manufacturers, producers or exporters of line pipe in Taiwan:
A. Business Tax Exemptions for Export Sales
The authorities on Taiwan levy a business tax on selling goods, rendering services or other profit seeking activities within the territory of Taiwan. Article 29 of the SEI exempts export sales, which include sales to trading companies and to manufacturers for further processing before export, from the business tax. The amount of the exemption equals the amount of business tax due on each sale destined for export. Companies pay the business tax monthy and receive exemptions for export at that time. However, if the export remains unconfirmed at the time the taxes are due, or, if goods are sold to trading companies or to other manufacturers for further processing before export, companies initially report the sale as a domestic sale, then apply for the business tax exemptions at the time of export. Such exemptions take the form of a rebate of taxes paid. Under the Act, the non-excessive remission of indirect taxes levied at the final stage is not considered a subsidy. We verified that the amount of the exemption or rebate is not greater than the amount of business tax due. Therefore, we determine that this program does not confer countervailable benefits within the meaning of the countervailing duty law.
The authorities on Taiwan levy a stamp tax on sales invoices Article 33 of the SEI permits the reduction of the stamp tax from 0.4 percent to 0.1 percent for all invoices issued by a profit-seeking enterprise for transactions exempt from the business tax. The stamp tax reduction is less than the amount of stamp tax due on each sale destined for export. Under the Act, the non-excessive remission of indirect taxes levied at the final stage is not considered a subsidy. Because we verified that the amount of the reduction is not greater than the amount of the stamp tax due, we determine that this program does not confer countervailable benefits within the meaning of the countervailing duty law.
C. Preferential Prices for Raw Materials
Petitioner alleged that the Taiwan authorities direct China Steel Corporation (China Steel) to provide coil at preferential prices to exporters.
China Steel, a state-owned corporation and a supplier of pipe-and-tube inputs, maintains a two-tiered pricing policy. The higher first-tier price is applicable to domestic producers who manufacture goods for the Taiwan market. It is based on the landed, duty-paid price of imported hot-rolled coil. The lower second-tier price is offered to manufacturers who purchase coil to produce export products and is based on the landed, duty-free price of hot- rolled coil.
Under item (d) of the Illustrative List of Export Subsidies annexed to the Agreement on Interpretation and Application of Articles VI, XVI and XXIII of the General Agreement on Tariffs and Trade, a price preference for inputs used in the production of export goods constitutes a subsidy only if the preference lowers the price below world-market levels (See. Final Neagative Countervailing Duty Determination: Certain Steel Wire Nails from the Republic of Korea, 47 FR 39549). Based on our examination of China Steel's second-tier coil prices to the pipe-and-tube producers under investigation and on world-market prices for coil, we found that China Steel's prices were at world-market levels. Therefore, we determine that China Steel's two-tiered pricing policy does not confer a countervailable benefit with the meaning of the countervailing duty law.
D. Preferential Income Tax Ceiling--25 Percent
Petitioner alleged that manufacturers, producers or exporters of line pipe in Taiwan benefit from a preferential income tax ceiling. Article 15 of the SEI permits productive enterprises and big trading companies to pay no more than 25 percent in corporate income taxes on income exceeding NT$500,000 rather than the 35 percent required by Taiwan's graduated corporate income tax law.
Article 15 benefits are available to all productive enterprises, defined in the SEI as stock companies engaged in manufacturing, handicrafts, mining, agriculture, forestry, fishery, animal husbandry, transportation, warehousing, public utilities, public facility construction and development, public housing construction, technical services, hotels and heavy machinery construction.
In prior cases, we found this program to be a subsidy based upon insufficient evidence that the program is non-specific. However, the evidence in this case indicates that these benefits are not limited to an industry or enterprise or group of industries or enterprises. Therefore, we determine that this program does not confer countervailable benefits within the meaning of the countervailing duty law.
E. Tax Credit for Investment in Production Equipment
Under Article 10 of the SEI, productive enterprises may deduct from income tax payable an amount of up to 15 percent of the value of capital equipment purchased during the year. In the event that the amount of the tax credit exceeds the value of income tax *53365 payable, the balance may be carried forward for up to four subsequent years.
Article 10 benefits are available to all productive enterprise defined above. In prior cases, we found this program to be a subsidy based upon insufficient evidence that the program is non-specific, However, the evidence in this case indicates that these benefits are not limited to an industry or enterprises or group of industries or enterprises. Therefore, we determine that this program does not confer countervailable benefits within the meaning of the countervailing duty law.
III. Programs Determined Not To Be Used
We determine that the following programs are not used by the manufacturers, producers, or exporters of line pipe in Taiwan:
A. Preferential Income Tax Ceiling--22 Percent
Article 15 of the SEI also permits enterprises engaged in the basic metal production industry, heavy machinery industry, petrochemical industry or other important productive enterprises which conform with the needs for development of economic and national defense industries and are capital-intensive and/or technology-intensive in nature to use a marginal tax rate of no more than 22 percent. We verified that neither KHC nor FEMCO used the 22 percent tax ceiling. Therefore, we determine this program not to be used.
B. Accelerated Depreciation and Tax Holiday
Article 6 of the SEI permits newly-established productive enterprises to select one of the following benefits: (1) A tax holiday of up to five years providing the company depreciates its assets according to Taiwan's Service Life of Fixed Assets; or (2) accelerated depreciation on the service life of machinery, equipment and buildings, construction facilities, and communication and transportation facilities. In addition, Article 6 permits expanding enterprises to select (1) a tax-holiday of up to four years on the income derived from increased capacity, if it depreciates its assets according to Taiwan's Service Life of Fixed Assets, or (2) a rapid depreciation of the newly purchased equipment beginning in the year in which the machines begin operation.
We verified that neither KHC nor FEMCO claimed accelerated depreciation or took a tax holiday during the period of review. Therefore, we determine this program not to be used.
C. Duty Exemptions and Deferral on Imported Equipment
Article 21 of the SEI allows productive enterprises to pay import duties in a series of installments beginning one year from the date of importation on selected machinery and equipment that is not manufactured domestically. In addition, qualified enterprises may be exempt from paying import duties on selected machinery and equipment which is used for the establishment or expansion of an approved project or for research and development.
We verified that neither KHC nor FEMCO recieved duty exemptions or deferrals. Therefore, we determine this program not to be used.
D. Preferential Long-Term Loans
Article 84 of the SEI permits the Executive Yuan to establish and administer a special development fund to promote investments of interest to national economic development. We vertified that neither KHC nor FEMCO used Article 84 financing in relations to the products under investigation. Therefore, we determine this program not to be used.
Petitioner's Comments
Comment 1: Petitioner argues that China Steel Corporation, a state-owned supplier of pipe-and-tube inputs, is able to offer a two-tiered pricing policy due to Taiwan's high tariff barrier. Under this policy, customers who produce line pipe for export pay lower prices for hot-rolled coil than those who produce line pipe for domestic consumption. Petitioner argues that this two- tiered pricing policy gives preferential treatment to exports because coil is sold to exporters at the lower-tier price.
DOC Position: We disagree. A two-tier pricing policy does not in itself confer and export subsidy. As we explained in our discussion of preferential pricing under the section of this notice entitled Programs Determined Not to Confer Subsidies, under item (d) of the Illustrative List of Export Subsidies annexed to the Agreement on Interpretation and Application of Articles VI, XVI and XXIII of the General Agreement on Tariffs and Trade, a price preference for inputs used in the production of export goods constitutes a subsidy only if the preference lowers the price below world-market levels (See, Final Negative Countervailing Duty Determination: Certain Steel Wire Nails from the Republic of Korea, 47 FR 39549). Based on our examination of China Steel's second-tier coil prices to the pipe-and-tube producers under investigation and on world- market prices for coil, we found that China Steel's prices were at world-market levels. Therefore, we determine that China Steel's two-tiered pricing policy does not confer a countervailable benefit.
Comment 2: Petitioner argues that China Steel Corporation, as a state-owned enterprise, is an "agency" of the authorities on Taiwan. Therefore, further directions from the authorities on Taiwan is not required to establish the presumption of government direction or control with respect to China Steel's two-tiered pricing policy.
DOC Position: We determine that the prices FEMCO and KHC paid for export- destined hot-rolled coil from China Steel were at world-market levels and, therefore, the issue of direction from the authorities on Taiwan is moot.
Comment 3: Petitioner argues that a subsidy provided by a private corporation is countervailable absent government action or direction.
DOC Position: We disagree. The "private" subsidies cited by petitioner were provided by private corporations who were administering funds levied and collected by the government on the government's behalf. See. Final Affirmative Countervailing Duty Determination Prestressed Concrete Steel Wire from South Africa. (47 FR 33310). Paragraph (d) of the Annex to the Subsidies Code stipulates that an export subsidy is conferred by the delivery by governments or their agencies of imported or domestic products or services for use in the production of exported goods, on terms or conditions more favorable than for delivery of like or directly competitive products or services for use in the production of goods for domestic consumption, if (in the case of products) such terms or conditions are more favorable than those commercially available on world markets to their exporters. (Emphasis added) We verified that the actual price FEMCO and KHC paid China Steel for hot-rolled coil was at world-market price levels.
Comment 4: Petitioner argues that the pertinent world-market price for determining whether China Steel's coil prices are preferential is the actual price domestic users of hot-rolled coil pay for imported coil used to produce line pipe.
DOC Position: We disagree. Under item (d) of the Illustrative List of Export Subsidies annexed to the Agreement on Interpretation and Application of Articles VI, XVI and XXIII of the General Agreement on Tariffs and Trade, a price preference for inputs used on the production of export goods *53366 constitutes a subsidy only if the preference lowers the price below " those commercially available on the world market to their exporters:" i.e., below world-market levels. Accordingly, we compared the actual prices FEMCO and KHC paid China Steel to the actual prices FEMCO and KHC paid for imported coil as well as to the generally available world-market prices for coil, and determined that China Steel's prices were at world-market levels.
Comment 5: Petitioner argues that the subsidy resulting from preferential prices should be measured as the difference in price between the first- and second-tier price and not as the difference between the world-market price and the lower-tier price.
DOC Position: We disagree. See the Department's response to petitioner's first comment.
Comment 6: Petitioner agrees with the Department's preliminary determination that the export loss reserves and the tax exemption for export sales confer countervailable benefits within the meaning of the countervailing duty law.
DOC position: In our final determination, we found that the export loss reserves confer an export subsidy. However, at verification, we learned that the business tax and stamp tax are indirect taxes. We verified that the exemption, remission or reduction of these taxes on export sales is non- excessive. Therefore, as described in this notice, these programs do not provide countervailable benefits within the meaning of the countervailing duty law.
Respondents' Comments
Comment 1: Respondents argue that low-cost export financing loans which are not discounted through the Central Bank should not be included under the export financing program since they do not involve government participation.
DOC Position: We disagree. We verified that all of the export financing loans under consideration were discounted through the Central Bank and therefore included these loans in the export financing program.
Comment 2: Respondents state that none of the export financing loans involved the products under investigation exported to the United States.
DOC Position: We verified that one export financing loan covered exports of line pipe to the United States and included it in the export financing program.
Comment 3: Respondents claim that the export loss reserve, which is claimed as a tax exemption under Taiwan's corporate income tax law, operates as a one-year deferral of income. They argue that the benefit should be calculated by treating the tax savings from the exemption as a one-year interest-free loan.
DOC Position: We agree. However, we note that there is a two-year lag between the time an export loss reserve is established and the time the benefit is realized. The export loss reserves established in calendar year 1982 were claimed as exemptions on the tax forms filed in 1983. Under our methodolgy, the resulting tax savings are considered to be interest-free loans for a one year period beginning on the date the income tax forms were filed. Therefore, the interest benefits were realized in 1984.
Comment 4: Respondents argue that the business tax exemptions and stamp tax reductions provide non-excessive remissions of indirect taxes which are not countervailable within the meaning of the countervailing duty law.
DOC Position: We agree. See our comments in the body of the notice.
Comment 5: Respondents argue that the 25-percent income tax ceiling provision of Article 15 of the SEI is available to a variety of industries in Taiwan and is therefore not countervailable within the meaning of the law.
DOC Position: We agree.
Comment 6: Respondents claim that the investment tax credit provisions of Article 10 of the SEI are not limited to an industry or enterprise or a group of industries or enterprises.
DOC Position: We agree.
Comment 7: Respondents argue that the Department should calculate the value of total export sales of all products to all markets by adding the value of the "indirect exports" reported on the monthly business and stamp tax declarations to the value of exports reported in the questionnaire response. Respondents state that allocating benefits over total exports, without including indirect exports, overstates any benefits received by the respondent companies.
DOC Position: We disagree. We verified that the export sales figures reported in the questionnaire responses and the amended questionnaire responses were accurate and had already been included the above-mentioned indirect export sales.
Comment 8: Respondents argue that the prices China Steel charges for export-destined hot-rolled coil are not preferential since there is no government direction or control of China Steel's pricing policy. Respondents further argue that government ownership does not per se indicate government direction or control.
DOC Position: See the Department's response to petitioner's second comment.
Comment 9: Respondents argue that Japanese prices of coil should not be used as the prices with which China Steel's prices should be compared to determine if they are below world-market prices. Furthermore, they argue that the test as to whether or not there is preferential pricing does not depend on the prices actually paid by a company for alternate coil, but the price Taiwan exporters would have to pay on the world market for the input they used.
DOC Position: See petitioner's Comment 4 and the Department's response.
Comment 10: Respondents argue that if a subsidy is found with respect to the pricing issue, the measure of the subsidy should not be the difference between the first- and second-tier price, but the difference between the world-market price and the preferential price.
DOC Position: See petitioner's first comment and the Department's response.
Comment 11: Respondents argue that neither KHC nor FEMCO keep their records in such a fashion as to provide the value of the exports to the U.S. of the product under investigation.
DOC Position: The Department verified FEMCO's value of line pipe exports to the U.S. Because KHC did not provide verifiable information on the value of its line pipe exports to the U.S., we used Department statistics to calculate this value.
China Steel's Comments
Comment 1: China Steel asserts that the world-market price is the price available to customers in the position of the respondents, which in this investigation, is the price available to Southeast Asian coil users on the open world market.
DOC position: See petitioner's fourth comment and the Department's response.
Comment 2: China Steel argues that the appropriate price comparison for world- market-price analysis is between China Steel's base price for hot-rolled coil and the base price for hot-rolled coil offered by foreign suppliers.
DOC position: We disagree. In this case, the appropriate price comparison is between the final F.O.B. price offered by foreign suppliers for each grade, quality, and size of hot-rolled coil and between China Steel's second-tier ex- works price of the comparable grade, quality and size of hot-rolled coil.
*53367 Verification
In accordance with 776(a) of the Act, we conducted a verification of the information provided in the questionnaire response. During verification, we followed normal verification procedures, including meeting with government officials and inspection of documents, as well as on-site inspection of the companies producing and exporting the merchandise under investigation to the U.S.
Administrative Procedures
We afforded interested parties an opportunity to present oral views in accordance with our regulations (19 CFR 355.35). A hearing was held on November 19, 1985. In accordance with the Department's regulations (19 CFR 355.34(a)), written views have been received and considered in this determination.
Termination of Suspension of Liquidation
In accordance with this determination, and section 705(c)(2) we are directing the U.S. Customs Service to terminate suspension of liquidation on the products under investigation and to release any bond, or other security, and refund any cash deposit placed upon welded carbon steel standard pipe and tube from India as described in the "Scope of Investigation" section of this notice.
ITC Notification
In accordance with section 705(d) of the Act, we will notify the ITC of our determination. Since this determination is negative, the 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 notice is published pursuant to section 705(d) of the Act (19 U.S.C. 1671(d)).
Paul Freedenberg,
Assistant Secretary for Trade Administration.
December 23, 1985.
[FR Doc. 85-30872 Filed 12-30-85; 8:45 am]
BILLING CODE 3510-05-M