[Federal Register: April 20, 2001 (Volume 66, Number 77)]
[Notices]
[Page 20251-20261]
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DEPARTMENT OF COMMERCE
International Trade Administration
[C-549-818]
Notice of Preliminary Affirmative Countervailing Duty
Determination and Alignment With Final Antidumping Duty Determinations:
Certain Hot-Rolled Carbon Steel Flat Products From Thailand
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
ACTION: Notice of preliminary affirmative countervailing duty
determination.
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EFFECTIVE DATE: April 20, 2001.
FOR FURTHER INFORMATION CONTACT: Dana Mermelstein at (202) 482-1391 or
Samantha Denenberg at (202) 482-1386, Office of AD/CVD Enforcement VII,
Group III, Import Administration, International Trade Administration,
U.S. Department of Commerce, Room 7866, 14th Street and Constitution
Avenue, NW., Washington, DC 20230.
Preliminary Determination
The Department of Commerce (the Department) preliminarily
determines that countervailable subsidies are being provided to
producers and exporters of certain hot-rolled carbon steel flat
products from Thailand. For information on the estimated countervailing
duty rates, please see the ``Suspension of Liquidation'' section of
this notice.
SUPPLEMENTARY INFORMATION:
Petitioners
The petition in this investigation was filed, on November 22, 2000,
by Bethlehem Steel Corporation, Gallatin Steel Company, IPSCO Steel
Inc., LTV Steel Company, Inc., National Steel Corporation, Nucor
Corporation, Steel Dynamics, Inc., U.S. Steel Group, a unit of USX
Corporation, Weirton Steel Corporation, Independent Steelworkers Union,
and the United Steelworkers of America (the petitioners).
Case History
We initiated this investigation on December 4, 2000. See Notice of
Initiation of Countervailing Duty Investigations: Certain Hot-Rolled
Carbon Steel Flat Products From Argentina, India, Indonesia, South
Africa, and Thailand, 65 FR 77580 (December 12, 2000) (Initiation
Notice). Since the initiation, the following events have occurred. On
December 20, 2000, we issued a countervailing duty questionnaire to the
Royal Thai Government (RTG). On January 3, 2001, the RTG responded to
Section I.D. of the Department's questionnaire, identifying Sahaviriya
Steel Industries Public Company Limited (SSI) as the only producer/
exporter of the subject merchandise to the United States during the
period of investigation. On January 17, 2001, petitioners renewed their
allegation that SSI was uncreditworthy in 1996. On February 6, 2001, we
received questionnaire responses from SSI and the RTG. On February 27,
2001, we issued supplemental questionnaires to the RTG and SSI. On
March 7 and March 13, 2001, we received the RTG's and SSI's responses
to the Department's supplemental questionnaires. On March 16, 2001, the
Department decided not to initiate an uncreditworthiness investigation
of SSI for 1996. See Memorandum to the File Regarding
Uncreditworthiness Allegation for SSI in 1996.
On January 18, 2001, we issued a partial extension of the due date
for this preliminary determination from February 7, 2001, to March 26,
2001. See Certain Hot -Rolled Carbon Steel
[[Page 20252]]
Flat Products from India, Indonesia, South Africa and Thailand:
Extension of Time Limit for Preliminary Determinations in
Countervailing Duty Investigations, 66 FR 8199 (January 30,
2001)(Extension Notice). On March 26, 2001, we amended the Extension
Notice to take the full amount of time to issue this preliminary
determination. The extended due date is April 13, 2001. See Certain
Hot-Rolled Carbon Steel Flat Products from India, Indonesia, South
Africa and Thailand: Extension of Time Limit for Preliminary
Determinations in Countervailing Duty Investigations, 66 FR 17525
(April 2, 2001).
Scope of the Investigation
The merchandise subject to this investigation is certain hot-rolled
carbon steel flat products of a rectangular shape, of a width of 0.5
inch or greater, neither clad, plated, nor coated with metal and
whether or not painted, varnished, or coated with plastics or other
non-metallic substances, in coils (whether or not in successively
superimposed layers), regardless of thickness, and in straight lengths,
of a thickness of less than 4.75 mm and of a width measuring at least
10 times the thickness. Universal mill plate (i.e., flat-rolled
products rolled on four faces or in a closed box pass, of a width
exceeding 150 mm, but not exceeding 1250 mm, and of a thickness of not
less than 4 mm, not in coils and without patterns in relief) of a
thickness not less than 4.0 mm is not included within the scope of this
investigation.
Specifically included within the scope of this investigation are
vacuum degassed, fully stabilized (commonly referred to as
interstitial-free (IF)) steels, high strength low alloy (HSLA) steels,
and the substrate for motor lamination steels. IF steels are recognized
as low carbon steels with micro-alloying levels of elements such as
titanium or niobium (also commonly referred to as columbium), or both,
added to stabilize carbon and nitrogen elements. HSLA steels are
recognized as steels with micro-alloying levels of elements such as
chromium, copper, niobium, vanadium, and molybdenum. The substrate for
motor lamination steels contains micro-alloying levels of elements such
as silicon and aluminum.
Steel products to be included in the scope of this investigation,
regardless of definitions in the Harmonized Tariff Schedule of the
United States (HTSUS), are products in which: (i) Iron predominates, by
weight, over each of the other contained elements; (ii) the carbon
content is 2 percent or less, by weight; and (iii) none of the elements
listed below exceeds the quantity, by weight, respectively indicated:
1.80 percent of manganese, or
2.25 percent of silicon, or
1.00 percent of copper, or
0.50 percent of aluminum, or
1.25 percent of chromium, or
0.30 percent of cobalt, or
0.40 percent of lead, or
1.25 percent of nickel, or
0.30 percent of tungsten, or
0.10 percent of molybdenum, or
0.10 percent of niobium, or
0.15 percent of vanadium, or
0.15 percent of zirconium.
All products that meet the physical and chemical description
provided above are within the scope of this investigation unless
otherwise excluded. The following products, by way of example, are
outside or specifically excluded from the scope of this investigation:
Alloy hot-rolled steel products in which at least one of
the chemical elements exceeds those listed above (including, e.g.,
American Society for Testing and Materials (ASTM) specifications A543,
A387, A514, A517, A506).
Society of Automotive Engineers (SAE)/American Iron &
Steel Institute (AISI) grades of series 2300 and higher.
Ball bearings steels, as defined in the HTSUS.
Tool steels, as defined in the HTSUS.
Silico-manganese (as defined in the HTSUS) or silicon
electrical steel with a silicon level exceeding 2.25 percent.
ASTM specifications A710 and A736.
USS Abrasion-resistant steels (USS AR 400, USS AR 500).
All products (proprietary or otherwise) based on an alloy
ASTM specification (sample specifications: ASTM A506, A507).
Non-rectangular shapes, not in coils, which are the result
of having been processed by cutting or stamping and which have assumed
the character of articles or products classified outside chapter 72 of
the HTSUS.
The merchandise subject to this investigation is classified in the
HTSUS at subheadings: 7208.10.15.00, 7208.10.30.00, 7208.10.60.00,
7208.25.30.00, 7208.25.60.00, 7208.26.00.30, 7208.26.00.60,
7208.27.00.30, 7208.27.00.60, 7208.36.00.30, 7208.36.00.60,
7208.37.00.30, 7208.37.00.60, 7208.38.00.15, 7208.38.00.30,
7208.38.00.90, 7208.39.00.15, 7208.39.00.30, 7208.39.00.90,
7208.40.60.30, 7208.40.60.60, 7208.53.00.00, 7208.54.00.00,
7208.90.00.00, 7211.14.00.90, 7211.19.15.00, 7211.19.20.00,
7211.19.30.00, 7211.19.45.00, 7211.19.60.00, 7211.19.75.30,
7211.19.75.60, and 7211.19.75.90. Certain hot-rolled carbon steel flat
products covered by this investigation, including vacuum degassed fully
stabilized; high strength low alloy; and the substrate for motor
lamination steel may also enter under the following tariff numbers:
7225.11.00.00, 7225.19.00.00, 7225.30.30.50, 7225.30.70.00,
7225.40.70.00, 7225.99.00.90, 7226.11.10.00, 7226.11.90.30,
7226.11.90.60, 7226.19.10.00, 7226.19.90.00, 7226.91.50.00,
7226.91.70.00, 7226.91.80.00, and 7226.99.00.00. Subject merchandise
may also enter under 7210.70.30.00, 7210.90.90.00, 7211.14.00.30,
7212.40.10.00, 7212.40.50.00, and 7212.50.00.00. Although the HTSUS
subheadings are provided for convenience and U.S. Customs purposes, the
Department's written description of the merchandise under investigation
is dispositive.
In the scope section of the Initiation Notice for this
investigation, the Department encouraged all parties to submit comments
regarding product coverage by December 26, 2000. The Department is
presently considering a request to amend the scope of these
investigations to exclude a particular specialty steel product. We will
issue our determination on this request prior to the final
determination.
The Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute are
references to the provisions effective January 1, 1995, the effective
date of the amendments made to the Tariff Act of 1930 (the Act) by the
Uruguay Round Agreements Act (URAA). In addition, all citations to the
Department's regulations are to the regulations codified at 19 CFR part
351 (2000).
Injury Test
Because Thailand is a ``Subsidies Agreement Country'' within the
meaning of section 701(b) of the Act, the International Trade
Commission (ITC) is required to determine whether imports of the
subject merchandise from Thailand materially injure or threaten
material injury to a U.S. industry. On January 4, 2001, the ITC
published its preliminary determination finding that there is a
reasonable indication that an industry in the United States is being
materially injured, or threatened with material injury, by reason of
imports from Thailand of subject merchandise (66 FR 805). The views of
the
[[Page 20253]]
Commission are contained in the USITC Publication 3381 (January 2001),
Hot-Rolled Steel Products from Argentina, China, India, Indonesia,
Kazakhstan, Netherlands, Romania, South Africa, Taiwan, Thailand, and
Ukraine; Investigation Nos. 701-TA-404-408 (Preliminary) and 731-TA-
898-908 (Preliminary).
Alignment with Final Antidumping Duty Determinations
On March 23, 2001, petitioners submitted a letter requesting
alignment of the final determination in this investigation with the
final determinations of the antidumping duty investigations of certain
hot-rolled carbon steel flat products from Argentina, India, Indonesia,
Kazakhstan, the Netherlands, the People's Republic of China, Romania,
South Africa, Taiwan, Thailand, and Ukraine. See Initiation Notice. In
accordance with section 705(a)(1) of the Act, we are aligning the final
determination in this investigation with the final determinations in
the companion antidumping investigations of certain hot-rolled carbon
steel flat products.
Period of Investigation
The period of investigation (POI) for which we are measuring
subsidies is calendar year 1999.
Use of Facts Available
The RTG failed to respond to specific questions in the Department's
original and supplemental questionnaires. Section 776(a)(2)(A) of the
Act states the Department shall use facts otherwise available in
reaching the applicable determination if any interested party
``withholds information that has been requested by the administering
authority.'' As described in more detail in the Debt Restructurings
section below, the RTG withheld information explicitly requested by the
Department; therefore, we must resort to the use of facts otherwise
available.
Furthermore, section 776(b) of the Act provides that in selecting
from among the facts available, the Department may use an inference
that is adverse to the interests of a party if it determines that a
party has failed to cooperate to the best of its ability. In this
investigation, the Department requested the RTG to submit information
identifying which companies and industries had been targeted for debt
restructuring. The Department also requested the CDRAC ``List of 351,''
a list which identifies the first 351 cases ``targeted'' by the RTG for
debt restructuring. This information was requested in the initial and
supplemental questionnaires, respectively. The Department finds that by
not providing necessary information specifically requested by the
Department the RTG has failed to cooperate to the best of its ability.
Therefore, in selecting facts available, the Department determines that
an adverse inference is warranted.
When employing an adverse inference, the statute indicates that the
Department may rely upon information derived from (1) the petition; (2)
a final determination in a countervailing duty or an antidumping
investigation; (3) any previous administrative review, new shipper
review, expedited antidumping review, section 753 review, or section
762 review; or (4) any other information placed on the record. See
section 776(b)(1)-(b)(4) of the Act and 19 CFR Sec. 351.308(c). As
adverse facts available in this preliminary determination, we have
relied upon information in the record, including other information in
the response and information submitted by the petitioners, in order to
determine that the information the RTG has withheld may provide
necessary insight into the specificity of SSI's and PPC's debt
restructurings. The Department's selection of the information used as
adverse facts available is discussed in more detail in the Debt
Restructurings section below.
Subsidies Valuation Information
Allocation Period
Section 351.524(d)(2) of the Department's regulations states that
we will presume the allocation period for non-recurring subsidies to be
the average useful life (AUL) of renewable physical assets for the
industry concerned as listed in the Internal Revenue Service's (IRS)
1977 Class Life Asset Depreciation Range System, as updated by the
Department of Treasury. The presumption will apply unless a party
claims and establishes that these tables do not reasonably reflect the
AUL of the renewable physical assets for the company or industry under
investigation, and the party can establish that the difference between
the company-specific or country-wide AUL for the industry under
investigation is significant.
No party requested, or submitted information which yielded, an
industry-wide AUL different from the AUL listed in the IRS tables. We
are therefore using the 15-year AUL as reported in the IRS tables to
allocate any non-recurring subsidies under investigation which were
provided directly to SSI. Petitioners also alleged that Prachuab Port
Co., Ltd. (PPC), which is 51 percent owned by SSI and which provides
port facilities and services to SSI, received non-recurring subsidies
under several programs. For non-recurring subsidies provided to PPC, we
are using the AUL of 20 years, as reported in the IRS tables for port
facilities.
Creditworthiness and the Calculation of Loan Benchmark and Discount
Rates
Both SSI and PPC received exemptions from import duties on the
importation of capital equipment (under IPA Section 28), which we have
preliminarily determined to be non-recurring benefits. See Duty
Exemptions on Imports of Machinery Under IPA Section 28 section below.
SSI received IPA Section 28 exemptions in the years 1992 through 1997
and PPC received IPA Section 28 benefits in 1994 through 1996.
Section 351.524(d)(3) of the regulations directs us regarding the
selection of a discount rate for the purposes of allocating non-
recurring benefits over time. The regulations provide several options
in order of preference. The first among these is the cost of long-term
fixed-rate loans of the firm in question, excluding any loans which
have been determined to be countervailable, for each year in which non-
recurring subsidies have been received. Both SSI and PPC have
calculated their annual average cost of long-term fixed-rate loans. SSI
has done so for the years 1994 through 1997; PPC has done so for the
years 1993 through 1997. Since we are not investigating the
countervailability of SSI's or PPC's loans during this period, there is
no reason to seek another source of appropriate discount rate
information. However, for the years 1992 and 1993, in which SSI
received IPA Section 28 benefits, and for which SSI has not provided
its cost of long-term fixed-rate loans, we have used as our discount
rate the cost of long-term fixed-rate loans reported by PPC for 1993.
While the RTG did report the Thailand-wide average cost of fixed-rate
debt for the years 1992 through 1999, we believe that PPC's own cost of
long-term fixed rate debt more closely satisfies the Department's
preference for a company-specific interest rate.
We initiated an investigation of whether SSI was creditworthy for
the years 1997 through 1999. However, except for 1999, we have not
found benefits granted in those years that are allocable to the POI,
under any of the non-recurring subsidy programs under investigation.
See Duty Exemptions on Imports of Machinery Under IPA Section 28
section below. Therefore we need not reach the issue of SSI's
creditworthiness in 1997 or 1998.
[[Page 20254]]
Furthermore, we declined to initiate an investigation of SSI's
creditworthiness for 1996. See Case History section above. Therefore,
there is no basis for adjusting the discount rates to include an
uncreditworthiness risk premium in any of the relevant years. However,
both SSI and PPC received loans as part of their restructuring packages
in 1999. Therefore, it is necessary to conduct a creditworthiness
analysis for 1999, the year in which the terms of the debt
restructurings under investigation were agreed to, as discussed in the
Debt Restructurings section below.
In determining whether SSI was uncreditworthy during 1999, we
conducted: (1) an examination of SSI's ability to meet its costs and
fixed financial obligations with its cash flow; (2) an analysis of
SSI's financial ratios from 1996 to 1998; and, (3) an examination of
whether new long-term commercial loans were provided by commercial
lending institutions, other than the debt restructuring itself.
In its questionnaire responses, SSI stated that it was unable to
meet its principal and interest payment schedules and that defaults
occurred on the loans which gave rise to the necessity for
restructuring those loans. Information in the responses also shows that
by 1999 SSI was unable to meet its financial obligations. Because SSI
was a startup, we would expect to see that SSI's capital and other
startup-related expenses would absorb revenue in the initial years and
would cause the company to experience some difficulty in meeting its
debt obligations in its initial years, in this case 1994 through 1995.
However, even beyond the first two years, SSI was still having
difficulty meeting its debt servicing requirements from 1996 through
the first half of 1999.
We also examined the company's financial statements for the three
years prior to 1999. In this case, the questionnaire responses provide
sufficient SSI financial statement information for 1996, 1997, and 1998
to analyze whether a reasonable private lender would have extended
credit to SSI in 1999. When we examined the relevant ratios (Current
Ratio, Quick Ratio, Debt-to-Equity) for 1996 through 1998, we see that
1996 starts with SSI below average financial health benchmarks. After
1996, SSI experienced a marked decline in its financial performance in
all three of these ratios: for example, the Current Ratio was below
financial benchmark averages for 1996 and worsened until 1998; the
Quick Ratio exhibited the same trend as the Current Ratio; and the
Debt-to-Equity Ratio exhibited a marked increase from 1996 to 1998.
This information shows that 1998 was the worst in terms of overall
financial health. These ratios normally would be seen by a reasonable
private lender as an indication of SSI's declining ability to meet its
debt service obligations and thus an indication of its
uncreditworthiness. For additional information, see Memorandum from
Javier Barrientos through Dana Mermelstein to Barbara E. Tillman:
Creditworthiness of SSI (April 13, 2001) (Creditworthiness Memo)
(public version on file in the Department's Central Records Unit).
Respondents have argued that the debt restructuring itself constitutes
commercial long-term financing obtained in 1999, and therefore is
indicative of SSI's creditworthiness. The Department, however, has
examined the proprietary details of the debt restructuring transaction
to determine whether it gives rise to countervailable benefits, and has
found that the financing to which respondents refer was part of the
debt restructuring package which was achieved on non-commercial terms.
See section on Debt Restructurings below. Thus, we cannot consider this
financing as indicative of SSI creditworthiness during the POI. In
addition, respondents have not shown that they received other long-term
commercial financing during 1999.
Thus, based on the above information and in accordance with section
351.505 (a)(4) of the Department's regulations, we preliminarily
determine that SSI was uncreditworthy in 1999. There is no indication
that SSI could have obtained long-term loans from conventional
commercial sources.
Because we have preliminarily determined that SSI was
uncreditworthy in 1999, we adjusted the loan benchmark rate by adding a
risk premium, calculated according to the methodology described in
section 351.505(a)(3)(iii) of our regulations, for those subsidies
conferred during the fiscal year 1999.
Equityworthiness
We initiated an investigation of SSI's equityworthiness for 1999.
The conversion to equity of SSI's convertible debentures which occurred
in 1999 was one element of SSI's debt restructuring which was completed
in 1999. As discussed in greater detail below, we are continuing to
gather information necessary to determine whether the alleged RTG
involvement in the debt-for-equity conversion gives rise to
countervailable subsidies. Therefore, for purposes of this preliminary
determination, we need not reach the issue of SSI's equityworthiness in
1999.
Programs Preliminarily Determined To Be Countervailable
1. Investment Incentives Under the Investment Promotion Act
According to the questionnaire responses, the Investment Promotion
Act of 1977 (IPA) is administered by the Board of Investment (BOI) and
is designed to provide incentives to invest in Thailand. In order to
receive IPA benefits, each company must apply to the BOI for a
Certificate of Promotion (license), which specifies goods to be
produced, production and export requirements, and benefits approved.
These licenses are granted at the discretion of the BOI and are
periodically amended or reissued to change benefits or requirements.
IPA benefits include VAT exemptions, import duty exemptions, income tax
exemptions, and other tax benefits for promoted companies under various
sections of the IPA. Each IPA benefit for which a company is eligible
must be specifically stated in the license.
According to the responses, Thailand had been considering the
establishment of a private domestic steel industry since the 1960's. It
was not until the late 1980's, however, that developing market factors
made a Thai flat-rolled steel industry feasible. In an effort to
encourage private investment into this industry, the BOI solicited bids
and offered a package of tax and duty incentives under IPA that it
would make available for the creation of a hot-rolled steel sheet
facility. The August 2, 1988 Announcement of the Office of the Board of
Investment No. Por. 1/1988, Re: Promotion of Steel Sheet Production
outlined the criteria for application to this program. Six applications
were submitted, and two of these were found to meet the requirements
outlined in the above announcement, one of them being SSI's. SSI was
then chosen to receive the benefits package because it was considered
by the BOI to have a greater likelihood of success than the other
applicant. After the BOI approved the benefits package for SSI, the
Ministry of Industry (MOI) issued SSI a factory license. The MOI then
announced on November 24, 1989, in Ministry of Industry Announcement,
Re: Policy on Steel Sheet Industry, that it would ``suspend its
consideration for the establishment or the expansion of factories
producing hot-rolled, cold-rolled, and surface treatment sheet (plate
mill excluded), for a period of ten years.''
When determining whether a program is countervailable, we must
examine whether it is an export subsidy or whether it provides benefits
to a specific
[[Page 20255]]
enterprise, industry, or group thereof, either in law (de jure
specificity) or in fact (de facto specificity). See Section 771(5A) of
the Act. There are no export requirements in the general legislation of
the IPA, although some specific sections of the IPA contain export
requirements. There is also no element of the law explicitly limiting
eligibility for IPA program benefits from the BOI, to an enterprise,
industry, or group thereof. Thus, this program is not de jure specific,
and we must analyze whether the program meets the de facto criteria
defined under section 771(5A)(D)(iii) of the Act. Because a specific
package of IPA benefits was tailored to meet SSI's requirements and
because the MOI announced it would not issue a license to any other
companies in the hot-rolled industry for a period of ten years, we
preliminarily find SSI's IPA benefits to be de facto specific to an
enterprise within the meaning of section 771(5A)(D)(iii)(I) of the Act.
In addition to IPA benefits to SSI, petitioners alleged that PPC,
the 51 percent-owned subsidiary of SSI, also received a package of
benefits under IPA. PPC, which owns and operates the port facility
where SSI is located, was established in 1991, after SSI was
established and approved for its package of IPA benefits. Although the
BOI did not expressly solicit applicants to establish a port facility,
the fact that PPC was created after SSI to develop a port facility in
the same location as SSI's plant; is owned 51 percent by SSI; and,
services SSI's import and export needs, leads us to conclude that the
BOI's approval of a package of incentives to PPC was part of its effort
to develop a hot-rolled steel industry, and therefore, that PPC's
package of incentives is specific in accordance with section
771(5A)(D)(iii)(I) of the Act.
Because the packages of benefits were composed of different types
of incentives under different sections of the IPA, we are analyzing the
issues of financial contribution and benefit under each relevant
section.
a. Duty Exemptions on Imports of Machinery Under IPA Section 28.
IPA Section 28 allows companies to import machinery and equipment
(fixed assets) with an exemption of import duties and VAT (VAT
exemptions under IPA Section 28 are provided by section 21(4) of the
VAT Act, which is discussed separately below in the section titled
Programs Preliminarily Determined to be Not Countervailable). According
to the questionnaire responses, SSI and PPC received import duty
exemptions under IPA Section 28 during the years since the initial BOI
Section 28 certificates were issued.
Import duty exemptions provide a financial contribution under
section 771(5)(D)(ii) of the Act in the form of foregone revenue that
is otherwise due to the RTG. The benefit is the amount of the revenue
foregone by the RTG.
Although import duty exemptions are identified as recurring in the
illustrative list of recurring benefits in section 351.524(c)(1) of the
regulations, petitioners alleged that, since these import duty
exemptions were for the purchase of capital equipment, they should be
treated as non-recurring in accordance with section 351.524(c)(2)(iii)
of the regulations. In the preamble to our regulations, we stated that
if a government provides an import duty exemption tied to major
equipment purchases, it may be reasonable to conclude that, because
these duty exemptions are tied to capital assets, the benefits from
such duty exemptions should be considered non-recurring. See
Countervailing Duties; Final Rule, 63 FR 65348, 65393 (November 25,
1998) (Preamble). The benefit received from the exemption of import
duties under IPA Section 28 is tied to the capital assets of SSI and
PPC. Additionally, proprietary information provided by SSI supports our
treatment of Section 28 benefits as non-recurring. Our analysis of this
information is contained in the Memorandum from Case Analysts to
Barbara E. Tillman, Certain Hot-Rolled Carbon Steel Flat Products from
Thailand: Analysis of Business Proprietary Information related to IPA
Section 28 (April 13, 2001) (Business Proprietary Memo). Accordingly,
we preliminarily determine that it is appropriate to treat the
exemption of duties on capital equipment as a non-recurring benefit.
To measure the benefit allocable to the POI, we first conducted the
``0.5 percent test'' for the total Section 28 import duty exemptions.
See section 351.524(b)(2) of the Department's regulations. For each
year in which there were section 28 import duty exemptions, we summed
the exemptions provided in that year and divided that sum by the
relevant total sales for that year. We thus determined that for certain
years Section 28 import duty exemptions should be allocated over time.
For those years, we allocated the annual total exemptions, in
accordance with section 351.524(d) of the Department's regulations, to
determine the Section 28 benefits attributable to the POI (see
Allocation Period section above). We summed the portions of each year's
benefits attributable to the POI and divided that amount by the
appropriate total sales during the POI to preliminarily determine a
countervailable subsidy of 0.84 percent ad valorem.
b. Duty Exemptions on Imports of Raw and Essential Materials Under
IPA Section 30 and Section 36. IPA Section 30 allows companies
reductions of import duties on raw and essential materials that are
consumed in production. Under section 30, SSI was originally approved
for a 90 percent reduction of duties on imported raw and essential
materials; the rate of duty reduction was later changed to 75 percent,
which was in effect during the POI. During the POI, SSI used Section 30
on imports of steel slab. Pursuant to section 771(5)(D)(ii) of the Act,
Section 30 provides a financial contribution in the form of revenue
forgone by the RTG, i.e., the duties which would otherwise be assessed
on the imported raw and essential materials. There is a benefit to SSI
in the amount of the duties they would otherwise have to pay. According
to SSI, the duty rate on steel slab was one percent, and thus SSI paid
duties on slab imports at the rate of 0.25 percent. However, the tariff
schedule provided by the RTG shows that the ``normal rate'' of duties
on steel slab imports was ten percent, while one percent is the
``discount rate.'' Neither the RTG nor SSI explained the difference
between the ``normal rate'' and the ``discount rate,'' nor did they
explain how or when such discount rates are applied. They also did not
explain why SSI would have been entitled to import steel slab at the
``discount rate.'' Because the normal rate of duty that SSI should have
paid on steel slab during the POI was ten percent, we are using that
rate to calculate the benefit from Section 30 import duty reductions.
To measure the benefit, we have calculated the difference between the
duties SSI actually paid and the duties that they should have paid
absent the Section 30 reduction and access to the discount rate. We
divided that difference by the value of SSI's total sales during the
POI and we preliminarily determine the countervailable subsidy to be
0.91 percent ad valorem.
SSI's benefits under Section 30 expired at the beginning of the
POI. However, this expiration does not constitute a program-wide change
in accordance with section 351.526(b) of the regulations because the
program itself was not terminated and SSI reported that it started
receiving duty exemptions under another element of the IPA, Section 36.
Section 36 provides companies with export-specific import duty and tax
exemptions. Section 36(1) allows companies to import raw and
[[Page 20256]]
essential materials that are incorporated into goods for export with
exemptions on import duties. After SSI's benefits under Section 30
expired, SSI began receiving duty exemptions on imports of raw and
essential materials under Section 36(1). SSI reported that it only
received exemptions under Section 36(1) on its imports of goods that
were consumed in the production of merchandise for export. The RTG
reported that Section 36(1) essentially operates as a duty drawback
scheme and as such, is not countervailable, as the exemptions on
imported raw and essential materials can only be received for imported
goods consumed in the production of exports. However, in order to
determine whether this program meets the standards for non-
countervailability set forth in section 351.519(a)(4) of the
regulations, we need additional information to confirm that the Thai
customs authority has a system in place to monitor and track the
consumption and/or re-export of goods imported under section 36(1) and
that there are provisions related to the normal allowance for waste.
c. Corporate Income Tax Exemptions Under IPA Section 31. IPA
Section 31 provides a three- to eight-year exemption for payment of
corporate income tax on profits derived from promoted activities, as
well as deductions from net profits for losses incurred during the tax
exemption period. SSI and PPC were eligible for Section 31 benefits,
but both were in a tax loss position during the POI, and thus, were
prevented from claiming these exemptions on the tax returns each filed
during the POI. As such, we preliminarily determine that IPA Section 31
was not used by producers or exporters of the subject merchandise to
the United States during the POI.
d. Additional Tax Deductions Under IPA Section 35. IPA Section 35
provides various income tax deductions and exemptions for promoted
firms. During the POI, SSI through Section 35(3), claimed benefits
under this program on the tax return filed during the POI. IPA Section
35(3) allows promoted companies to deduct double the cost of
transportation, electricity, and water for ten years after the promoted
company first derives income. Income tax deductions provide a financial
contribution under section 771(5)(D)(ii) of the Act in the form of
foregone revenue that is otherwise due to the RTG. The benefit is the
amount of the revenue foregone by the RTG. Under the provisions of
section 351.509(a)(1) of the Department's regulations, we preliminarily
determine that SSI received a benefit under IPA Section 35 during the
POI.
To measure the benefit, we assumed, consistent with Final
Affirmative Countervailing Duty Determination and Countervailing Duty
Order; Extruded Rubber Thread from Malaysia, 57 FR 38475 (August 25,
1992), that SSI first used its pool of countervailable tax deductions
under IPA section 35, earned in 1998, to reduce its tax liability on
its income tax return for 1998, filed during the POI. See Id.,
Department's Position at Comment 13. See also Extruded Rubber Thread
From Malaysia; Final Results of Countervailing Duty Administrative
Review, 60 FR 17516 (April 6, 1995), Department's Position at Comment
7. We then determined the extent to which that countervailable tax
deduction reduced SSI's taxable income. We calculated the benefit by
multiplying the amount of taxable income which SSI was able to offset
with its Section 35 tax deduction by the income tax rate. We then
divided this benefit by SSI's total sales during the POI. We
preliminarily determine the countervailable subsidy to be 0.13 percent
ad valorem.
2. Debt Restructurings
Petitioners' allegations with respect to SSI's and PPC's debt
restructurings indicated that, in light of SSI's and PPC's financial
condition, and as a result of direct or indirect actions of the RTG,
the companies' creditors restructured their debt on terms that were not
comparable to those which would be offered by commercial lenders or
reasonable private investors. The favorable terms included reductions
in interest rates, forgiveness of interest and principal, and
lengthening of loan terms. Petitioners allege that these actions were
specific because the RTG exercised discretion and disproportionately
targeted large industries such as the steel industry for debt
restructuring.
According to the questionnaire responses, SSI and PPC each
underwent comprehensive financial debt restructurings, beginning in
1998 and concluding during the POI, which resulted in all of their
debts being restructured, and included the conversion to equity of
previously issued converted debentures. We have examined information
provided by the RTG and SSI with respect to the operation of the Thai
financial sector and the RTG's role therein, including actions of the
RTG in response to the financial crisis caused by the collapse of the
baht, the RTG's role in corporate debt restructuring in general, and
the corporate debt restructurings of SSI and PPC in particular, to
determine whether the RTG played a role which would give rise to
countervailable subsidies.
a. Collapse of the Baht and the Thai Economic Crisis. In July 1997,
the RTG floated the baht against other currencies, causing the baht to
depreciate by as much as 56 percent against the U.S. dollar by the end
of the year and resulting in the general contraction of the Thai
economy. The Thai economy subsequently experienced massive failures
both of companies and their creditors. The RTG implemented programs to
prevent further failure and to get the economy back on its feet. These
included implementing the August 14, 1998 Announcement for
Comprehensive Financial Restructuring, the RTG's intervention in
financial institutions unable to achieve sufficient recapitalization
because of their large non-performing loan portfolios, and the
injection of new capital into several banks.
b. Corporate Debt Restructuring Following the Baht's Collapse.
After the collapse of the baht, the RTG implemented plans to facilitate
corporate debt restructurings, as part of its broad effort at financial
reforms. To do so, the RTG established the Corporate Debt Restructuring
Advisory Committee (CDRAC) in 1998. The CDRAC is chaired by the Bank of
Thailand (BOT) Governor, and the CDRAC framework (the so-called
``Bangkok Approach'') is set forth in the August 25, 1998 agreement
among CDRAC members, the Board of Trade of Thailand, the Federation of
Thai Industries, the Thai Bankers' Association, the Association of
Finance Companies, and the Foreign Bankers' Association. The record
indicates that many, but not all, major corporate debt restructurings
were undertaken within the context of the framework established through
the CDRAC.
According to the RTG, CDRAC initially focused its attention on the
largest and most complicated debts in the economy, without respect to
specific industries or regions, and regardless of whether the debtors
or creditors were public or private sector entities. In late 1998,
CDRAC created a list of the first 351 firms, in 200 groups, as priority
cases targeted for debt restructuring and selected to participate in
the CDRAC process. According to the questionnaire response, the
selection criteria used in developing the list of 351 companies were:
(1) Debtors with sizable credit outstanding; (2) debtors proposed by
the Thai Bankers' Association, the Foreign Bankers' Association, the
Association of Finance Companies, the Federation of Thai Industries and
the Board of Trade
[[Page 20257]]
of Thailand; (3) debtors who expressed their intention to participate
in the restructuring process; and, (4) debt restructurings involving
multiple creditors. Despite the Department's express request, the RTG,
citing confidentiality reasons, has declined to provide this list for
the record.
c. SSI, PPC and Their Restructuring. SSI's debt restructuring was
accomplished pursuant to an agreement, concluded during the POI, which
was the final of four amendments to the original Credit Facilities
Agreement (CFA) of February 18, 1994. The original CFA, an agreement
between SSI and its private creditors, provided for all of SSI's
financing needs, baht- and foreign currency-denominated short- and
long-term financing from both secured and unsecured lenders as provided
by a syndicate of lending institutions, following SSI's initial startup
in 1992. PPC's debt restructuring was also accomplished pursuant to an
agreement with its creditors during the POI and also involved both
short- and long-term financing.
According to the responses, SSI, PPC, and their creditors were
prompted to pursue debt restructuring by factors internal and external
to the companies and their creditors, including the economic climate
following the collapse of the baht in July 1997, and the financial
management strategy these companies pursued before and after this
collapse. All parties involved had incentives to achieve a loan
arrangement that would enable SSI and PPC to continue their operations
and repay their debts. The secured loans and unsecured bonds were
restructured at the same time to assure all creditors that the
restructuring was viable. According to the questionnaire responses,
none of the original loans or the restructured loans were provided
through, or insured pursuant to, any RTG program.
While the details of the debt restructuring are proprietary, it is
sufficient for the purposes of this preliminary determination to
characterize the restructurings as having involved the reorganization
of SSI's and PPC's short-term and long-term debts to provide repayment
terms under which SSI and PPC could service their debt obligations in
the coming years, based on general economic and company-specific
forecasts. The unsecured bonds, which had been issued on the bond
market in 1995 as debentures convertible to equity, were converted to
equity on terms under which the private bondholders (some of which were
foreign) and SSI agreed would enable SSI to meet its obligations.
The respondents have reported that neither SSI nor PPC was involved
with, or participated in, the CDRAC process. Although both SSI and PPC
were invited to participate in this process, both restructurings were
almost complete by the time CDRAC was operational. SSI and PPC contend
that the restructurings were achieved without CDRAC or adherence to the
CDRAC procedures, and the companies and the RTG claim that the
restructurings did not involve the RTG. SSI and PPC also contend that
they were not required to comply with any CDRAC application or
reporting requirements to proceed with their restructurings.
d. Analysis of SSI's and PPC's Debt Restructurings. In order to
find a countervailable subsidy under the Act, the Department must
determine that the program is specific (section 771(5A) of the Act),
that a financial contribution is provided (section 771(5)(D) of the
Act), and that there is a benefit to the recipient (section 771(5)(E)
of the Act).
Based on information on the record of this proceeding, we believe
that the list of the first 351 firms identified for debt restructuring
is critical to our analysis of specificity. In the Department's
original questionnaire to the RTG (see Department Questionnaire,
December 20, 2000, pg. II-17), we requested any federal or regional
legislation targeted at large industries, including the steel industry,
that was passed dealing with the debt restructurings. Additionally, we
requested the RTG to identify which companies had their debt
restructured and in which industries they belonged. The RTG responded
by providing information regarding the establishment of CDRAC. The RTG
also discussed a list of 351 companies that CDRAC had targeted for
restructuring. However, neither this list of 351, nor any other
identification of companies that had undergone debt restructuring, was
provided, despite our requests. Additionally, in the Department's
supplemental questionnaire, we again requested the RTG to identify
companies that had undergone debt restructuring, and specifically
requested the list of 351 companies that CDRAC had targeted for debt
restructuring (see Department Supplemental Questionnaire, February 27,
2001, pg. 7). The RTG declined to provide the list, stating that they
were prohibited from providing the list under Thai law because of
confidentiality constraints. The Department's questionnaire details the
protections afforded respondents for this type of information. Both the
statute and the regulations provide protection for business proprietary
and confidential information requested by the Department. See section
777(b) of the Act, and 19 CFR 351.304-306. The RTG did not explain why
it was unable to provide the requested information in accordance with
the Department's procedures. In addition, the RTG did not argue that
there was a clear and compelling need to withhold this information
pursuant to 19 CFR 351.304(a)(1)(ii) and 351.304(b)(2)(i). Without full
disclosure of the list of 351 companies, it is not possible for the
Department to determine whether the debt restructurings of SSI and PPC
were specific.
A 1999 report issued by the BOT, and submitted by petitioners,
indicates that the steel industry may have received special
consideration prior to the CDRAC process. The report also indicates
that the steel industry was identified by the RTG for debt
restructuring (see Steel Industry in Crisis, Bank of Thailand, December
1999). The Steel Industry in Crisis report indicates that 32 of the 351
companies found on the list were from the primary metal production
sector. It is also not clear whether the RTG's stated qualifications
for being placed on the list of 351 firms were applied consistently to
all those firms placed on the list or even whether all of the firms on
the list were restructured. Additionally, another publicly available
report indicates that the RTG, through the Board of Investment,
identified five major industries whose survival was vital to economic
recovery. The steel industry was included on this list of major
industries. See Support for Structural Reform in Five Industries
Including Steel--Industrial Revitalization with BOI as the Driving
Force, Shukan Tai Keizai (August 9, 1999) (submitted by petitioners).
On the record of this investigation, there is certain other information
that illustrates the importance of the list of 351 companies in
analyzing whether SSI's and PPC's debt restructurings were specific.
However, this information is proprietary and cannot be summarized for
purposes of this notice. This proprietary information is discussed in
the Memorandum from Case Analysts to Barbara E. Tillman, Certain Hot-
Rolled Carbon Steel Flat Products from Thailand: Analysis of Business
Proprietary Information on SSI and PPC Debt Restructuring (April 13,
2001) (Debt Restructuring Memo). The Department is not able to address
these important issues without access to the list of 351 companies that
the RTG developed. Because the RTG has not provided this list to the
Department, we are applying adverse facts available,
[[Page 20258]]
and, pursuant to section 771(5A)(D)(iii)(III) and (IV) of the Act, we
preliminarily determine the debt restructuring of SSI and PPC to be
specific.
With respect to financial contribution, several of SSI's and PPC's
creditors were owned or controlled by the RTG at the time the
restructurings were completed. The details of this RTG ownership and
control are proprietary, and are discussed more fully in the Debt
Restructuring Memo; however, the levels of ownership and control are
sufficient to support a conclusion that the provision of restructured
loans by government-owned or -controlled creditors constitutes a
financial contribution within the meaning of section 771(5)(D)(i). At
this time, we have insufficient information regarding the privately-
owned creditors which provided restructured loans or converted
debentures to equity to address whether those creditors have been
``entrusted or directed'' by the government to make a financial
contribution to SSI and PPC within the meaning of 771(5)(B)(iii) of the
Act.
In determining whether there is a benefit to SSI and PPC from these
restructured loans, we compared the interest rates on the loans
provided by government-owned or -controlled creditors to a benchmark
interest rate which reflects an interest rate on comparable commercial
loans which the companies could actually obtain on the market. See
section 351.505(a) of the regulations. We do not consider the interest
rates on the portion of the restructured loans provided by private
creditors to be representative of interest rates that the companies
could actually obtain on the market. Since these loans were provided as
part of the companies' restructuring packages, which included
government financial contributions, they cannot be seen as commercial
market loans. Furthermore, the interest rates on these loans are below
the Minimum Lending Rate (MLR) for commercial loans reported by the
BOT. See e.g., Preamble, 63 FR at 65363-64. Therefore, pursuant to
section 771(5)(E)(ii) of the Act, the benefit conferred to SSI and PPC
is the difference between what SSI and PPC paid on restructured loans
versus what they would pay on comparable commercial loans obtained in
the commercial market.
All of the restructured loans are variable-rate long-term loans.
The RTG did not provide information relating to a national average
variable long-term interest rate. Therefore, we are using as our
benchmark the annual average Minimum Lending Rate (``MLR'') which is
reported as BOT data through the following internet address:
www.scb.co.th/~scbri/ecogrp.htm. We are adding to the MLR a spread that
is typical of that offered to commercial borrowers (and was reported by
SSI to have been a feature of the debt SSI obtained prior to
restructuring). Since we have only made specificity and financial
contribution determinations with respect to government-owned or -
controlled creditors, we have only measured the benefits from that
portion of each restructured loan provided by the government-owned or -
controlled creditor. For purposes of calculating the benefits from the
restructurings during the POI, we are following section 351.505(c)(4)
for long-term variable interest rate loans. We have determined the
difference between the amount paid by the SSI on the government-
provided loan and the comparison loan. We determined the difference
between the restructured loan interest rate and the benchmark interest
rate (which for SSI includes an uncreditworthy risk premium as
discussed in the Creditworthiness and the Calculation of Loan Benchmark
and Discount Rates section above). We accounted for the number of days
the loans were outstanding during the POI, and then multiplied the
entire principal amount for each loan by this rate (the entire
principal amounts were outstanding during the POI). We summed the
resulting loan benefits and divided them by the relevant sales value to
preliminarily determine a countervailable subsidy of 4.01 percent ad
valorem.
3. Provision of Electricity for Less Than Adequate Remuneration
Petitioners have alleged that SSI is receiving countervailable
benefits under the electricity system that exists in Thailand:
electricity is largely supplied by state-owned agencies, and a uniform
electricity tariff policy exists which is supported by a central
electricity agency which prices electricity differently to the two
state-owned distribution agencies. Petitioners alleged that this system
results in countervailable subsidies to the extent that the RTG is
providing electricity for less than adequate remuneration.
According to the questionnaire responses, the RTG owns and controls
most of the generation and transmission of electricity in Thailand. The
ministry responsible for Thailand's electricity policy is the Prime
Minister's Office. More specifically, rate-setting policy is developed
by the National Energy Policy Council (NEPC). This policy addresses
both the rates charged by the generating agency, as well as the
distribution agencies. The generating agency is the Electricity
Generating Authority of Thailand (EGAT) and the two distributing
authorities are the Metropolitan Electricity Authority (MEA), which
serves Bangkok and the immediate surrounding areas, and the Provincial
Electricity Authority (PEA), which serves the remainder of the country.
The RTG maintains a ``uniform tariff policy'' that aims to provide the
same rates to all consumers in the same customer category regardless of
whether they are in MEA's distribution area or PEA's distribution area.
Other than EGAT, which supplies approximately 73 percent of the
electricity used in Thailand, there are Independent Power Providers
(IPP) and Small Power Providers (SPP). IPPs generate approximately 15.4
percent of Thailand's electricity, and SPPs generate approximately 9
percent. Thailand also imports approximately 2.4 percent of its
electricity from Laos and Malaysia. IPPs sell electricity only to EGAT.
SPPs sell electricity to EGAT, as well as to end users in industrial
estates. IPPs and SPPs are privately owned. The SPPs that sell to end
users are prohibited from selling electricity at rates higher than
those charged by the agencies owned by the RTG. The RTG provided to the
Department a document entitled Concession of Electricity Business,
which was issued by the Ministry of Interior and states that the rates
charged by SPPs shall not exceed those charged by PEA.
The questionnaire responses state that PEA's cost of delivery to
some of its customers in the region it serves is higher than MEA's cost
of delivery. In order to implement the uniform tariff policy that the
RTG had in place during the POI, EGAT provided a discount to PEA and
charged MEA a surcharge on the electricity generated by EGAT.
According to the RTG National Energy Policy Office (NEPO)
Recommendations to Cabinet Report (the NEPO Report), dated September
26, 2000, the original objectives of the RTG's uniform tariff policy,
which has been in place since 1991, were to establish a tariff that
reflects the economic costs and secures the financial status of the
three power utilities, and to promote efficiency of electricity usage
and equity for all power consumer categories. The RTG's tariff policy
consists of the base tariff, plus an automatic adjustment mechanism
which ensures that the electricity charges cover fluctuations in
marginal costs. There are four criteria the RTG used in determining the
electricity tariff structure: (1) marginal costs; (2) load pattern; (3)
revenue
[[Page 20259]]
requirements of the power utilities and financial criteria; and, (4)
social criteria for the electricity tariff determination. The social
criteria require that uniform tariffs be applied across the country for
each customer category. Also, the social criteria call for
subsidization of small, residential customers with low usage. Finally,
the social criteria maintain that the structure of the electricity
tariffs for customer groups other than small residential customers
should reflect marginal costs as closely as possible.
According to the NEPO Report, prior to 1997, the electricity tariff
was established on a flat-rate basis. Under this system, EGAT sold
electricity at a lower rate to PEA than it did to MEA. This bulk supply
tariff afforded a cross-subsidization of PEA via the higher rates
charged to MEA because the distribution cost for PEA was higher than
for MEA. In November of 1996, the NEPC approved a modification of the
bulk supply tariff to go into effect in January 1997. This modification
altered the bulk supply tariff from the initial flat rate to a time-of-
use rate. The time-of-use rates were based on usage during peak and
off-peak hours. The modification also created a cross-subsidization of
PEA in the form of a surcharge added to the bulk supply tariff EGAT
charged to MEA and a deduction from the bulk supply tariff that EGAT
charged PEA. The NEPC has altered the surcharge and deductions charged
to PEA and MEA on three separate occasions thus far. On May 22, 1997,
an adjustment was made so the surcharge and deduction would correspond
with the former average bulk supply tariff. This change was retroactive
to January 1997. On October 8, 1997, the surcharge and deduction were
altered again as a result of the economic crisis in Thailand, and the
changes were retroactive to July 1997. On March 20, 2000, the third
alteration of the surcharge and deduction was made, retroactive to
October 1998, in order to keep the power utilities in line with the
financial criteria established when the electricity tariff structure
was created.
The retail tariff structure used by MEA and PEA varies depending
upon the category of consumer. The following are the categories of
consumers: Residential; Small General Services; Medium and Large
General Services, and Specific Business Services; Government
Institutions and Non-Profit Organizations; and, Agricultural Pumping
Service. SSI is considered to be a Large General Services customer. SSI
and PPC purchased all of the electricity consumed during the POI from
PEA.
In order to find a countervailable subsidy under the Act, the
Department must determine that a financial contribution is provided
(section 771(5)(D) of the Act), that there is a benefit to the
recipient (section 771(5)(E) of the Act), and that the program is
specific (section 771(5A) of the Act ). The government's provision of
electricity constitutes a financial contribution as defined in
771(5)(D)(iii).
To determine whether there is a benefit from the provision of a
good, the Act specifies that the Department must examine whether the
good was provided for less than adequate remuneration. According to
section 771(5)(E) of the Act, the adequacy of remuneration with respect
to a government's provision of a good or service, ``* * * shall be
determined in relation to prevailing market conditions for the good or
service being provided or the goods being purchased in the country
which is subject to the investigation or review. Prevailing market
conditions include price, quality, availability, marketability,
transportation, and other conditions of purchase or sale.'' In the
regulations, we set forth, in order of preference, the benchmarks that
we will examine in determining the adequacy of remuneration (see
section 351.511). Under the regulations, the first preference is to
compare the government price to a market-determined price stemming from
actual transactions within the country. However, in the preamble, we
made clear that if the government provider constitutes a majority of
the market, we would have to resort to other alternatives, including
world market prices, and if no such market-determined prices were
available, we would examine whether the government applied market
principles in setting its price. See 19 CFR 351.511(a)(2)(iii) and
Preamble, 63 FR 65378.
In this instance, EGAT is the major generator of electricity and
MEA and PEA are the major distributors of electricity. Of the two types
of private electricity producers, IPPs sell their product to EGAT and
not to end users, and SPPs are prohibited by the RTG from charging
prices higher than PEA's. Regarding import prices or other types of
market reference prices, while Thailand does import a small percentage
of electricity (2.4 percent), this electricity is purchased by EGAT and
sold through the same tariff structure that is described above.
Additionally, any exports of electricity are sold through the
government agencies. Therefore, any in-country, market-determined
prices we might use as a point of comparison would ultimately be
distorted by the involvement of a government agency or the government's
ceiling on market prices. In the preamble to section 351.511, we
discuss the fact that the nature of the provision of electricity would
normally prevent us from examining a ``world market price.'' See
Preamble, 63 FR at 65377-65378.
Therefore, based on the situation in Thailand, it becomes necessary
to examine whether the price charged for electricity is consistent with
market principles, in accordance with section 351.511(a)(2)(iii) of the
regulations. As discussed in the preamble, in assessing whether the
government price was set in accordance with market principles, we will
analyze such factors as the government's price-setting philosophy,
costs (including rates of return sufficient to ensure future
operations), or possible price discrimination. The preamble further
explains that these factors are not listed in any hierarchy, and that
we may rely on one or more of these factors in any particular case. See
Preamble, 63 FR at 65378. Based on our analysis of the RTG's price-
setting (i.e., rate-setting) policy for electricity, as described
above, the NEPC takes into account marginal costs, usage, financial and
revenue criteria, and maintains an adjustment mechanism which accounts
for inflation and changing fuel prices in creating Thailand's
electricity tariff structure.
However, in this case, the evidence indicates that there is also
price discrimination in the provision of electricity by the RTG. As is
stated in the NEPO Report, a cross-subsidization is required in order
to maintain the uniform tariff structure (see NEPO Report at 8), hence
the surcharge MEA pays to EGAT and the deduction PEA receives from
EGAT. Absent the uniform tariff policy, MEA would be incurring costs
much lower for its distribution of electricity than would PEA and
therefore, in accordance with market principles, MEA's retail prices to
its customers would be lower than PEA's. Absent the policy, PEA would
be incurring much higher costs for its distribution of electricity, and
hence, its customers would be paying higher prices because PEA's cost
of distribution would be higher.
A report commissioned by the RTG to conduct a review of the tariff
structure in Thailand also illustrates that price discrimination
currently exists. The PriceWaterhouseCoopers' report, Review of
Electric Power Tariffs Final Report (PWC Report), issued in January,
2000, notes that the ultimate goal is privatization of the utility, a
component of which is the necessary phase-out of
[[Page 20260]]
the uniform tariff policy. Notably, the report states that the
transition from public to private sector ownership, which will
introduce new suppliers of electricity, may create instances where some
customers will begin to purchase their electricity from the new,
independent suppliers in order to avoid paying for the cross-subsidy to
other customers.
Without the cross-subsidization mandated by the RTG to ensure that
PEA's prices are no higher than MEA's prices, PEA's customers would,
based on market principles, be charged a higher price, and as such, we
preliminarily determine that electricity is provided by the RTG for
less than adequate remuneration in accordance with section
771(5)(E)(iv) of the Act.
Since this tariff structure only benefits PEA's customers, we find
this provision of electricity to be specific in accordance with section
771(5A)(D)(iv) of the Act (see also The Statement of Administrative
Action Accompanying the Uruguay Round Agreements Act (SAA), H.Doc. 103-
316, Vol. 1 (1994) at 262) because it is limited to users who are
located in a specific geographical region within Thailand (i.e., all
customers outside the Bangkok metropolitan area).
To determine the benefit from this provision of electricity, we
calculated the difference, on a per kilowatt hour basis, between the
rate paid by MEA during the POI (bulk supply tariff plus surcharge) and
the rate paid by PEA during the POI (bulk supply tariff minus
deduction). We then multiplied that difference by kilowatt hours
consumed. We then divided that figure by the relevant total sales value
during the POI to determine a countervailable subsidy of 0.66 percent
ad valorem.
Programs Preliminarily Determined To Be Not Countervailable
1. Exemptions From VAT Under Section 21(4) of the VAT Act
According to the questionnaire responses, under provisions of
Section 21(4) of the VAT Act, companies that were granted Section 28
benefits under the IPA before January 1, 1992, are not required to pay
VAT on imports of fixed assets. SSI received its IPA Section 28
certificate prior to this date, and is therefore eligible for this
program. The respondents have argued that this exemption from VAT on
imports of fixed assets did not constitute a benefit to SSI because all
companies, promoted and non-promoted alike, are effectively exempted
from VAT on their imports of fixed assets. According to Section 82 of
the VAT Act, the VAT liability is computed by subtracting the ``input
tax'' (the VAT paid) from the ``output tax'' (the VAT collected).
Consequently, companies that pay VAT on imports of fixed assets are
effectively exempted from this VAT payment as they receive a credit for
the VAT they paid on purchases of inputs, including imports of fixed
assets, when their monthly VAT liability is computed. According to the
questionnaire responses, under the VAT system, companies receive credit
for the VAT paid on the purchases of inputs and, as a result, no VAT is
effectively paid by companies on these purchases.
SSI has not been granted any VAT exemptions under Section 21(4) on
imports of capital equipment since early 1997. VAT liability is
computed on a monthly basis, and the RTG has reported the estimated
shortest, average, and longest periods of time for which a company
might wait to receive a VAT refund. Even when applying the longest
estimated period of time a company might wait to receive a VAT refund,
any time-value-of-money benefit received by SSI under Section 21(4) of
the VAT Act would either fall short of the POI or be insignificant. On
this basis, we preliminarily determine that with regard to SSI, the
exemption from the VAT on imports of fixed assets under Section 21(4)
of the VAT Act does not constitute a countervailable benefit.
In addition, we note that SSI also received VAT exemptions on its
imports of inputs under section 36(1) of the IPA. Since we have not
reached a decision on Section 36(1), we need not address the VAT
exemptions for purposes of this preliminary determination. We will
examine the VAT exemptions for the final determination.
Programs Preliminarily Determined To Be Not Used
We preliminarily determine that the producer/exporter of subject
merchandise did not apply for or receive benefits attributable to
subject merchandise under the following programs during the POI.
1. Loans From the Industrial Finance Corporation of Thailand (IFCT) and
the Thai Export-Import Bank
2. Other Loans and Loan Guarantees From Banks Owned, Controlled, or
Influenced by the RTG
3. Export Packing Credits
4. Pre-shipment Finance Facilities
5. Export Insurance Program
6. Trust Receipt Financing for Raw Materials
7. Tax Certificates for Export
8. Duty Exemptions to PPC Under IPA Section 29
9. Import Duty Exemptions for Industrial Estates
10. Export Processing Zone Incentives
11. LPN Debt Restructuring
LPN did not produce or export subject merchandise to the United
States during the POI. Therefore, we have not examined LPN's debt
restructuring, its equityworthiness, or its creditworthiness.
Programs Preliminarily Determined Not To Exist
1. IPA Subsidies for Construction of SSI's On-Site Power Plant
SSI reported that a power plant was never constructed on-site.
Therefore, IPA incentives were not used for construction of such a
power plant.
2. Provision of Water Infrastructure for Less Than Adequate
Remuneration
The water pipeline and reservoir which were allegedly built
specifically for SSI were not built.
Verification
In accordance with section 782(i)(1) of the Act, we will verify the
information submitted by respondents prior to making our final
determination.
Suspension of Liquidation
In accordance with section 703(d)(1)(A)(i) of the Act, we have
calculated an individual rate for the company under investigation, SSI.
We have preliminarily determined that the total estimated
countervailable subsidy rate is 6.55 percent ad valorem for SSI. With
respect to the ``all others'' rate, section 705(c)(5)(A)(i) of the Act
requires that the ``all others'' rate equal the weighted average
countervailable subsidy rates established for exporters and producers
individually investigated, excluding any zero and de minimis
countervailable subsidy rates. Since SSI was the sole producer/exporter
during the POI, we are using SSI's rate as the ``all others'' rate.
------------------------------------------------------------------------
Countervailable subsidy
Producer/exporter rate (in percent)
------------------------------------------------------------------------
SSI....................................... 6.55 ad valorem.
All others................................ 6.55 ad valorem.
------------------------------------------------------------------------
In accordance with section 703(d) of the Act, we are directing the
U.S. Customs Service to suspend liquidation of all entries of the
subject merchandise from Thailand produced or exported by SSI or any
other company, which are entered or withdrawn from warehouse, for
consumption on or after the date of the publication of this notice in
the Federal Register, and to require a cash deposit or bond for such
entries of the merchandise in the amounts indicated
[[Page 20261]]
above. This suspension will remain in effect until further notice.
ITC Notification
In accordance with section 703(f) of the Act, we will notify the
ITC of our determination.
In addition, we are making available to the ITC all non-privileged
and non-proprietary information relating to this investigation. We will
allow the ITC access to all privileged and business proprietary
information in our files, provided the ITC confirms that it will not
disclose such information, either publicly or under an administrative
protective order, without the written consent of the Assistant
Secretary for Import Administration.
In accordance with section 705(b)(2) of the Act, if our final
determination is affirmative, the ITC will make its final determination
within 45 days after the Department makes its final determination.
Public Comment
In accordance with 19 CFR 351.310, we will hold a public hearing,
if requested, to afford interested parties an opportunity to comment on
this preliminary determination. The hearing is tentatively scheduled to
be held 57 days from the date of publication of the preliminary
determination at the U.S. Department of Commerce, 14th Street and
Constitution Avenue, N.W., Washington, D.C. 20230. Individuals who wish
to request a hearing must submit a written request within 30 days of
the publication of this notice in the Federal Register to the Assistant
Secretary for Import Administration, U.S. Department of Commerce, Room
1870, 14th Street and Constitution Avenue, NW., Washington, DC 20230.
Parties should confirm by telephone the time, date, and place of the
hearing 48 hours before the scheduled time.
Requests for a public hearing should contain: (1) The party's name,
address, and telephone number; (2) the number of participants; and, (3)
to the extent practicable, an identification of the arguments to be
raised at the hearing. In addition, unless otherwise informed by the
Department, six copies of the business proprietary version and six
copies of the non-proprietary version of the case briefs must be
submitted to the Assistant Secretary no later than 50 days from the
date of publication of the preliminary determination. As part of the
case brief, parties are encouraged to provide a summary of the
arguments not to exceed five pages and a table of statutes,
regulations, and cases cited. Six copies of the business proprietary
version and six copies of the non-proprietary version of the rebuttal
briefs must be submitted to the Assistant Secretary no later than five
days from the date of filing of the case briefs. An interested party
may make an oral presentation only on arguments included in that
party's case or rebuttal briefs. Written arguments should be submitted
in accordance with 19 CFR 351.309 and will be considered if received
within the time limits specified above.
This determination is published pursuant to sections 703(f) and
777(i) of the Act. Effective January 20, 2001, Bernard T. Carreau is
fulfilling the duties of the Assistant Secretary for Import
Administration.
Dated: April 13, 2001.
Bernard T. Carreau,
Deputy Assistant Secretary, Import Administration.
[FR Doc. 01-9861 Filed 4-19-01; 8:45 am]
BILLING CODE 3510-DS-P