51 FR 12356
NOTICES
DEPARTMENT OF COMMERCE
International Trade Administration
[C-549-503]
Final Affirmative Countervailing Duty Determination and Countervailing Duty
Order; Rice From Thailand
Thursday, April 10, 1986
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AGENCY: Import Administration, International Trade Administration, Commerce.
ACTION: Notice.
SUMMARY: We determine that certain benefits which constitute bounties or grants within the
meaning of the countervailing duty law are being provided to producers or exporters in
Thailand of rice. The estimated net bounty or grant is 0.75 percent ad valorem. However,
we are taking into account several program-wide changes which occurred prior to the preliminary
determination, and we are adjusting the duty deposit rate accordingly. We are directing the U.S.
Customs Service to continue to suspend liquidation of all entries of rice from Thailand that
are entered, or withdrawn from warehouse, for consumption, on or after the date of publciation of
this notice and to require a cash deposit on entries of this product in the amount equal to 0.82
percent ad valorem.
EFFECTIVE DATE: April 10, 1986.
FOR FURTHER INFORMATION CONTACT:Loc. T. Nguyen or Mary Martin, Office of Investigations,
Import Administration, International Trade Administration, U.S. Department of
Commerce, 14th Street and Constitution Avenue, NW., DC 20230, telephone: (202) 377-0167 or
(202) 377-2830.
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SUPPLEMENTARY INFORMATION:
Final Determination and Order
Based on our investigation, we determine that certain benefits which constitute bounties or grants
within the meaning of section 303 of the Tariff Act of 1930, as amended (the Act), are being
provided to producers or exporters in Thailand of rice. The following programs are found
to confer bounties or grants:
- Export Packing and Stocking Credits;
- Price Support and Stabilization Program;
- Paddy Rice Mortgage Program; and
- SUPPLEMENTARY Program to Implement the Government's Rice Policy-- Preferential
Financing to Rice Millers.
We determine the estimated net bounty or grant for the review period to be 0.75 percent ad
valorem for all producers or exporters in Thailand of rice. However, we are adjusting the
duty deposit rate to reflect several program-wide changes that occurred prior to our preliminary
determination. Thus, the cash deposit rate on entries of this product will be 0.82 percent ad
valorem.
Case History
On September 24, 1985, we received a petition from the Rice Millers' Association on behalf of
the U.S. rice industry. In compliance with the filing
requirements of section 355.26 of our regulations (19 CFR 355.26), the petition alleges that
producers or exporters in Thailand of rice receive, directly or indirectly, benefits which
constitute bounties or grants within the meaning of section 303 of the Act.
We found that the petition contained sufficient grounds upon which to initate a countervailing
duty investigation and, on October 15, 1985, we initiated such an investigation (50 FR 42581).
We stated that we expected to issue our preliminary determination on or before December 18,
1985.
On November 29, 1985, we determined this investigation to be "extraordinarily complicated" as
defined in section 703(c)(1)(B) of the Act. Therefore, we extended the period for making our
preliminary determination by 30 days until January 17, 1986.
Since Thailand is not a "country under the Agreement" within the meaning of section 701(b) of
the Act and merchandise being investigated is dutiable, sections 303(a)(1) and 303(b) of the Act
apply to this investigation. Accordingly, the domestic industry is not required to allege that, and
the U.S. International Trade Commission is not required to determine whether, imports of the
subject merchandise injure, or threaten material injury to, a U.S. industry.
On October 24, 1985, we presented a questionnaire to the Embassy of Thailand in Washington,
DC, concerning the petitioner's allegations. On December 6,
1985, we received responses to our questionnaire from the government of Thailand and from
the companies under investigation. We received a SUPPLEMENTARY response from the
government of Thailand on December 30, 1985. On the basis of the information contained in
these responses, we made our preliminary determination on January 17, 1986 (51 FR 3377). From
February 3- 20, 1986, we verified the responses submitted by the government of Thailand and
by the companies under investigation.
We received amended submissions from the government of Thailand based on our verification
on February 27 and March 10, 1986.
We afforded interested parties an opportunity to present oral views in accordance with our
regulations (19 CFR 355.35). A public hearing was requested by respondents; however, this request
was withdrawn by the same party on February 24, 1986. Therefore, we did not hold a public
hearing. On March 3, 1986, we received initial briefs from petitioner and respondents and, on
March 10, 1986, we received their reply briefs. On March 17, 1986, we received written comments
on the verification reports.
Scope of Investigation
The product covered by this investigation is rice, both milled and unmilled, and includes all
varieties of rice. Rice is currently classified in the Tariff
Schedules of the United States Annotated (TSUSA) under items 130.5000, 130.5600, 130.5800,
131.3000, and 131.3300 according to the type and level of processing.
Analysis of Programs
Throughout this notice, we refer to certain 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).
It is the Department's policy to take into account program-wide changes where these are
implemented before the preliminary determination, with the result that the rate for cash deposit or
bonding purposes is raised or lowered, as appropriate. This policy is desirable because it promotes
the expeditious elimination or curtailment of bounties or grants. The recognition of program- wide
changes also permits the Department to adjust the bonding rate to correspond as nearly as possible
to the eventual duty liability.
In this investigation, we have discovered that prior to the preliminary determination two new
programs and a change in the preferential interest rate
of the export packing and stocking credits are instituted, resulting in a fundamental change in the
bestowal of benefits. Descriptions of these program- wide changes, and of our treatment of them,
follow in section I.A, I.C, and I.D of the notice.
For purposes of this final determination, the period for which we are measuring bounties or grants
is calendar year 1984.
The Upstream Issue
In a letter dated November 1, 1985, the government of Thailand argued that the government's
provision of subsidized fertilizer to the Thai rice industry constitutes an "upstream subsidy"
under section 771A(a) of the Tariff Act of 1930, as amended, because fertilizer is an "input product"
in the production of rice. We disagree. In this case, the government of Thailand is not
providing assistance to the producers of fertilizer, but, rather, directly to fertilizer users, among
whom are the growers of rice, by acquiring fertilizer for distribution to those users.
On January 6, 1986, and in their briefs, respondents once again brought up the upstream issue, this
time arguing that paddy rice is an upstream input of milled rice and that the Department
must, therefore, apply the upstream subsidy provisions under section 771A of the Tariff Act of
1930, as amended, to measure
the amount of any benefit received by paddy rice growers which is passed through to rice
millers. They contend that the factors cited by the Department in support of its preliminary
finding--the continuous line of production, the single end product, and the definition of industry by
the ITC--are applicable only to injury determinations and that the Department "ignored totally
Congressional intent that only subsidies which are passed through from a prior stage product to a
final stage product be countervailable." Respondents conclude that if we do apply the upstream
subsidy analysis, we will find that no competitive benefit has been bestowed on rice millers as a
result of the benefits bestowed on rice growers.
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We disagree with respondents that section 771A governs this case. In a case concerning an
agricultural product such as this, it is inappropriate to term the raw product an "input" into the
next-stage or further processed product. As stated in the Final Affirmative Countervailing
Duty Determination: Live Swine and Fresh, Chilled and Frozen Pork Products from Canada (50
FR 25097), an important criterion is the degree to which the demand for the prior stage product is
dependent on the demand for the latter stage product. The primary, if not the sole, purpose of all
segments of the industry in this case is to produce a single end product--milled rice. Almost all
of the raw agricultural product, paddy or unmilled rice, is dedicated to the production of milled
rice. There is a single, continuous line of production from paddy rice to milled rice.
As for respondents' argument that our analysis of the upstream subsidy provisions ignored
Congressional intent, we disagree. As the legislative history of the upstream subsidy provisions
indicates, Congress intended that they generally codify our past practices. In Live Swine, we stated
that our practice in prior cases has been to find subsidies on the raw agricultural product as well as
on the final stage product [See Lamb Meat from New Zealand: Preliminary Affirmative
Countervailing Duty Determination, 46 FR 58128 (1981) and Certain Fish from Canada: Final
Countervailing Duty Determination, 43 FR 25996 (1978)]. Because Congress intended that
the upstream subsidy provisions codify our prior practice, we conclude that Congress did not
intend that we alter our practice in situations similar to those arising in the previously cited
agricultural investigations.
Consequently, we determine that our interpretation of the upstream subsidy provisions is not
contrary to Congressional intent and that paddy rice, or unmilled rice, is not an "input" of
milled rice. Therefore, the upstream subsidy provisions of the countervailing duty law
are not applicable in this case.
Based upon our analysis of the petition, the responses to our questionnaires, our verification, and
written comments submitted by interested parties, we determine the following:
I. Programs Determined to Confer Bounties or Grants
We determine that bounties or grants are being provided to producers or exporters in Thailand
of rice under the following programs:
A. Export Packing and Stocking Credits
Export packing and stocking credits are short-term loans used for either pre- shipment,
post-shipment, or stocking financing. These loans are provided through commercial banks and are
then rediscounted at the Bank of Thailand through its export refinancing facility. Under the
"Regulations Governing the Rediscount of Promissory Notes Arising from Exports" (Buddist Era
[B.E.] 2514), the commercial banks, during the period for which we are measuring bounties and
grants, charged the borrower a maximum of seven percent interest per annum, raising this to nine
percent interest per annum in October 1984. The commercial bank then rediscounts these loans at
five to seven percent interest with the Bank of Thailand. These loans are provided in baht for
up to 180 days, depending on the type of financing used. Stocking credit financing includes an
unrefunded penalty of 11 percent, retroactive to the issuance of the loan, for loans which are
outstanding after the 150 day maximum term allowed for this type of financing.
Because only exporters are eligible for these loans, we determine that they are countervailable to
the extent that they are provided at preferential rates. As specified in the Subsidies Appendix, we
used the most appropriate national average commercial method of short-term financing as the
benchmark rate for short-term loans. We verified that the average interest rate charged by
commercial banks in 1984 on short-term loans, bills, and overdrafts was 14.39 percent; for 1985,
the verified national average interest rate was 14.16 percent. Comparing this average interest rate
to the rate charged on export packing and stocking credits, we find that the rate on export packing
and stocking credits is preferential. However, with regard to export stocking credits on which the
11 percent penalty was charged and not refunded, the interest rate is not preferential because the
addition of the penalty charge to the interest rate of the stocking credit results in a rate that is
higher than the commercial benchmark interest rate. Therefore, we included in our calculation all
export packing loans and only those export stocking loans for which the penalty was either not
charged or which had been refunded, for shipments of rice to the United States. Applying the
1984 average commercial bank interest rate as the benchmark, we calculated an estimated net
bounty or grant of 0.66 percent ad valorem during the review period. In adjusting the cash deposit
rate to reflect the interest rate change in October 1984, the 1984
and 1985 average commercial bank interest rates were applied as benchmarks to loans taken out
during the period of October 31, 1984, through June 30, 1985. On this basis, we calculated an
estimated countervailing duty rate of 0.70 percent ad valorem.
B. Price Support and Stabilization Program
The support and stabilization of the price of rice in Thailand is undertaken by two
government agencies, the Public Warehouse Organization (PWO) and the Marketing Organization
for Farmers (MOF), and one private organization, the Agricultural Cooperative Federation of
Thailand (ACFT).
1. We verified that the PWO, chaired by the Minister of Commerce, is charged with carrying out
activities concerning rice, agricultural products, and other products, in order to ensure that
their quantity, quality, and prices are appropriate and that the supply is sufficient to meet the
demand of the state and the public. The PWO can trade for its own account or pursuant to special
instructions from the Minister of Commerce. To carry out the price support program, the PWO
recevied funds from the Farmers Assistance Fund (FAF) in the form of loans repayable at an
interest rate of 2 percent annually. We verified that as of December 1983, the PWO was suspended
from participating in price support activities. Therefore, we determined that the PWO was not
involved in the price support and stabilization program in either 1984 or 1985.
2. The MOF operates under the Ministry of Agriculture and Cooperatives with the objective of
assisting farmers and farmer's associations by intervening in the market for paddy rice in order
to raise the market price for paddy rice during certain periods in the harvest year. We verified
that the activities of the MOF are funded by the FAF, and that the MOF has performed similar
functions, as necessary, with respect to products other than rice.
3. The ACFT is a private association of farmers operating at the district, provincial, and national
levels. Among the objectives of the ACFT are the provision of funds to farmers in return for paddy
rice which is then marketed, the provision of fertilizer to farmers financed against paddy
production, and the provision of warehouse facilities for rice and fertilizer. We verified that in
both 1984 and 1985, the ACFT received working capital loans from the FAF. These were one year
loans at two percent interest per annum. The loans were used for the purchase of fertilizer
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for sale to farmers and to undertake milling and marketing operations.
Based on our verification we find that, although some agricultural products have benefitted from
these programs sporadically, the price support and stabilization programs are not being provided
to all agricultural products. Nor do we find indications of any objective, identifiable criteria which
would automatically trigger the price support mechanism. As a matter of fact, we
verified that price support actions by the government-run organizations are taken only at the
special instructions of the Ministry of Commerce or at the discretion of the Ministry of Agriculture.
Therefore, based on our verification, price supports appear to be available only to selected
agricultural producers. Moreover, the level of support varies for different commodities at various
times, and the availability and level of support is at the discretion of the government. As such, we
cannot conclude that these programs are available to more than a specific enterprise or industry,
or group of enterprises or industries
Because the price support and stabilization programs are limited to a specific enterprise or
industry, or group of enterprises or industries, we determine that these programs confer bounties
or grants on rice farmers. However, we determine that of the two government-run
organizations undertaking these programs, only one, the MOF, participated in price support and
stabilization for rice during the review period.
To calculate benefits received under the MOF, we took the difference between the average price for
rice and the MOF support price for rice in 1984, and multiplied it by the amount of rice
the MOF purchased in 1984. This benefit was then divided by the total value of milled rice for
1984, to arrive at an ad valorem rate of 0.004 percent.
We also determine that the loans received by the ACFT for use in price support
and stabilization for rice are on terms inconsistent with commercial considerations and are,
therefore, countervailable. To calculate the benefits received under the ACFT, we took the total
amount of loans obtained by ACFT from the FAF in 1984 and multiplied it by the difference between
the two percent interest rate and the national average interest rate. The benefits were then divided
by the total value of milled rice to arrive at an ad valorem rate of 0.09 percent.
C. Paddy Rice Mortgage Program
During the review period, this program did not exist. From January 1, 1985, through September
30, 1985, however, the Bank of Agriculture and Agricultural Cooperatives (BAAC) and the PWO
participated in the paddy rice mortgage program. This program allows growers to hold back
paddy rice sales in times of depressed seasonal prices until prices recover. The purpose is to
provide farmers with income while they hold their paddy rice for sale until a time when they
can realize higher prices. We verified that under this program rice farmers can mortgage their
rice for a period of five months by storing the paddy rice and then obtaining a loan from the
Bank of Agriculture and Agricultural Cooperatives (BAAC) equal to 80 percent of the value of the
paddy rice against warehouse receipts. The loans are made at 14 pecent interest,
with half of the interest being paid by the farmers and half by the FAF. A 15 baht per month storage
fee is also charged by the PWO, half of which is paid by the farmers and half by the FAF. In addition,
the PWO charges labor, weighing, and insurance costs, all of which are paid by the FAF.
Because the Rice Mortgage Program is limited to a specific enterprise or industry, or group of
enterprises or industries, and because the terms of the loans are inconsistent with commercial
considerations, we determine that this program confers a bounty or grant. We have included this
program in our cash deposit rate for the reasons mentioned earlier in this notice.
To calculate the benefit of the Rice Mortgage Program, we took the total amount of the loans
given to rice farmers in 1985 times the difference in the 1985 national average commercial rate
of 14.16 percent and the preferential rate of 7 percent (paid by the farmers) times the number of
days the loans were outstanding. This benefit was added to the benefits received for labor,
weighing, insurance, and rice storage. The total was then divided by the 1985 value of miled
rice to arrive at an ad valorem rate of 0.02 percent for duty deposit purposes.
D. SUPPLEMENTARY Program To Implement the Government's Rice Policy-- Preferential
Financing to Rice Millers
During the review period, this program did not exist. In 1985, however, the Ministry of Agriculture
and Agricultural Cooperatives, in conjunction with eight commercial banks, established a program
to provide low interest loans to participating rice millers.
We verified that during the review period 60 percent of the loan amounts to fund this program were
given by the FAF at a zero percent interest rate and 40 percent were given by the banks at a 16.5
percent interest rate. Rice millers buying paddy rice from farmers under this program
would pay an advance of 80 percent of the total value of the paddy rice based on an
administered price set by the government. The rice millers would also provide the farmers with
a bank guarantee against the 20 percent of the value not paid at the time of receipt. The millers
would then obtain a 90-day loan for 80 percent of the value. In addition, the millers would pay the
bank one percent of the guarantee amount.
Because the SUPPLEMENTARY Program is limited to a specific enterprise or industry, or group of
enterprises or industries, and because the terms of the loans are inconsistent with commercial
considerations, we determine that this program confers a bounty or grant. We have included this
program in our cash deposit rate for the reasons mentioned earlier in this notice.
We weighted the amount of loans given by the FAF and by the banks; thus, the actual average
interest rate charged was 6.6 percent per annum. To calculate the benefit, we took the difference
between the 1985 national average
commercial inerest rate of 14.16 percent and the preferential rate of 6.6 percent and multiplied it
by the total value of the loans, times the number of days the loans were outstanding. This benefit
was then divided by the total 1985 value of milled rice to arrive at an ad valorem rate of 0.01
percent for duty deposit purposes.
II. Programs Determined Not To Be Countervailable
A. Construction of Roads and Irrigation Facilities for Rice Producers
The petitioner alleged that producers and exporters of rice receive benefits through the
construction of roads and irrigation facilities targeted to benefit the rice industry. We verified
that the rehabilitation and construction of roads to facilitate the transportation of agricultural
goods is an obvious concern given the dominant position of agriculture in the Thai economy;
however, it is only one of a number of objectives of the Thai government. Furthermore, we verified
that road construction in rie growing areas has not been among the principal priorities of any of the
highway development plans, because rice is grown predominantly in the lowland areas which
are already quite developed. In fact, the emphasis on rural road construction and maintenance has
been concentrated in upland areas where crops such as
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maize, sugar cane, cassava, jute, and para-rubber are grown.
As for the construction of irrigation facilities, we verified that crops using irrigation in Thailand
include rice, sugar, citrus, vegetables, beans, and tobacco, among others.
We have consistently determined that government activities regarding the construction of roads
and irrigation facilities constitute a bounty or grant only when they are limited to a specific
enterprise or industry, or group of enterprises or industries. Moreover, we have held that where
limitations on use do not result from government activities, but instead result from the inherent
characteristics of the good or service being provided, the government action does not confer a
countervailable bounty or grant. Basic infrastructure facilities are, by their very nature, available
for use only by companies and individuals located in the vicinity of such facilities. Roads, ports,
and training centers established in a given location obviously benefit those located in that area
more than they benefit firms and individuals located in other areas. Nevertheless, this does not
mean that those located in close proximity to the infrastructure are receiving countervailable
bounties or grants. The provision of basic infrastructure does not confer a countervailable bounty
or grant when the following three conditions are met: 1) the government does not limit who can
move into the area where the infrastructure has been built; 2) the infrastructure that has been build
is
used by more than a specific enterprise or industry, or group thereof; and 3) those that locate there
have equal access or receive the benefits of the infrastructure on equal terms.
Inasmuch as roads (used by agriculture and others) and irrigation facilities in Thailand are
available for use by the agricultural sector as a whole, we determine that this program is not
countervailable.
B. MOF Fertilizer Program
The MOF sells fertilizers to farmers at prices below market prices. The MOF sells four types of
fertilizer, two of which are mostly used by rice farmers and two of which are used for other
grain and vegetable crops. The types of fertilizer selected depends upon the type of soil and the
crop to be grown. We verified that the fertilizer sales program of the MOF is limited to selling
fertilizers to farmers certified by provincial officials as poor farmers or farmers whose total land
area is 10 rai (approximately 4 acres) or less. In addition, there is a limitation of 500 kg. per farm
per crop year. We also verified that this program is not limited to rice farmers and that all four
types of fertilizers are sold to farmers at the same rate of benefit. The fact that there are two
types of fertilizer that are used mostly in growing rice is due to the inherent nutrients present in
fertilizers and required by the rice
plant, not to any activity by the government limiting the benefit to rice farmers. Therefore, we
determine that this program is not limited to a specific enterprise or industry, or group of
enterprises or industries and is not countervailable.
C. Investment Promotion Act--Section 35
We verified that the Investment Promotion Act (B.E. 2520) of 1977 provides incentives for
investment to promote development of the Thai economy. Administered by the Board of
Investment, the Investment Promotion Act authorizes the exemption of and/or reduction of
import duties and certain other taxes under sections 35 and 36. Section 35 provides various tax
reductions to promoted companies located in investment zones or industrial estates, approved and
set up at the direction of the Board according to published criteria. We verified that in order to
qualify as a promoted firm a company must fulfill the established industry criteria. We also
verified that the number of industries designated as "promoted" industries was over 120 as of
September 1985.
Furthermore, we verified that an industrial estate may be located anywhere in Thailand as
long as it fulfills certain criteria for infrastructure and other conditions related to industrial
activities. Any promoted industry may locate in a designated industrial estate or may have itself
designated as an industrial estate, if it meets the required criteria.
Since section 35 is not limited to a specific enterprise or industry, or group of enterprises or
industries, and since it is not limited to any specific region in Thailand, we determine that the
benefits under section 35 are not countervailable.
III. Programs Determined Not To Be Used
We determine that the producers or exporters in Thailand of rice did not use the following
programs which were listed in our notice of initiation.
A. Export Processing Zones
In 1979, Export Processing Zones were established through the "Industrial Estates Authority of
Thailand Act" (B.E. 2522). We verified that none of the companies responding to our
questionnaire is located in the export processing zones and, thus, none receives benefits under this
program.
B. Rediscount of Industrial Bills
The petitioner alleged that producers and exporters of rice receive
preferential financing for raw material purchases through rediscounting of industrial bills. We
verified that rice millers and growers are not eligible for this program.
C. Incentives for International Trading Firms
The petitioner alleged that the Board of Investment (BOI) grants to qualified international trading
companies: 1) import duty exemptions and the provision of duty drawback schemes; 2) income tax
deductions of 200 percent of foreign marketing expenses; and 3) financial support from the Bank of
Thailand, including permission to hold foreign-currency accounts.
We verified that between 1978 and 1980, the BOI granted certain incentives to international
trading firms pursuant to the Announcement of the BOI No. 40/2521 (1978). This program was
terminated on March 11, 1981, pursuant to the Announcement of the BOI No. 1/2524 (1981). As of
this effective date, if a trading company had not already been certified, it was not eligible for
certification and could not receive benefits. Only two companies that export rice to the United
States are eligible to receive benefits under this program. We verified that neither of the
two eligible companies received any benefits during the review period.
We also verified that one company held a Singapore dollar account and
one company held a U.S. dollar account during the review period; however, the Singapore dollar
account is held by the Singapore branch and thus would confer no benefits on the company in
Thailand. There has been no activity in the very small U.S. dollar account held by the second
company. Therefore, we find that none of the companies under investigation receives benefits from
having foreign currency accounts.
D. Export Promotion Fund
The petitioner alleged that producers and exporters of rice receive benefits from the Export
Promotion Fund, which is administered by the Department of Commercial Relations, aimed at
promoting rice exports. We verified that no project related to rice exported to the United
States was financed by the fund in 1984 and 1985.
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E. Tax Certificates for Exporters
The petitioner alleged that producers and exporters of rice receive tax certificates based on the
value of their exports, which may be used to pay tax liabilities. We verified that the primary
authority for the rebate of indirect taxes is the "Tax and Duty Compensation of Exported Goods
Produced in the
Kingdom Act." Section 12 of the Act states that "goods subject to tax and duty or fees when
exported" are not eligible for rebates. We also verified that rice was subject to an export tax and
an export premium during the review period; therefore, the exporters of rice were not eligible
to receive these tax certificates during the review period.
In October 1985, the export tax on rice was lifted and in January 1986, the export premium was
also lifted, thus making rice eligible for receipt of tax certificates; however, on March 5, 1986,
the government of Thailand ruled that rice exporters cannot receive tax certificates for
the export of rice. This decision was permissible under section 13 of the Act.
F. Electricity Discount for Exporters
The petitioner alleged that electricity authorities in Thailand provide discounts on electricity
rates charged to producers of exported products. We verified that only industries entitled to
participate under the Ministry of Finance regulations in the tax certificate program pursuant to the
"Tax and Duty Compensation of Exported Goods Produced in the Kingdom Act" are eligible for the
electricity discount. Since rice producers and exporters are not entitled to participate in the
tax certificate program under the aforementioned Act, they are ineligible for electricity discounts.
G. Paddy Price Raising Project
On October 22, 1985, the Council of Economic Ministers approved a new rice policy for the
1985/1986 crop year (December 1, 1985 through November 30, 1986), entitled the "Paddy Price
Raising Project." One aspect of this project is to fix a minimum price to be paid by millers for paddy
rice delivered to the mill. Another is the provision of below-market rate financing to millers
meeting certain stock requirements.
Rice mills intending to participate in the compensatory financing program were required to
register by December 1, 1985. Preliminary figures kept by the government of Thailand show
that 978 rice millers have registered to participate. The government estimated that about
30-40 percent of those registered will actually qualify for financing. We verified that this program
went into effect on January 26, 1986, and that, as of the date of the verification, no benefit has been
given out.
H. Investment Promotion Act--Section 36
Section 36 provides various tax and customs duty exemptions to enterprises that export. We
verified that producers or exporters of rice did not receive
benefits under section 36 during the review period.
IV. Program that Does not Exist
Exemption of Sales Tax for Promoted Industries
The petitioner alleged that producers and exporters of rice receive exemptions from sales tax if
they qualify for promotion under the Investment Promotion Act. The government of Thailand
responded that there is no law providing exemptions from sales tax for "promoted" industries other
than the Investment Promotion Act, which is dealt with in the section of this notice entitled
"Investment Promotion Act." We found no evidence during verification that contradicts the
government's response.
Petitioner's Comments
Comment: Petitioner contends that the minimum appropriate benchmark for short- term loans is
the 17.5 percent rate published by the Bank of Thailand (BOT) and not the averge commercial
bank interest rate provided by the BOT.
DOC Position: The 17.5 percent rate published in the BOT's bulletin is identified as a maximum rate.
Thus, it would not be considered as the most
appropriate national average benchmark unless the government of Thailand could not
provide verifiable statistics on average interest rates. Based on our verification, we consider that
the government of Thailand has satisfactorily demonstrated that average actual interest rates
are lower than the published maximum rate. Therefore, we are using as the benchmarks the average
commercial bank interest rates for 1984 and 1985 that were veified at the BOT.
Comment 2: Petitioner argues that the Department should include interest rates charged on loans
from financial institutions other than banks in the benchmark. Petitioner contends that, since
nearly 20 percent of Thailand's market consists of financing companies and other non-bank
institutions, an accurate determination of the national average short-term interest rate must
include the average rate charged by non-banks.
DOC Position: We disagree. Established Department practice is to use the most comparable,
predominant method of financing as the source for short-term loan benchmarks. Thus, we usually
look for a commercial interest rate charged by commercial banks. We are satisfied that the
benchmarks we have chosen represent average commercial interest rates for short-term loans.
Comment 3: Petitioner contends that we understated the ad valorem subsidy margin of certain
domestic programs in the preliminary determination by using as the denominator the estimated
value of milled rice based on the price of one specific high-grade type of rice, due to the lack
of more complete
information. Petitioner argues that the Department must allocate the subsidy benefits over the
value of all varieties of milled rice.
DOC Position: We agree. We now have verified information on the value of all varieties of milled
rice. Since we are dealing with aggregate data and these are domestic subsidies that are not
segregable to sales of rice to the United States, we will allocate benefits over the value of all
milled rice.
Comment 4: Petitioner argues that, in calculating benefits for the rice mortgage program, the
Department should include the costs for labor, insurance, and weighing, since these costs were
entirely paid for by the FAF. In addition, the Department should include the differential between
the market storage rate and the storage rate paid by the farmer to the government agencies under
the program.
DOC Position: We agree that these costs should be included in our calculation. We have no
information on the record indicating that the prices charged for such services are below market
prices. Therefore, we have used the actual amounts paid by the FAF to the PWO for the costs
incurred.
Respondents' Comments
Comment 1: Respondents argue that the government of Thailand's domestic programs to
assist rice farmers should be analyzed under section 771A of the
Tariff Act of 1930, as amended, the upstream subsidies provision of the countervailing duty
law. They maintain that the Department erred when it concluded in its preliminary determination
that paddy rice is not an input into milled rice and, that if section 771A had been applied,
we would find that a competitive benefit was not bestowed on milled rice as a result of benefits
provided to rice farmers. They argue that our preliminary rejection of an upstream analysis was
based on a
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"simplistic approach" elaborated in Live Swine (supra). They claim that our reasoning was not based
on the statute and totally ignored Congressional intent that only subsidies which are passed
through from a prior stage product to a final stage product are countervailable. Furthermore, they
argue that the ITC and the Court of International Trade decisions relating to the definition of
industry in injury investigations are not relevant to our decision and that the "special nature of
agriculture" to which the Live Swine case refers is, in fact, relevant only to an injury determination.
In summary, respondents argue that we cannot determine what effect programs for paddy farming
have on the exported product, milled rice, unless we analyze whether any benefit is actually
passed through to milled rice production. This analysis is properly undertaken through the
upstream subsidy provisions of section 771A.
DOC Position: We disagree. See the section of the notice entitled "Upstream Issue."
Comment 2: Respondents argue that the benchmark should include both loans denominated in baht
and foreign currency loans because 1) exporters secure a large percentage of their sales through
dollar-denominated letters of credit, which can be financed entirely at dollar interest rates, and 2)
the Department verified that three responding companies had short-term dollar loans in 1984 and
1985 at interest rates between 9.375 and 12.5625 percent.
DOC Position: We use as our benchmarks for short-term loans the national average commercial
interest rates. As stated in the Subsidies Appendix, the benchmark must be applicable to loans
denominated in the same currency as the loans under consideration. Thus, it would be
inappropriate to include foreign currency loans in our calculation of the benchmark for a baht
currency loan program.
Comment 3: Respondents argue that the Department should take into account the payment of
penalty interest on export packing credits when determining whether the loans provide
countervailable benefits.
DOC Position: We have done so. See the section entitled "Export Packing and Stocking Credits."
Comment 4: As of the end of December, 1983, the Bank of Thailand required recipients of
export packing and stocking credits to enter into fixed forward exchange contracts as a condition
for receiving the loans. In November, 1984, the government of Thailand devalued the baht.
Due to these conditions, the
companies receiving these loans incurred exchange losses on their export shipments. Respondents
argue that these exchange losses should be included in the effective interest rate of the export
packing and stocking credits.
DOC Position: We disagree. The export packing and stocking credits are baht- denominated loans
and they are repaid in baht. Neither the loans nor their repayment are in any way tied to the value
of the dollar. The recipients did not incur any losses in connection with the repayment of these
loans, although they might have received less baht for their export sales due to the devaluation.
Therefore, these exchange losses are due to commercial risks taken by the borrower in obtaining
loans at a preferential interest rate, and not to a loss of benefits accrued from a government subsidy
program. We do not take into account whether the business result would have worked to the
advantage or disadvantage of the respondents if they had chosen not to participate in the program.
Comment 5: Respondents argue that the Department should take into account changes that have
reduced the level of benefit from export packing and stocking credits since the end of 1984. They
argue that the Department should adopt either one of two alternative calculations to adjust for the
decline in benefits on packing and stocking credits. One, the benefit could be calculated according
to the responding companies' usage of loans from January 1984 to June 1985, but at the rate of
benefits in 1985. Or two, the Department could
calculate the benefit according to the responding companies' usage of loans in 1984, but at the rate
of benefit in 1985.
DOC Position: We agree that there was a program-wide change in the interest rate starting in
October, 1984, and have taken this into consideration in our calculations. (See section entitled
"Export Packing and Stocking Credits.") However, we disagree in this case with both alternatives
suggested by respondents for calculating the cash deposit rate.
In this case, we have verified information on both the loan usage and the benchmark for the period
after the rate change; therefore, we have used these figures to calculate a cash deposit rate.
Comment 6: Respondents contend that a government program is not countervailable unless it
confers some quantifiable benefit on the product being exported. Since the central objective of the
alleged domestic subsidy programs in Thailand is to raise the prices paid for the raw
agricultrual product by the rice miller and the exporter, the final processed product, milled
rice, does not receive any benefit or special treatment by virtue of these programs.
DOC Position: We disagree. Section 771(5)(B) clearly defines a domestic subsidy paid or bestowed,
directly or indirectly, in the manufacturing, production, or export of any class of kind of
merchandise, as 1) the provision of capital, loans, or loan guarantees on terms inconsistent with
commercial
consideration; 2) the provision of goods or services at preferential rates; 3) the grant of funds or
forgiveness of debt to cover operating losses sustained by a specific industry; and 4) the
assumption of any costs or expenses of manufacture, production or distribution. Nowhere is there
any requirement that the benefit must result in a lowering of the price of the exported product in
order for it to be countervailable. It is only in the upstream subsidy provision, which is not
applicable in this case, that we must determine whether the subsidy on the "input" product did
result in a competitive benefit to the product under investigation.
Comment 7: Respondents argue that the MOF price support and stabilization activities in 1984 and
1985 are not countervailable subsidies because they do not result in the product being delivered to
the market at a lower price. Respondents cite Tomato Products from the European Community, 44
FR 15825 (1979), Dextrines and Soluables from Corn Starch from the European Community, 45 FR
18414 (1980), Live Swine and Fresh, Chilled and Frozen Pork Products from Canada, 50 FR 25097
(1985), and Lamb Meat from New Zealand, 50 FR 37708 (1985), as cases which have involved
programs which provided a payment to the producer intended to compensate for the difference
between market prices and price support levels. They also cited Certain Steel Products from
Belgium, 47 FR 39304, 39308 (1982) and Certain Steel Products from the Federal Republic of
Germany, 47 FR 39332, 39351 (1982).
DOC Position: While it is true that in some of the cases cited above the support benefits found to be
countervailable have been intended to result or have resulted in lower market prices, the reasons
for finding them countervailable are not based on whether these subsidies were intended to lower
the prices of the products. As stated above in our response to Respondents' Comment 6, the
countervailing duty law measures subsidies received, not their effect on prices of the
product under investigation. In fact, in Lamb Meat, we found countervailable a government
*12363
price support program which maintained a price support scheme that set prices for lamb at a higher
rate than the market price.
The MOF price support program operates to provide a benefit to the rice farmers through the
purchase of paddy rice at above-market prices; therefore, we find that the benefits provided
under this program are countervailable. See also DOC Position to Respondents' Comment 6.
Comment 8: Respondents argue that any analysis of the Thai price support programs necessarily
takes place under section 771(5)(B)(ii) of the Act, "the provision of goods and services at
preferential rates." They contend that for these programs to be countervailable under this section,
they must result in a lowering of the price, and that since this is not the case with respect to these
price support programs, they are not countervailable.
DOC Position: The price support programs provide benefits in the nature of a
grant and thus do not fall under section 771(5)(B)(ii). Also see DOC Position to Respondents'
Comment 7.
Comment 9: Respondents argue that the preferential loans made by FAF to the ACFT are not
countervailable since the product in question, paddy rice, is being introduced into the market
place through the ACFT program above prevailing market prices. Therefore, milled rice is not
being provided to the consumer at preferential rates.
DOC Position: We disagree. The loans given by the FAF to the ACFT at two percent are clearly
inconsistent with commerical considerations as defined by section 771(5)(B)(i). Whether this
results in the product being provided to the final consumer at preferential rates is irrelevant. See
DOC Postition to Respondents' Comment 6.
Comment 10: Respondents argue that the sale of fertiflizer by the MOF is both de jure and de facto
generally available. In 1985, the sale of fertilizer for specific crops was limited only by whether a
farmer of farm group applied to purchase the fertilizer. The variety of fertilizers sold was
appropriate for most crops requiring fertilizer in Thailand including rice, maize,
mungbeans, cassava, sugarcane, sorghum, soybeans, tapioca, cotton, jute, fruits, vegetables, and
flowers. The provision of fertilizer at below market prices had no effect on the paddy rice.
Although the lower-costing fertilizers may have increased the return to the farmer, the rice
miller purchasing paddy rice at market prices did not benefit at all from the program.
DOC Position: We agree with respondents' first argument that the sale of fertilizer by the MOF is not
limited to a specific enterprise or industry, or group enterprises or industries; therefore, we find
this program not countervailable. With respect to respondents' second argument. See DOC Position
to Respondents' Comment 6:
Comment 11: Respondents argue that the paddy mortgage program is not contervailable because
any benefit which might have accrued to the farmer by virtue of the program is unrelated to a
benefit on the exported product. Respondents cite the case of Final Affirmative Countervailing
Duty Determination: Bars and Shapes from Mexico (49 FR 13178), in which the Department
found concessionary financing of equipment provided to producers of bars and shapes not be be a
countervailable subsidy because the "benefit of the financing accrued to the equipment
manufacturer not to the bar and shape producer." Respondents argue, therefore, that similarly, the
mortgage program can only benefit the farmer by allowing him to realize higher prices, but that the
miller still must pay the market price.
DOC Position: We disagree. See DOC Position to Respondents' Comment 6.
Comment 12: Respondents argue that the SUPPLEMENTARY Program confers no benefit. They
argue that, although millers receive financing at below market rates for paddy rice purchases,
they are required to pay either the
administered price or the market price, whichever is higher. Responents claim that the benefit of
the financing to millers was only three percent in 1985 and that the cost of the program to the
participating millers was six percent; therefore, the cost of participating should be
offset against the benefit. If the offset were allowed, the millers would receive no benefit
from this prgram and thus, the program is not countervailable.
DOC Postion: We diagree. The loans to the millers are clearly at rates that are inconsistent with
commercial considerations and meet the requirement for a domestic subsidy in section
771(5)(B)(i). Respondents have not submitted any information to support their claim for an offset.
Moreover, we do not take to account whether or not the risk taken by the millers paid off.
Comment 13: Respondents argue that the denominator for detemining the ad valorem value of all
benefits to rice farmers and millers must be the total value of milled rice.
DOC Position: We agree and have used the total value of milled rice as the denominator for all
domestic programs.
Comment 14: Respondents argue that any calculation of the ACFT benefit should be based on actual
usage of the FAF loans received to purchase paddy rice.
DOC Position: We disagree. The ACFT received loans from the FAF at an interest rate that is
inconsistent with commerical considerations for use in implementing the Paddy Rice program.
The amount not used was not returned to
the FAF until the end of the fifteen-month term. That this money was not used for its stated purpose
is irrelevant, since it was obtained on terms inconsistent with commercial considerations
specifically for use in this program.
Comment 15: Respondents argue that, should the Department decide that the MOF fertilizer sales
program is countervailable, calculation of benefits should be based only on the 16-20-0 fertilizer,
since products other than rice receive the benefits from the other 3 types of fertilzers. They also
argue that sales of fertilizers received through foreign aid programs should not be subject to
countervailing duties and, therefore, that the value of any benefits received from each
category of fertilizer sale should be reduced by the proportion that fertilizer received through
foreign aid represents of total fertilizer sales.
DOC Position: Since we have found the MOF fertilizer sales program not to be countervailable, these
arguments are moot.
Comment 16: Respondents argue that the market prices on fertilizer presented at verification
should be used as the benchmark.
DOC Position: Since the program is not countervailable, this arugment is moot.
Comment 17: Respondents argue that the benchmark for the paddy mortgage program should be 14
percent, the rate the BAAC offers to all agricultural products for crop mortgages.
DOC Position: We disagree. This is the rate given by one bank, which
is government-owned. We have no information in the record to indicate that 14 percent is the
nation-wide benchmark interest rate for the agricultural sector. Therefore, we have used the
verified national average commercial interest rates for all sectors of 14.39 percent for 1984 and
14.16 percent of 1985 as our benchmarks.
Comment 18: Respondents argue that the market price for fragrant rice is significantly above
the market price for other types of rice of the same grade and above the administered price.
Consequently the fragrant rice exported to the United States did not benefit by participation in
the agricultural
*12364
programs, since there was no necessity to support fragrant rice prices. In order to reflect this in
the final determination, respondents argue that the ad valorem rate for any domestic subsidy
programs should be reduced by the ratio of fragrant to non-fragrant rice exports to the United
States.
DOC Position: We disagree. As stated above, whether the domestic subsidies received are reflected
in the price of the exported product is irrelevant under U.S. law. In addition, the pertinent factor is
that rice production has received contervailable benefits and these benefits have been
allocated over total rice production.
We have calculated subsidies given to all varieties of rice and consequently used the value of all
rice in the denominator. Respondents argue that we should reduce the value of the subsidy in
the numerator without making the
corollary reduction in the denominator for the value of fragrant rice. We believe that the
inclusion of the fragrant rice value in the denominator has taken care of any imbalance of the ad
valorem rate the respondents may be claiming.
Comment 19: Respondents argue that the Investment Promotion Act did not confer any
countervailable benefits on exports of rice from Thailand. They argue that the business tax
reduction claimed by Mah Boonkrong Rice Mill is not countervailable because the privilege is
generally available to a large number of industries in Thailand regardless of geographic
location.
DOC Position: We agree. See section entitled "Investment Promotion Act-- Section 35."
Comment 20: Respondents argue that the foreign currency account held by Mah Boonkrong
Trading Company has never been used and confers no benefit on exports. Even if Mah Boonkrong
Trading has used the dollar account, it would not have conferred any benefit on the company's
export activities. The company does not need dollars to finance sales, because the company's
customers arrange financing through dollar-denominated letters of credit. The only use a dollar
account would serve be to pay for the company's imports of raw materials. Rice exports,
however, do not contain any imported raw materials.
DOC Position: We agree that the dollar account held by Mah Boonkrong confers no benefits on
exports in this case. We verified that the dollar account held
by Mah Boonkrong is minimal and has never been used.
Verification
In accordance with section 766(a) of the Act, we verified all information used in making our final
determination. During verification, we followed standard verification procedures, including
meeting with government officials, inspection of documents and ledgers, and tracing the
information in the responses to sources documents, accounting ledgers, and financial statements.
Suspension of Liquidation
The suspension of liquidation ordered in our preliminary affirmative countervailing duty
determination shall remain in effect until further notice. The cash deposit rate is 0.82 percent ad
valorem.
In accordance with section 706(a)(3) of the Act, we are directing the U.S. Customs Service to
require a cash deposit in the amount indicated above for each entry of the subject merchandise
from Thailand, which is entered, or withdrawn from warehouse, for consumption, on or after
the date of publication of this notice in the Federal Register and to assess countervailing
duties in accordance with sections 706(a)(1) and 751 of the Act.
This notice is published pursuant to sections 303 and 705(d) of the Act (19 U.S.C. 1303, 1671d(d)).
April 2, 1986.
Paul Freedenberg,
Assistant Secretary, for Trade Administration.
[FR Doc. 86-8029 Filed 4-9-86; 8:45 am]
BILLING CODE 3510-DS-M