59 FR 8906

                                   NOTICES

                           DEPARTMENT OF COMMERCE

                      International Trade Administration

                                  (C-549-503)

   Rice From Thailand; Final Results of Countervailing Duty Administrative Review

                           Thursday, February 24, 1994

*8906

AGENCY: International Trade Administration/Import Administration, Department of
Commerce.

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

SUMMARY: On March 10, 1992, the Department of Commerce (the Department) 
published the preliminary results of its administrative review of the countervailing duty
order on rice from Thailand (57 FR 8437). We have now completed that review and
determine the total bounty or grant during the period January 1, 1990 through December 31, 1990
to be 0.53 percent ad valorem for all producers and exporters.

EFFECTIVE DATE: February 24, 1994.

FOR FURTHER INFORMATION CONTACT: Sylvia Chadwick or Rick Herring, Office of Countervailing
Compliance, International Trade Administration, U.S. Department of Commerce,
Washington, DC 20230; telephone: (202) 482-2786.

SUPPLEMENTARY INFORMATION:

Background

On March 10, 1992, the Department published in the Federal Register (57 FR 8437) the preliminary
results of its administrative review of the countervailing duty order on rice from
Thailand (51 FR 12356; April 10, 1986). The Department has now completed 

*8907

that administrative review in accordance with section 751 of the Tariff Act of 1930, as amended
(the Act).

Since the preliminary results of review, respondent, the Royal Thai Government (RTG), filed a case
brief. All comments received are addressed in this notice.
In response to the comments, the Department recalculated loans made under the EPC program and
the ACFT program using the 1989 benchmark rate instead of the 1990 benchmark rate for
short-term loans received in 1989 but repaid in 1990.
The Department adjusted the net benefit to the millers under the Ministry of Interior (MOI) paddy
price raising program. This adjustment results in a revised benefit to the millers.
Because of these changes, the estimated bounty or grant of 0.69 percent ad valorem found in our
preliminary results has been recalculated to 0.53 percent ad valorem.

Scope of Review

Imports covered by this review are shipments of all Thai rice including rice in the husk
(paddy or rough); husked (brown) rice including basmati and other; semi-milled or
wholly-milled rice, whether or not polished or glazed, including parboiled and other; and
broken rice. During the review period, such merchandise was classifiable under item numbers
1006.10.00, 1006.20.20, 1006.20.40, 1006.30.10, 1006.30.90 and 1006.40.00 of the
Harmonized Tariff 
Schedule (HTS). The HTS item numbers are provided for convenience and Customs purposes. The
written description remains dispositive.
The review covers the period January 1, 1990 through December 31, 1990 and fifteen programs: (1)
Export Packing and Stocking Credits (EPCs), (2) Marketing Organization of Farmers (MOF)
Payment-in-kind Program, (3) MOF Paddy Rice Purchase Program, (4) Cooperative Promotion
Department (CPD) loans to Agricultural Cooperative Federation of Thailand (ACFT), (5) Bank
of Agriculture and Agricultural Cooperatives (BAAC) Paddy Rice Mortgage Program, (6) BAAC
Second Crop Paddy Rice Purchasing Program, (7) Ministry of Interior (MOI) Paddy Rice
Raising Project and Compensatory Financing Program for Millers, (8) Bank of Thailand (BOT)
Agricultural Purchase Project, (9) Department of Agricultural Extension (DAE) Loans to Farmer
Associations, (10) Public Warehouse Organization (PWO) Loan Program, (11) Department of
Foreign Trade (DFT) Purchase of Milled Rice Program, (12) Export Processing Zones, (13)
Incentives for International Trading Firms, (14) Export Promotion Fund, and (15) Tax Certificates
for Exporters.

Standing

Respondent, the Royal Thai Government (RTG), contends that only the USA Rice Council (USA 
Rice), by letter dated April 29, 1991, requested this 
administrative review, and that the Department's preliminary determination that this review was
initiated upon request of an interested party under 19 CFR 355.2(i)(5) is not supported by
substantial evidence on the record of this review. Further, respondent argues that there is no
evidence on the record of this review that the Rice Millers Association (RMA), the original
petitioner in this proceeding, timely requested a review during the anniversary month of the
publication of the order.
The Department accepted the USA Rice/RMA letter dated April 29, 1991, as being a request for
review on behalf of both USA Rice and RMA because all the statements in the letter were made
collectively and the names and addresses of contact individuals at both organizations were
provided. To determine whether USA Rice had standing as an interested party in this
proceeding, the Department in its letter of May 2, 1991, requested information from USA Rice
regarding the function of USA Rice, the eligibility requirements for membership, and the
number of members classified as importers, producers or sellers of rice. By letter of May 13,
1991, USA Rice provided the requested information as well as copies of their bylaws, articles of
incorporation, and their annual report covering the period of review (POR). Based on the
information provided by USA Rice, the Department determined that USA Rice is an
interested party to this proceeding. Further, by letter dated June 7, 1991, the Department asked
that RMA clarify its intent to request a review jointly with USA Rice. RMA's 
affirmative response of June 7, 1991 was treated not as a request for review, but as a clarification of
RMA's intent. For these reasons, the Department treated the request for this administrative review
to be jointly from USA Rice and RMA.

Analysis of Comments Received

We gave interested parties an opportunity to comment on the preliminary results. We received
comments from the respondent.

Comment 1: Respondent contends that in its preliminary determination, the Department wrongly
rejected the short-term loan benchmark developed by the Bank of Thailand (BOT) and erred in
using the benchmark methodology adopted in Final Affirmative Countervailing Duty
Determination and Countervailing Duty Order; Steel Wire Rope from Thailand (56 FR
46299; Sept. 11, 1991), (Steel Wire Rope).
Respondent argues that the Department failed to address new evidence and arguments submitted
by the RTG in the questionnaire responses on the record of this review which show that the BOT
benchmark methodology is more representative of short-term commercial lending rates in
Thailand than the Department benchmark methodology used in Steel Wire Rope. The
respondent explained that the BOT compiles a database from monthly balance sheets and 
semi-annual income statements submitted by Thai commercial banks from which the BOT
calculates a weighted-average commercial interest rate for short-term borrowing. Respondent
asserts that this BOT benchmark has been consistently used in all Thai cases previous to Steel Wire
Rope and was most recently verified in the 1989/90 administrative review of carbon steel
butt-weld pipe fittings from Thailand.
Respondent also argues that the Steel Wire Rope benchmark is premised on a misunderstanding of
the minimum loan rate (MLR) and minimum overdraft rate (MOR). Respondent asserts that the
MLR and MOR are merely an indication of the commercial bank's prospective short-term lending
rates, and that banks are free to make commercial loans below either the MLR or MOR. Commercial
banks usually indicate high MLRs because certain loans cannot be made in excess of their MLRs.
Further, the MOR carries a higher interest rate than regular loans and is used only when a loan has
not been repaid by its due date. The MLR and MOR are "prime" rates from the perspective of the
commercial banks, and exporters, as secured borrowers repaying in hard foreign currencies, often
receive commercial loans at rates below these rates.
For these reasons, respondent contends that the MLR and the MOR do not reflect the actual lending
practices of commercial banks, and the Department should instead use the BOT benchmark to
recalculate the benefits from all short-term loan programs found countervailable in this review.

Response: The Department has considered all the information submitted in respondent's
questionnaire responses which explain in detail the methodology and sources of information used
to calculate the BOT benchmark. 

*8908

However, using the data submitted by the respondent in the responses resulted, as it did in the final
determination and order in Steel Wire Rope, in a BOT benchmark which was lower than the average
of the monthly prime rates (MLRs and MORs) as compiled by BOT from commercial banks and
published in the 1990 BOT Quarterly Bulletin, and less even than the interbank lending rate
reported in the government's response. Contrary to respondent's assertions that the MLR and MOR
are merely indications of the commercial bank's prospective short-term lending rates, throughout
the BOT Annual Report and Quarterly Bulletins, the MORs and MLRs are reported both as
commercial banks' interest rates to prime customers or as prime rates (See BOT 1990 Annual
Economic Report at p. 51 and 55; and December 1990 BOT Quarterly Bulletin, at p. 12 and Table 22,
p. 32). Also, the prime rates are published in the BOT Annual Report under Thailand's Key
Economic Indicators at page one. Further, it was found in Steel Wire Rope, that most of the
commercial bank's short-term loans were made at the MOR/MLR rates. This is confirmed by the
1990 BOT Quarterly Bulletin, Table 12 at p. 17 and the BOT Annual Economic Report at p. 53.
Finally, because the interbank lending rate is the rate at which a commercial bank obtains its funds,
the BOT benchmark, which is less than the 
interbank lending rate reported in the government's response, demonstrates unmistakably that the
BOT benchmark does not reflect commercial realities.
Based on these facts, the Department is not persuaded that the information submitted by
respondent on the record of this review more accurately reflects the actual interest rates for
commercial short-term financing in Thailand than the published MLR and MOR. Therefore, we
determine that it is appropriate to continue to use the average of the MOR and the MLR as our
benchmark interest rate in these final results of review.

Comment 2: Respondent contends that the Department should apply the 1989 benchmark rate to
the benefit calculations for loans made under the EPC program in 1989 and repaid in 1990.
Respondent argues that this methodology matches the appropriate benchmark rate to the time
when the terms of the loans, including the interest rates, were set.

Response: The Department's practice is to select a benchmark interest rate at the time the
government and the firm agree on the terms of the loan, which in this case was when the loan was
received. (See, e.g., Final Affirmative Countervailing Duty Determination and
Countervailing Duty Order; Steel Wire Rope from Thailand) (56 FR 46299, September
11, 1991). Therefore, we agree that the 1989 benchmark rate should be used for calculating the
benefit of EPC loans received in 1989 but on which interest was paid in 1990 and have recalculated
the benefit from this program. The revised net subsidy from this program is 0.32 percent ad valorem.

Comment 3: Respondent claims the Department did not follow its recent practice of accounting for
EPC loans with repayments made both during and outside the review period. Respondent argues
that, in calculating the benefit from this program, the Department should include the entire loan if
partial repayments are made before and during the review period and exclude the entire loan if
repayments are made during and after the review period. RTG specifically requested corrections to
be made to 22 loans with payments both inside and outside the review period.

Response: The Department disagrees with respondent. According to our practice as expressed in
section 355.48(b)(3) of our Proposed Rules, (54 FR 23384, May 31, 1989), the benefit from a loan
occurs when a firm is due to make a payment on the loan. The questionnaire response clearly states
that in the case of EPC pre-shipment loans, the entire loan must be repaid in full within two days of
shipment, whether or not this occurred before the due date on the note. Further, in the case of EPC
post-shipment financing, the loan must be repaid on the earlier of the date on which the loan was
due or the payment for the shipment was received. In both types of loans, provision is made only
for the payment of the entire loan and no provision is made for partial payments. Therefore, we
consider each payment listed in the questionnaire response to be a repayment of a separate loan
and according to our practice, have 
countervailed all those loans repaid within our POR or with penalties refunded during the POR.

Comment 4: Respondent contends that the loan disbursements from three domestic price
stabilization programs--CPD loans to ACFT, BAAC Paddy Mortgage Program and BOT Agricultural
Purchase Project--should be allocated over the crop-year during which the funds were available
rather than allocated entirely during the calendar year covered by the review. Respondent argues
that the allocation of the disbursements should be made by calculating a ratio of crop-year months
falling within 1989 to total crop-year months which includes months in both 1989 and 1990. For
calculating the benefit from this program, the 1989 benchmark should be used for the portion of
loans equivalent to the ratio of months falling in 1989 and the 1990 benchmark used for the portion
of loans equivalent to the ratio of months falling in 1989.

Response: The Department agrees in part. The questionnaire response shows all CPD loans to ACFT,
the provincial federations, and district-level cooperative societies were disbursed in 1989 and
repaid in 1990. Therefore, we have adjusted our calculations to reflect the use of the 1989
benchmark rate of 12.23 for loans disbursed under this program (see Comment 2). The revised net
subsidy under this program is 0.05 percent ad valorem.

Although the RTG allocated the funds to BAAC and BOT in 1989 at the beginning of the crop year,
respondent submitted no information as to when the individual 
loans to farmers under these programs were disbursed by the BAAC and BOT. Therefore, we
continue to consider the aggregate amount of BAAC and BOT loans to be disbursed and repaid
during the POR.

Comment 5: Respondent asserts that the Department's best information available (BIA) rate
imposed on the four companies not submitting EPC loan information is overly punitive.
Respondent argues that a more reasonable method for calculating the benefits for this program
should be adopted because complete EPC loan information was submitted for eight companies
accounting for 95.31 percent of rice exports to the United States for which EPCs were received.

Response: In its questionnaire, the Department requested information on all EPCs granted, paid, or
on which interest was paid or due on rice exports to the United States during the POR. In its
supplemental questionnaire, the Department requested complete loan information for all 12
companies exporting to the United States who utilized EPCs during the POR. Respondent submitted
complete loan information for only eight of the 12 companies but stated in their supplemental
questionnaire response that the loan charts for the four exporters would be submitted as soon as
they were available to counsel. No loan information was submitted for the four companies. Section
776(c) of the Act requires the Department to use BIA whenever a party refuses or is unable to
produce the information requested. Furthermore, §355.37 of the Department's 
regulations gives the Department broad discretion in the use 

*8909

of BIA to calculate benefits for non-cooperating companies who do not submit a complete
response. In light of respondent's failure to respond to our request for complete loan information,
we are continuing to use the highest individual company benefit found in this review to calculate
the benefit of the four companies not submitting complete responses. However, in accordance with
our utilization of different benchmarks for 1989 and 1990 loans (See response to comment 2), the
revised net subsidy from this program is 0.32 percent ad valorem.

Comment 6: Respondent contends that the Department's application of section 771B of the Tariff
Act of 1930, as amended, 19 U.S.C. Sec. 1677-2, is in error and, absent an upstream subsidies
investigation, the Department has no authority to countervail any of the paddy rice (paddy)
price support and stabilization programs in this review. Respondent argues that at harvest, the RTG
intervenes in the market to purchase paddy from paddy farmers at prices above prevailing market
prices and holds the paddy off the market until prices improve. Although this practice serves to
increase the price received by paddy farmers, it increases the millers' cost of paddy, thereby
decreasing the competitiveness of milled rice, the exported product, in the U.S. and world
markets. Therefore, an upstream subsidies investigation would show that the price support and
stabilization programs for paddy rice provide no competitive 
advantage to milled rice, the exported product, and therefore are not countervailable.
Further, respondent argues that the Department should determine whether 771B is relevant to the
paddy rice purchase programs by reexamining the following four factors: (1) Paddy growers
and rice millers are not related and there is no commonality of economic interest--in fact, their
economic interests are adverse; (2) rice processing adds more than limited value; (3) there can
be no circumvention of the order because both paddy rice and milled rice are included in
the scope of the order and product shifting is impossible; (4) the processing operations (milling)
change the essential character of the paddy rice from an inedible raw fiber to an edible grain
and create the added value, whether measured by price or essential characteristics. In light of these
facts, respondent claims that it would be inappropriate to apply section 771B to the paddy rice
purchase programs insofar as such programs serve only to raise the price of the exported milled
rice.

Response: The Department disagrees with Respondent's contention that, absent an upstream
subsidy investigation, the Department has no authority to countervail the paddy rice support
and stabilization programs in this review. In this review, the Department determines that the
criteria of 771B of the Act are satisfied, and as such need not apply an upstream subsidy analysis
with respect to subsidies on raw agricultural products used in the production of 
processed agricultural products.

In addition, the Department disagrees with Respondent's claim that Commerce has deemed four
factors relevant to determining which agricultural subsidies are subject to section 771B's
provisions. Respondent extracts its four factors from Final Affirmative Countervailing Duty
Determination: Live Swine and Fresh, Chilled and Frozen Pork Products from Canada, (50 FR
25098, June 17, 1985) (Live Swine), a determination which predates section 771B by several years.
While the Live Swine determination may have provided the genesis for section 771B, it is not
dispositive in the Department's application and interpretation of the superseding statutory
provision, particularly in cases involving other products.
Finally, the Department disagrees with Respondent's argument and reasoning that the domestic
paddy purchase programs should not be countervailed because they increase milled rice
export prices, decreasing the competitiveness of Thai rice in the United States and world
markets. By raising the farm income of poor paddy farmers and stabilizing a domestic paddy
market, the programs ensure a continuous, level supply of paddy rice for domestic millers. A
drop in the supply of paddy due to either seasonal low levels of paddy production or a decrease in
the number of paddy farmers could compel Thai millers to source paddy abroad at even higher
prices.
Prior to enactment of section 771B, the Department considered a benefit to 
producers of a raw agricultural product as a benefit to producers of a processed agricultural
product. See Final Affirmative Countervailing Duty Determination and Countervailing
Duty Order; Rice From Thailand, (51 FR 12356, April 10, 1986) (Rice). In Rice
we determined that "the primary, if not sole purpose of all segments of the industry in the case is to
produce a single end product--milled rice." We also noted that almost all of the raw agricultural
product, paddy or unmilled rice, is dedicated to the production of milled rice, and
determined that there is a single, continuous line of production from paddy rice to milled
rice. Rice, at 12358.
Section 1313 of the Omnibus Trade and Competitiveness Act of 1988 amended the Tariff Act of 1930
to include a new section 771B that states: "In the case of an agricultural product processed from a
raw agricultural product in which (1) the demand for the prior stage product is substantially
dependent on the demand for the latter stage product, and (2) the processing operation adds only
limited value to the raw commodity, subsidies found to be provided to either producers or
processors of the product shall be deemed to be provided with respect to the manufacture,
production, or exportation of the processed product."
In this review, we determine that the first criterion of section 771B is met because the demand for
paddy rice depends substantially upon the demand for milled rice. As in Rice, we find in
this review that substantially all of the 
raw agricultural product, paddy rice, is dedicated to the production of milled rice. As
determined in Rice, the fact that there is a single, continuous line of production from paddy
rice to milled rice is further evidence that the demand for the prior stage product is
dependent on the demand for the latter stage product.
Furthermore, as in Final Results of Countervailing Duty Administrative Review; Rice
From Thailand (56 FR 68, January 2, 1991) (Final), we determine that the second criterion of
771B, limited value added, is also satisfied in this review. Respondent would have us consider the
difference between paddy rice and milled rice in terms of price as the focus in determining
value added. The statute, however, requires us to consider the processing operation in determining
value added for the purposes of 771B. Notably, the bulk of value added in terms of price reflects
supply and demand conditions in the world market for rice and includes selling costs and
profits in addition to the cost of milling or processing operations. In this case, the processing
operations consist primarily of parboiling the paddy rice, removing the rice hulls, and
removing the bran layer. The resulting processed agricultural product, milled rice, while not
identical to the raw agricultural product, paddy rice, is essentially unchanged in composition.
As a result, the Department determines that the processing operation itself adds only limited value
to the raw commodity.

Therefore, for the reasons set forth above, we determine that subsidies 

*8910

found to be provided to paddy rice shall be deemed to be provided with respect to the
manufacture, production, or exportation of milled rice in accordance with section 771B of the
Act.

Comment 7: Respondent claims that in order to receive interest-free loans under the MOI's loan
program, millers are required by the Government to buy paddy from farmers at prices
approximately ten percent above prevailing market prices. Therefore, respondent argues that the
gross benefit from the loans should be reduced by ten percent, as authorized under section 771(6)
of the Act.

Response: For the purpose of determining the net subsidy, section 771(6) of the Act allows the
administering authority to subtract from the gross subsidy the amount of "(A) any application fee,
deposit, or similar payment paid in order to qualify for, or to receive, the benefit of the subsidy, 
(B) any loss in the value of the subsidy resulting from the deferred receipt, if the deferral is 
mandated by Government order, and (C) export taxes, duties, or other charges levied on the export of
merchandise to the United States specifically intended to offset the subsidy received." Our practice
is to interpret this section of the Act very narrowly, and we determine that the requirement to buy
paddy at prices above prevailing market prices is not an offset provided for under section 771(6).

However, in order not to double-count the subsidy conferred upon the subject merchandise under
this program, we have adjusted our preliminary calculations. Under this program, the MOI
required rice millers to purchase rice from farmers at a price ten percent above the
prevailing market price. To partially cover the additional payments to the farmers, the MOI
provided interest-free loans to the rice millers.
In our preliminary results of review, we calculated a countervailable subsidy under this program
based on the ten percent government-mandated price premium paid to the rice farmers. If we
were also to calculate a benefit from the interest-free loans provided to the millers to finance this
program, we would be double-counting the benefit conferred on the subject merchandise under
this program: once, as grant payments provided to rice farmers, and again as the amount of
interest savings incurred by the millers from the interest-free loans used to pay the rice farmers
the price premium grant.
In order to avoid this double-counting, and to calculate properly the full amount of the subsidy
conferred upon the subject merchandise under this program, we compared the amount of the ten
percent premium paid for paddy rice purchases to the amount of the interest savings from the
MOI loans. Because the amount of the interest savings was greater than the amount of the
premiums paid on purchases of paddy rice, both the rice farmers and the millers received
benefits under this program.

Since section 771B of the Act applies to this review, the benefits provided to both rice farmers
and millers are deemed to be conferred on the subject merchandise. (See Comment 6 for a
discussion of section 771B of the Act.) Therefore, to determine the net benefit to the millers under
this program, we calculated the difference between the amount of interest savings under this
program and the ten percent premium provided to the rice farmers. This change results in a
revised benefit to the millers under this program. The benefit to the paddy farmers remains the
same as in the preliminary results. Thus, by dividing the sum of these two benefits by the domestic
denominator and applying the export adjustment factor, the net subsidy conferred upon the
subject merchandise under this program is 0.02 percent ad valorem.

Comment 8: Respondent points out that the preliminary results have no effect on the cash deposit
rate and requests that the Department rescind any instructions to Customs issued upon publication
of the preliminary determination.

Response: No instructions were issued to Customs following the publication of the preliminary
results. In accordance with 19 CFR 355.22(c)(10), the Department will issue instructions to
Customs after publication of the final results of this review.

Final Results of Review 

As a result of our review, we determine the net bounty or grant to be 0.53 percent ad valorem for
the period January 1, 1990 through December 31, 1990.
Therefore, the Department will instruct the Customs Service to assess countervailing duties
of 0.53 percent of the f.o.b. invoice price on all shipments from Thailand of the subject
merchandise exported on or after January 1, 1990 and on or before December 31, 1990.
Further, as provided by section 751(a)(1) of the Act, the Department will instruct the Customs
Service to collect cash deposits of estimated countervailing duties of 0.53 percent of the
f.o.b. invoice price on all shipments of the subject merchandise from Thailand entered, or
withdrawn from warehouse, for consumption on or after the date of publication of this notice. This
deposit requirement shall remain in effect until publication of the final results of the next
administrative review.
This administrative review and notice are in accordance with section 751(a)(1) of the Tariff Act (19
U.S.C. 1675(a)(1)) and 19 CFR 355.22.
Dated: February 14, 1994.

Joseph A. Spetrini,

Acting Assistant Secretary for Import Administration. 

(FR Doc. 94-4197 Filed 2-23-94; 8:45 am)

BILLING CODE 3510-DS-P