66 FR 64398, December 13, 2001
C-489-806
Administrative Review
POR: 01/01/99 - 12/31/99
Public Document
M. Brown, Office 1, ext. 4987
MEMORANDUM
DATE: December 6, 2001
TO: Bernard Carreau
Acting Assistant Secretary for
Import Administration
FROM: Richard W. Moreland
Deputy Assistant Secretary, Group I
Import Administration
SUBJECT: Issues and Decision Memorandum for the Final Results of the
Countervailing Duty Administrative Review of Certain Pasta from Turkey
_______________________________________________________________________
SUMMARY
On August 8, 2001, the Department of Commerce ("the Department")
published the preliminary results in this administrative review. (1) The
"Analysis of Programs" and "Subsidies Valuation Information" sections
below describe the subsidy programs and the calculation methodologies used
to calculate the benefits from these programs. We have analyzed the
comment submitted by the only interested party that submitted a case brief
in this review in the "Comment Analysis" section below, which also
contains the Department's response to the issue raised in this brief. We
recommend that you approve the positions we have developed in this
memorandum.
Scope
This countervailing duty order covers shipments of certain non-egg dry
pasta in packages of five pounds (2.27 kilograms) or less, whether or not
enriched or fortified or containing milk or other optional ingredients
such as chopped vegetables, vegetable purees, milk, gluten, diastases,
vitamins, coloring and flavorings, and up to two percent egg white. The
pasta covered by this order is typically sold in the retail market, in
fiberboard or cardboard cartons or polyethylene or polypropylene bags, of
varying dimensions. Excluded from the scope are refrigerated, frozen, or
canned pastas, as well as all forms of egg pasta, with the exception of
non-egg dry pasta containing up to two percent egg white. The merchandise
under review is currently classifiable under subheading 1902.19.20 of the
Harmonized Tariff Schedule of the United States ("HTSUS"). Although the
HTSUS subheading is provided for convenience and customs purposes, our
written description of the scope of the order is dispositive.
Background Information
This review covers four responding companies: Filiz Gida Sanayi ve
Ticaret A.S. ("Filiz"), Beslen Makarna Gida Sanayi ve Ticaret A.S. and
Beslen Pazarlama Gida Sanayi ve Ticaret A.S. ("Beslen"), Pastavilla
Makarnacilik Sanayi ve Ticaret A.S. ("Pastavilla"), and Maktas
Makarnacilik ve Ticaret A.S. ("Maktas").
On July 24, 1996, the Department published in the Federal Register (61 FR
38546) the countervailing duty order on certain pasta from Turkey. On July
20, 2000, the Department published in the Federal Register a notice of
"Opportunity to Request Administrative Review" of this countervailing duty
order (65 FR 45035). We received requests for review and initiated the
review for calendar year 1999 on September 6, 2000 (65 FR 53980). (2) In
accordance with 19 CFR 351.213(b), this review of the order covers the
above-named producers or exporters of the subject merchandise.
Only one respondent, Maktas, submitted a case brief and no rebuttal
briefs were submitted.
Subsidies Valuation Information
Benchmark Interest Rates for Short-term Loans:
During the period of review ("POR"), Pastavilla had outstanding pre-
shipment loans denominated in Turkish lira ("TL") while Maktas had pre-
shipment loans denominated in both TL and foreign currencies. See the
"Analysis of Programs" section below. The Department uses company-specific
interest rates as benchmark rates, where possible, in accordance with 19
CFR 351.505. Because short-term interest rates in Turkey fluctuated
significantly during the POR, we have used monthly benchmark rates, e.g.,
the interest rate paid on a pre-shipment loan obtained in January 1999 has
been compared to the interest rate that would have been paid on a
benchmark loan obtained in the same month.
Maktas has argued that the Department should use the amount of discount
deducted from the company's discounted loan checks as the benchmark
interest rate for its TL-denominated pre-shipment loans. In the
calculation of both the preliminary and the final results, we used the
discounts deducted on such checks as the benchmark rate. We increased
these rates to reflect the exemption of Maktas from certain taxes that are
normally paid on short-term loans in Turkey but are not charged on pre-
shipment and other export-related short-term loans (see the "Analysis of
Programs" section below).
Pastavilla did not obtain any comparable commercial short-term loans in
the same months as it obtained its pre-shipment loans and we, therefore,
lack company-specific benchmark interest rates for Pastavilla. Section
351.505(3)(ii) of the Department's regulations directs us to use a
national average interest rate as the benchmark where there are no company-
specific rates. The Government of Turkey ("GRT") does not maintain or
publish data concerning the predominant national average short-term
interest rates in Turkey. In both the preliminary and the final results,
we, therefore, calculated a monthly benchmark interest rate based on the
short-term interest rates in Turkey for 1999 as reported weekly by The
Economist. This is consistent with the methodology used in Certain Welded
Carbon Steel Pipes and Tubes and Welded Carbon Steel Line Pipe from
Turkey; Preliminary Results of Countervailing Duty Administrative Review,
65 FR 18070 (April 6, 2000) ("1998 Pipe & Tube Review"). As we did with
Maktas, we increased the benchmark rates to reflect the exemption of
Pastavilla from certain taxes not charged on the pre-shipment loans.
With respect to pre-shipment loans denominated in foreign currencies,
Maktas provided the interest rates paid on comparable commercial short-
term loans denominated in the same currencies. In accordance with 19 CFR
351.505, we used these interest rates as the benchmark rates for the
foreign currency pre-shipment loans in both the preliminary and final
results. Like the TL-denominated pre-shipment loans, pre-shipment loans
denominated in foreign currencies are exempted from certain taxes. While
we did not change our benchmark interest rate for these loans from the
preliminary results, we did change the methodology for calculating the
benefit associated with these tax exemptions. (See the "Analysis of
Programs" section below.)
Change in Ownership:
We did not make a finding in the preliminary results as to whether the
pre-sale entities are distinct persons from the post-sale entities because
the respondents had not reported receiving any subsidies prior to the
changes in ownership (e.g., non-recurring grants or long-term loans
provided to the previous owner of the company) from which they continued
to benefit during the POR. No new information has been provided since the
preliminary results and we therefore, continue to find that application of
the change-in-ownership methodology is not relevant in this review.
Benefits to Mills:
All the respondents owned mills for processing wheat into semolina, which
is the principal input product in pasta. None of the mills was separately
incorporated, i.e., both the semolina and the downstream product (pasta)
were produced within a single corporate entity.
On this basis and in accordance with 19 CFR 351.525(b)(6)(ii), the
Department has attributed subsidies provided for the production of
semolina and pasta to the sales by the corporate entities that received
them. There were no changes in this methodology between the preliminary
and the final results.
Adjusting for Inflation:
During the POR, the inflation rate in Turkey exceeded 50 percent, as
shown in the IMF's International Financial Statistics ("IFS"). Adjusting
the subsidy benefits and the sales figures for inflation neutralizes any
potential distortion in our subsidy calculations caused by high inflation
and the timing of the receipt of the subsidy. Consistent with the
methodology used in 1998 Pipe & Tube Review and the Preliminary Results,
we calculated the ad valorem subsidy rates for each program by multiplying
the benefit in the month of receipt by the rate of inflation from the
month of receipt until the end of the POR. Next, we adjusted the monthly
sales values in the same way and added these adjusted values, thus
obtaining total sales for the POR valued at December 1999 prices. In these
calculations, we used the Wholesale Price Index ("WPI") as reported in the
IFS.
Analysis of Programs
Programs Determined To Be Countervailable
Pre-Shipment Export Loans
In order to meet the financing needs of Turkish exporters, the Export
Credit Bank of Turkey provides short-term pre-shipment loans at
preferential interest rates to exporters through intermediary commercial
banks. The term for TL-denominated loans is 120 days, whereas the term for
loans denominated in foreign currencies is 180 days. Both types of loans
may cover up to 100 percent of the FOB export value. The interest rate
charged on the loans is established by the Export Credit Bank and is
changed periodically. The intermediary commercial banks, which take the
risk that the borrower may default, can require additional fees to offset
this risk and may also charge a commission. Like all other export-related
short-term loans, the pre-shipment export loans are exempted from the
Resource Utilization Support Fund ("KKDF") tax, the Banking and Insurance
Transaction ("BIST") tax, and stamp taxes.
Maktas and Pastavilla had outstanding pre-shipment export loans in the
POR. The Department has previously found that these loans confer a
countervailable subsidy within the meaning of section 771(5) of the Act
because the interest rate paid on these loans is less than the amount the
recipient would pay on a comparable commercial loan. See Final Affirmative
Countervailing Duty Determination: Certain Pasta ("Pasta") from Turkey, 61
FR 30366 (June 14, 1996) ("Pasta Investigation Final"). The loans are a
direct transfer of funds from the GRT bestowing a benefit in the amount of
the difference between the benchmark interest rate (including the KKDF and
BIST taxes, but not the stamp taxes, whose exemption we have found to be
not countervailable; see below) and the interest rate and taxes paid by
the recipient companies.
In the Pasta Investigation Final, we found the pre-shipment export loans
to be specific in accordance with section 771(5A)(B) of the Act because
receipt of these loans is contingent upon export performance. We have also
previously found that these loans are not tied to a particular export
destination and have, therefore, treated this program as an untied export
loan program which renders it countervailable regardless of whether or not
the loans were used for exports to the United States. See 1998 Pipe & Tube
Review, 65 FR at 18072. In the Preliminary Results, we found that this
program conferred countervailable subsidies on the subject merchandise. No
new information, evidence of changed circumstances, or comments from
interested parties has been presented to warrant a reconsideration of this
finding. However, we have changed the methodology for calculating the
benefits from the KKDF tax exemption on certain pre-shipment loans, as
described below. We have also made a minor change in the calculation of
the benefit received by Pastavilla from the BIST tax exemptions, which was
calculated incorrectly in the Preliminary Results (see the December 6,
2001 memorandum to the file from Melanie Brown, Import Compliance
Specialist, entitled "Calculation of Final Results of First (1999)
Administrative Review for Pastavilla"). Finally, in these final results,
we have changed our preliminary finding regarding the exemption from the
stamp tax and have determined that this exemption does not provide
countervailable benefits (see the section entitled "Programs Determined
Not To Be Countervailable" below). The net subsidy rates for the pre-
shipment loans have thus changed from the Preliminary Results to 4.68
percent ad valorem for Maktas and 1.69 percent ad valorem for Pastavilla.
Resource Utilization Support Fund ("KKDF") Tax Exemption on Export-
Related Loans
In the Preliminary Results, this program was listed under the same
heading as two other tax exemption programs. In the final results, we have
chosen to separate and individually address these programs because of
confusion drawn from the heading used in the Preliminary Results. For
purposes of these final results, the programs will be listed as follows:
• Resource Utilization Support Fund ("KKDF") Tax Exemption on Export-
Related Loans, which is discussed in this section;
• Banking and Insurance Transaction ("BIST") Tax Exemption on Export-
Related Loans, which is described under 3, below; and
• Stamp Tax Exemption on Export-Related Loans, which is listed in the
section entitled "Programs Determined To Be Not Countervailable" below.
Pursuant to Article 4 of Resolution no. 94/5782 of June 13, 1994, Turkish
companies are exempted from paying KKDF taxes on export-related short-term
loans regardless of whether the loans are denominated in TL or foreign
currencies. These exemptions are allowed both on loans at preferential
interest rates (such as the pre-shipment export loans discussed above) and
on loans at non-preferential interest rates. Tax exemptions on
preferential rate, pre-shipment export loans have been included in the
calculation of the countervailable benefit for those loans, as described
in the Subsidies Valuation Information section above. This discussion,
therefore, addresses only KKDF tax exemptions on non-preferential export-
related loans (i.e., loans other than pre-shipment loans).
Maktas reported that it received KKDF tax exemptions on such non-
preferential interest rate loans during the POR. In the Preliminary
Results, the Department found that these tax exemptions confer a
countervailable subsidy within the meaning of section 771(5) of the Act.
They constitute revenue forgone by the GRT and provide a benefit in the
amount of the tax exemptions. We also preliminarily determined that the
tax exemptions are specific in accordance with section 771(5A)(B) of the
Act because their receipt is contingent upon exportation. The Department
typically treats tax exemptions as recurring grants in accordance with 19
CFR 351.524(c)(1).
No new information has been presented since the Preliminary Results to
warrant a reconsideration of this finding. However, the Department has
received a comment from Maktas regarding the calculation methodology used
for this program (see "Analysis of Comments" section below). Based on this
comment and further analysis and review of the questionnaire responses, we
are recommending that we change the calculation methodology as described
in the "Analysis of Comments" section below. After this change, the ad
valorem net subsidy rate for this program is 1.81 percent for Maktas.
3. Banking and Insurance Transaction ("BIST") Tax Exemption on Export-
Related Loans
Pursuant to Article 4 of Resolution no. 94/5782 of June 13, 1994, Turkish
companies are exempted from paying the BIST tax on export-related short-
term loans regardless of whether the loans are denominated in TL or
foreign currencies. These exemptions are allowed both on loans at
preferential interest rates (such as the pre-shipment export loans
discussed above) and on loans at non-preferential interest rates. Tax
exemptions on preferential rate, pre-shipment export loans have been
included in the calculation of the countervailable benefit for those
loans, as described in the Subsidies Valuation Information section above.
This discussion, therefore, addresses only the BIST tax exemptions on non-
preferential export-related loans (i.e., loans other than pre-shipment
loans).
Maktas reported receiving BIST tax exemptions on short-term export-
related loans provided at non-preferential interest rates. We
preliminarily determined that these tax exemptions confer a
countervailable subsidy within the meaning of section 771(5) of the Act.
They constitute revenue forgone by the GRT, providing a benefit in the
amount of the tax exemptions. We also preliminarily determined that the
tax exemptions are specific in accordance with section 771(5A)(B) of the
Act because their receipt is contingent upon exportation. The Department
typically treats tax exemptions as recurring grants in accordance with 19
CFR 351.524(c)(1). No new information has been presented since the
Preliminary Results to warrant a reconsideration of these findings.
Therefore, the ad valorem net subsidy rate from this program continues to
be .06 percent for Maktas.
4. VAT Support for Domestic Machinery and Equipment Purchases
Under the General Investment Encouragement Program ("GIEP"), (3)
companies engaging in a wide variety of investment projects such as
expanding or modernizing their production facilities, improving
infrastructure, undertaking research and development, etc., can obtain an
Investment Incentive Certificate for the project from the GRT. This
certificate makes the company eligible for certain benefit programs as
specified on each certificate. (A company may have more than one
certificate depending on the number of investment projects.) The
application for a certificate should include a description of the
investment project, a feasability study, a list of the machinery and
equipment that the company plans to buy in connection with the project,
etc. In order to receive a certificate, the company must commit to a
certain level of investment and deposit a certain amount of money with the
GRT (smaller investments and deposits are required for companies in areas
designated as "priority development regions").
The Department has previously found that some parts of the GIP/GIEP
programs are not countervailable while other parts of the program are
countervailable. See Pasta Investigation Final at 30369-30372. "VAT
Support for Domestic Machinery and Equipment Purchases, " a program
rebating the full VAT on domestically produced machinery and equipment, is
countervailable. In some instances, a 10 percent premium is added to the
VAT rebate.
In the Preliminary Results, and, previously, in 1998 Pipe & Tube Review,
we determined that the VAT Support Program is countervailable under
section 771(5)(D)(ii) of the Act because the VAT rebates constitute
revenue forgone by the GRT. We also found the program to be specific under
section 771(5A)(C) of the Act because receipt of the rebates is contingent
upon the use of domestically produced goods. A precursor to this program,
"Incentive Premium on Domestically Obtained Goods," which functioned in a
similar manner, was found countervailable for the same reasons in Pasta
Investigation Final.
In 1998 Pipe & Tube Review, we found that the VAT Support Program changed
on August 1, 1998. As of that date, any company holding an Investment
Incentive Certificate issued on or after August 1, 1998, could claim a
full VAT exemption on all machinery and equipment acquired for the
investment project, regardless of whether it is imported or domestically
produced. This new program, which is called "VAT Exemption for Imported
and Locally Purchased Machinery and Equipment," is further discussed in
the section entitled "Programs Determined Not To Be Countervailable" below.
However, in 1998 Pipe & Tube Review, we also found that companies could
still receive benefits under the old system, i.e., VAT rebates exclusively
on domestically produced machinery and equipment, if the Investment
Incentive Certificate was issued before August 1, 1998.
Pastavilla received benefits under the old VAT Support Program during the
POR. As noted above, the Department has previously determined that these
rebates confer a countervailable subsidy within the meaning of section
771(5) of the Act. They are a direct transfer of funds from the GRT
bestowing a benefit in the amount of the rebate. As noted above, this
program has previously been found to be specific. In the Preliminary
Results, we treated the VAT rebates on domestic machinery and equipment as
recurring grants because once a company has received an Investment
Incentive Certificate, it becomes eligible for the VAT Support Program.
See also 1998 Pipe & Tube Review. The receipt of benefits is automatic;
companies do not have to apply for new certificates each year. No new
information, evidence of changed circumstances, or comments from
interested parties have been presented to warrant any reconsideration of
these findings. Accordingly, the net subsidy for this program continues to
be 0.04 percent ad valorem for Pastavilla.
Programs Determined Not To Be Countervailable
1. Export Credit Insurance
Exporters can obtain short-term export credit insurance from the Export
Credit Bank of Turkey. These are one-year blanket insurance policies which
cover up to 90 percent of losses incurred due to political risks (e.g.,
cancellation of the buyer's import permit or license and losses resulting
from war, revolution, etc.) and commercial risks (e.g., the insolvency of
the buyer or the refusal or failure of the buyer to take delivery of the
goods). The insurance provided under this program is a post-shipment
insurance because the Export Credit Bank becomes liable only if the loss
occurs on or after the date of shipment.
The premium rates differ depending on the following factors: (1) whether
the buyer is a public or a private entity, (2) the risk classification of
the buyer's country, (3) the payment terms, and (4) the length of the
credit period. Previously, it was obligatory for companies taking pre-
shipment export loans to use the export credit program. However, since
February 1997, use of the export credit insurance program is voluntary for
borrowers under the pre-shipment export loan program.
The export credit insurance program was not used in the investigation of
this case (see Pasta Investigation Final) or in 1998 Pipe & Tube. In this
review, Maktas and Filiz have reported buying export credit insurance from
the Export Credit Bank, although neither company received any
reimbursements under the program during the POR.
The GRT has provided information for the time period 1995-1999 showing
that, in each of these years, the premiums paid for the export credit
insurance and other income generated by the program exceeded the insurance
claims paid to participating companies. The 1999 annual report of the
Export Credit Bank also shows that the bank's operating income (which
includes the operating income for the export credit insurance program)
exceeds its long-term operating costs. On this basis, in accordance with
19 CFR 351.520(a)(1), we found the export credit insurance program to be
not countervailable in the Preliminary Results. No new information,
evidence of changed circumstances, or comments from interested parties
have been presented to warrant any reconsideration of this finding.
Therefore, we continue to find that the export credit insurance program is
not countervailable.
Purchases of Domestic Wheat from the TMO under Decree 98/11033
There are three main ways for Turkish pasta producers to obtain wheat for
semolina: (1) from local growers and traders, (2) from the TMO, or (3)
through imports. Prices on Turkish wheat are set above the world market
price as part of a price support scheme benefitting domestic wheat
growers. However, companies holding an Inward Processing License may
obtain cheaper wheat by either importing it under a duty-drawback program
(see below) or by purchasing Turkish wheat from the TMO under Decree
98/11033 at prices below normal domestic prices. Companies using Inward
Processing Licenses must export the finished product regardless of whether
they buy wheat under this program or import it under the duty drawback
program.
Maktas was the only respondent that bought wheat from the TMO under
Decree 98/11033 in the POR. The GRT and Maktas have stated that the price
of wheat purchased under this decree is at or above the price generated in
international tender auctions held by the TMO to sell Turkish wheat to
foreign buyers, i.e., a world market price. In the Preliminary Results, we
said that we would seek more information from the GRT about the auctions
and the auction prices. In its October 19, 2001 supplemental response, the
GRT has explained that the Council of Ministers determines the sales price
and domestic purchase price for wheat while considering economic factors
such as international price trends and domestic supply. The TMO sells the
grain through bid auctions and any bids not deemed satisfactory by the TMO
are not accepted. The auctions are open to foreign buyers and Turkish
buyers holding an Inward Processing License. The GRT also provided the
auction price for durum wheat (from which semolina is made) in the month
immediately prior to the month in which Maktas bought wheat from the TMO.
The price paid by Maktas included delivery to the company's warehouse in
the province of Afyon, Turkey. However, the Department's understanding of
the term "inclusive of delivery charges" with respect to the "commercially
available world market price" described in its regulations requires that
the price charged by the seller include international, generally
"oceanic," shipping costs. (See preamble to 19 CFR 351.516(a)(2), 63 FR
65348, 65382-83 (November 25, 1998)). We obtained public freight rates for
grain from the Mississippi River to Turkey in the month that Maktas made
its purchase from the TMO. A comparison between the auction price and the
price paid by Maktas, adjusted for freight, shows that the price paid by
Maktas was above the auction price (see December 6, 2001 Memorandum to the
File from Annika O'Hara, Import Compliance Specialist, entitled "Maktas'
purchase of wheat from the TMO").
Under 19 CFR 351.516(a)(1), price preferences for inputs used in the
production of goods for export confer a countervailable benefit if the
inputs are provided at more favorable terms or conditions than inputs used
in the production of goods for domestic consumption, unless "such terms or
conditions are not more favorable than those commercially available on
world markets to exporters." As explained above, the price that Maktas
paid for wheat purchased under Decree 98/11033, adjusted for freight, was
higher than the price that foreign buyers paid for Turkish wheat at the
auction. In other words, Maktas paid a price above a world market price.
On this basis, we determine that purchases of domestic wheat from the TMO
under Decree 98/11033 are not countervailable.
Wheat Imports Under Inward Processing Licenses
As described above, Turkish companies holding an Inward Processing
License may import wheat duty-free under a duty drawback program provided
that they export the finished product. The import duty on wheat is
normally 50 percent. No import restrictions on wheat were in force in
Turkey during the POR. Pastavilla was the only respondent that imported
wheat duty-free under an Inward Processing License in the POR (in the
Preliminary Results, we mistakenly stated that Maktas also made such
imports).
According to 19 CFR 351.519, a benefit exists to the extent that the
amount of the remission or drawback exceeds the amount of import charges
on the imported input or to the extent that the exemption extends to
inputs that are not consumed in the production of the exported products.
We stated in the Preliminary Results that we would request Pastavilla to
document that it did not receive excessive import duty remissions under
this program during the POR. Since the Preliminary Results, Pastavilla has
explained that this program took the form of an import duty exemption,
i.e., the duty was never paid by Pastavilla, therefore, Pastavilla was not
reimbursed for the duty upon export of the finished product. Pastavilla
argues that because no money changed hands, the company could not receive
excessive duty drawback; the duty was simply suspended at importation.
Furthermore, Pastavilla and the GRT have explained that the GRT monitors
that the imported wheat is exported in the form of pasta minus an
allowance for waste. Like all importing companies, Pastavilla had to
secure a bond with a bank as a guarantee that the imported wheat would be
exported as pasta. The bond terminates once the pasta is exported and the
importing company's liability is extinguished. Pastavilla has submitted
proof that this bond was secured and received by Customs. The GRT was
unable to supply the closing documents pertaining to this export
commitment because the government has not yet completed its paperwork.
However, the record is still sufficient for the Department to continue to
find that wheat imports under the Inward Processing Licenses are not
countervailable.
Certain GIEP Benefits: Investment Allowances and Customs Duty Exemptions
In the Preliminary Results, we determined that certain GIEP (formerly
GIP) benefits (Investment Allowances and Customs Duty Exemptions) were not
countervailable because they were not specific. We have not received any
new information, evidence of changed circumstances, or comments from
interested parties since the Preliminary Results to warrant a change in
our previous conclusion.
VAT Exemption on Imported and Locally Purchased Machinery and Equipment
As discussed above, the VAT Support Program changed on August 1, 1998.
From that date, the program, renamed "VAT Exemption on Imported and
Locally Purchased Machinery and Equipment," entitles holders of Investment
Incentive Certificates issued on or after August 1, 1998, to claim full
VAT exemption on all machinery and equipment acquired for the investment
project, regardless of whether it is imported or domestically produced.
During the POR, Pastavilla used this new program under an Investment
Incentive Certificate issued in 1999. In the Preliminary Results, we found
this program to be not countervailable because benefits under the program
are no longer tied to the purchase of domestically produced machinery and
equipment. No new information, evidence of changed circumstances, or
comments from interested parties have been presented to warrant any
reconsideration of this finding. Therefore, we continue to find this
program to be not countervailable.
Stamp Tax Exemptions on Export-Related Loans
In the Preliminary Results, we treated the exemption of stamp taxes on
pre-shipment and other export-related short-term loans as a
countervailable subsidy program under the headings "Pre-Shipment Export
Loans" and "Exemption from KKDF, BIST, and Stamp Taxes on Export-Related
Loans." However, because Maktas commented on one of the three above-
mentioned programs, it was necessary for us to analyze the stamp tax
separately from the KKDF and BIST taxes. In so doing, we recognize that in
previous cases we concluded that the stamp tax exemption was
countervailable as part of the Pre-Shipment Export Credit Program. See
Certain Welded Carbon Steel Pipes and Tubes from Turkey; Preliminary
Results of Countervailing Duty Administrative Review, 65 FR 18072 (April
6, 2000); unchanged in Final Results, 65 FR 49230 (August 11, 2000).
Based upon this change in analysis, and upon further examination of
information on the record and our regulations, we have found that the
stamp tax exemption in question is an indirect tax as defined in 19 CFR
351.102. In accordance with 19 CFR 351.517(a), the non-excessive exemption
of indirect taxes upon exports is not countervailable. Based on our
analysis, we determine that the stamp tax exemption on pre-shipment and
other export-related short-term loans is not countervailable.
Programs Determined To Be Not Used
1. Pasta Export Grants
2. Export Credit Through the Foreign Trade Corporate Companies'
Rediscount Credit Facility
3. Performance Foreign Currency Export Loans
4. Corporate Tax Deferrals
5. Subsidized Credits for a Proportion of Fixed Expenditures
6. Subsidized Credits in Foreign Currencies
7. Direct Payments to Exporters for Wheat Products to Compensate
for High Domestic Input Prices
8. The following components of the GIP/GIEP program:
a. Exemption from Certain Customs Duties and Fund Levies
b. Exemption from Certain Taxes, Duties and Fees (Other Tax Exemptions)
c. Subsidized Turkish Lire Credit Facilities
d. Land Allocation
e. Energy Support
f. Payment of Certain Obligations of Firms Undertaking Large Investments
g. Interest Spread Return Program
9. Exemption from Mass Housing Fund Levy (Duty Exemptions)
Programs Determined To Have Been Terminated
Since the Preliminary Results, the GRT has provided additional
information upon the Department's request which shows that the following
subsidy programs have been terminated:
Free Wheat Program
Payments for Exports on Turkish Ships/State Aid for Exports Program
Tax Exemption Based on Exports Earnings (Corporate Tax Law 3946)
Advance Refunds of Tax Savings
Comment Analysis
Comment 1: The Department should change its methodology for calculating
the benefit from the KKDF tax exemptions on foreign currency loans
Maktas argues that, in the Preliminary Results, the Department
miscalculated the benefit conferred by the exemption from the KKDF tax on
pre-shipment export loans denominated in foreign currencies and on non-
preferential foreign currency loans from domestic sources. Specifically,
Maktas states that because these loans were not actually provided or
repaid in foreign currencies, but merely indexed to foreign currencies,
the benefit should be calculated based on the interest paid on these loans
plus the foreign exchange variation, which is referred to as the kur
farki. In the Preliminary Results, the Department erroneously calculated
the benefit based on the principal, which is the norm for loans actually
provided and repaid in foreign currencies, Maktas says.
Department's Position:
After further analysis of Maktas' and the GRT's questionnaire responses,
we recognized that before Maktas received the foreign currency loans, the
loans were indeed converted into TL. We also determined that Maktas repaid
the loans in TL. According to Article 3(1) of the Central Bank of Turkey's
Declaration, which sets forth the rules for the imposition of the KKDF
tax, when credited funds are converted into TL, the tax is computed based
on the sum of the interest paid and the foreign exchange variation ("kur
farki"). As explained above, Maktas received both pre-shipment foreign
currency loans and other foreign currency loans during the POR that were
converted into TL. Therefore, based upon the methodology outlined in the
Declaration, the benefit calculation would differ from the format used in
the Preliminary Results. We agree that the KKDF tax benefit should be
calculated based on the interest paid plus the kur farki. We have changed
our calculation methodology for this program accordingly in these final
results.
Recommendation
Based on our analysis of the comment received, we recommend adopting the
above positions and adjusting all related net subsidy calculations
accordingly. If this recommendation is accepted, we will publish the final
results in the Federal Register.
AGREE ____ DISAGREE ____
______________________
Bernard Carreau
Acting Assistant Secretary
for Import Administration
______________________
(Date)
______________________________________________________________________
footnotes:
1. See Certain Pasta from Turkey: Preliminary Results of Countervailing
Duty Administrative Review, 66 FR 41553 (August 8, 2001) ("Preliminary
Results").
2. As noted above, the preliminary results of the review were published
in the Federal Register on August 8, 2001.
3. GIEP is the successor to GIP (General Incentives Program) which the
Department examined in Pasta Investigation Final and 1998 Pipe & Tube
Review.