Rice From Thailand; Final Results of Countervailing Duty Administrative Review

DEPARTMENT OF COMMERCE

International Trade Administration

[C-549-503]

Rice From Thailand; Final Results of Countervailing Duty

Administrative Review

AGENCY: International Trade Administration/Import Administration,

Department of Commerce.

ACTION: Notice of final results of countervailing duty administrative

review.

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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 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. 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,

Sec. 355.37 of the Department's regulations gives the Department broad

discretion in the use 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 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