Extruded Rubber Thread From Malaysia; Final Results of Countervailing Duty Administrative Review

COMMISSION ON CIVIL RIGHTS

[C-557-806]

Extruded Rubber Thread From Malaysia; Final Results of

Countervailing Duty Administrative Review

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

ACTION: Notice of Final Results of Countervailing Duty Administrative

Review.

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SUMMARY: On May 22, 1995, the Department of Commerce (the Department)

published in the Federal Register its preliminary results of

administrative review of the countervailing duty order on extruded

rubber thread from Malaysia for the period January 1, 1993 through

December 31, 1993. We have completed this review and determine the net

subsidy to be 1.00 percent ad valorem. We will instruct the U.S.

Customs Service to assess countervailing duties as indicated above.

EFFECTIVE DATE: October 4, 1995.

[[Page 51983]]

FOR FURTHER INFORMATION CONTACT: Judy Kornfeld or Rick Herring, Office

of Countervailing Compliance, Import Administration, International

Trade Administration, U.S. Department of Commerce, 14th Street and

Constitution Avenue, N.W., Washington, D.C. 20230; telephone: (202)

482-2786.

SUPPLEMENTARY INFORMATION:

Background

On May 22, 1995, the Department published in the Federal Register

(60 FR 27080) the preliminary results of its administrative review of

the countervailing duty order on extruded rubber thread from Malaysia.

The Department has now completed this administrative review in

accordance with section 751 of the Tariff Act of 1930, as amended (the

Act).

We invited interested parties to comment on the preliminary

results. On June 21, 1995, a case brief was submitted by the Government

of Malaysia (GOM) and Heveafil Sdn. Bhd., (Heveafil), Filmax Sdn. Bhd.

(Filmax), Rubberflex Sdn. Bhd. (Rubberflex), Filati Lastex Elastofibre

Sdn. Bhd., (Filati) and Rubfil Sdn. Bhd. (Rubfil), producers of the

subject merchandise which exported extruded rubber thread to the United

States during the review period (respondents). The review covers the

period January 1, 1993 through December 31, 1993. The review involves 5

companies and 12 programs.

Applicable Statute and Regulations

The Department is conducting this administrative review in

accordance with section 751(a) of the Tariff Act of 1930, as amended

(the Act). Unless otherwise indicated, all citations to the statute and

to the Department's regulations are in reference to the provisions as

they existed on December 31, 1994. However, references to the

Department's Countervailing Duties; Notice of Proposed Rulemaking and

Request for Public Comments, 54 FR 23366 (May 31, 1989) (Proposed

Regulations), are provided solely for further explanation of the

Department's countervailing duty practice. Although the Department has

withdrawn the particular rulemaking proceeding pursuant to which the

Proposed Regulations were issued, the subject matter of these

regulations is being considered in connection with an ongoing

rulemaking proceeding which, among other things, is intended to conform

the Department's regulations to the Uruguay Round Agreements Act. See

60 FR 80 (Jan. 3, 1995).

Scope of the Review

Imports covered by this review are shipments of extruded rubber

thread from Malaysia. Extruded rubber thread is defined as vulcanized

rubber thread obtained by extrusion of stable or concentrated natural

latex of any cross sectional shape; measuring from 0.18 mm, which is

0.007 inch or 140 gauge, to 1.42 mm, which is 0.056 inch or 18 gauge,

in diameter. Such merchandise is classifiable under item number

4007.00.00 of the Harmonized Tariff Schedule (HTS). The HTS item number

is provided for convenience and Customs purposes. The written

description is dispositive.

Calculation Methodology for Assessment and Cash Deposit Purposes

We calculated the net subsidy on a country-wide basis by first

calculating the subsidy rate for each company subject to the

administrative review. We then weight-averaged the rate received by

each company using as the weight its share of total Malaysian exports

to the United States of subject merchandise, including all companies,

even those with de minimis and zero rates. We then summed the

individual companies' weight-averaged rates to determine the subsidy

rate from all programs benefitting exports of subject merchandise to

the United States.

Since the country-wide rate calculated using this methodology was

above de minimis, as defined by 19 CFR 355.7 (1994), we proceeded to

the next step, and examined the net subsidy rate calculated for each

company to determine whether individual company rates differed

significantly from the weighted-average country-wide rate, pursuant to

19 CFR 355.22(d)(3).

None of the companies had net subsidy rates which were

significantly different pursuant to 19 CFR 355.22(d)(3). Therefore, all

companies are assigned the country-wide rate.

Analysis of Programs

Based upon our analysis of our questionnaire and written comments

from the interested parties we determine the following:

I. Programs Conferring Subsidies

1. Export Credit Refinancing

In the preliminary determination we found that this program

conferred countervailable benefits on the subject merchandise. Our

analysis of the comments submitted by the interested parties,

summarized below, has not led us to reconsider our findings in the

preliminary determination. On this basis, the net subsidy for this

program is 0.72 percent.

2. Pioneer Status

In the preliminary determination we found that this program

conferred countervailable benefits on the subject merchandise. Our

analysis of the comments submitted by the interested parties,

summarized below, has not led us to reconsider our findings in the

preliminary determination. On this basis, the net subsidy for this

program is 0.28 percent.

II. Programs Found Not to be Used

In the preliminary determination, we found the following programs

to be not used:

1. Investment Tax Allowance

2. Abatement of Five Percent of Taxable Income Due to Location in a

Promoted Industrial Area

3. Allowance of a Percentage of Net Taxable Income Based on the F.O.B.

Value of Export Sales

4. Double Deduction of Export Credit Insurance Payments

5. Abatement of Taxable Income of Five Percent of Adjusted Income of

Companies Due to Capital Participation and Employment Policy Adherence

6. Preferential Financing for Bumiputras

7. Abatement of Income Tax Based on the Ratio of Export Sales to Total

Sales

8. Industrial Building Allowance

9. Double Deduction for Export Promotion Expenses

Our analysis of the comments submitted by the interested parties,

summarized below, has not led us to reconsider our findings in the

preliminary determination.

III. Programs Found to be Terminated

In the preliminary determination we found the following program to

be terminated and not to provide any residual benefits:

Abatement of Five Percent of the Value of Indigenous

Malaysian Materials Used in Exports.

Our analysis of the comments submitted by the interested parties,

summarized below, has not led us to reconsider our findings in the

preliminary determination.

Analysis of Comments

Comment 1: Respondents allege that the Department initiated the

original investigation pursuant to Section 303(a)(2) of the Act, and,

therefore, the Department can impose countervailing duties under this

section only if there is an injury determination by the International

Trade Commission (ITC).

[[Page 51984]]

(The ITC discontinued its injury determination under Section 303(a)(2)

because the duty-free status of rubber thread from Malaysia was

terminated.) Respondents contend that without an injury determination,

the Department had no authority to issue a countervailing duty order

and to require the payment of cash deposits. Respondents further

maintain that the Department cannot simply transfer the jurisdiction

for an investigation from Section 303(a)(2) to Section 303(a)(1)

without issuing a public notice that it intends to proceed with the

investigation under a different statutory provision. See, Certain

Textile Mill Products and Apparel from Turkey (50 FR 9817; March 12,

1987); Certain Textile Mill Products and Apparel from the Philippines

(50 FR 1195; March 26, 1985 and Certain Textile Mill Products and

Apparel from Indonesia (50 FR 9861; March 12, 1985). Furthermore,

because there was no initiation notice or a preliminary determination

under section 303(a)(1), a final determination under that section was

not appropriate. If the Department wanted to proceed with the

investigation, it was required to re-initiate under the appropriate

provision.

Department's Position: As the Department pointed out in the

previous review, respondents' challenge to the Department's authority

to issue the order is untimely. Challenges to the issuance of an order

must be filed within 30 days of the date the order is published. The

countervailing duty order on extruded rubber thread from Malaysia was

published on August 25, 1992. Respondents voluntarily withdrew a

timely-filed complaint challenging the order on these same grounds.

Respondents' attempt to revive that challenge in this proceeding is

untimely.

Comment 2: Respondents contend that the Department overstated the

benefit received under the ECR program in its administrative review.

They argue that the Department must use the ``cost of funds'' to the

government as the benchmark as required by item ``k'' of the

Illustrative List of Export Subsidies annexed to the Subsidies Code,

and the appropriate ``cost of funds'' is the 90-day rate for government

bonds. Respondents assert that if the Department continues to use the

cost to the recipient as a benchmark, it should also continue its past

practice and use the bankers' acceptances (BA) rates because they are

identical to ECR financing in terms of risk, maturity and purpose.

Respondents further contend that the Department should interpret the

``predominant'' form of financing as the most comparable form of

financing. They assert that it makes no sense to compare trade

financing to other financing such as short-term loans and overdrafts.

Furthermore, if the Department uses the weighted-average of commercial

rates, it should account for the differences in the terms of financing.

Respondents further argue that if the Department does not use the

BA benchmark, it should use the Average Lending Rate (ALR) provided in

the Bank Negara Statistical Bulletin rather the Base Lending Rate (BLR)

plus an estimated spread. If the Department, nevertheless, uses this

method, then the spread should be calculated by deducting the average

BLR rate calculated by the Department from the ALR published in the

Bank Negara Statistical Bulletin.

Department's Position: We disagree with respondents. As explained

in the previous review, the Illustrative List identifies common forms

of export subsidies but does not necessarily instruct the Department

how to value them. The Department has a longstanding practice of

valuing the benefit to the recipient rather than the cost to the

government for the purpose of calculating countervailing duty rates.

The Department's practice is to use the rate for the predominant

form of short-term financing in the country under review as the

benchmark for short-term loans. See, Proposed Regulations (19 CFR

23380; May 31, 1989). Where there is no single predominant source of

short-term financing in the country in question, the Department may use

a benchmark composed of the interest rates for two or more sources of

short-term financing in the country in question. See, Final Affirmative

Countervailing Duty Determination and Countervailing Duty Order; Steel

Wire Rope from Thailand (56 FR 46299; September 11, 1991). BAs

constitute an extremely small percentage of short-term financing in

Malaysia and, therefore, it would be inappropriate to use the BA rates

as a benchmark. The Bank Negara Statistical Bulletin, provided in

Exhibit 4 to the Government of Malaysia's Questionnaire Response dated

November 18, 1994, lists the commercial bank BLR rates prevailing

during the review period. The rates ranged from 8.25 percent to 9.50

percent. According to commercial bank officials, the banks add a 1.00

to 2.00 percent spread to the BLR. (See Memorandum to the File from

Chris Jimenez Regarding Conversation With Bank of America Official in

Malaysia Regarding Spread Used by Commercial Banks in 1993 dated May

10, 1995, on file in the public file of the Central Records Unit, Room

B-099 of the Department of Commerce).

During verification of the 1992 administrative review, we found

that ALR rates published in the Bank Negara Statistical Bulletin

included both short-term and long-term rates, while the BLR rates are

strictly based on short-term loans. (See Memorandum to the File from

Judy Kornfeld and Lorenza Olivas Regarding Extruded Rubber Thread from

Malaysia; Benchmark Information dated August 15, 1995, on file in the

public file of the Central Records Unit, Room B-099 of the Department

of Commerce). Therefore, we disagree with respondents that we should

use the ALR rate because it would improperly include long-term rates.

Rather, we have determined that it is appropriate to continue to use

the average of the commercial BLR rates published in Bank Negara

Statistical Bulletin, plus an average 1.5 percent spread, as a

benchmark, in accordance with section 355.44(b)(3)(i) of the

Department's Proposed Rules. Respondents' argument, that if the

Department, nevertheless, uses this method, it should calculate the

spread by deducting the average BLR rate from the average of the ALR

rates, would again improperly include long-term rates in the benchmark

calculation.

Comment 3: Respondents argue that the Department overstated the net

subsidy for the review period and for the duty deposit purposes because

the Department failed to take account of the exclusion by Heveafil and

Filmax of U.S. exports from the calculation of eligibility for the pre-

shipment export financing. In addition, respondents claim that the two

companies did not use funds from exports to the United States to repay

any of the pre-shipment loans. They claim that in a similar situation,

the Department concluded that exports to the United States did not

receive benefits from short-term financing. See, Suspension of

Countervailing Duty Investigation; Certain Forged Steel Crankshafts

from Brazil (52 FR 28177, 28179; July 28, 1987) (Brazilian Crankshafts

Suspension Agreement). Respondents' claim that in the first

administrative review, the Department incorrectly rejected this method

of eliminating the effect of a subsidy. Therefore, respondents maintain

that Heveafil and Filmax received no benefit with regard to U.S.

shipments.

Respondents further assert that the Department found a subsidy in

this case in part because there was no strict segregation of U.S.

exports and the

[[Page 51985]]

materials used in their manufacture from materials and exports to other

markets financed with ECR loans. However, according to the respondents,

the Department was presented with exactly the same issue in Crankshafts

from Brazil and in that case the Department did not require that the

exporters segregate raw materials purchased with export financing.

Department's Position: The GOM provides ECR financing based on

export performance. The explicit purpose of this program is to promote

the export of manufactured and approved agricultural products. Two

types of ECR financing are available: pre-shipment and post-shipment

financing. There is no evidence that the GOM limits these ECR loans to

increase exports to markets other than the United States, nor is there

evidence of a provision that prevents exporters from receiving ECR

loans for exports to the United States.

During the review period, both Heveafil and Filmax applied for and

used pre-shipment financing based on certificates of performance (CP).

Pre-shipment financing based on CPs is a line of credit based on

previous exports and, when received, cannot be tied to specific sales

in specific markets. Because pre-shipment loans were not shipment-

specific, we included all loans in calculating the country-wide duty

rate. By excluding exports to the United States from their application

for export financing, the companies merely reduced the amount of

financing they received.

We disagree with respondents that in similar circumstances the

Department has concluded that the exclusion of U.S. exports from

applications in the manner described by respondents eliminates any

countervailable subsidy that would otherwise be present. Where a

benefit is not tied to a particular product or market, it is the

Department's practice to allocate the benefit to all products exported

by a firm where the benefit is received pursuant to an export program.

See 19 C.F.R. 355.47(c) of the Proposed Regulations (54 FR 23375, May

31, 1989). A benefit is tied to a particular product or market at the

time of receipt. Respondents cannot demonstrate that, at the time of

receipt, ECR loans were tied solely to non-U.S. exports. Further,

respondents' reliance on the Crankshafts from Brazil suspension

agreement is misplaced. Suspension agreements are unusual, negotiated

arrangements in which parties to a proceeding agree to renounce

countervailable subsidies. As such, unlike final determinations, they

do not serve as administrative precedent. Moreover, the Crankshafts

from Brazil suspension agreement is consistent with our allocation

practice, as described in the Proposed Regulations.

Comment 4: Respondents argue that the Department previously found

the Pioneer Status Program not countervailable. See, Carbon Steel Wire

Rod from Malaysia; Final Results of Countervailing Duty Administrative

Review (Wire Rod from Malaysia) (56 FR 14927; April 12, 1991).

Respondents assert that it is not countervailable because tax benefits

under this program are not limited to any sector or region of the

Malaysian economy, nor is the program exclusively available to

exporting companies. They contend that the Department confirmed in the

first administrative review, both the de jure and de facto availability

of this program to the entire Malaysian economy, and that the pioneer

status tax benefits are not targeted to specific industries or

companies in a discriminatory manner. Furthermore, the Department

verified in the original investigation that the internal guidelines

used to grant pioneer status are characterized by neutral criteria

unrelated to exports, location or any other factors that could require

a determination that the program is countervailable.

Respondents further argue that the Department verified in the first

administrative review that the GOM does not require export commitments,

or view them as preponderant, in evaluating applications; that export

potential is merely one of 12 factors considered in granting status;

and that a product will not be accepted based on export potential

alone. Furthermore, respondents argue that the Department verified in

the first administrative review that the GOM commonly approves

companies who do not make export commitments as well as some who do

make them. Therefore, export performance is not viewed as a

preponderant factor, but as one of many neutral criteria.

Department's Position: We addressed this identical argument in the

previous review. In Wire Rod from Malaysia, we concluded that benefits

were not used by a specific industry or group of industries and that no

industry or group of industries used the program disproportionately and

found the program not to be countervailable. That determination,

however, did not specifically address situations where companies had a

specific export condition attached to their pioneer status approval. In

the Wire Rod investigation, petitioner raised the issue of an export

requirement. Although the requirement per se is not new, it was not at

issue with the companies investigated in Wire Rod.

As stated in the Final Affirmative Countervailing Duty

Determination and Countervailing Duty Order; Extruded Rubber Thread

from Malaysia, 57 FR 38472 (August 25, 1992) (Malaysian Final

Determination), we continue to view the ``domestic'' side of the

Pioneer Statue Program to be not countervailable. However, in this

instance, recipients of the tax benefits conferred by this program can

be divided into two categories: industries and activities that will

find market opportunities in Malaysia and elsewhere, and those that

face a saturated domestic market. At verification of the first

administrative review, we established that an export requirement may

sometimes be applied to certain industries after it is determined that

the domestic market will no longer support additional producers. The

extruded rubber thread industry is among these industries.

The combination of the necessary export orientation of the industry

due to lack of domestic market opportunities and the explicit export

condition attached to pioneer status approval in the rubber thread

industry lead us to conclude that the ``export'' side of the Pioneer

Status Program constitutes an export subsidy to the rubber thread

industry, Whether or not the commitment was voluntary, as respondents

suggest, the company has obligated itself to export a very large

portion of its production, and that commitment was a condition for

approval of benefits. For further information, see Malaysian Final

Determination.

Comment 5: Respondents argue that the Department overstated the

benefit from the Pioneer Status Program because it fails to deduct

normal capital allowance that would have been allowed if the program

had not been used. Respondents claim that Rubberflex, in fact, received

no cash benefits from this program. Furthermore, they claim, the

Department incorrectly allocated pioneer status tax benefits over only

export sales even though pioneer status tax benefits are also

applicable to profits on domestic sales. According to the respondents,

this is consistent with the Department's practice to allocate benefits

over total sales to which they are ``tied.''

Department's Position: We disagree with respondents. When a company

receives pioneer status, it is allowed to accumulate normal capital

allowance for use in future years. Thus, these allowances were not used

to offset

[[Page 51986]]

current benefits during the review period. Moreover, export sales

should form the denominator because receipt of pioneer status tax

benefits for the companies under review is contingent upon exportation.

Accordingly, we have not overstated the benefit from the Pioneer Status

Program. See section 355.47(a)(2) of the Proposed Rules. See also Final

Affirmative Countervailing Duty Determination; Oil Country Tubular

Goods From Brazil (49 FR 46570; November 27, 1984) and Final

Affirmative Countervailing Duty Determination; Certain Agricultural

Tillage Tools From Brazil (50 FR 34525; August 26, 1985).

Final Results of Review

For the period January 1, 1993 through December 31, 1993, we

determine the net subsidy to be 1.00 percent ad valorem for all

companies.

The Department will instruct the U.S. Customs Service to assess a

countervailing duty rate of 1.00 percent.

This countervailing duty order was determined to be subject to

section 753 of the Act (as amended by the Uruguay Round Agreements Act

of 1994). Countervailing Duty Order; Opportunity to Request a Section

753 Injury Investigation, 60 FR 27,963 (May 26, 1995), amended 60 FR

32,942 (June 26, 1995). In accordance with section 753(a), domestic

interested parties have requested an injury investigation with respect

to this order with the International Trade Commission (ITC). Pursuant

to section 753(a)(4), liquidation of entries of subject merchandise

made on or after January 1, 1995, the date Malaysia joined the World

Trade Organization, is suspended until the ITC issues a final injury

determination. We will not issue assessment instructions for any

entries made after January 1, 1995; however, we will instruct Customs

to collect cash deposits in accordance with the final results of this

administrative review.

Therefore, the Department will instruct the U.S. Customs Service to

collect a cash deposit of estimated countervailing duties of 1.00

percent of the f.o.b. invoice price on all shipments of the subject

merchandise from Malaysia entered, or withdrawn from warehouse, for

consumption on or after the date of publication of the final results of

this administrative review.

This notice also serves as a reminder to parties subject to

administrative protective order (APO) of their responsibility

concerning the disposition of proprietary information disclosed under

APO in accordance with 19 CFR 355.43(d). Timely written notification of

return/destruction of APO materials or conversion to judicial

protective order is hereby requested. Failure to comply with the

regulations and the terms of an APO is a sanctionable violation.

This administrative review and notice are in accordance with

section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)) and 19 CFR 355.22.

Dated: September 26, 1995.

Susan G. Esserman,

Assistant Secretary for Import Administration.

[FR Doc. 95-24685 Filed 10-3-95; 8:45 am]

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