Final Affirmative Countervailing Duty Determination: Certain Pasta (``Pasta'') from Turkey

DEPARTMENT OF COMMERCE

[C-489-806]

Final Affirmative Countervailing Duty Determination: Certain

Pasta (``Pasta'') from Turkey

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: June 14, 1996.

FOR FURTHER INFORMATION CONTACT: Elizabeth Graham or Kristin Mowry,

Office of Countervailing Investigations, Import Administration, U.S.

Department of Commerce, Room 3099, 14th Street and Constitution Avenue,

N.W., Washington, D.C. 20230; telephone (202) 482-4105 and 482-3798,

respectively.

Final Determination

The Department determines that countervailable subsidies are being

provided to manufacturers, producers, or exporters of pasta in Turkey.

For information on the countervailing duty rates, please see the

Suspension of Liquidation section of this notice.

Case History

Since the publication of the preliminary affirmative determination

in the Federal Register (60 FR 53747, October 17, 1995), the following

events have occurred.

On October 21, 1995, we aligned the date of our final determination

with the date of the final determination in the companion antidumping

duty investigation of certain pasta from Turkey (60 FR 54847, October

26, 1995). Subsequently, the final determinations in the antidumping

and countervailing duty determinations were postponed until June 3,

1996 (61 FR 1351, January 13, 1996).

Verification of the responses of the Government of Turkey (GOT),

Filiz Gida Sanayi ve Ticaret (Filiz), Maktas Makarnacilik ve Ticaret

(Maktas), Andas Gida Dagitim ve Ticaret A.S. (Andas), Dogus Holding

A.S. (Dogus), and Aytac Dis Ticaret Yatirim Sanayi A.S. (Aytac) was

conducted between October 30, 1995, and November 10, 1995. We verified

that Aytac did act as the exporter of record for certain of Maktas''

sales of pasta to the United States during 1994 and that Aytac had

transferred its rights to benefits with respect to those exports to

Maktas. Furthermore, we verified that Aytac received no benefits during

the POI. Based on this information, we have not calculated an

individual countervailing duty rate for Aytac. If this company exports

to the United States, it will be subject to the all others rate.

On February 14, 1996, we terminated the suspension of liquidation

of all entries of the subject merchandise entered, or withdrawn from

warehouse, for consumption on or after that date (61 FR 3672, February

1, 1996) (see Suspension of Liquidation section, below).

Petitioners and respondents filed case and rebuttal briefs on April

17, 1996 and April 22, 1996. The hearing in this case was held on April

25, 1996.

Scope of Investigation

The product covered by this investigation is certain non-egg dry

pasta in packages of five pounds (or 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 investigation is typically sold in the

retail market in fiberboard or cardboard cartons or polyethylene or

polypropylene bags, of varying dimensions.

Excluded from the scope of this investigation 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.

In the companion countervailing and antidumping duty investigations

involving pasta from Italy, we have excluded imports of organic pasta

that are accompanied by the appropriate certificate issued by the

Associazione Marchigiana Agricultura Biologica (AMAB). The Department

has determined that AMAB is legally authorized to certify foodstuffs as

organic for the Government of Italy (GOI). If certification procedures

similar to those implemented by the GOI are established by the GOT for

exports of organic pasta to the United States, we would consider an

exclusion for organic pasta at that time.

The merchandise under investigation is currently classifiable under

subheading 1902.19.20 of the Harmonized Tariff Schedule of the United

States (HTS). Although the HTS subheading is provided for convenience

and customs purposes, our written description of the scope of this

proceeding is dispositive.

The Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute are

references to the provisions of the Tariff Act of 1930, as amended by

the Uruguay Round Agreements Act effective January 1, 1995 (the Act).

References to the Countervailing Duties: Notice of Proposed Rulemaking

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

Regulations), which have been withdrawn, are provided solely for

further explanation of the Department's CVD practice.

Petitioners

The petition in this investigation was filed by Borden, Inc.,

Hershey Foods Corp., and Gooch Foods, Inc.

Period of Investigation

The period for which we are measuring subsidies (the ``POI'') is

calendar year 1994.

Facts Available

Section 776(a)(2)(A) of the Act requires the Department to use the

facts available ``if an interested party or any other person withholds

information that has been requested by the administering authority or

the Commission under this title.'' One of the companies included in

this investigation, Oba, did not respond to our questionnaire. Section

776(b) of the Act provides that the administering authority may use an

inference that is adverse to the interests of such a party in selecting

from among the facts otherwise available. Such adverse inference may

include reliance on information derived from: (1) The petition, (2) a

final determination in the investigation under this title, (3) any

previous review under section 751 or determination under section 753,

or (4) any other information placed on the record. Because the petition

did not provide subsidy rates, we were unable to use the petition as a

source for facts available.

In the absence of verified data concerning benefits received by Oba

during the POI, we have determined that rates based on record data

obtained from similarly situated firms constitute the most appropriate

data available. Therefore, we have used as the facts available for Oba

the sum of the highest

[[Page 30367]]

rate calculated for each program used by any of the companies.

Based upon the responses to our questionnaires and the results of

verification, we determine the following:

I. Programs Determined to be Countervailable

A. Pre-Shipment Export Loans

The Export Credit Bank of Turkey (Turk Eximbank) provides short-

term pre-shipment export loans to exporters through intermediary

commercial banks. The program was commenced in March 1989 in order to

meet the financing needs of exporters and overseas contractors. Loans

are made available to certified exporters who commit to a certain value

of exports within a specified time period. Generally, loans are

extended for 180 days, covering between 50 and 75 percent of the FOB

value of the committed export value. During the POI, the food sector

(including pasta) was eligible for pre-shipment export loans amounting

to 75 percent of the committed FOB value of exports, for a maximum of

180 days. These loans were denominated in Turkish lira (TL).

Of the companies investigated, only Maktas received Eximbank Pre-

Shipment Export Loans.

Short-term Loan Benchmark: Due to an average inflation rate in

Turkey of 91 percent during the POI, interest rates have fluctuated

significantly. Hence, we have calculated monthly benchmarks. (See

section 355.44(b)(3)(iii) of the Proposed Regulations.)

As illustrated by section 355.44(b)(3) of our Proposed Regulations,

the Department's practice is to use as its short-term benchmark the

interest rate on the predominant alternative source of short-term

financing in the country in question. Typically, we use national

average benchmarks and not company-specific interest rates. However,

the GOT responded that there is no predominant source of short-term

financing in Turkey and that it does not maintain statistics concerning

short-term interest rates. Moreover, our review of the Annual Report of

the Central Bank of Turkey did not reveal any national average short-

term interest rates.

Therefore, in the absence of our preferred benchmark, we have

turned to company-specific interest rates. Specifically, we have used

the average cost of Maktas' short-term commercial loans outstanding

during each of the months it received Pre-Shipment Export Loans as our

benchmark. We note that because of the way in which Maktas kept its

records we were not able to calculate monthly benchmarks based only on

loans taken out in each month. However, given the information

available, we believe this monthly average cost of borrowing provides

the most accurate measure of what Maktas would pay on a comparable

commercial loan that it could actually obtain on the market. (See

section 771(5)(E)(ii) of the Act.)

Based on our comparison of the benchmark interest rate to the rate

paid by Maktas on its export loans, we have determined that these loans

provide a countervailable subsidy within the meaning of section 771(5)

of the Act. The loans are a direct transfer of funds from the GOT

through commercial banks. They provide a benefit because the interest

rate paid on these loans is less than the amount the recipient would

pay on a comparable commercial loan. Finally, the loans are specific

because their receipt is contingent upon export performance.

We calculated the countervailable subsidy as the difference between

actual interest paid on loans for shipments to the United States during

the POI and the interest that would have been paid using the benchmark

interest rates. This difference was divided by Maktas' total exports to

the United States during the POI. On this basis, we determine the

countervailable subsidy from this program to be 8.82 percent ad valorem

for Maktas.

Respondents argue that the Department should use as its benchmark

the interest rate on Central Bank Rediscount Loans. They point to the

fact that Maktas received such loans during the POI and that this type

of loan was available throughout the POI. Moreover, respondents argue,

if the Department elects to use this benchmark, it must find that

Eximbank Pre-Shipment Export Loans are not countervailable because, in

two of nine months that Maktas received Pre-Shipment Export Loans, the

interest rate on Central Bank Rediscount loans was lower than the rate

for commercial loans obtained by Maktas.

We have not used the Central Bank Rediscount Loan rates as our

benchmark, nor have we included Central Bank Rediscount Loans received

by Maktas in calculating Maktas' average monthly cost of outstanding

loans. Information obtained at verification indicates that the Central

Bank Rediscount Loans are offered to increase liquidity in the economy.

In light of the policy objectives of these loans, and the lack of any

information that would support the conclusion that they were made as

part of the Central Bank's commercial operations (if any), we have

concluded that these loans should not be viewed as commercial loans.

Moreover, while we have information on the terms of the Central Bank

Rediscount Loans (90 days), we do not have information on the lengths

of the other short-term loans Maktas had outstanding. Therefore, we

have no basis to say that the Central Bank Rediscount Loans are more

comparable to the Pre-Shipment Export Loans taken out by Maktas.

Petitioners urge the Department to rely on adverse facts available

and use the highest rate per month from the various sources on the

record (this includes Maktas' own rates, the overnight rates, the sale

of government securities, etc.) as the benchmark rate. Petitioners

believe adverse facts available is justified because they claim Maktas

``manipulated its rates'' and failed to cooperate with the Department's

attempts to find the appropriate company-specific rates.

We disagree that adverse facts available are warranted in this

situation. In seeking short-term loan benchmarks, it is our practice to

request this information of the government. Companies are not asked to

provide any short-term benchmark data. In this case, Maktas provided

its own borrowing rates. As we learned at verification, those rates

included the interest rate on the Eximbank Pre-Shipment Export loans.

We have since verified the correct company specific interest rates and

have used them in our calculation.

B. Pasta Export Grants

During 1994, the Central Bank of Turkey provided cash grants and

government promissory notes or bonds to exporters of pasta. According

to the GOT, the purpose of the program was to develop Turkey's export

potential. In order to receive the grants, exporters were required to

submit applications (including proof of exportation and payment from

the customer) to the local office of the Central Bank. The exporter

received a specified percentage of the FOB U.S. dollar price, subject

to a cap.

We have determined that these export grants and bonds are

countervailable subsidies within the meaning of section 771(5) of the

Act. The grants and bonds are a direct transfer of funds from the GOT

providing a benefit in the amount of the grant. Also, the grants and

bonds are specific because their receipt is contingent upon export

performance.

We have also determined that the benefits under this program are

bestowed when the cash is received, in the case of grants, and on

maturity date, in the case of promissory notes or

[[Page 30368]]

bonds. Regarding the bonds, although we note that there are no

restrictions on their transfer or sale, markets have not developed that

would allow exporters to convert their bonds to cash. Therefore, we

have treated the subsidy as being received at the first point in time

when the exporter knows with certainty the amount being received, which

is the date of maturity.

We have further determined that the benefits under the Pasta Export

Grant program are ``recurring.'' Once a company has exported and

provided documentation to the local office of the Central Bank it

becomes eligible for the Pasta Export Grants. The receipt of benefits

is automatic and continues from year to year. (See General Issues

Appendix in Final Affirmative Countervailing Duty Determination:

Certain Steel Products from Austria (58 FR 37217, 37268-69, July 9,

1993) (``General Issues Appendix'').)

To calculate the countervailable subsidy, we divided the total

amount of cash grants received and the value of bonds maturing during

the POI for exports to the United States (denominated in Turkish lira)

by the total exports to the United States denominated in Turkish lira.

On this basis, we determine the countervailable subsidy from this

program to be 1.17 percent ad valorem for Filiz and 3.79 percent ad

valorem for Maktas.

The GOT has stated that this program was terminated for pasta

exports made on or after January 1, 1995, by a confidential government

decree. However, we saw at verification that while this program had

expired, it was reinstated with a new formula for determining the

subsidy amount and a new time line for implementation. This

reinstatement was effective September 29, 1995. Therefore, we do not

view this program as having been terminated.

Respondents further argue that, should the Department value the

benefits on an earned basis, it should then treat this program as

having undergone a program-wide change, and benefits should be adjusted

to reflect the newly-announced formula. As discussed above, we are not

valuing the benefits on an earned basis. Moreover, we are not aware of

any change in the reinstated program that would lead us to value the

benefits on an earned basis. Therefore, because the benefits of the

Pasta Export Grant Program are being valued on a received basis which,

in the case of bonds is the date of maturity, the changes effectuated

in September 1995 are not measurable and do not qualify as a program-

wide change. (See section 355.50 of the Proposed Regulations.)

C. Free Wheat Program

During our verification of Filiz, we discovered that the company

received free wheat under a GOT program. The program, established by

Decree 93/4534, provides free wheat to companies that agree to export

flour, pasta, semolina, or biscuits. The companies sign contracts with

the Turkish Grain Board (TMO) committing to export a certain amount of

their product in return for a pre-determined amount of durum wheat.

Once the company has exported the product, it provides the TMO with

copies of its export documents. The TMO examines the documents, and

upon TMO approval, wheat is delivered to the company. We verified that

the price of wheat is determined on the date of the TMO invoice and

Filiz received seven invoices during 1994.

Filiz argues that it did not receive a benefit under the Free Wheat

Program during the POI. Although the company received wheat in 1994,

Filiz contracted with the TMO in 1993, and knew at the time of the

contract precisely how much wheat it would receive for each ton of

pasta exported. Filiz cites to section 355.48(b)(7) of the Proposed

Regulations in support of its claim that the benefit of the Free Wheat

Program was received in 1995. Petitioners assert that the applicable

section of the Proposed Regulations is 355.48(b)(2), which discusses

the governmental provision of goods or services. According to section

355.48(b)(2), the benefit for governmental provision of goods or

services occurs ``at the time a firm pays, or in the absence of payment

would have paid for the good or service.''

Section 355.48(b)(7) states that, in the case of an export benefit

provided as a percentage of the value of the exported merchandise, the

cash flow effect of the subsidy is deemed to occur on the date of

export. Because the benefit from the Free Wheat program is not provided

as a percentage of the value of the exported merchandise, we agree with

petitioners that section 355.48(b)(7) does not apply to this program.

The benefit from the GOT's provision of free wheat occurred when Filiz

actually received the wheat. Therefore, pursuant to section

355.48(b)(2) we have determined that Filiz benefitted from the Free

Wheat Program during the POI.

We have determined that the provision of free wheat to exporters of

pasta is a countervailable subsidy within the meaning of section 771(5)

of the Act. The program provides goods for less than adequate

remuneration and is specific because its receipt is contingent upon

export performance. To calculate the countervailable subsidy, we

divided the total value of the free wheat provided to Filiz during the

POI by the total value of the company's exports during the POI. On this

basis, we determine the countervailable subsidy from this program to be

1.99 percent ad valorem for Filiz.

We have further determined that the benefits under the Free Wheat

Program are ``recurring.'' Once a company has exported and provided

documentation to the TMO it becomes eligible for the free wheat. The

receipt of benefits is automatic and continues from year to year. (See

Allocation section of the General Issues Appendix.)

Respondents argue that if the Department finds that Filiz received

benefits during the POI, then the Department should treat the program

as terminated and adjust the deposit rate accordingly. They assert that

the GOT's statement that ``the subsidy program that was supposed to end

on October 31, 1993 will be extended until November 28, 1993,'' and the

statement that ``the wheat subsidy program will be terminated''

constitute clear evidence that the program has been terminated.

Petitioners disagree that the Department should consider the Free

Wheat program terminated. They state that the only documentation on the

record refers to the possible termination of the program. As such, the

Department has insufficient evidence on the record to treat the program

as terminated. We agree with petitioners and have not adjusted the

deposit rate.

Respondents further assert that exporters were not allowed to

receive benefits from the Free Wheat and Pasta Export Grant programs

for the same exportation. Consequently, if countervailed, the Free

Wheat program should not be subject to a deposit rate above the rate

for the Pasta Export Grant program. Petitioners rebut respondents'

claim that the Pasta Export Grant program and the Free Wheat program

are mutually exclusive. They claim that respondents have provided no

documentation to that effect.

We agree with respondents that Turkish pasta exporters cannot claim

Pasta Export grants and Free Wheat on the same exportation. (Contrary

to petitioners' assertions, the record evidence is clear on this

point.) We further believe that our methodology appropriately accounts

for this. Regarding Pasta Export grants, we have divided the total

amount of benefit received on U.S. shipments in the POI by the total

U.S. exports during the same period. The fact that export grants were

not received on every shipment is reflected in this calculation. For

the Free Wheat program, we divided the

[[Page 30369]]

value of free wheat received as a consequence of exports to all markets

by total exports. The two rates, when added together, reflect the total

grants and free wheat that were received on exports to the United

States.

D. Payments for Exports on Turkish Ships/State Aid for Exports Program

At verification, GOT officials explained that the Payments for

Exports on Turkish Ships program was instituted to aid industries

producing processed goods. Under the program, exporters applied to the

Central Bank for cash grants or bonds based on the number of tons of

product transported by sea. As with the Pasta Export Grant program,

payments are made to companies in the form of cash grants or bonds.

Filiz reported in its questionnaire response that it did not apply

for, use, or benefit from this program during the POI. However, we

discovered during verification that Filiz had applied for benefits on

shipments made in both 1993 and 1994. We further verified that the

company received payment during 1994 in the form of both cash grants

and maturing bonds for certain of its 1993 applications, and was still

waiting for payment in 1995 for applications filed in both 1993 and

1994. Additionally, contrary to the explanation provided by the GOT,

Filiz officials explained that the program provided the company 15 U.S.

dollars per ton for its exports made using Turkish ships and 7.50 U.S.

dollars per ton for its exports made on non-Turkish ships.

We have determined that these export grants and bonds are

countervailable subsidies within the meaning of section 771(5) of the

Act. The grants and bonds are a direct transfer of funds from the GOT

providing a benefit in the amount of the grant and bonds. Also, the

grants and bonds are specific because their receipt is contingent upon

export performance.

We have further determined that the benefits under the Payments for

Exports on Turkish Ships program are ``recurring.'' Once a company has

exported and provided documentation to the Central Bank it becomes

eligible for the cash grants or bonds. The receipt of benefits is

automatic and continues from year to year. (See Allocation section of

the General Issues Appendix.)

To calculate the countervailable subsidy we divided the total

amount of grants received and bonds maturing during the POI by Filiz's

total exports. On this basis, we determine the countervailable subsidy

from this program to be 0.45 percent ad valorem for Filiz.

Petitioners assert that in light of Filiz's failure to report these

benefits in its questionnaire response, the Department should calculate

an adverse facts available rate by including all transportation subsidy

amounts on the record, regardless of when the amounts were received.

They also state that the benefit should be divided by exports of the

subject merchandise to the United States. We disagree with petitioners.

Although we agree that these benefits should have been included in the

questionnaire response, we collected and verified all of the necessary

data required to calculate a benefit under this program. Therefore,

there is no basis for applying an adverse facts available rate.

Respondents assert that the Freight Premium for Distance Program

should not be countervailed because it has been modified to exclude

pasta products. However, respondents argue if the Department determines

that the program is countervailable, then the benefit should be treated

as having been bestowed when the cash was received (for grants) and on

the maturity date (for bonds). In their view, the benefit should be

allocated over total exports.

We agree with respondents that the program was terminated. We

verified that this program was terminated by confidential government

decree. Although a new transportation program entitled ``State Aid for

Exports'' was instituted on September 29, 1995, we verified that this

program differs from the former program in that it covers sea, air, and

truck transportation, and specifically excludes exports of pasta. We

are calculating the benefit as of the time the cash grant was received

or the date on which the bond matures. Filiz has still not received all

of its payments from applications made in 1993 and 1994. Based on the

fact that residual benefits continue to be bestowed under the program,

we are not adjusting the cash deposit rate for the termination. (See

section 355.50 of the Proposed Regulations.)

E. Incentive Premium on Domestically Obtained Goods

The Incentive Premium on Domestically Obtained Goods is part of the

General Incentives Program (GIP), which is discussed further below.

Although we have analyzed certain of the benefits provided under the

GIP within the context of the GIP as a whole, two types of benefits

merit separate consideration. These are the Incentive Premium on

Domestically Obtained Goods and the Resource Utilization Support Fund,

discussed below. In both instances, the benefit is tied to the purchase

of domestic over imported goods. Therefore, because receipt of both of

these benefits is contingent upon the use of domestically-sourced

inputs, these particular benefits are specific pursuant to section

771(5A)(C) of the Act.

The Incentive Premium program provides companies holding investment

incentive certificates under the GIP with rebates of the 15 percent VAT

paid on locally-sourced machinery and equipment plus a 10 percent

premium. We verified that imported machinery and equipment is subject

to the VAT and is not eligible for the rebate.

Respondents argue that we should not countervail the Incentive

Premium because VAT paid on imported equipment may be deferred, which,

in a hyperinflationary economy, results in the amount of VAT ultimately

paid having a present value substantially less than the amount of VAT

originally incurred. Hence, they argue, there is essentially no

difference between exempting domestically-sourced goods from the VAT

and deferring payment of the VAT on imported goods. Petitioners argue

that the complementarity of the two programs does not eliminate the

benefit provided by the Incentive Premium program. They assert that the

two types of benefits are not identical and that hyperinflationary

pressures would not necessarily nullify the difference between these

two benefits. Additionally, they argue that not all companies receive

the same GIP benefits and, therefore, not all companies would receive

both the Incentive Premium VAT rebates and the VAT deferral.

Despite respondents' assertions, the benefit is not related to the

treatment of imported merchandise. The VAT rebates constitute revenue

foregone by the GOT and provide a benefit in the amount of the rebates.

We have determined that these VAT rebates are countervailable

subsidies within the meaning of section 771(5) of the Act. As stated

above, the rebates constitute revenue foregone by the GOT and provide a

benefit in the amount of the VAT savings to the company. Also, as

discussed above, they are specific because their receipt is contingent

upon the use of domestic goods rather than imported goods. Maktas

received incentive premiums in 1991 and Filiz received incentive

premiums in 1993 and 1994.

We have further determined that the benefits under the Incentive

Premium program are ``recurring.'' Once a company has received an

investment incentive certificate it becomes eligible for the Incentive

Premium benefits. The receipt of benefits is automatic and continues

from year to year. (See

[[Page 30370]]

Allocation section of the General Issues Appendix.)

For the rebates received by Filiz during the POI, we divided the

amount received by the total value of the company's sales during the

POI. On this basis, we determine the countervailable subsidy to be

0.0022 percent ad valorem for Filiz.

F. Resource Utilization Support Fund (GIP)

Filiz reported that it received Resource Utilization Support Fund

(RUSF) rebates during the POI, but failed to identify the nature of the

benefit. Because RUSF payments are made under the GIP, we treated RUSF

benefits like other GIP benefits and we did not consider them to be

countervailable in the preliminary determination. However, during

verification of Filiz, we learned that the RUSF program actually

operates like the Incentive Premium program in that it provides rebates

of the 15 percent VAT paid on domestically-sourced machinery and

equipment.

We have determined that the RUSF rebates are countervailable

subsidies within the meaning of section 771(5) of the Act. The rebates

represent revenue foregone by the GOT and provide a benefit in the

amount of the VAT savings to the company. Also, they are specific

because their receipt is contingent upon the use of domestic goods over

imported goods. Filiz received RUSF rebates during 1993 and 1994.

We have further determined that the benefits under the RUSF program

are ``recurring.'' Once a company has received an investment incentive

certificate it becomes eligible for the RUSF benefits. The receipt of

benefits is automatic and continues from year to year. (See Allocation

section of the General Issues Appendix.)

For the rebates received by Filiz during the POI, we divided the

amount received by the total value of the company's sales during the

POI. On this basis, we determine the countervailable subsidy to be 0.27

percent ad valorem for Filiz.

G. Tax Exemption Based on Export Earnings

Corporate Tax Law 3946, dated December 25, 1993, provided that

companies exporting industrial products valued in excess of

U.S.$250,000 (or the equivalent) were entitled to deduct five percent

of total export revenues from taxable profit. We verified that tax

returns for fiscal year 1993 filed in 1994 provided the last

opportunity for companies to benefit from this program.

We have determined that this tax exemption is a countervailable

subsidy within the meaning of section 771(5) of the Act. The exemption

represents revenue foregone by the GOT and provides a benefit in the

amount of the tax saving to the company. Also, the subsidy is specific

because its receipt is contingent upon export performance. Of the

exporters investigated, only Maktas claimed this tax exemption on the

tax return it filed in 1994.

Petitioners argue that the Department does not have sufficient

evidence on the record to consider this program terminated. They assert

that the GOT is required to do more than just show that the current law

is silent regarding a previous subsidy in order for the Department to

treat the program as terminated. Furthermore, given the GOT's practice

of revising, renaming, and reinstating subsidy programs, petitioners

argue that the Department should treat the program as a suspended

subsidy rather than as a terminated subsidy.

We disagree with petitioners. Although the GOT did not publish a

specific decree describing the termination of this program, through a

detailed review of the Budget Laws (Tax Code) and an examination of the

tax return for fiscal year 1994 filed in 1995, we were able to verify

that the GOT had abolished the Tax Exemption for Export Earnings

program for tax returns for fiscal year 1994 (filed in 1995).

Therefore, based on this information, we have determined that the

termination of the program qualifies as a program-wide change. (See

section 355.50 of the Proposed Regulations.) Moreover, there is no

evidence on the record which would indicate that residual benefits are

being bestowed or that a substitute program has been implemented.

Therefore, we have adjusted the cash deposit rate to account for this

change.

To calculate the countervailable subsidy, we divided the tax

savings realized during the POI by the company's export sales during

the POI. On this basis, we determine the countervailable subsidy from

this program to be 0.50 percent ad valorem for Maktas. For cash deposit

purposes the subsidy rate for Maktas is zero.

II. Benefits Determined to be Not Countervailable

Certain GIP Benefits to Filiz

The GIP is designed to eliminate the developmental differences

between regions in Turkey and to support investments in industry

sectors where the country is lacking investment. The regions and

sectors targeted by the GIP are generally selected by the

Undersecretariat of the Treasury (UT). The UT is also responsible for

issuing investment incentive certificates under the GIP. Investment

incentive certificates identify the types of GIP benefits for which

certificate holders are eligible.

In deciding whether to issue investment incentive certificates, the

UT considers whether the proposed investment project meets certain

criteria and financial thresholds set by the Council of Ministers.

These criteria include whether the project: (1) Provides international

competitiveness; (2) incorporates appropriate advanced technology; and

(3) satisfies at least a minimum of economic capacity or scale

determined on a sectoral basis. We verified that exportation was not a

prerequisite for receiving benefits under this program. Each

application for an investment incentive certificate must be accompanied

by a feasibility study and detailed financial projection. The GOT

stated that approximately 99 percent of the applications for investment

incentive certificates are approved. Those applications which are

rejected are generally revised, resubmitted, and eventually obtain

approval.

For purposes of the GIP, Turkey is divided into four types of

regions: (1) Developed; (2) normal; (3) priority regions of the second

degree; and (4) priority regions of the first degree. The level of

investment needed to obtain an investment incentive certificate for the

priority regions is lower than the level needed for normal and

developed regions (e.g., the minimum investment requirement during 1994

in priority regions was 1 billion TL and the minimum investment in

normal and developed regions was 5 billion TL). Moreover, we learned on

verification that companies located in the developed region are

required to utilize a greater percentage of their own funds and less

bank financing in connection with the investment than companies located

in any of the other three regions. Finally, we discovered that there

are distinctions between the amounts granted in the different regions

for the Fund-Based Credit and Investment Allowance benefits.

Filiz, located in a normal region, received the following benefits

under the GIP during the POI: (1) Customs duty exemptions on imported

machinery and equipment, (2) VAT deferrals on imported machinery and

equipment, (3) Resource Utilization Support Fund Rebates, and (4)

Incentive Premiums on Domestically-Obtained

[[Page 30371]]

Goods. Maktas, located in a developed region, only received Incentive

Premiums on Domestically-Obtained Goods. As discussed above, we have

determined that the Incentive Premiums on Domestically-Obtained Goods

and RUSF rebates are countervailable. Therefore, the following analysis

is limited to customs duty exemptions and VAT deferrals on imported

machinery and equipment.

For these two types of benefits, the amount does not vary by

region. Hence the issues before us are: (1) Whether the different

eligibility requirements for each region render the program regionally

specific, and (2) if not, whether the benefits received by Filiz under

the GIP are otherwise specific. Regarding the first issue, although

Filiz is located in the normal region and, thus, is subject to more

lenient eligibility requirements than the developed region (which has

the strictest requirements), Filiz surpassed the eligibility

requirements for the developed region. Hence, Filiz's location did not

affect its eligibility for benefits during the POI and we need not

reach the issue of whether differing eligibility criteria by region

make these benefits under the GIP specific.

Since Filiz would have qualified to receive benefits under the

strictest eligibility requirements, we went on to analyze whether the

customs duty exemptions and VAT deferrals granted under the GIP are

being provided to a specific industry or enterprise or group thereof

within the meaning of section 771(5A)(D) (i)-(iii).

In our original questionnaire, we asked the GOT to provide

specificity information for each type of GIP benefit. In response to

this request, the GOT stated that it did not maintain its records in

such a way as to easily provide the requested information. Accepting

their claim about the difficulty posed by our request, we asked the GOT

to provide instead the total number of qualified applicants for

investment incentive certificates by region. We relied on this data for

our preliminary determination. At verification, we examined the GIP

database and confirmed the enormous burden of retrieving the

specificity information by type of benefit. Therefore, we have

continued to rely on program-wide information for purposes of analyzing

the specificity of customs duty exemptions and VAT deferral benefits

under the GIP.

There are no de jure limitations on the types of industries that

are eligible for benefits under the GIP. Regarding de facto

specificity, we consider the following four factors, in accordance with

section 771(5A)(D)(iii) of the Act: (1) The number of enterprises,

industries or groups thereof which actually use a subsidy; (2)

predominant use of a subsidy by an enterprise, industry, or group; (3)

the receipt of disproportionately large amounts of a subsidy by an

enterprise, industry, or group; and (4) the manner in which the

authority providing a subsidy has exercised discretion in its decision

to grant the subsidy.

We verified the statistics provided by the GOT for the period 1991-

1994 concerning the awarding of investment incentive certificates to

the various sectors of the economy. For 1994, these statistics indicate

that during the POI, thirty-four industries, within the agriculture,

mining, manufacturing, energy, and services sectors, received

investment incentive certificates. We consider this distribution of

industries sufficiently broad. We further verified that during the POI,

the food and beverages industry received 7.5 percent of the investment

incentive certificates issued. Pasta producers received less than 3.8

percent of the investment incentive certificates issued to the food

sector. During the same period, the textiles and clothing industry

received 24.6 percent and the transportation industry received 14.8

percent of the investment incentive certificates issued. Each of the

thirty-one other industries accounted for 4.8 percent or less of the

total investment incentive certificates issued. The statistics for the

period 1991-1993 indicate a similar distribution of investment

incentive certificates.

Based on this distribution of certificates (including the fact that

pasta accounts for a fraction of the certificates issued to the food

and beverage industry), we determine that the pasta industry was

neither a dominant user of the program nor did it receive a

disproportionate amount of the investment incentive certificates.

Moreover, if the actual users of the subsidy are too large in number to

reasonably be considered a specific group, and if there is no evidence

of dominant or disproportionate use, the fact that a foreign authority

administering a subsidy program may have exercised discretion in

selecting the recipients of the subsidy is insufficient for a finding

of de facto specificity. (See, SAA p. 261.) Therefore, we determine

that customs duty exemptions and VAT deferrals on imported machinery

and equipment are not specific and do not confer countervailable

subsidies on Filiz.

Petitioners argue that because the Fund-Based Credit and the

Investment Allowance programs provide different levels of benefits for

each region, the Department cannot conclude that all GIP programs are

not countervailable. They state further that the Department verified

that GIP regulations issued in 1995 provide that no new investment

certificates will be issued to companies located in developed regions.

They conclude that because certain regions will no longer be able to

receive benefits, a regional subsidy exists.

Because Filiz did not benefit from the Fund-Based Credit and

Investment Allowance programs during the POI, we have not made a

determination as to the countervailability of these programs. With

respect to the new regulations, they pertain to investment incentive

certificates issued after our POI and, hence, are not relevant to our

analysis.

Petitioners also assert that for certain GIP programs, e.g., the

Tax, Duty, and Charge Exemptions program, companies cannot receive

benefits without pledging to meet a certain export commitment. They

cite Extruded Rubber Thread from Malaysia (Rubber Thread), 57 FR

38,472, 38,476 (August 25, 1992), where the Department determined that

a program may be ``two-faceted'' in the sense that certain companies

receive benefits under any number of eligibility criteria, but others

receive it based on less neutral criteria (e.g., export). As with the

Fund-Based Credit and the Investment Allowance, Filiz did not receive

benefits under the Tax, Duty, and Charge Exemptions program. Therefore,

we have not determined whether the Tax, Duty, and Charge Exemptions

program is specific.

Finally, petitioners claim that the GOT uses discretion in its

distribution of GIP benefits, by designating certain projects as

``particularly worthwhile.'' These are projects in sectors targeted by

the GOT and that are not subject to the normal GIP requirements.

Additionally, petitioners point out that companies do not always

receive the same array of benefits under the GIP, as the GOT determines

which benefits will be provided to which companies. Respondents claim

that petitioners' assertion that government discretion is used in the

distribution of GIP benefits is without merit, as the Department found

no evidence at verification to this effect.

We verified that the GOT did not designate pasta as a

``particularly worthwhile'' industry during the POI. Furthermore, as

stated above, and in the SAA, if the actual users of the subsidy are

too large in number to reasonably be considered as a specific group,

and if there is no dominant or disproportionate use of the program, the

[[Page 30372]]

fact that a government may have exercised discretion in selecting the

recipients of a subsidy is insufficient to justify a finding of de

facto specificity. Such is the case here. Moreover, we saw no evidence

that the GOT in anyway used its discretion to award benefits to

selected companies and to deny them to others.

III. Programs Determined to be Terminated

A. Support and Price Stabilization Program (SPSF)

Petitioners argue that despite the Department's preliminary

determination that this program was not used, and the GOT's claim that

the program was terminated in 1992, the Department should countervail

Filiz's reported SPSF payment. Respondents assert that they did not

benefit from the SPSF program during the POI. It is simply a matter of

nomenclature that the SPSF appears on Filiz's application for pasta

export grants.

During verification, we reviewed the Official Gazette dated August

20, 1991, which discusses the termination of the SPSF. The Gazette

states that the SPSF program was terminated effective February 1, 1992.

Furthermore, we are confident that the term SPSF on Filiz's application

for pasta export grants was simply an error on the company's part.

Because this program was administered pursuant to a confidential

government decree, companies were not aware which agency was providing

the grants. Filiz mistakenly believed that the SPSF was providing the

grants. However, during verification, we confirmed that the Central

Bank and not the SPSF was the provider of the pasta export grants. We

found no evidence during the verification of Filiz that the company

received benefits from the SPSF.

B. Wharfage Fee Exemption (GIP)

During verification, we reviewed the Official Gazette dated July

11, 1992, which discusses the termination of the Wharfage Fee

Exemption. The Gazette states that the Wharfage Fee Exemption program

was terminated effective January 1, 1993. We saw no evidence during

verification that companies could receive residual benefits or that the

program had been reinstated.

IV. Programs Determined to be Not Used

Based on the information provided in the responses and the results

of verification, we determine that the following programs were not

used.

1. Advance Refunds of Tax Savings

2. Export Credit Through the Foreign Trade Corporate Companies

Rediscount Credit Facility

3. Normal Foreign Currency Export Loans

4. Performance Foreign Currency Export Loans

5. Export Credit Insurance

6. Regional Subsidies

a. Investment Allowances

b. Mass Housing Fund Levy Exemptions

c. Customs Duty Exemptions

d. Rebate of VAT on Domestically-Sourced Machinery and Equipment

e. Additional Refunds of VAT

f. Postponement of VAT on Imported Goods

g. Other Tax Exemptions

h. Payment of Certain Obligations of Firms Undertaking Large

Investments

i. Corporate Tax Deferral

j. Subsidized Turkish Lira Credit Facilities

k. Subsidized Credit for Proportion of Fixed Expenditures

l. Subsidized Credit in Foreign Currency

m. Land Allocation

7. Exemption from Mass Housing Fund Levy (Duty Exemptions)

8. Direct Payments to Exporters of Wheat Products to Compensate for

High Domestic Input Prices

9. Interest Spread Return Program (GIP)

V. Programs Determined Not To Exist

Based on the information provided in the responses and the results

of verification, we determine that the following programs do not exist.

1. Export Promotion Program

2. Export Credit Program

3. Interest Rebates on Export Financing (GIP)

4. Foreign Exchange Allocation Program (GIP)

Interested Party Comments

Comment 1: Petitioners argue that because there is no evidence on

the record concerning certain tax programs discussed at verification,

the Department should conclude that its subsidy calculations understate

the tax benefits, and identify these other programs as subsidies to be

examined in future proceedings. Petitioners also assert that the

Department should not treat the Advanced Refund for Tax Savings program

as terminated in the final determination. They state that the program

is still in existence and that the Department verified this.

Respondents assert that the Department verified that neither Filiz

nor Maktas received benefits under the Advance Refund of Tax Savings

program. Hence, this program should not be included in any

countervailing duty order issued in this case. Respondents also assert

that the Department has no record evidence with which to conclude that

the other tax exemptions listed on the Turkish corporate income tax

form constitute countervailable subsidies.

DOC Position: We agree with petitioners that the Advanced Refund

for Tax Savings program is still in existence and, therefore, should

not be treated as a terminated program. However, we disagree with

petitioners' contention concerning the other tax programs. We found no

evidence during verification which would lead us to believe that these

programs should be considered countervailable subsidies. Therefore, we

are not including them in our final determination.

Comment 2: Petitioners assert that the Department should allocate

the benefits from the Pasta Export Grants to pasta exports to the

United States. Petitioners also assert that certain subsidies

attributed to Maktas appear in the company's ``Other Income'' account,

which is a component of total sales. These subsidies should be

subtracted from total sales so that they are not included in the

denominator. Finally, petitioners argue that the Department should

exclude from the denominator Filiz's sales of bulk pasta, because pasta

sold in bulk is not subject merchandise.

Respondents agree with petitioners that where it is clear that the

benefit is tied to sales of pasta to the United States, the denominator

should be total exports to the United States. However, they assert that

for certain invoices, it was impossible for respondents to separate

benefits between retail and bulk pasta sales. Therefore, the Department

should not adjust for bulk sales.

DOC Position: We have followed our standard practice of allocating

countervailable benefits according to whether the benefit is tied to a

particular product or market, or is untied. See, section 355.47 of the

Proposed Regulations. Consequently, we have allocated the export grants

received by Filiz for shipments to the U.S. to the company's exports to

the United States. Because we were unable to distinguish between the

pasta export grants received on bulk and those received on retail

sales, we have included both retail and bulk sales in Filiz's total

export sales. Finally, only the amount of foreign exchange gains from

Maktas' ``Other Sales'' is included in the Maktas denominators used to

calculate the benefit of the used subsidy programs.

[[Page 30373]]

Comment 3: Petitioners assert that because Maktas reported that it

applied for Normal Foreign Currency loans during the POI, the

Department should not treat this program as not used, but rather as

countervailable without benefit during the POI. Respondents state that

Maktas did not apply for or use Normal Foreign Currency loans during

the POI, and therefore, the Department should only consider this

program in any future review.

DOC Position: We found no evidence during verification of Maktas

that the company had benefitted from the Normal Foreign Currency Loan

program during the POI. Therefore, we will follow our standard practice

of categorizing the program as not used. We may consider this program

in future reviews.

Comment 4: Petitioners argue that the Department should use

effective interest rates when calculating the benefit in the Eximbank

loan program.

DOC Position: We agree with petitioners and have calculated the

benefit from this program by comparing the effective Eximbank rates to

the effective benchmark rates. Both the Eximbank and benchmark rates

include legally-mandated commissions and fund surcharges.

Comment 5: Petitioners argue that the Department should countervail

the two additional grants received in 1994 that were discovered at the

Filiz verification.

Petitioners also argue that Filiz failed to establish that it did

not use the Eximbank loan program. Therefore, the Department should use

adverse facts available and apply to Filiz the rate calculated for

Maktas under this program. Respondents state that the Department did,

in fact, verify that Filiz did not benefit from the Eximbank loan

program.

DOC Position: The additional grants described by petitioners were

Pasta Export Grants for shipments to third countries. As they can be

tied to other markets, we have not included these two additional grants

in our calculations.

With respect to the Eximbank loan program, we agree with

respondents that there is no evidence on the record to support the

claim that Filiz benefitted from the Eximbank loan program. We examined

Filiz's Chart of Accounts, General Ledger, and various accounts within

each of these records, and found no evidence that Filiz had received

loans through any GOT programs.

Suspension of Liquidation

In accordance with section 705(c)(1)(B)(i) of the Act, we have

calculated an individual subsidy rate for each company investigated.

For companies not investigated, we have determined an ``all others''

rate by weighting individual company subsidy rates by each investigated

company's exports of the subject merchandise to the United States, if

available, or pasta exports to the United States. The all others rate

does not include zero or de minimis rates, or any rates based solely on

the facts available.

Based on our affirmative preliminary determination, we instructed

the U.S. Customs Service to suspend liquidation of all entries of pasta

from Turkey which were entered, or withdrawn from warehouse, for

consumption on or after October 17, 1995, the date of publication of

our preliminary determination in the Federal Register. In accordance

with section 703(d) of the Act, we instructed the U.S. Customs Service

to terminate the suspension of liquidation for merchandise entered on

or after February 14, 1996, but to continue the suspension of

liquidation of entries made between October 17, 1995, through February

13, 1996. We will reinstate suspension of liquidation under section

706(a)(1) of the Act, if the ITC issues a final affirmative injury

determination, and will require a cash deposit of estimated

countervailing duties for such entries of merchandise in the amounts

indicated below.

------------------------------------------------------------------------

Ad Cash

Company valorem deposit

rate rate

------------------------------------------------------------------------

Filiz............................................... 3.87 3.87

Maktas.............................................. 13.12 12.61

Oba................................................. 15.82 15.82

All Others.......................................... 9.70 9.38

------------------------------------------------------------------------

If the ITC determines that material injury, or threat of material

injury, does not exist, this proceeding will be terminated and all

estimated duties deposited or securities posted as a result of the

suspension of liquidation will be refunded or canceled.

ITC Notification

In accordance with section 705(d) of the Act, we will notify the

ITC of our determination. In addition, we are making available to the

ITC all nonprivileged and nonproprietary information relating to this

investigation. We will allow the ITC access to all privileged and

business proprietary information in our files, provided the ITC

confirms that it will not disclose such information, either publicly or

under an administrative protective order, without the written consent

of the Deputy Assistant Secretary for Investigations, Import

Administration.

Return or Destruction of Proprietary Information

This notice serves as the only reminder to parties subject to

Administrative Protective Order (APO) of their responsibility

concerning the return or destruction of proprietary information

disclosed under APO in accordance with 19 CFR 355.34(d). Failure to

comply is a violation of the APO.

This determination is published pursuant to section 705(d) of the

Act.

Dated: June 3, 1996.

Paul L. Joffe,

Acting Assistant Secretary for Import Administration.

[FR Doc. 96-14737 Filed 6-13-96; 8:45 am]

BILLING CODE 3510-DS-P