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

DEPARTMENT OF COMMERCE

[C-557-806]

Extruded Rubber Thread From Malaysia; Preliminary Results of

Countervailing Duty Administrative Review

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

ACTION: Notice of preliminary results of countervailing duty

administrative review.

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SUMMARY: The Department of Commerce (the Department) is conducting an

administrative review of the countervailing duty order on extruded

rubber thread from Malaysia. For information on the net subsidy for

each reviewed company, as well as for all non-reviewed companies,

please see the Preliminary Results of Review section of this notice. If

the final results remain the same as these preliminary results of

administrative review, we will instruct the U.S. Customs Service to

assess countervailing duties as indicated in the Preliminary Results of

Review section of this notice. Interested parties are invited to

comment on these preliminary results.

EFFECTIVE DATE: June 11, 1996.

FOR FURTHER INFORMATION CONTACT: Judy Kornfeld or Lorenza Olivas,

Office of Countervailing Compliance, Import Administration,

International Trade Administration, U.S. Department of Commerce, 14th

Street and Constitution Avenue, NW., Washington, DC 20230; telephone:

Judy Kornfeld (202) 482-3146, Lorenza Olivas (202) 482-1785 or (202)

482-2786.

SUPPLEMENTARY INFORMATION:

Background

On August 25, 1992, the Department published in the Federal

Register (57 FR 38472) the countervailing duty order on extruded rubber

thread from Malaysia. On August 1, 1995, the Department published a

notice of ``Opportunity to Request an Administrative Review'' (60 FR

39150) of this countervailing duty order. We received a timely request

for review, and we initiated the review, covering

[[Page 29535]]

the period January 1, 1994 through December 31, 1994, on September 15,

1995 (60 FR 47930).

In accordance with section 355.22 of the Department's Interim

Regulations, this review covers only those producers or exporters of

the subject merchandise for which a review was specifically requested

(see Antidumping and Countervailing Duties: Interim Regulations;

Request for Comments, 60 FR 25130 (May 11, 1995) (Interim Regulations).

Accordingly, this review covers Heveafil Sdn. Bhd., Filmax Sdn. Bhd.,

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

Rubfil Sdn. Bhd. Heveafil and Filmax are affiliated companies. This

review also covers 13 programs.

On May 8, 1996 we extended the period for completion of the

preliminary and final results pursuant to section 751(a)(3) of the

Tariff Act of 1930, as amended (see, Extruded Rubber Thread From

Malaysia; Extension of Time Limit for Countervailing Duty

Administrative Review, 61 FR 20803). As explained in the memoranda from

the Assistant Secretary for Import Administration dated November 22,

1995, and January 11, 1996 (on file in the public file of the Central

Records Unit, Room B-099 of the Department of Commerce), all deadlines

were further extended to take into account the partial shutdowns of the

Federal Government from November 15 through November 21, 1995, and

December 15, 1995, through January 6, 1996. The deadline for the final

results of this review is no later than 120 days from the date on which

these preliminary results are published in the Federal Register.

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 (URAA) effective January 1, 1995 (the

Act). The Department is conducting this administrative review in

accordance with section 751(a) of the Act. References to the

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 URAA. See Advance Notice of Proposed Rulemaking and

Request for Public Comments, 60 FR 80 (January 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.

Verification

As provided in section 782(i) of the Act, we verified information

submitted by the Government of Malaysia and Heveafil, Filmax,

Rubberflex, Filati and Rubfil. We followed standard verification

procedures, including meeting with government and company officials and

examination of relevant accounting and financial records and other

original source documents. Our verification results are outlined in the

public versions of the verification reports, which are on file in the

Central Records Unit (Room B-099 of the Main Commerce Building).

Affiliated Parties

Heveafil owns and controls Filmax and both companies produce

subject merchandise. Therefore, we determine them to be affiliated

companies under section 771(33) of the Act. As such, and consistent

with prior reviews of this order, we have calculated only one rate for

both of these companies. See Extruded Rubber Thread From Malaysia;

Preliminary Results of Countervailing Duty Administrative Review, 59 FR

46392 (September 8, 1994). For further information, see Memorandum to

File from Judy Kornfeld Regarding Status as Affiliated Parties dated

May 22, 1996, on file in the public file of the Central Records Unit,

Room B-099 of the Department of Commerce.

Analysis of Programs

I. Programs Conferring Subsidies

A. Programs Previously Determined To Confer Subsidies

1. Export Credit Refinancing (ECR) Program

The ECR program was established in order to promote: (1) Exports of

manufactured goods and agricultural food products that have significant

value-added and high local content, (2) greater domestic linkages in

export industries, and (3) easy access to credit facilities. In order

to accomplish this, the Bank Negara Malaysia, the central bank of

Malaysia, provides order-based and pre- and post-shipment financing of

exports through commercial banks for periods of up to 120 and 180 days,

respectively, and certificate of performance (CP)-based pre-shipment

financing. These loans are provided in Malaysian Ringgits. Order-based

financing is provided for specific sales to specific markets. CP-based

financing is a line of credit based on the previous 12 months' export

performance, and cannot be tied to specific sales in specific markets.

The Department determined that this program was countervailable in

Final Affirmative Countervailing Duty Determination and Countervailing

Duty Order; Extruded Rubber Thread From Malaysia (57 FR 38472; August

25, 1992) (Malaysian Rubber Thread Final Determination) because receipt

of loans under this program was contingent upon export performance and

the loans were provided at preferential interest rates. No new

information or evidence of changed circumstances has been submitted in

this proceeding to warrant reconsideration of this finding. Heveafil,

Filmax, Rubberflex and Rubfil used pre-shipment ECR loans. Rubfil and

Filati used post-shipment ECR loans.

In order to determine whether these loans were provided at

preferential rates during the review period, we compared the interest

rate charged on these loans to a benchmark interest rate. As a

benchmark for short-term loans, it is our practice to select the

predominant source of short-term financing in the country as our

benchmark for short-term loans. See, section 355.44(b)(3) of the

Department's Proposed Regulations. In Malaysia, term loans and

overdrafts offered by commercial banks are the most predominant form of

short-term financing. The average interest rates for these types of

financing, however, are not individually available. Therefore, we have

used as our benchmark for ECR loans the average commercial bank lending

rate as an estimate of these

[[Page 29536]]

predominant short-term lending rates. This rate is referred to by banks

as the base lending rate (BLR). Commercial banks then add a one to two

percent spread to the BLR. Thus, to determine the commercial benchmark,

we used the average commercial BLR rates as published by Bank Negara,

the central bank of Malaysia, plus an average spread of 1.5 percent.

This is consistent with the benchmark methodology used in the last two

administrative reviews. (See, e.g., Extruded Rubber Thread from

Malaysia; Final Results of Countervailing Duty Administrative Review)

(Final Results of 1992 Review) (60 FR 17515; April 6, 1995).

Based on a comparison of the ECR rates and the benchmark rate, we

find that ECR loans continue to be provided at preferential interest

rates. To calculate the benefit from ECR loans on which interest was

paid in 1994, we used our short-term loan methodology which has been

applied consistently in previous determinations. (See, e.g., Final

Affirmative Countervailing Duty Determination and Countervailing Duty

Order: Butt-Weld Pipe Fittings from Thailand (55 FR 1695; January 18,

1990); and the Malaysian Rubber Thread Final Determination in this case

(57 FR 38474; August 27, 1992). See also section 355.44(b)(3) of the

Proposed Regulations. Because the post-shipment ECR loans were

shipment-specific, we included in our calculations only those loans

used to finance exports of extruded rubber thread to the United States.

Because the pre-shipment loans were not shipment-specific, we included

all loans on which interest was paid during the review period.

To calculate the benefit, we compared the amount of interest

actually paid on these loans during the review period with the amount

that would have been paid at the benchmark rate of 8.98 percent. The

difference between those amounts is the benefit. We then divided each

company's interest savings by total exports, in the case of pre-

shipment loans, because they applied to all exports, or by exports to

the United States, in the case of post-shipment loans, because they

applied to specific shipments of exports to the United States. On this

basis, we preliminarily determine the ad valorem net subsidy from pre-

shipment loans to be the following for each of the reviewed companies:

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

Net subsidy

Net subsidies--producer/exporter rate %

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

Heveafil/Filmax............................................ 0.22

Rubberflex................................................. 0.19

Filati..................................................... 0.00

Rubfil..................................................... 0.15

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

For post-shipment loans, we preliminarily determine the ad valorem

net subsidy to be the following for each of the reviewed companies:

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

Net subsidy

Net subsidies--producer/exporter rate %

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

Heveafil/Filmax............................................ 0.00

Rubberflex................................................. 0.00

Filati..................................................... 2.59

Rubfil..................................................... 0.23

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

2. Pioneer Status

Pioneer status is a tax incentive offered to promote investment in

the manufacturing, tourist, and agricultural sectors. Pioneer status

was first introduced under the Pioneer Industries (Relief from Income

Tax) Ordinance, 1958. This ordinance was replaced by the Investment

Incentives Act (IIA) in 1968, which was subsequently replaced by the

Promotion of Investment Act (PIA) of 1986. Under the IIA and the PIA,

the Minister of International Trade and Industry may determine products

or activities to be pioneer products or activities.

Companies petition for pioneer status for products or activities

that have already been approved and listed as pioneer products. Once a

company receives pioneer status, its profits from the designated

product or activity are exempt from the corporate income tax for a

period of five years, with the possibility of an extension for an

additional five years. The five-year extension was abolished for

companies which applied for pioneer status on or after November 1991.

Furthermore, the computation of capital allowances, which are normally

deducted against the adjusted taxable income is postponed to the post-

tax holiday period.

Under certain conditions, companies must agree to an export

commitment (i.e., they must agree to export a certain percentage of

their production) to receive pioneer status. Furthermore, an export

requirement may sometimes be applied to certain industries after it is

determined that the domestic market is saturated and will no longer

support additional producers.

In the investigation of this case (see, Malaysian Rubber Thread

Final Determination), we determined that pioneer status was granted to

Rubberflex based on its obligation to export. Therefore, we found the

program to constitute an export subsidy with respect to that company.

In addition, in past administrative reviews, we reviewed the pioneer

status of Filati and Filmax and found the program countervailable with

respect to both of these companies because pioneer status was granted

to each based on a commitment that they would export a majority of

their production. (See Final Results of 1992 Review.) No new

information or evidence of changed circumstances has been submitted in

this proceeding to warrant reconsideration of these findings.

Rubberflex, Filati and Filmax continued to hold pioneer status during

the review period. However, no benefits were provided to any of these

companies because either the company (1) did not file a tax return, or

(2) had a tax loss during this review period.

Rubfil was the only company to claim the tax exemption under

pioneer status during the review period. However, in the original

investigation and in prior administrative reviews of this order, Rubfil

either did not use this program or did not participate in the review.

Therefore, a determination as to the countervailability of this program

with respect to Rubfil has not been made.

During verification of this review we examined the application

process which led to the granting of Rubfil's pioneer status. We

verified that in its pioneer agreement, Rubfil committed to export a

majority of its production. Therefore, since pioneer status was

conferred upon Rubfil contingent upon its export commitment, we

determine this program constitutes an export subsidy with respect to

that company.

To calculate the benefit, we determined the tax savings from this

program during the review period and divided those savings by total

exports. On this basis, we preliminarily determine the ad valorem net

subsidy from this program to be the following for each of the reviewed

companies:

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

Net subsidy

Net subsidies--producer/exporter rate %

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

Heveafil/Filmax............................................ 0.00

Rubberflex................................................. 0.00

Filati..................................................... 0.00

Rubfil..................................................... 0.15

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

3. Industrial Building Allowance

Sections 63 through 66 of the Income Tax Act of 1967, as amended,

allow an income tax deduction for a percentage of the value of

constructed or purchased buildings used in manufacturing. In 1984, this

allowance, which had been limited to manufacturing facilities, was

extended to include buildings used as warehouses to store finished

goods

[[Page 29537]]

ready for export or imported inputs to be incorporated into exported

goods. This program includes a 10 percent initial and a 2 percent

annual tax allowance (i.e., 12 percent in the first year and 2 percent

thereafter). The program effectively reduces a company's taxable

income, and the tax allowance can be carried forward to future tax

years until fully exhausted. Rubber-based exporters are eligible for

this program. We found this program countervailable in the Malaysian

Rubber Thread Final Determination because use of this allowance is

limited to exporters. No new information or evidence of changed

circumstances has been submitted in this proceeding to warrant

reconsideration of this program's countervailability.

Heveafil used this program during the review period. To calculate

the benefit, we determined the tax savings from this program during the

review period for Heveafil and divided the savings amount by Heveafil/

Filmax's total exports, because these benefits applied to all exports.

On this basis, we preliminarily determine the ad valorem net subsidy

from this program to be the following for each of the reviewed

companies:

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

Net subsidy

Net subsidies--producer/exporter rate %

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

Heveafil/Filmax............................................ Less than

0.005

Rubberflex................................................. 0.00

Filati..................................................... 0.00

Rubfil..................................................... 0.00

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

4. Double Deduction for Export Promotion Expenses

Section 41 of the Promotion of Investments Act allows companies to

deduct expenses related to the promotion of exports twice, once in

calculating net income on the financial statement and again in

calculating taxable income. We found this program countervailable in

the Malaysian Rubber Thread Final Determination because its use is

limited to exporters. No new information or evidence of changed

circumstances has been submitted in this proceeding to warrant

reconsideration of this finding.

Heveafil used this program during the review period. To calculate

the benefit, we calculated the tax savings from this program during the

review period for this company and divided those savings by Heveafil/

Filmax's total exports, because these benefits applied to all exports.

On this basis, we preliminarily determine the ad valorem net subsidy

from this program to be the following for each of the reviewed

companies:

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

Net subsidy

Net subsidies--producer/exporter rate %

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

Heveafil/Filmax............................................ 0.02

Rubberflex................................................. 0.00

Filati..................................................... 0.00

Rubfil..................................................... 0.00

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

II. Programs Preliminarily Determined to be Not Used

We examined the following programs and preliminarily find that the

producers and/or exporters subject to review did not apply for or

receive benefits under these programs during the period of review:

Investment Tax Allowance,

Abatement of a Percentage of Net Taxable Income Based on

the F.O.B. Value of Export Sales,

Abatement of Five Percent of Taxable Income Due to

Location in a Promoted Industrial Area,

Abatement of Taxable Income of Five Percent of Adjusted

Income of Companies due to Capital Participation and Employment Policy

Adherence,

Double Deduction of Export Credit Insurance Payments,

Abatement of Taxable Income of Five Percent of Adjusted

Income of Companies Due to Capital Participation and Employment Policy

Adherence, and

Preferential Financing for Bumiputras.

Preliminary Results of Review

In accordance with section 355.22(c)(4)(ii) of the Department's

Interim Regulations, we have calculated an individual subsidy rate for

each producer/exporter subject to this administrative review. For the

period January 1, 1994 through December 31, 1994, we preliminarily

determine the ad valorem net subsidies to be as follows:

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

Net subsidy

Net subsidies--producer/exporter Rate %

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

Heveafil/Filmax............................................ 0.24

Rubberflex................................................. 0.19

Filati..................................................... 2.58

Rubfil..................................................... 0.52

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

If the final results of this review remain the same as these

preliminary results, the Department intends to instruct the U.S.

Customs Service to assess countervailing duties as indicated above. The

Department also intends to instruct the U.S. Customs Service to collect

cash deposits of estimated countervailing duties as indicated above of

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

from reviewed companies, entered, or withdrawn from warehouse, for

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

this review. As provided for in the Act, any rate less than 0.5 percent

ad valorem in an administrative review is de minimis. Accordingly, for

those companies no countervailing duties will be assessed or cash

deposits required.

The URAA replaced the general rule in favor of a country-wide rate

with a general rule in favor of individual rates for investigated and

reviewed companies. The procedures for countervailing duty cases are

now essentially the same as those in antidumping cases, except as

provided for in section 777(e)(2)(B) of the Act. Requests for

administrative reviews must now specify the companies to be reviewed.

See Sec. 355.22(a) of the Interim Regulations. The requested review

will normally cover only those companies specifically named. Pursuant

to 19 CFR 355.22(g), for all companies for which a review was not

requested, duties must be assessed at the cash deposit rate, and cash

deposits must continue to be collected, at the rate previously ordered.

As such, the countervailing duty cash deposit rate applicable to a

company can no longer change, except pursuant to a request for a review

of that company. See Federal-Mogul Corporation and The Torrington

Company v. United States, 822 F.Supp. 782 (CIT 1993) and Floral Trade

Council v. United States, 822 F.Supp. 766 (CIT 1993) (interpreting 19

CFR 353.22(e), the antidumping regulation on automatic assessment,

which is identical to 19 CFR 355.22(g)). Therefore, the cash deposit

rates for all companies except those covered by this review will be

unchanged by the results of this review.

We will instruct Customs to continue to collect cash deposits for

non-reviewed companies at the most recent company-specific or country-

wide rate applicable to the company. Accordingly, the cash deposit

rates that will be applied to non-reviewed companies covered by this

order are those established in the most recently completed

administrative proceeding. See Extruded Rubber Thread from Malaysia;

Final Results of Countervailing Duty Administrative Review (60 FR

17515; April 6, 1995). These rates shall apply to all non-reviewed

companies until a review of a company assigned these rates is

requested. In addition, for the period January 1, 1994 through December

31, 1994, the assessment rates applicable to all non-reviewed companies

covered by this order are the cash deposit rates in effect at the time

of entry.

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Public Comment

Parties to the proceeding may request disclosure of the calculation

methodology and interested parties may request a hearing not later than

10 days after the date of publication of this notice. Interested

parties may submit written arguments in case briefs on these

preliminary results within 30 days of the date of publication. Rebuttal

briefs, limited to arguments raised in case briefs, may be submitted

seven days after the time limit for filing the case brief. Parties who

submit argument in this proceeding are requested to submit with the

argument (1) a statement of the issue and (2) a brief summary of the

argument. Any hearing, if requested, will be held seven days after the

scheduled date for submission of rebuttal briefs. Copies of case briefs

and rebuttal briefs must be served on interested parties in accordance

with 19 CFR 355.38.

Representatives of parties to the proceeding may request disclosure

of proprietary information under administrative protective order no

later than 10 days after the representative's client or employer

becomes a party to the proceeding, but in no event later than the date

the case briefs, under 19 CFR 355.38, are due. The Department will

publish the final results of this administrative review including the

results of its analysis of issues raised in any case or rebuttal brief

or at a hearing.

This administrative review and notice are in accordance with

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

Dated: May 29, 1996.

Paul L. Joffe,

Acting Assistant Secretary for Import Administration.

[FR Doc. 96-14741 Filed 6-10-96; 8:45 am]

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