Ball Bearings and Parts Thereof From Thailand; Preliminary Results of Countervailing Duty Administrative Review

DEPARTMENT OF COMMERCE

[C-549-802]

Ball Bearings and Parts Thereof From Thailand; 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 countervailing duty order on Ball Bearings and Parts

Thereof from Thailand was revoked effective January 1, 1995, as a

result of a changed circumstances review and pursuant to section

782(h)(2) of the Tariff Act of 1930, as amended by the Uruguay Round

Agreements Act (60 FR 40568). The Department is conducting an

administrative review of this order to determine the appropriate

assessment rate for entries made during the last review period prior to

the revocation of the order (January 1, 1994, through December 31,

1994). For information on the net subsidy for reviewed companies and

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 detailed in the

Preliminary Results of Review section of this notice. Interested

parties are invited to comment on these preliminary results. Because

this order has been revoked, the Department will not issue further

instructions with respect to cash deposits of estimated countervailing

duties.

EFFECTIVE DATE: July 3, 1996.

FOR FURTHER INFORMATION CONTACT: Robert Copyak or Kelly Parkhill,

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) 482-2209 and (202) 482-4126, respectively.

SUPPLEMENTARY INFORMATION:

Background

On May 3, 1989, the Department published in the Federal Register

(54 FR 19130) the countervailing duty order on Ball Bearings and Parts

Thereof from Thailand. On May 10, 1995, the Department published a

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

24831) of this countervailing duty order. We received a timely request

for review, and we initiated the review, covering the period January 1

through December 31, 1994, on June 15, 1995 (60 FR 31447).

In accordance with section 355.22(a) 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). This review was requested for the Minebea Group of

Companies in Thailand, NMB Thai, Pelmec, and NMB Hi-Tech, which

manufacture and export the subject merchandise. During this review, the

Department learned of another Minebea company, NMB Precision Ball,

Ltd., which manufactures balls. The company does not export to the

United States but it does sell balls to the other three companies which

in turn export finished ball bearings to the United States and

elsewhere. This company, like the other three Minebea producers in

Thailand, is a wholly-owned subsidiary of Minebea Japan, and because

NMB Precision Ball, Ltd. received export subsidies during the period of

review (see, ``Programs Conferring Subsidies'' section below) for its

sales of balls to the related Thai ball bearing producers, we

preliminarily determine that it is appropriate to include the subsidies

to NMB Precision Ball, Ltd. in our calculations of the net subsidy.

On November 2, 1995, we extended the period for completion of the

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

(see Extension of the Time Limit for Certain Countervailing Duty

Administrative Reviews, 60 FR 55699). 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. As a result

of these extensions, the deadline for these preliminary results is no

later than June 27, 1996, and the deadline for the final results of

this

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review is no later than 180 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.

Calculation Methodology

In the first administrative review, respondents claimed that the

F.O.B. value of the subject merchandise entering the United States is

greater than the F.O.B. price charged by the companies in Thailand (57

FR 26646 (June 15, 1992)). They explained that this discrepancy is due

to a mark-up charged by the parent company, located in a third country,

through which the merchandise is invoiced. However, the subject

merchandise is shipped directly from Thailand to the United States and

is not transshipped, combined with other merchandise, or repackaged

with other merchandise. In other words, for each shipment of subject

merchandise, there are two invoices and two corresponding F.O.B. export

prices: (1) The F.O.B. export price at which the subject merchandise

leaves Thailand, and on which subsidies from the Royal Thai Government

(RTG) are earned by the companies, and upon which the subsidy rate is

calculated; and (2) the F.O.B. export price which includes the parent

company mark-up, and which is listed on the invoice accompanying the

subject merchandise as it enters the United States, and upon which the

cash deposits are collected and the countervailing duty is assessed. In

prior reviews, we verified on a transaction-specific basis the direct

correlation between the invoice which reflects the F.O.B. price on

which the subsidies are earned and the invoice which reflects the

marked-up price that accompanies each shipment as it enters the United

States.

Respondents argued that the calculated ad valorem rate should be

adjusted by the ratio of the export value from Thailand to the export

value charged by the parent company to the U.S. customer so that the

amount of countervailing duties collected would reflect the amount of

subsidies bestowed. The Department agreed and made this adjustment in

prior administrative reviews (57 FR 26646, (June 15, 1992); and 58 FR

36392 (July 7, 1993)). Since the mark-up is not part of the export

value upon which the respondents earn subsidies, the Department has

followed the methodology adopted in prior administrative reviews, and

calculated the ad valorem rate as a percentage of the original export

value from Thailand and then multiplied this rate by the adjustment

ratio--the original export value from Thailand divided by the marked-up

value of the goods entering the United States.

NMB Thai, Pelmec, NMB Hi-Tech, and NMB Precision Ball, Ltd. are

wholly-owned by one parent company, and are therefore affiliated

companies within the meaning of section 771(33) of the Act. See Final

Affirmative Countervailing Duty Determination: Certain Pasta

(``Pasta'') from Italy, 60 FR 30288, 30290 (June 14, 1996).

Furthermore, all four sister companies produce the subject merchandise.

As a result, these four companies warrant treatment as a single company

with a combined rate. This is consistent with our approach in the

investigation and all prior reviews of this order. See Ball Bearings

and Parts Thereof from Thailand; Preliminary Results of Countervailing

Duty Administrative Review, 60 FR 22563 (May 8, 1995); see also Ball

Bearings and Parts Thereof from Thailand; Preliminary Results of

Countervailing Duty Administrative Review, 60 FR 42532 (August 16,

1995). To avoid double counting, the sales value was adjusted to

account for intercompany sales of subject merchandise. We calculated

the countervailing duty rate by first totaling the benefits received by

the four companies for each program used. Dividing these sums by the

total Thai export value for the four companies, we calculated the

unadjusted subsidy rate for each program used. As described above, we

adjusted these rates by multiplying them by the ratio of the original

export price from Thailand to the marked-up price of the goods entering

the United States. Finally, we summed the adjusted subsidy rate for

each program, to arrive at the total countervailing duty rate.

Scope of the Review

Imports covered by this review are ball bearings and parts thereof.

Such merchandise is described in detail in the Appendix to this notice.

The Harmonized Tariff Schedule (HTS) item numbers listed in the

Appendix are provided for convenience and Customs purposes. The written

description remains dispositive.

Verification

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

submitted by the Royal Thai Government and the Minebea Group of

companies. 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).

Analysis of Programs

I. Program Conferring Subsidies

Investment Promotion Act of 1977--Sections 28, 31, 36(1), and 36(4)

The Investment Promotion Act of 1977 (IPA) is administered by the

Board of Investment (BOI) and is designed to provide incentives to

invest in Thailand. In order to receive IPA benefits, each company must

apply to the BOI for a Certificate of Promotion (license), which

specifies goods to be produced, production and export requirements, and

benefits approved. These licenses are granted at the discretion of the

BOI and are periodically amended or reissued to change benefits or

requirements. Each IPA benefit for which a company is eligible must be

specifically stated in the license.

We have previously determined that the BOI licenses of Pelmec, NMB

Thai, and NMB Hi-Tech constitute export subsidies (58 FR 36392, July 7,

1993 and 60 FR 52374, October 6, 1995). No new information or evidence

of changed circumstances has been provided to warrant reconsideration

of this finding. NMB Precision Ball, Ltd. held one license during the

period of review, and this license was tied to export performance and

is, therefore, countervailable like the others.

In past reviews, the Minebea Group received benefits under sections

28, 31, and 36(1) of the IPA. In this review, they received benefits

under these sections, as well as under section 36(4).

Section 28: Prior to the review period, IPA Section 28 allowed

companies to import machinery free of import duties, the business tax

and the local tax. However, effective January 1, 1992, the RTG

eliminated both the business and the local tax and instituted a value

added tax (VAT) system.

According to Section 21(4) of the VAT Act, if Section 28 benefits

were granted by BOI to a company before January 1,

[[Page 34796]]

1992, that company, when importing fixed assets under Section 28, would

continue to be subject to the business tax provisions under Chapter IV,

Title II, of the Revenue Code before being amended by the VAT Act. In

accordance with Section 21(4), the company would be required to pay the

business and local taxes only if its BOI license requirements were

violated. Section 21(4) of the VAT Act applies to Pelmec, NMB Thai, NMB

Hi-Tech, and NMB Precision Ball, Ltd. because all of their licenses

were granted before January 1, 1992, and contain Section 28 benefits.

The respondents have argued that given the provisions of the VAT

Act and, specifically Section 21(4), their exemption from the business

and local taxes no longer constitutes a benefit to the companies

because: (1) no other companies are required to pay the business and

local taxes; and (2) under Section 21(4), payment of the business and

local taxes serves only as a penalty for noncompliance with BOI license

requirements. We verified that under the new VAT law, companies are no

longer required to pay business and local taxes with the exception of

the noncompliance penalty noted above. For these reasons, we

preliminarily determine that the business and local tax exemptions

under Section 28 no longer constitute a countervailable benefit for

companies subject to Section 21(4) of the VAT Act.

However, under provisions of Section 21(4) of the VAT Act,

companies that were granted Section 28 benefits under the IPA before

January 1, 1992, are not required to pay VAT on imports of fixed

assets. The respondents have argued that this exemption from VAT on

imports of fixed assets did not constitute a benefit to the companies

because all companies, promoted and non-promoted alike, are effectively

exempted from VAT on their imports of fixed assets. According to the

Section 82 of the VAT Act, the VAT liability is computed by subtracting

the ``input tax'' (the VAT paid) from the ``output tax'' (the VAT

collected). Consequently, companies that pay VAT on imports of fixed

assets are effectively exempted from this VAT payment as they receive a

credit for the VAT they paid on purchases of inputs, including imports

of fixed assets, when their monthly VAT liability is computed. We

examined this issue through questionnaires and at verification. We

confirmed that under the VAT system, companies receive credit for the

VAT paid on the purchases of inputs and, as a result, no VAT is

effectively paid by companies on these purchases. Since VAT liability

is computed on a monthly basis, any possible time-value-of-money

benefit under Section 21(4) of the VAT Act in the review would be

insignificant. On this basis, we preliminarily determine that the

exemption of the VAT on imports of fixed assets under Section 21(4) of

the VAT Act does not constitute a countervailable benefit to the

companies specified in Section 21(4).

Since the business and local tax exemptions under Section 28 of the

IPA and the VAT exemption under Section 21(4) of the VAT Act do not

confer countervailable benefits to companies subject to Section 21(4)

of the VAT Act, we preliminarily determine that only the exemptions of

import duties on fixed assets under Section 28 of IPA continue to

provide countervailable benefits to the respondent companies.

Section 31: IPA Section 31 allows companies an exemption from

payment of corporate income tax on profits derived from promoted

exports. The corporate income tax rate in Thailand is 30 percent. NMB

Thai and NMB Hi-Tech claimed an income tax exemption under Section 31

on the income tax returns filed during the review period. The income

tax exemption continues to provide countervailable benefits to the

respondent companies.

Section 36(1): IPA Section 36(1) allows companies to import raw and

``essential'' materials free of import duties. As Pelmec, NMB Thai, NMB

Hi-Tech and Precision Ball Ltd. have bonded warehouses for the purchase

of raw materials, they have only claimed Section 36(1) duty exemptions

on their imports of essential materials. Respondents' questionnaire

response included a range of items that were categorized by the BOI as

essential materials (e.g., grinding wheels, blades, lubricating

cleaning solutions, gloves, and packing materials) for which they

received duty exemptions. Energy and fuel were not included as they are

not eligible for section 36(1) duty exemption.

Prior to the Uruguay Round Agreement, only duty exemptions on

inputs that were physically incorporated into the product being

exported (e.g., raw material inputs and packing materials) were

considered non-countervailable. Under the Agreement on Subsidies and

Countervailing Measures (the Agreement), this has been broadened to

include duty exemptions on products that are ``consumed in

production.'' Respondents claim that the essential materials for which

BOI grants duty exemptions meet the ``consumed in production''

standard, and, therefore, any duty exemptions on these materials should

be found not countervailable. However, Annex II of the Agreement

contains a footnote (fn 61) which defines inputs consumed in the

production process as: ``[i]nputs consumed in the production process

are inputs physically incorporated, energy, fuels and oils used in the

production process and catalysts which are consumed in the course of

their use to obtain the exported product.''

At verification, we requested respondents to break out the

``essential materials'' according to the definition in the Annex II

footnote, and provide that break-out in a supplemental response. Their

break-out continued to include a number of BOI essential materials that

fall outside the definition in footnote 61. Respondents argue that the

term ``consumed in production'' should include all items that are worn

out during the production process and that physically touch the product

(e.g., grinding wheels, drill bits, lubricating cleaning solutions) as

well as items such as packing materials. However, it is the

Department's position that the definition in Annex II is clear, and

therefore, the only duty exemptions that we find not countervailable

are those on oils, lubricating cleaning solutions, packing materials,

and materials which are physically incorporated into the exported

product. The remaining duty exemptions, received by the respondent

companies, continue to be countervailable. Because energy and fuels

were not eligible for Section 36(1) duty exemptions, we have not

addressed whether duty exemptions on those products would be

countervailable under the URAA.

Section 36(4): While the Minebea Group had not, prior to the period

of review, claimed any benefits under Section 36(4) of the IPA, its BOI

licenses, discussed in greater detail above, always included

eligibility to claim them. Thus, the general discussion of the IPA

above applies to Section 36(4) as well. In this review period, NMB Hi-

Tech claimed benefits under Section 36(4) of the IPA for the first

time. Under Section 36(4) of the IPA, promoted persons can deduct from

their assessable income for payment of income tax an amount equal to

five percent of the increased income over the previous year, derived

from the export of products produced by the promoted persons. This

benefit is calculated across the first ten years of a license, and it

can be used as a loss carried forward in any year the promoted person

wishes to use it, either during or after the promoted period. As

Section 36(4) is conditioned upon exports, we preliminarily find this

program to be countervailable.

[[Page 34797]]

Calculation of Benefit from IPA Sections 28, 31, 36(1) and 36(4)

To calculate the benefit from Sections 31, 28, and 36(1), of the

IPA, we followed the same methodology that has been used in past

administrative reviews (see, e.g., 58 FR 16174, March 25, 1993; 57 FR

9413, March 18, 1992). For Section 31, we calculated the benefit by

calculating the difference between what each company paid in corporate

income tax during the review period and what it would have paid absent

the exemption. We did this by multiplying the corporate income tax rate

in effect during the review period by the amount of each company's

income that was exempted from income tax. For Sections 28 and 36(1), we

calculated the benefit by obtaining the amount of import duties that

would have been paid on the imports absent the exemption.

Prior to this review, none of the Minebea group had ever claimed

benefits under Section 36(4). During the period of review, NMB Hi-Tech

claimed benefits under Section 36(4) for the first time. We calculated

the Section 36(4) benefit by determining the amount of tax which would

have been paid absent this deduction.

We then added all duty and tax savings under all the IPA programs

and divided this aggregate benefit by the total export value of the

subject merchandise. We then made the adjustment for the parent company

mark-up discussed in the ``Calculation Methodology'' section above. On

this basis, we preliminarily determine the countervailing duty rate

from IPA Sections 31, 28, 36(1), and 36(4) to be 5.25 percent ad

valorem during the review period.

II. Programs Preliminarily Determined to be Not Used

We examined the following programs and preliminarily determine that

the producers and/or exporters of the subject merchandise did not apply

for or receive benefits under these programs during the period of

review:

A. Tax Certificates for Exporters

B. Electricity Discounts for Exporters

C. Export Packing Credits

D. Rediscount of Industrial Bills

E. IPA Section 33

F. Export Processing Zones

G. Reduced Business Taxes for Producers of Intermediate Goods for

Export Industries

H. International Trade Promotion Fund

Preliminary Results of Review

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

Interim Regulations, we calculated an individual subsidy rate for each

producer/exporter subject to this administrative review. As stated in

the Calculation Methodology section above, since the Minebea companies

are affiliated, we are treating them as one company, and calculating

one countervailing duty rate for the group. Thus, for the period

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

the net subsidy for NMB Thai, Pelmec, NMB Hi-Tech, and NMB Precision

Ball, Ltd. to be 5.25 percent ad valorem.

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.

As stated in the``Summary'' section above, the Department revoked

this countervailing duty order, effective January 1, 1995, pursuant to

section 782(h)(2) of the Act. Ball Bearings and Parts Thereof from

Thailand; Final results of Changed Circumstances Countervailing Duty

Review and Revocation of Countervailing Duty Order, 61 FR 20799 (May 8,

1996). Accordingly, suspension of liquidation was terminated effective

January 1, 1995; thus, the Department will not issue further

instructions with respect to cash deposits of estimated countervailing

duties.

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 777A(e)(2)(B) of the Act. Requests for

administrative reviews must now specify the companies to be reviewed.

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

will normally cover only those companies specifically named. Pursuant

to 19 C.F.R. Sec. 355.22(g), for all companies for which a review was

not requested, duties must be assessed at the cash deposit rate

previously ordered. Accordingly, for the period January 1 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.

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 C.F.R. Sec. 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 C.F.R. Sec. 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: June 27, 1996.

Robert S. LaRussa,

Acting Assistant Secretary for Import Administration.

Appendix

Scope of Review

Ball Bearings, Mounted or Unmounted, and Parts Thereof

The products covered by this review, ball bearings, mounted or

unmounted, and parts thereof, include all antifriction bearings which

employ balls as the rolling element. During the review period, imports

of these products were classifiable under the following categories:

antifriction balls; ball bearings with integral shafts; ball bearings

(including radial ball bearings) and parts thereof; ball bearing type

pillow blocks and parts thereof; ball bearing type flange, take-up,

cartridge, and hanger units, and parts thereof; and other bearings

(except tapered roller bearings) and parts thereof. Wheel hub units

which employ balls as the rolling element are subject to the review.

Finished but unground or semiground balls are not included in the scope

of this review.

Imports of these products are currently classifiable under the

[[Page 34798]]

following HTS item numbers: 8482.10.10, 8482.10.50, 8482.80.00,

8482.91.00, 8482.99.10, 8482.99.70, 8483.20.40, 8483.20.80, 8483.30.40,

8483.30.80, 8483.90.20, 8483.90.30, 8483.90.70, 8708.50.50, 8708.60.50,

8708.99.50. This review covers all of the subject bearings and parts

thereof outlined above with certain limitations. With regard to

finished parts (inner race, outer race, cage, rollers, balls, seals,

shields, etc.), all such parts are included in the scope of this

review. For unfinished parts (inner race, outer race, rollers, balls,

etc.), such parts are included if (1) they have been heat treated, or

(2) heat treatment is not required to be performed on the part. Thus,

the only unfinished parts that are not covered by this review are those

parts which will be subject to heat treatment after importation.

[FR Doc. 96-17015 Filed 7-2-96; 8:45 am]

BILLING CODE 3510-DS-P