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

DEPARTMENT OF COMMERCE

[C-557-806]

Extruded Rubber Thread From Malaysia; Final Results of

Countervailing Duty Administrative Review

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

ACTION: Notice of final results of countervailing duty administrative

review.

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SUMMARY: On June 11, 1996, the Department of Commerce (``the

Department'' published in the Federal Register its preliminary results

of administrative review of the countervailing duty order on extruded

rubber thread from Malaysia for the period January 1, 1994 through

December 31, 1994 (61 FR 29534). The Department has now completed this

administrative review in accordance with section 751(a) of the Tariff

Act of 1930, as amended. For information on the net subsidy for each

reviewed company, and for all non-reviewed companies, please see the

Final Results of Review section of this notice. We will instruct the

U.S. Customs Service to assess countervailing duties as detailed in the

Final Results of Review section of this notice.

EFFECTIVE DATE: October 25, 1996.

FOR FURTHER INFORMATION CONTACT: Judy Kornfeld, Office of CVD/AD

Enforcement VI, Import Administration, International Trade

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

Constitution Ave., N.W., Washington, D.C. 20230; telephone: (202) 482-

2786.

SUPPLEMENTARY INFORMATION:

Background

Pursuant to 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, 25139 (May 11, 1995) (``Interim

Regulations''). Accordingly, this review covers Heveafil Sdn. Bhd.,

Filmax Sdn. Bhd., Rubberflex Sdn. Bhd., Filati Elastofibre Sdn. Bhd.

(Filati), and Rubfil Sdn. Bhd. Heveafil and Filmax are affiliated

companies. This review also covers the period from January 1, 1994 to

December 31, 1994 and 13 programs.

Since the publication of the preliminary results on June 11, 1996

(61 FR 29534), the following events have occurred: We invited

interested parties to comment on the preliminary results. On July 11,

1996, case briefs were submitted by the Government of Malaysia (GOM)

and Heveafil, Filmax, Rubberflex, Filati and Rubfil, producers of the

subject merchandise which exported extruded rubber thread to the United

States during the review period (respondents).

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''). 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.

Affiliated Parties or Trading Companies

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.

Verification

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

provided by the Government of Malaysia, and Heveafil, Filmax,

Rubberflex, Filati and Rubfil, producers/exporters of the subject

merchandise. We followed standard verification procedures, including

meeting with government and company officials, and examination of

relevant accounting and 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

Based upon the responses to our questionnaires, the results of

verification, and written comments from interested parties we determine

the following:

I. Programs Conferring Subsidies

Programs Previously Determined to Confer Subsidies

A. Export Credit Refinancing (ECR)

In the preliminary results, we found that this program conferred

countervailable subsidies on the subject merchandise. Our analysis of

the comments submitted by the interested parties, summarized below, has

led us to modify our findings in the preliminary results for this

program. Accordingly, the net subsidies from pre-shipment loans are as

follows:

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

Rate

Manufacturer/exporter (percent)

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

Heveafil/Filmax............................................ 0.21

[[Page 55273]]

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

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

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

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

The net subsidies from post-shipment loans are as follows:

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

Rate

Manufacturer/exporter (percent)

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

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

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

Filati..................................................... 1.39

Rubfil..................................................... 0.08

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

B. Pioneer Status

In the preliminary results, we found that this program conferred

countervailable subsidies on the subject merchandise. Our analysis of

the comments submitted by the interested parties, summarized below, has

not led us to change our findings from the preliminary results.

Accordingly, the net subsidies for this program are as follows:

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

Rate

Manufacturer/exporter (percent)

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

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

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

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

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

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

C. Industrial Building Allowance

In the preliminary results, we found that this program conferred

countervailable subsidies on the subject merchandise. We did not

receive any comments on this program from the interested parties.

Accordingly, the net subsidies for this program are as follows:

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

Rate

Manufacturer/exporter (percent)

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

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

Our analysis of the comments submitted by the interested parties,

summarized below, has not led us to change our findings from the

preliminary results.

Analysis of Comments

Comment 1: Respondents allege that the Department initiated the

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

therefore, the Department can impose countervailing duties under this

section only if there is an injury determination by the International

Trade Commission (ITC). (The ITC discontinued its injury determination

under Section 303(a)(2) because the duty-free status of rubber thread

from Malaysia was terminated.) Respondents contend that without an

injury determination, the Department had no authority to issue a

countervailing duty order and to require the payment of cash deposits.

Respondents further maintain that the Department cannot simply transfer

the jurisdiction for an investigation from Section 303(a)(2) to Section

303(a)(1) without issuing a public notice that it intends to proceed

with the investigation under a different statutory provision. See,

Certain Textile Mill Products and Apparel from Turkey (50 FR 9817;

March 12, 1987); Certain Textile Mill Products and Apparel from the

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

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

Furthermore, because there was no initiation notice or a preliminary

determination under Section 303(a)(1), a final determination under that

section was not appropriate. If the Department wanted to proceed with

the investigation, it was required to reinitiate under the appropriate

provision.

In addition, respondents argue that the Department's untimeliness

theory in previous reviews is misplaced. They state that the Department

has the power to modify its judgements or correct its errors and that

Ceramica Regiomontana v. United States, 64 F.3d 1579 (Fed. Cir. 1995)

(Ceramica 1995) confirmed the right to challenge the continuing

validity of an order during a review proceeding.

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

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

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

must be filed within 30 days of the date the order is published. See 19

U.S.C. Sec. 1516a(a)(2). The countervailing duty order on extruded

rubber thread from Malaysia was published on August 25, 1992.

Respondents voluntarily withdrew a timely-filed complaint challenging

the order on these same grounds. Respondents' attempt to revive that

challenge in this proceeding is untimely.

Contrary to respondents' assertions, there was no requirement that

the Department reinitiate its investigation as a result of the decision

by the United States to terminate the duty-free status of Malaysian

rubber thread. Indeed, respondents' interpretation could create an

impermissible gap in statutory coverage, which Congress did not intend.

See Techsnabexport, Ltd. v. United States, 802 F. Supp. 469, 472 (CIT

1992). Nor do the administrative cases relied upon by respondents

support their position. In those cases, the Department published notice

that authority to continue the particular investigations was

transferred from section 303 of the Tariff Act of 1930 to Title VII of

the Act.

In the course of administrative reviews conducted under this order,

respondents have misconstrued judicial precedent regarding the

correction of ``jurisdictional defects.'' Gilmore Steel Corp. v. United

States, 585 F. Supp. 670, 674 (CIT 1984) (Gilmore), involved a

challenge to the termination of a pending investigation based upon

information obtained in the course of that investigation. In

particular, the petitioner contended that the

[[Page 55274]]

Department lacked the authority to rescind the investigation based upon

insufficient industry support for the petition after the 20-day

initiation period had elapsed. 585 F. Supp. at 673. In upholding the

Department's determination, the court recognized that administrative

officers have the authority to correct errors, such as ``jurisdictional

defects,'' at anytime during the proceeding. Id. at 674-75. The court

did not state or imply that the Department may reverse a decision to

issue an antidumping duty order in the context of an administrative

review under section 751 of the Act. Indeed, the case did not even

involve an administrative review. The court simply held that the

administering authority may, in the context of the original

investigation, rescind an ongoing proceeding after expiration of the

20-day initiation period. In short, Gilmore says nothing to excuse

respondents' failure to timely challenge the issuance of the order in

this case.

Similarly, we disagree with respondents' reliance on Ceramica 1995.

Ceramica 1995 challenged the continued imposition of countervailing

duties following Mexico's change in status to a ``country under the

Agreement'' which entitled it to an injury test. Unlike respondents,

Ceramica 1995 did not challenge the validity of the original

countervailing duty order, nor did the Federal Circuit determine that

the issuance of the order was invalid. Consequently, Ceramica 1995 is a

similarly inappropriate basis to excuse respondents' failure to timely

challenge the issuance of the order.

Comment 2: Respondents argue that the Department must liquidate

entries during 1994 without regard to countervailing duties because the

URAA does not provide an injury test for 1994 entries as required under

the Agreement on Subsidies and Countervailing Measures (Subsidies

Agreement). Citing Article 32.3 of the Subsidies Agreement, respondents

argue that the Subsidies Agreement is applicable to all reviews,

including the instant review, initiated pursuant to requests made after

January 1, 1995. Respondents argue that the requirements of the

Agreement include the application of an injury test to entries covered

by such a review. According to respondents, however, the URAA did not

provide a mechanism to implement this obligation; rather, the URAA only

provides an injury test for merchandise entered on or after January 1,

1995. Therefore, respondents assert that assessment of countervailing

duties on 1994 entries would violate U.S. obligations under the

Subsidies Agreement.

Department's Position: Respondents have misinterpreted both U.S.

law and the Subsidies Agreement. There is no legal basis under U.S. law

for respondents' claim. Because Malaysia became a Subsidies Agreement

country on January 1, 1995, only entries made on or after January 1,

1995 are entitled to the injury test. See section 753 of the Act; 19

U.S.C. Sec. 1675b. Section 753(a)(4) makes this clear by suspending

liquidation of entries of subject merchandise made ``on or after * * *

the date on which the country * * * becomes a Subsidies Agreement

country * * *'' See, also, Ceramica Regiomontana, S.A. v. United

States, 64 F3d 1579 (Fed. Cir. 1995) (the right to an injury test is

conferred at the time of importation (entry) in the United States).

Therefore, countervailing duties may be assessed on Malaysian imports

entered before January 1, 1995, without regard to an injury test.

Moreover, Article 32.3 of the Subsidies Agreement does not require

an injury determination for merchandise entered prior to January 1,

1995. (See, also, Footwear from Brazil GATT Panel Decision confirming

that liability for countervailing duties attaches at the time of

importation, not assessment.) In sum, given that the subject

merchandise was not entitled to an injury determination when it was

entered in 1994, liability for countervailing duties attached at the

time of entry. Therefore, there is no obligation under the Subsidies

Agreement to supply an injury test to these 1994 entries.

Comment 3: Respondents argue that the Department improperly

assigned company-specific rates without first determining whether the

overall country-wide subsidy rate was above de minimis. They contend

that the Department acted contrary to its established practice of

applying its two-part test in measuring levels of subsidization.

According to respondents, the Department should first calculate the net

subsidy on a country-wide basis to determine whether the country-wide

rate was above de minimis, in accordance with Ceramica Regiomontana,

S.A. v. United States, 853 Supp. 431,439 (Ct. Int'l Trade 1994)

(Ceramica 1994). If the country-wide benefit is de minimis, the overall

subsidy level would be zero. Only if the country-wide rate was above de

minimis would the Department proceed to the second step of its test to

determine if individual rates would apply. Respondents cite Certain

Iron Metal Castings from India, Preliminary Results of Countervailing

duty Administrative Review (61 FR 25623; May 22, 1996); Carbon Steel

Butt-Welde Pipe Fittings from Thailand; Final Results of Countervailing

Administrative Review (61 FR 4959; Feb. 9, 1996); Extruded Rubber

Thread from Malaysia, Final Results of Countervailing Duty

Administrative Review (60 FR 51982, 51983; October 4, 1995), in which

the Department applied its two-step test.

According to respondents, as a precondition to imposing

countervailing duties, the statute requires subsidization to occur with

respect to imports of the subject merchandise on an overall or

aggregated basis. In addition, respondents contend that the URAA

altered the assessment provision but not the requirement to determine

whether subsidies were being provided on a country-wide basis.

Department's Position: There is no legal basis to support

respondents' argument. Pursuant to the URAA, there is no longer a

preference for calculating a single country-wide subsidy rate in

countervailing duty proceedings. The URAA replaced the former practice

of calculating subsidies on a country-wide basis in favor of individual

rates for 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. See also

section 355.22 of the Interim Regulations (60 FR 25130; May 11, 1995).

Section 777A(e) requires the calculation of an individual

countervailable subsidy rate for each known producer/exporter of the

subject merchandise, except where it is not practicable to determine

individual countervailable subsidy rates because of the large number of

exporters or producers involved in the investigation or review. This

exception was inapplicable in this review as there were only five known

producers/exporters.

As a result, the judicial and administrative precedents relied upon

by respondents are inappropriate as they refer to the requirements as

they existed prior to the URAA. All of the reviews cited by respondents

were requested and initiated prior to January 1, 1995, the effective

date of the URAA. More pertinent citations would be to reviews

conducted under the URAA. See, e.g., Certain Hot-Rolled Lead and

Bismuth Carbon Steel Products From the United Kingdom; Preliminary

Results of Countervailing Duty Administrative Review (61 FR 20,238,

20,242; May 6, 1996), since that review was initiated pursuant to

requests for administrative reviews filed after January 1, 1995.

Comment 4: Respondents argue that the Department cannot countervail

[[Page 55275]]

benefits under the ECR loan program or the Pioneer Industries program

because neither involves a financial contribution by the GOM. The WTO

Subsidies Agreement defined the term ``subsidy'' as one involving a

``financial contribution,'' therefore adding a new requirement to the

pre-existing notion of a subsidy. Accordingly, a program cannot be a

countervailable subsidy unless it involves a ``financial

contribution.'' In the case of the ECR loans, they argue that there is

no financial contribution because the funds that the GOM lends to

exporters generate a profit--the funds are lent on a short-term basis

at an interest rate higher than the cost of those funds. And in the

case of the Pioneer Industries program, they argue that because the

only company claiming the tax exemption would have paid the same amount

of taxes without the exemption, the GOM did not forgo or fail to

collect any revenues as a result of the program. Respondents believe

that the Department's preliminary determination overlooks this new

requirement.

Department's Position: We disagree with respondents that the

Department overlooked the requirement of financial contribution. Under

section 771(5)(D)(i) and (ii) of the Act, a financial contribution is

defined as ``the direct transfer of funds, such as grants, loans, and

equity infusions, or the potential direct transfer of funds or

liabilities, such as loan guarantees,'' or ``foregoing or not

collecting revenue that is otherwise due, such as granting tax credits

or deductions from taxable income.'' The ECR loan and Pioneer

Industries tax programs clearly fall within these definitions. We also

note that under Article 1.1(a)(1)(i) and (ii) of the Subsidies

Agreement, a financial contribution is defined as ``where government

practice involves a direct transfer of funds (e.g., grants, loans, and

equity infusions), potential direct transfers of funds or liabilities

(e.g., loan guarantees)'' or ``government revenue that is otherwise

due, is foregone or not collected (e.g., fiscal incentives such as tax

credits).''

Respondents mistakenly focus on the ``financial contribution''

concept in terms of the cost to the Malaysian government. As explained

in the previous reviews, the Department has a longstanding practice of

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

government for the purpose of calculating countervailing duty rates.

This practice is now reflected in section 771(5)(E) of the Act, which

states that the subsidy benefit ``shall normally be treated as

conferred where there is a benefit to the recipient.'' In addition,

Article 14 of the Subsidies Agreement defines the method for

calculating the amount of a subsidy in terms of the benefit to the

recipient.

In the case of ECR loans, the funds that the GOM lends to the

exporters are lent on a short-term basis at an interest rate below the

commercial benchmark rate. In the case of the Pioneer Industries

program, a company that has received pioneer status is allowed not to

pay taxes otherwise due to the government. (Also, see Department's

Position to Comment 10 on Pioneer Status.) Therefore, under both

programs, financial contributions are provided to the recipients (the

respondents) and the Department properly treated those benefits as

countervailable subsidies.

Comment 5: Respondents contend that the Department overstated the

benefit received under the ECR program in its administrative review

because it used an inappropriate benchmark. They argue that the

Department should rely on its past practice of using the bankers'

acceptances (BA) rates because they are identical to ECR financing in

terms of risk, maturity and purpose. Respondents further contend that

the Department's use of the ``predominant source'' of financing as a

benchmark is no longer authorized. Instead, the URAA requires that the

calculation of any benefits be based upon ``the amount the recipient of

the loan pays on the loan and the amount the recipient would pay on a

comparable commercial loan'' (citing 19 U.S.C. Sec. 1677(E)(ii)). They

assert that it makes no sense to compare trade financing to other

financing such as short-term loans and overdrafts and that BAs are the

most comparable form of financing.

Department's Position: We first note that the respondents are

incorrect when they state that the Department should rely on its past

practice of using BA rates as the benchmark. In each of the prior

administrative reviews of this order, the Department has used the Base

Lending Rate (BLR) as the commercial benchmark rather than the BA rate.

However, we do agree with respondents that the benchmark should be

comparable to the government loan in question. To the extent that the

predominant source of financing is not comparable to the loans in

question or could not actually be obtained by the exporter, then we

agree that the predominant source of financing cannot be used as a

benchmark under the new statute.

In Malaysia, ECR financing was provided in two different forms: it

was provided as a line of credit based on the company's previous 12

months' export performance, and it was also provided based on the

financing of the invoice, with the interest discounted. The maximum

period for a loan based on invoice financing is 180 days. However, if

the exporter receives early payment on the sale from its customer, then

the exporter is required to repay the loan at that time rather than at

the end of 180 days. The exporter also assumes the risk for late-

payment or non-payment. With financing under the line of credit, the

exporter is charged interest based on the outstanding balance and that

interest must be paid on a monthly basis.

Based upon the information on the record, we have determined that

BAs are a comparable form of alternative short-term financing available

to respondents for post-shipment loans under the ECR program. Both BAs

and post-shipment loans are short-term borrowing instruments used in

trade financing of exports. Therefore, we have used the 1994 BA rates

and commissions provided at verification (see, Verification Report for

the Government of Malaysia, Exhibit 10) as the benchmark for ECR post-

shipment loans and have recalculated the benefit conferred by these

loans using this revised benchmark. However, we disagree that BAs are

comparable to ECR pre-shipment loans. This is because pre-shipment

financing used by the respondents is based on a line of credit, much

like a general short-term loan in the Malaysian market. We are using

the BLR because we have verified, based on meetings with commercial

banks in Malaysia, that the BLR serves as the basis for determining the

interest rates charged by commercial banks in Malaysia on short-term

loans, which would include short-term borrowing using a line of credit.

Comment 6: Respondents argue that, if the Department does not use

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

in the Bank Negara Statistical Bulletin rather than the BLR plus an

estimated spread. If the Department, nevertheless, uses this method,

then the spread should be calculated by deducting the average BLR rate

calculated by the Department from the ALR published in the Bank Negara

Statistical Bulletin.

Department's Position: We disagree with respondents. The most

appropriate benchmark for pre-shipment financing under the ECR program

is based upon the BLR. During verification of the 1992 and 1994

administrative reviews, we found that ALR rates published in the Bank

Negara Statistical Bulletin included both short-term and long-term

rates, while the BLR rates are strictly based on short-term loans. (See

Memorandum to the File from Judy

[[Page 55276]]

Kornfeld and Lorenza Olivas Regarding Extruded Rubber Thread from

Malaysia; Benchmark Information (Public Document) dated August 15,

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

099 of the Department of Commerce). Therefore, we disagree with

respondents that we should use the ALR rate because it would improperly

include long-term rates. Finally, we disagree with respondents'

argument that we should calculate the spread by deducting the average

BLR rate from the average of the ALR rates because this would again

improperly include long-term rates in the benchmark calculation and it

does not reflect the spread that the commercial banks charge above the

BLR rate on short-term loans. During verification, commercial banking

officials stated that the BLR serves as the basis for determining the

short-term interest rates charged by commercial banks in Malaysia. The

commercial bank officials also stated that banks add a 1.00 to 2.00

percent spread to the BLR. (See, Verification Report of Commercial

Bank.) Accordingly, we have determined that it is appropriate to

continue to use the average of the commercial BLR rates published in

Bank Negara Statistical Bulletin, plus an average 1.5 percent spread,

as a benchmark.

Comment 7: Respondents contend that the Department should not have

used a single annual average benchmark interest rate because it

distorts the analysis in a year characterized by steadily decreasing

interest rates. The Department previously used a semi-annual average

benchmark interest rate in the 1987 and 1988 reviews of Oil Country

Tubular Goods from Argentina; Final Results of Countervailing Duty

Administrative Reviews, 56 FR 38118 (August 12, 1991) (OCTG).

Respondents claim that because the loans in this review had a normal

maturity of 180 days and the rates were fixed at the time of the loan

initiation, they fit the same conditions as in OCTG.

Department's Position: We disagree with respondents. Our practice,

as reflected in section 355.44(b)(3)(ii) of the Proposed Regulations,

is that ``unless short-term interest rates in the country in question

have fluctuated significantly during the year in question, the

Secretary will calculate a single, annual average benchmark interest

rate.'' In the OCTG case relied upon by respondents, there was

significant hyperinflation and an average annual rate would therefore

have been distorted by the compounding of very high monthly interest

rates which varied widely from the first to the second half of the year

of review. See OCTG at 38118. Respondents have not shown any comparable

circumstances in Malaysia to warrant the use of semi-annual average

rates.

Comment 8: Respondents argue that the Department overstated the net

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

calculating eligibility for the pre-shipment export financing, the

Department failed to take account of the exclusion by Heveafil and

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

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

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

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

the Department concluded that exports to the United States did not

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

Countervailing Duty Investigation; Certain Forged Steel Crankshafts

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

Suspension Agreement). Although in the first administrative review, the

Department rejected this method of eliminating the effect of a subsidy,

respondents maintain that Heveafil and Filmax received no benefit with

regard to U.S. shipments.

Respondents further assert that the Department found a subsidy in

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

exports and the materials used in their manufacture from materials and

exports to other markets financed with ECR loans. However, according to

the respondents, the Department was presented with exactly the same

issue in Crankshafts from Brazil and in that case the Department did

not require that the exporters segregate raw materials purchased with

export financing.

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

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

the export of manufactured and approved agricultural products. Two

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

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

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

there evidence of a provision that prevents exporters from receiving

ECR loans for exports to the United States.

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

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

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

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

in specific markets. Where a benefit is not tied to a particular

product or market, it is the Department's practice to allocate the

benefit to all products exported by a firm where the benefit is

received pursuant to an export program. See 19 C.F.R. Sec. 355.47(c) of

the Proposed Regulations (54 FR 23375, May 31, 1989). Because pre-

shipment loans were not shipment-specific, we included all loans in

calculating the company-specific duty rate.

By excluding exports to the United States from their application

for export financing, the companies merely reduced the amount of

financing they received. Reducing the pool of funds available for total

export financing does not eliminate financing to any particular market

or for any particular product. Tying occurs in the provision of the

subsidy, usually through government mandate requirements or in certain

limited situations where the application for the subsidy can be

isolated to specific shipments, e.g. post-shipment loans provided on a

shipment-by-shipment basis where the company can demonstrate through

source documentation that it did not apply for or receive loans on

shipments to the U.S. See Certain Iron Metal Castings from India;

Preliminary Results of Countervailing Duty Administrative Review (61 FR

25623; May, 22 1996). Hence, the companies did not eliminate financing

for U.S. exports.

We disagree with respondents that in similar circumstances the

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

applications in the manner described by respondents eliminates any

countervailable subsidy that would otherwise be present. As stated in

the last review, respondents' reliance on the Crankshafts from Brazil

suspension agreement is misplaced. Suspension agreements are unusual,

negotiated arrangements in which parties to a proceeding agree to

renounce countervailable subsidies. As such, unlike final

determinations, they do not serve as administrative precedent.

Moreover, the Crankshafts from Brazil suspension agreement is

consistent with our allocation practice, as described in the Proposed

Regulations.

Comment 9: Respondents argue that the Department previously found

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

Rod from Malaysia; Final Results of Countervailing Duty Administrative

Review; 56 FR 14927 (April 12, 1991) (Wire Rod). Respondents assert

that it is not countervailable because tax benefits under this program

are not limited to

[[Page 55277]]

any sector or region of the Malaysian economy, nor is the program

exclusively available to exporting companies. They contend that the

Department confirmed in the first administrative review, both the de

jure and de facto availability of this program to the entire Malaysian

economy, and that the pioneer status tax benefits are not targeted to

specific industries or companies in a discriminatory manner.

Furthermore, the Department verified in the original investigation that

the internal guidelines used to grant pioneer status are characterized

by neutral criteria unrelated to exports, location or any other factors

that could require a determination that the program is countervailable.

Respondents further argue that the Department verified in the first

administrative review that the GOM does not require export commitments,

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

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

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

alone. Furthermore, respondents argue that the Department verified in

the first administrative review that the GOM commonly approves

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

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

preponderant factor, but as one of many neutral criteria.

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

previous review. In Wire Rod, we concluded that benefits were not used

by a specific industry or group of industries and that no industry or

group of industries used the program disproportionately and found the

program not to be countervailable. That determination, however, did not

specifically address situations where companies had a specific export

condition attached to their pioneer status approval. In the Wire Rod

investigation, petitioner raised the issue of an export requirement.

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

the companies investigated in Wire Rod.

In this case, recipients of the tax benefits conferred by Pioneer

Status can be divided into two categories: industries and activities

that will find market opportunities in Malaysia and elsewhere, and

those that face a saturated domestic market. At verification of the

first administrative review, we established that an export requirement

may sometimes be applied to certain industries after it is determined

that the domestic market will no longer support additional producers.

The extruded rubber thread industry is among these industries.

The combination of the necessary export orientation of the industry

due to lack of domestic market opportunities and the explicit export

condition attached to pioneer status approval in the rubber thread

industry lead us to conclude that the Pioneer Status program

constitutes an export subsidy to the rubber thread industry. Whether or

not the commitment was voluntary, as respondents suggest, the company

has obligated itself to export a very large portion of its production,

and that commitment was a condition for approval of benefits.

Comment 10: Respondents argue that the Department overstated the

benefit from the Pioneer Status program because it failed to deduct the

normal capital allowances that would have been allowed if the program

had not been used. Respondents claim that Rubfil, in fact, received no

cash benefits from this program. Furthermore, they claim, the

Department incorrectly allocated pioneer status tax benefits over only

export sales even though pioneer status tax benefits are also

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

this is inconsistent with the Department's practice to allocate

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

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

receives pioneer status, it is allowed to accumulate the normal capital

allowances for use in future years. Rubfil did not pay income taxes

during the period of review because of its pioneer status. Therefore, a

benefit has been conferred upon the company because it used its pioneer

status to offset income. Rubfil is also able to accumulate capital

allowances which can be used to offset taxable income in the future,

after its pioneer status expires. Moreover, export sales should form

the denominator because receipt of pioneer status tax benefits for the

companies under review is contingent upon exportation. Accordingly, we

have not overstated the benefit from the Pioneer Status Program. See

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

Countervailing Duty Determination; Certain Agricultural Tillage Tools

From Brazil (50 FR 34525; August 26, 1985) and Certain Iron-Metal

Castings From India; Preliminary Results of Countervailing Duty

Administrative Review (60 FR 44839; August 29, 1995).

Comment 11: In calculating the benefit involving the industrial

building allowance and double deduction for export promotion expenses,

respondents claim that the Department used a different ``total export''

figure for Heveafil and Filmax than was used for calculating the

benefit involving ECR financing. The second ``total export'' figure

appears to be the result of a clerical error.

Department's Position: We agree with respondents. The second

``total export'' figure has been corrected in the final calculation.

Final 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. For the period

January 1, 1994 through December 31, 1994, we determine the ad valorem

net subsidies to be:

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

Net subsidy

Net subsidies--producer/ exporter rate

(percent)

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

Heveafil/Filmax............................................ 0.23

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

Filati..................................................... 1.39

Rubfil..................................................... 0.38

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

We will instruct the U.S. Customs Service (``Customs'') to assess

countervailing duties as indicated above. The Department will also

instruct Customs to collect cash deposits of estimated countervailing

duties in the percentages detailed 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 producers/

exporters no countervailing duties will be assessed or cash deposits

required.

Because 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 establishing

countervailing duty rates, including those for non-reviewed companies,

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

provided for in section 777A(e)(2)(B) of the Act. The requested review

will normally cover only those companies specifically named. See

section 355.22(a) of the Interim Regulations. 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, and cash deposits

must continue to be collected, at the rate

[[Page 55278]]

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 C.F.R. Sec. 353.22(e), the antidumping regulation on

automatic assessment, which is identical to 19 C.F.R. Sec. 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 51982

(October 4, 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.

This countervailing duty order was determined to be subject to

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

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

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

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

interested parties have requested an injury investigation with respect

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

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

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

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

determination. We will not issue assessment instructions for any

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

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

administrative review.

This notice serves as a reminder to parties subject to

administrative protective order (APO) of their responsibility

concerning the disposition of proprietary information disclosed under

APO in accordance with 19 C.F.R. Sec. 355.34(d). Timely written

notification of return/destruction of APO materials or conversion to

judicial protective order is hereby requested. Failure to comply with

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

This administrative review and notice are in accordance with

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

Dated: October 9, 1996.

Robert S. LaRussa,

Acting Assistant Secretary for Import Administration.

[FR Doc. 96-27358 Filed 10-24-96; 8:45 am]

BILLING CODE 3510-DS-P