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

DEPARTMENT OF COMMERCE

International Trade Administration

[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 for all non-reviewed companies, 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 (``Customs'') to

collect cash deposits of countervailing duties as detailed in the

Preliminary Results of Review section of this notice. Interested

parties are invited to comment on these preliminary results. (See

Public Comment section of this notice.)

EFFECTIVE DATE: May 13, 1997.

FOR FURTHER INFORMATION CONTACT: Judy Kornfeld or Richard Herring,

Office of CVD/AD Enforcement VI, Import Administration, International

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

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

482-3146 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 12, 1996, the Department published a

notice of ``Opportunity to Request Administrative Review'' (61 FR

41768) of this countervailing duty order. We received a timely request

for review, and we

[[Page 26290]]

initiated the review, covering the period January 1, 1995 through

December 31, 1995, on September 17, 1996 (61 FR 48882).

In accordance with 19 C.F.R. 355.22(a), this review covers only

those producers or exporters of the subject merchandise for which a

review was specifically requested. 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 parties. (See Affiliated Parties section

below.) This review also covers 13 programs.

Applicable Statute

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.

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

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 and, consistent with prior

reviews of this order, we have calculated a single rate applicable to

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

Final Results of Countervailing Duty Administrative Review (61 FR

55272; October 25, 1996) (Malaysian Rubber Thread 1994 Review). For

further information, see Memorandum to File from Judy Kornfeld

Regarding Status as Affiliated Parties dated March 28, 1997, 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 an export subsidy

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. No new information or evidence of changed circumstances

has been submitted in this proceeding to warrant reconsideration of

this finding. During the period of review (POR), Heveafil, Filmax,

Rubberflex and Rubfil used ECR pre-shipment loans; Rubfil and Filati

used ECR post-shipment loans.

Section 771(5)(E)(ii) of the Act states that, in the case of a

loan, if there is a difference between the amount the recipient of the

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

comparable commercial loan that the recipient could actually obtain on

the market, then a countervailable benefit is bestowed. In this case,

as the benchmark interest rates, we are using company-specific interest

rates on comparable commercial loans to determine whether there is a

benefit from the ECR pre-shipment and post-shipment loans.

With respect to ECR post-shipment loans, we preliminarily determine

that Banker's Acceptances (BAs) are a comparable form of alternative

short-term commercial financing because both BAs and ECR post-shipment

loans are short-term borrowing instruments used to finance specified

export shipments. Therefore, as the benchmark for ECR post-shipment

loans to Filati and Rubfil, we used each company's average effective BA

rate, inclusive of the cost of commissions for the BA, for all BA loans

taken out during the POR.

BAs, however, are not comparable to ECR pre-shipment loans. The ECR

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

determined in the Malaysian Rubber Thread 1994 Review that term loans

and overdrafts offered by commercial banks are comparable forms of

short-term financing in Malaysia. During the POR, respondents used

revolving lines of credit and overdrafts for short-term commercial

financing. Therefore, we have used as our benchmark for ECR pre-

shipment loans that were taken out by Heveafil, Filmax, Rubfil or

Rubberflex, the average of the commercial bank lending rates charged to

each company during the POR for revolving lines of credit and

overdrafts.

Using these benchmarks, we continue to find these loans

countervailable (except for the ECR post-shipment loans received by

Rubfil because the interest rate charged is equal to or greater than

the benchmark rate) because the interest rate charged is less than the

rate for comparable commercial loans that the company could actually

obtain in the market. To calculate the benefit from ECR loans on which

interest was paid in 1995, we used our short-term loan methodology

which has been applied consistently in previous determinations. (See,

e.g., Certain Iron-Metal Castings from India; Preliminary Results of

Countervailing Duty Administrative Review (61 FR 64669; December 6,

1996). Because the ECR post-shipment loans are shipment-specific, we

included in our calculations only those loans approved to finance or

taken out to finance export shipments of extruded rubber thread to the

United States. Because the pre-shipment loans are not tied to specific

shipments, we included all loans on which interest was paid during the

POR.

To determine the benefit, we compared the amount of interest

actually paid on these loans during the POR with the amount that would

have been paid at each benchmark rate for pre-shipment financing and

post-shipment financing. 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

[[Page 26291]]

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 subsidy from pre-shipment loans to be the

following for each of the reviewed companies:

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

Subsidy

Net subsidies--producer/exporter rate

(percent)

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

Heveafil/Filmax.............................................. 0.15

Rubberflex................................................... .30

Filati....................................................... .00

Rubfil....................................................... .03

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

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

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

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

Subsidy

Net subsidies--producer/exporter rate

(percent)

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

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

Rubberflex................................................... .00

Filati....................................................... .15

Rubfil....................................................... .00

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

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.

Further, 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 that

the program constitutes an export subsidy with respect to that company.

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

status of Filati, Filmax and Rubfil and found the program

countervailable with respect to all of these companies because pioneer

status was granted to each based on a commitment that they would export

a majority of their production. See Extruded Rubber Thread from

Malaysia; Final Results of Countervailing Duty Administrative Review

(60 FR 17515; April 6, 1995). See also Malaysian Rubber Thread 1994

Review. No new information or evidence of changed circumstances has

been submitted in this proceeding to warrant reconsideration of these

findings. Rubberflex, Filati, Filmax and Rubfil continued to hold

pioneer status during the POR, but only Rubberflex and Filmax claimed

pioneer income on the income tax return filed during the POR. Filati

did not file a tax return during the POR and Rubfil reported a loss on

the tax return filed during the POR. Therefore, these two companies did

not use this program.

To calculate the benefit to Rubberflex and Filmax, we calculated

the amount of tax that would have been paid absent the program and

compared that to the amount of tax actually paid. The difference equals

the tax savings received by each company. Dividing the tax savings by

total exports, we preliminarily determine the ad valorem subsidy from

this program to be the following for each of the reviewed companies:

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

Subsidy

Net subsidies--producer/exporter rate

(percent)

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

Heveafil/Filmax.............................................. 0.74

Rubberflex................................................... .77

Filati....................................................... .00

Rubfil....................................................... .00

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

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 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 claimed allowances under this program on the tax return

filed during the POR. To determine the benefit, we calculated 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 subsidy from this program to be the following

for each of the reviewed companies:

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

Net subsidies--producer/exporter Subsidy rate (percent)

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

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 claimed deductions under this program on the tax return

filed during the POR. To determine the benefit, we calculated the tax

savings

[[Page 26292]]

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 subsidy from this program to be the following

for each of the reviewed companies:

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

Subsidy

Net subsidies--producer/exporter rate

(percent)

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

Heveafil/Filmax.............................................. 0.01

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

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

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

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

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:

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, and

Preferential Financing for Bumiputras.

Preliminary Results of Review

In accordance with 19 C.F.R. Sec. 355.22(c)(4)(ii), we calculated

an individual subsidy rate for each producer/exporter subject to this

administrative review. For the period January 1, 1995 through December

31, 1995, we preliminarily determine the subsidy for the following

companies to be:

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

Net

subsidy

Net subsidies--producer/exporter rate

(percent)

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

Heveafil/Filmax.............................................. 0.90

Rubberflex................................................... 1.07

Rubfil....................................................... 0.03

Filati....................................................... 0.15

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

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

preliminary results, the Department intends to instruct Customs to

collect cash deposits as indicated above.

This countervailing duty order was determined to be subject to

section 753 of the Act. 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 (WTO), is suspended until

the ITC issues a final injury determination. Therefore, we will not

issue assessment instructions for any entries made on or after January

1, 1995; however, we will instruct Customs to collect cash deposits in

accordance with the final results of this administrative 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 with de minimis rates, no cash deposits will be 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 19

C.F.R. Sec. 355.22(a). 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 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. However, as noted above, pursuant to section

753(a)(4), we will not issue assessment instructions for these

unreviewed companies, unless and until the ITC issues a final injury

determination.

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: May 5, 1997.

Robert S. LaRussa,

Acting Assistant Secretary for Import Administration.

[FR Doc. 97-12509 Filed 5-12-97; 8:45 am]

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