[Federal Register Volume 59, Number 173 (Thursday, September 8, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-22176]


[[Page Unknown]]

[Federal Register: September 8, 1994]


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DEPARTMENT OF COMMERCE
[C-557-806]

 

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

AGENCY: Import Administration, International Trade Administration, 
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 the period January 1, 1992 through 
December 31, 1992. We preliminarily determine the net subsidy to be 
3.27 percent ad valorem for all manufacturers and exporters of 
Malaysian extruded rubber thread. We invite interested parties to 
comment on these preliminary results.

EFFECTIVE DATE: September 8, 1994.

FOR FURTHER INFORMATION CONTACT: Lorenza Olivas or Chris Jimenez, 
Office of Countervailing Compliance, Import Administration, 
International Trade Administration, U.S. Department of Commerce, 14th 
Street and Constitution Avenue, NW., Washington, DC 20230; telephone: 
(202) 482-2786.

SUPPLEMENTARY INFORMATION:

Background

    On August 3, 1993, the Department published in the Federal Register 
a notice of ``Opportunity to Request an Administrative Review'' (58 FR 
41239) of the countervailing duty order on extruded rubber thread from 
Malaysia (57 FR 38472; August 24, 1992). On October 29, 1993, 
respondents Heveafil Sdn. Bhd. (Heveafil), Filmax Sdn. Bhd. (Filmax), 
Rubberflex Sdn. Bhd. (Rubberflex), and Filati Lastex Elastofibre Sdn. 
Bhd. (Filati), requested an administrative review of the order. We 
initiated the review for the period January 1, 1992 through December 
31, 1992, on September 30, 1993 (58 FR 51053). The Department is now 
conducting this review in accordance with section 751 of the Tariff Act 
of 1930, as amended (the Act).

Scope of 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 
rubber 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 remains dispositive.
    The period of review is January 1, 1992 through December 31, 1992. 
This review covers four companies and 13 programs. Two related 
companies participated in the review.

Calculation Methodology for Assessment and Deposit Purposes

    We calculated the benefits pursuant to section 355.51 of the 
Department's Proposed Substantive Countervailing Duty Regulations 
(Proposed Regulations) (54 FR 23366; May 31, 1989). First, we 
calculated a country-wide rate, weight-averaging the benefits received 
by the four companies subject to review to determine the overall 
subsidy from all countervailing programs benefitting exports of subject 
merchandise to the United States. Because the country-wide rate was 
above de minimis, as defined by 19 CFR 355.7 (1993), we proceeded to 
the next step in our analysis and examined the ad valorem rate we 
calculated for each company for all countervailable programs to 
determine whether individual company rates differed significantly from 
the weighted-average country-wide rate. In calculating the individual 
company rates described above, only one rate was calculated for 
Heveafil and Filmax because Heveafil and Filmax are related parties.
    None of the companies received aggregate benefits which were 
significantly different within the meaning of 19 CFR 355.22(d)(3)(i). 
Therefore, the country-wide rate is based on the weight-averaged 
aggregate benefits received by the companies subject to this review.

Analysis of Programs

1. 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 of 1958. This ordinance was replaced by the Investment 
Incentives Act (IIA) of 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 status 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, the 
development tax, and the dividend tax for a period of five years, with 
the possibility of an extension for an additional five years. The five-
year extension, however, was abolished effective October 1, 1991. 
Furthermore, the computation of capital allowances, which are normally 
deducted against the adjusted income, are postponed to the post-tax 
holiday period.
    In evaluating a project for pioneer status, the Malaysian 
Industrial Development Authority (MIDA) will generally consider 
whether:
    (1) The product is being produced on a commercial scale suitable to 
the economic requirements or development of the country,
    (2) There are prospects for further development, and
    (3) The product or activity meets the national and strategic 
requirements of Malaysia.
    Specifically, MIDA officials consider 12 essential criteria to 
evaluate whether a particular company should receive pioneer status. 
Two of these 12 criteria address the export potential of the proposed 
product or activity: (1) The government considers if the applicant has 
made a case for export markets to absorb the excess above the existing 
demand and (2) the government considers whether the project saves 
foreign exchange through substitution of imports and, alternatively, 
whether it earns considerable foreign exchange by exporting a 
substantial part of its output. The other 10 criteria address domestic 
factors and are, therefore, export ``neutral''.
    Only in cases where the export criteria carry predominant weight is 
the program countervailable. Where pioneer status is conferred on a 
company because it has been determined that the domestic market is 
saturated and will no longer support additional producers and because 
that company agrees to export a certain percentage of its production, 
the program conveys an export subsidy, regardless of the other 
``neutral'' criteria the company is required to meet. This is because 
the company is clearly being approved due to the fact it will export 
and because receipt of benefits becomes contingent on export 
performance. In the 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, 
we determined that pioneer status was granted to Rubberflex based on 
its obligation to export. Therefore, the Department found the program 
to be countervailable with respect to that company. Rubberflex 
continues to hold pioneer status.
    In this review, we reviewed the pioneer status of Filati and Filmax 
to determine whether the program is also countervailable with respect 
to those two companies. (Heveafil's pioneer status expired.) We 
verified that both of those companies were granted pioneer status based 
on a commitment that they would export a majority of their production. 
Therefore, we preliminarily find this program also countervailable with 
respect to Filati and Filmax.
    To determine the benefit, we calculated the tax savings from this 
program during the review period and divided that by total exports. On 
this basis, we preliminarily determine the net subsidy from this 
program to be 2.05 percent ad valorem for all manufacturers and 
exporters in Malaysia of extruded rubber thread.

2. 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 pre-shipment and post-shipment financing. Pre-
shipment financing is a line of credit based on the previous 12 months' 
export performance, and cannot be tied to specific sales in specific 
markets. Post-shipment financing is order-based which is provided for 
specific sales to specific markets.
    The Department determined that this program was countervailable in 
the Malaysian Rubber Thread Final Determination because receipt of 
loans under this program was contingent upon export performance, and 
the loans were provided at preferential interest rates. We verified 
that all four companies used both pre-shipment and post-shipment ECR 
loans.
    In order to determine whether these loans were provided at 
preferential rates, we compared the interest rate charged to a 
benchmark interest rate. It is our practice to select the predominant 
source of short-term financing in the country as our benchmark for 
short-term loans. See Sec. 355.44(b)(3) of the Proposed Regulations.
    In Malaysia, overdrafts and term loans offered by commercial banks 
are the predominant form of short-term financing. The average interest 
rates for these types of financing, however, are not individually 
available. Therefore, we have used as our benchmark for ECR loans the 
average commercial bank lending rate as an estimate of these 
predominant short-term lending rates.
    Because the pre-shipment loans were not shipment-specific, we 
included all loans on which interest was paid during the review period 
in our calculations. Because the post-shipment ECR loans were shipment-
specific, we included in our calculations only those loans used to 
finance exports of extruded rubber thread to the United States.
    We calculated the benefit by comparing the amount of interest 
actually paid on the pre- and post-shipment loans during the review 
period with the amount that would have been paid at the benchmark rate 
of 10.83 percent. The difference between those amounts is the benefit. 
We then divided each company's interest savings by that company's total 
exports, in the case of pre-shipment loans, because they applied to all 
exports, or by its exports to the United States, in the case of post-
shipment loans, because they applied to specific shipments to the 
United States. On this basis, we preliminarily determine the net 
subsidy for pre-shipment loans to be 0.33 percent for all manufacturers 
or exporters. For post-shipment loans, we preliminarily determine the 
rate to be 0.30 percent for all manufacturers and exporters in Malaysia 
of extruded rubber thread.

3. Abatement of Income Tax Based on the Ratio of Export Sales to Total 
Sales

    The IIA provided for an abatement of income tax based on the ratio 
of export sales to total sales. This law was repealed effective January 
1, 1986, and replaced by the PIA. Among other incentives, the new law 
also provides an abatement of income tax based on export performance. 
Specifically, a portion of income, equal to 50 percent of the ratio of 
export sales to total sales, is exempt from income tax. This program is 
not available to companies still participating in programs under the 
repealed IIA or to companies granted pioneer status or an investment 
tax allowance under the PIA. Because this program is limited to 
exporters, we determined this program to be countervailable in the 
Malaysian Rubber Thread Final Determination.
    We verified that only Heveafil claimed this tax abatement on its 
income tax return filed during the review period. Heveafil contends 
that this tax abatement did not benefit exports of the subject 
merchandise to the United States. This contention is based on the fact 
that the company did not include U.S. sales in the calculation of the 
ratio used to determine the amount of the tax abatement.
    The amount of the tax abatement is calculated using a ratio of 
total exports divided by total sales. This ratio is then multiplied by 
total adjusted income to calculate the claimed tax abatement. In 
calculating this ratio, Heveafil deducted the amount of U.S. exports 
from both the numerator and denominator, i.e., from both total exports 
and total sales. Therefore, in the company's calculation there was no 
significant change in the calculated ratio which was applied to the 
adjusted income. Thus, the calculation methodology used by Heveafil in 
its tax return did not eliminate the benefit attributable to sales of 
U.S. exports conferred from the use of this program. Therefore, we 
preliminarily determine that this program provides a countervailable 
benefit with respect to exports of the subject merchandise.
    To calculate the benefit, we calculated the tax savings from this 
program during the review period and divided that by total exports, 
because these benefits applied to all exports. On this basis, we 
preliminarily determine the net subsidy from this program to be 0.38 
percent ad valorem for all manufacturers and exporters in Malaysia of 
extruded rubber thread.

4. Abatement of Five Percent of the Value of Indigenous Malaysian 
Materials Used in Exports

    In addition to the income tax abatement based on exports which is 
discussed above, the PIA provides for an abatement of income tax in the 
amount of five percent of the ratio of export sales to total sales 
times the value of indigenous Malaysian materials used in the 
manufacture of exported products. This program is not available to 
companies still participating in programs under the repealed IIA or to 
companies granted pioneer status or an investment tax allowance under 
the PIA. We found this program countervailable in the Malaysian Rubber 
Thread Final Determination because use of this program is contingent 
upon export performance.
    We verified that only Heveafil claimed this tax abatement on its 
income tax return filed during the review period. Heveafil contends 
that this tax abatement did not benefit exports of the subject 
merchandise to the United States. This contention is based on the fact 
that the company did not include U.S. sales in the calculation of the 
ratio used to determine the amount of the tax abatement.
    The amount of the tax abatement is calculated using a ratio of 
total exports divided by total sales. This ratio is then multiplied by 
five percent of the value of indigenous materials to calculate the 
claimed tax abatement. In calculating this ratio, Heveafil deducted the 
amount of U.S. exports from both the numerator and denominator, i.e., 
from both total exports and total sales. Therefore, in the company's 
calculation there was no significant change in calculated ratio which 
was applied to the value of indigenous materials to determine the 
amount of the tax abatement. Thus, the calculation methodology used by 
Heveafil in its tax return did not eliminate the benefit attributable 
to sales of U.S. exports conferred from the use of this program. 
Therefore, we preliminarily determine that this program provides a 
countervailable benefit with respect to exports of the subject 
merchandise.
    To calculate the benefit, we calculated the tax savings from this 
program during the review period and divided that by total exports, 
because these benefits applied to all exports. On this basis, we 
preliminarily determine the net subsidy from this program to be 0.12 
percent ad valorem for all manufacturers and exporters in Malaysia of 
extruded rubber thread.

5. 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 tax 
allowance and an additional 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.
    We verified that Heveafil used this program during the review 
period. To calculate the benefit, we calculated the tax savings from 
this program during the review period for Heveafil and divided the 
savings amount by total exports, because these benefits applied to all 
exports. On this basis, we preliminarily determine the net subsidy from 
this program to be less than 0.005 percent ad valorem for all 
manufacturers and exporters in Malaysia of extruded rubber thread.

6. 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. Because this program is limited to 
exporters, we found this program countervailable in the Malaysian 
Rubber Thread Final Determination. We verified that Heveafil and Filmax 
used this program during the review period.
    To calculate the benefit, we calculated the tax savings from this 
program during the review period for each company and divided that by 
total exports, because these benefits applied to all exports. On this 
basis, we preliminarily determine the net subsidy from this program to 
be 0.09 percent ad valorem for all manufacturers and exporters in 
Malaysia of extruded rubber thread.

7. Rubber Discount Scheme

    We verified that this program was terminated effective January 1, 
1992, and that the last date exports were eligible for rebates under 
this program was December 31, 1991. In the Malaysian Rubber Thread 
Final Determination, we determined that benefits from this program were 
conferred when the product was exported. Therefore, we preliminarily 
determine that this program is terminated and provides no residual 
benefit.

Other Programs

    We preliminarily determine that the exporters of extruded rubber 
thread did not use the programs listed below with respect to exports of 
the subject merchandise to the United States during the review period:
     Investment Tax Allowance.
     Abatement of Five Percent of Taxable Income Due to 
Location in a Promoted Industrial Area.
     Allowance of a Percentage of Net Taxable Income Based on 
the F.O.B. Value of Export Sales.
     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.
     Preferential Financing for Bumiputras.

Preliminary Results of Review

    We preliminarily determine the net subsidy for the period January 
1, 1992 through December 31, 1992, to be 3.27 percent.
    If the final results of this review remain the same as these 
preliminary results, the Department intends to instruct the Customs 
Service to assess countervailing duties at 3.27 percent of the f.o.b. 
invoice price on shipments of the subject merchandise exported on or 
after April 1, 1992, and on or before December 31, 1992.
    Pursuant to the International Trade Commission's termination of its 
injury determination on Malaysian extruded rubber thread in light of 
the revocation of duty free status under the Generalized System of 
Preferences, effective March 31, 1992, the Department previously issued 
instructions to Customs to liquidate entries of the subject merchandise 
entered, or withdrawn from warehouse, for consumption prior to March 
31, 1992. Therefore, those entries are not subject to assessment of 
countervailing duties (See Amended Final Affirmative Countervailing 
Duty Determination and Countervailing Duty Order; Extruded Rubber 
Thread from Malaysia (58 FR 41084; August 2, 1993)).
    The Department also intends to instruct the Customs Service to 
collect a cash deposit of 3.27 percent on all shipments of the subject 
merchandise entered, or withdrawn from warehouse, for consumption on or 
after the date of publication of the final results of this 
administrative review.
    Parties to this proceeding may request disclosure of the 
calculation methodology and interested parties may request a hearing 
not later than 10 days after date of publication of this notice. In 
accordance with 19 CFR 355.38(c)(1)(ii), 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. Any hearing, if requested, will be held 
seven days after the scheduled date for submission of rebuttal briefs. 
Copies of case briefs and rebuttal briefs must be served on interested 
parties in accordance with 19 CFR 355.38(e).
    Representatives of parties to the proceeding may request disclosure 
of proprietary information under administrative protective order up 
until 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 are due under 19 CFR 355.38(c).
    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 briefs.
    This administrative review and notice are in accordance with 
section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)) and 19 CFR 355.22.

    Dated: August 30, 1994.
Joseph A. Spetrini,
Acting Assistant Secretary for Import Administration.
[FR Doc. 94-22176 Filed 9-7-94; 8:45 am]
BILLING CODE 3510-DS-M