[Federal Register Volume 60, Number 192 (Wednesday, October 4, 1995)]
[Notices]
[Pages 51982-51986]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-24685]



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COMMISSION ON CIVIL RIGHTS
[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 May 22, 1995, 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, 1993 through 
December 31, 1993. We have completed this review and determine the net 
subsidy to be 1.00 percent ad valorem. We will instruct the U.S. 
Customs Service to assess countervailing duties as indicated above.

EFFECTIVE DATE: October 4, 1995.


[[Page 51983]]

FOR FURTHER INFORMATION CONTACT: Judy Kornfeld or Rick Herring, Office 
of Countervailing Compliance, Import Administration, International 
Trade Administration, U.S. Department of Commerce, 14th Street and 
Constitution Avenue, N.W., Washington, D.C. 20230; telephone: (202) 
482-2786.

SUPPLEMENTARY INFORMATION:

Background

    On May 22, 1995, the Department published in the Federal Register 
(60 FR 27080) the preliminary results of its administrative review of 
the countervailing duty order on extruded rubber thread from Malaysia. 
The Department has now completed this administrative review in 
accordance with section 751 of the Tariff Act of 1930, as amended (the 
Act).
    We invited interested parties to comment on the preliminary 
results. On June 21, 1995, a case brief was submitted by the Government 
of Malaysia (GOM) and Heveafil Sdn. Bhd., (Heveafil), Filmax Sdn. Bhd. 
(Filmax), Rubberflex Sdn. Bhd. (Rubberflex), Filati Lastex Elastofibre 
Sdn. Bhd., (Filati) and Rubfil Sdn. Bhd. (Rubfil), producers of the 
subject merchandise which exported extruded rubber thread to the United 
States during the review period (respondents). The review covers the 
period January 1, 1993 through December 31, 1993. The review involves 5 
companies and 12 programs.

Applicable Statute and Regulations

    The Department is conducting this administrative review in 
accordance with section 751(a) of the Tariff Act of 1930, as amended 
(the Act). Unless otherwise indicated, all citations to the statute and 
to the Department's regulations are in reference to the provisions as 
they existed on December 31, 1994. However, references to the 
Department's 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 Uruguay Round Agreements Act. See 
60 FR 80 (Jan. 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.

Calculation Methodology for Assessment and Cash Deposit Purposes

    We calculated the net subsidy on a country-wide basis by first 
calculating the subsidy rate for each company subject to the 
administrative review. We then weight-averaged the rate received by 
each company using as the weight its share of total Malaysian exports 
to the United States of subject merchandise, including all companies, 
even those with de minimis and zero rates. We then summed the 
individual companies' weight-averaged rates to determine the subsidy 
rate from all programs benefitting exports of subject merchandise to 
the United States.
    Since the country-wide rate calculated using this methodology was 
above de minimis, as defined by 19 CFR 355.7 (1994), we proceeded to 
the next step, and examined the net subsidy rate calculated for each 
company to determine whether individual company rates differed 
significantly from the weighted-average country-wide rate, pursuant to 
19 CFR 355.22(d)(3).
    None of the companies had net subsidy rates which were 
significantly different pursuant to 19 CFR 355.22(d)(3). Therefore, all 
companies are assigned the country-wide rate.

Analysis of Programs

    Based upon our analysis of our questionnaire and written comments 
from the interested parties we determine the following:

I. Programs Conferring Subsidies

1. Export Credit Refinancing
    In the preliminary determination we found that this program 
conferred countervailable benefits on the subject merchandise. Our 
analysis of the comments submitted by the interested parties, 
summarized below, has not led us to reconsider our findings in the 
preliminary determination. On this basis, the net subsidy for this 
program is 0.72 percent.
2. Pioneer Status
    In the preliminary determination we found that this program 
conferred countervailable benefits on the subject merchandise. Our 
analysis of the comments submitted by the interested parties, 
summarized below, has not led us to reconsider our findings in the 
preliminary determination. On this basis, the net subsidy for this 
program is 0.28 percent.

II. Programs Found Not to be Used

    In the preliminary determination, we found the following programs 
to be not used:

1. Investment Tax Allowance
2. Abatement of Five Percent of Taxable Income Due to Location in a 
Promoted Industrial Area
3. Allowance of a Percentage of Net Taxable Income Based on the F.O.B. 
Value of Export Sales
4. Double Deduction of Export Credit Insurance Payments
5. Abatement of Taxable Income of Five Percent of Adjusted Income of 
Companies Due to Capital Participation and Employment Policy Adherence
6. Preferential Financing for Bumiputras
7. Abatement of Income Tax Based on the Ratio of Export Sales to Total 
Sales
8. Industrial Building Allowance
9. Double Deduction for Export Promotion Expenses

Our analysis of the comments submitted by the interested parties, 
summarized below, has not led us to reconsider our findings in the 
preliminary determination.

III. Programs Found to be Terminated

    In the preliminary determination we found the following program to 
be terminated and not to provide any residual benefits:
     Abatement of Five Percent of the Value of Indigenous 
Malaysian Materials Used in Exports.
    Our analysis of the comments submitted by the interested parties, 
summarized below, has not led us to reconsider our findings in the 
preliminary determination.

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). 

[[Page 51984]]
(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 re-initiate under the appropriate 
provision.
    Department's Position: As the Department pointed out in the 
previous review, 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. 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.
    Comment 2: Respondents contend that the Department overstated the 
benefit received under the ECR program in its administrative review. 
They argue that the Department must use the ``cost of funds'' to the 
government as the benchmark as required by item ``k'' of the 
Illustrative List of Export Subsidies annexed to the Subsidies Code, 
and the appropriate ``cost of funds'' is the 90-day rate for government 
bonds. Respondents assert that if the Department continues to use the 
cost to the recipient as a benchmark, it should also continue its past 
practice and use 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 should interpret the 
``predominant'' form of financing as the most comparable form of 
financing. They assert that it makes no sense to compare trade 
financing to other financing such as short-term loans and overdrafts. 
Furthermore, if the Department uses the weighted-average of commercial 
rates, it should account for the differences in the terms of financing.
    Respondents further 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 the Base Lending Rate (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. As explained 
in the previous review, the Illustrative List identifies common forms 
of export subsidies but does not necessarily instruct the Department 
how to value them. 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.
    The Department's practice is to use the rate for the predominant 
form of short-term financing in the country under review as the 
benchmark for short-term loans. See, Proposed Regulations (19 CFR 
23380; May 31, 1989). Where there is no single predominant source of 
short-term financing in the country in question, the Department may use 
a benchmark composed of the interest rates for two or more sources of 
short-term financing in the country in question. See, Final Affirmative 
Countervailing Duty Determination and Countervailing Duty Order; Steel 
Wire Rope from Thailand (56 FR 46299; September 11, 1991). BAs 
constitute an extremely small percentage of short-term financing in 
Malaysia and, therefore, it would be inappropriate to use the BA rates 
as a benchmark. The Bank Negara Statistical Bulletin, provided in 
Exhibit 4 to the Government of Malaysia's Questionnaire Response dated 
November 18, 1994, lists the commercial bank BLR rates prevailing 
during the review period. The rates ranged from 8.25 percent to 9.50 
percent. According to commercial bank officials, the banks add a 1.00 
to 2.00 percent spread to the BLR. (See Memorandum to the File from 
Chris Jimenez Regarding Conversation With Bank of America Official in 
Malaysia Regarding Spread Used by Commercial Banks in 1993 dated May 
10, 1995, on file in the public file of the Central Records Unit, Room 
B-099 of the Department of Commerce).
    During verification of the 1992 administrative review, 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 Kornfeld and Lorenza Olivas Regarding Extruded Rubber Thread from 
Malaysia; Benchmark Information 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. 
Rather, 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, in accordance with section 355.44(b)(3)(i) of the 
Department's Proposed Rules. Respondents' argument, that if the 
Department, nevertheless, uses this method, it should calculate the 
spread by deducting the average BLR rate from the average of the ALR 
rates, would again improperly include long-term rates in the benchmark 
calculation.
    Comment 3: Respondents argue that the Department overstated the net 
subsidy for the review period and for the duty deposit purposes because 
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). Respondents' claim that in the first 
administrative review, the Department incorrectly rejected this method 
of eliminating the effect of a subsidy. Therefore, 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 

[[Page 51985]]
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 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. Because pre-shipment loans were not shipment-
specific, we included all loans in calculating the country-wide 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.
    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. 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. 355.47(c) of the Proposed Regulations (54 FR 23375, May 
31, 1989). A benefit is tied to a particular product or market at the 
time of receipt. Respondents cannot demonstrate that, at the time of 
receipt, ECR loans were tied solely to non-U.S. exports. Further, 
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 4: 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 (Wire Rod from Malaysia) (56 FR 14927; April 12, 1991). 
Respondents assert that it is not countervailable because tax benefits 
under this program are not limited to 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 who do not make export commitments as well as some who 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 from Malaysia, 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.
    As stated in the Final Affirmative Countervailing Duty 
Determination and Countervailing Duty Order; Extruded Rubber Thread 
from Malaysia, 57 FR 38472 (August 25, 1992) (Malaysian Final 
Determination), we continue to view the ``domestic'' side of the 
Pioneer Statue Program to be not countervailable. However, in this 
instance, recipients of the tax benefits conferred by this program 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 ``export'' side of 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. For further information, see Malaysian Final 
Determination.
    Comment 5: Respondents argue that the Department overstated the 
benefit from the Pioneer Status Program because it fails to deduct 
normal capital allowance that would have been allowed if the program 
had not been used. Respondents claim that Rubberflex, 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 consistent 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 normal capital 
allowance for use in future years. Thus, these allowances were not used 
to offset 

[[Page 51986]]
current benefits during the review period. 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; Oil Country Tubular 
Goods From Brazil (49 FR 46570; November 27, 1984) and Final 
Affirmative Countervailing Duty Determination; Certain Agricultural 
Tillage Tools From Brazil (50 FR 34525; August 26, 1985).

Final Results of Review

    For the period January 1, 1993 through December 31, 1993, we 
determine the net subsidy to be 1.00 percent ad valorem for all 
companies.
    The Department will instruct the U.S. Customs Service to assess a 
countervailing duty rate of 1.00 percent.
    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.
    Therefore, the Department will instruct the U.S. Customs Service to 
collect a cash deposit of estimated countervailing duties of 1.00 
percent of the f.o.b. invoice price on all shipments of the subject 
merchandise from Malaysia entered, or withdrawn from warehouse, for 
consumption on or after the date of publication of the final results of 
this administrative review.
    This notice also 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 CFR 355.43(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)) and 19 CFR 355.22.

    Dated: September 26, 1995.
Susan G. Esserman,
Assistant Secretary for Import Administration.
[FR Doc. 95-24685 Filed 10-3-95; 8:45 am]
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