[Federal Register Volume 61, Number 113 (Tuesday, June 11, 1996)]
[Notices]
[Pages 29534-29538]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-14741]



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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, 
Department of Commerce.

ACTION: Notice of preliminary results of countervailing duty 
administrative review.

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

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 as for all non-reviewed companies, 
please see the Preliminary Results of Review section of this notice. If 
the final results remain the same as these preliminary results of 
administrative review, we will instruct the U.S. Customs Service to 
assess countervailing duties as indicated in the Preliminary Results of 
Review section of this notice. Interested parties are invited to 
comment on these preliminary results.

EFFECTIVE DATE: June 11, 1996.

FOR FURTHER INFORMATION CONTACT: Judy Kornfeld or Lorenza Olivas, 
Office of Countervailing Compliance, Import Administration, 
International Trade Administration, U.S. Department of Commerce, 14th 
Street and Constitution Avenue, NW., Washington, DC 20230; telephone: 
Judy Kornfeld (202) 482-3146, Lorenza Olivas (202) 482-1785 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 1, 1995, the Department published a 
notice of ``Opportunity to Request an Administrative Review'' (60 FR 
39150) of this countervailing duty order. We received a timely request 
for review, and we initiated the review, covering

[[Page 29535]]

the period January 1, 1994 through December 31, 1994, on September 15, 
1995 (60 FR 47930).
    In accordance with section 355.22 of the Department's Interim 
Regulations, this review covers only those producers or exporters of 
the subject merchandise for which a review was specifically requested 
(see Antidumping and Countervailing Duties: Interim Regulations; 
Request for Comments, 60 FR 25130 (May 11, 1995) (Interim Regulations). 
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 companies. This 
review also covers 13 programs.
    On May 8, 1996 we extended the period for completion of the 
preliminary and final results pursuant to section 751(a)(3) of the 
Tariff Act of 1930, as amended (see, Extruded Rubber Thread From 
Malaysia; Extension of Time Limit for Countervailing Duty 
Administrative Review, 61 FR 20803). As explained in the memoranda from 
the Assistant Secretary for Import Administration dated November 22, 
1995, and January 11, 1996 (on file in the public file of the Central 
Records Unit, Room B-099 of the Department of Commerce), all deadlines 
were further extended to take into account the partial shutdowns of the 
Federal Government from November 15 through November 21, 1995, and 
December 15, 1995, through January 6, 1996. The deadline for the final 
results of this review is no later than 120 days from the date on which 
these preliminary results are published in the Federal Register.

Applicable Statute and Regulations

    Unless otherwise indicated, all citations to the statute are 
references to the provisions of the Tariff Act of 1930, as amended by 
the Uruguay Round Agreements Act (URAA) effective January 1, 1995 (the 
Act). The Department is conducting this administrative review in 
accordance with section 751(a) of the Act. 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.

Verification

    As provided in section 782(i) of the Act, we verified information 
submitted by the Government of Malaysia and Heveafil, Filmax, 
Rubberflex, Filati and Rubfil. We followed standard verification 
procedures, including meeting with government and company officials and 
examination of relevant accounting and financial records and other 
original source documents. Our verification results are outlined in the 
public versions of the verification reports, which are on file in the 
Central Records Unit (Room B-099 of the Main Commerce Building).

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. 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.

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 countervailable 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 and 
the loans were provided at preferential interest rates. No new 
information or evidence of changed circumstances has been submitted in 
this proceeding to warrant reconsideration of this finding. Heveafil, 
Filmax, Rubberflex and Rubfil used pre-shipment ECR loans. Rubfil and 
Filati used post-shipment ECR loans.
    In order to determine whether these loans were provided at 
preferential rates during the review period, we compared the interest 
rate charged on these loans to a benchmark interest rate. As a 
benchmark for short-term loans, it is our practice to select the 
predominant source of short-term financing in the country as our 
benchmark for short-term loans. See, section 355.44(b)(3) of the 
Department's Proposed Regulations. In Malaysia, term loans and 
overdrafts offered by commercial banks are the most 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

[[Page 29536]]

predominant short-term lending rates. This rate is referred to by banks 
as the base lending rate (BLR). Commercial banks then add a one to two 
percent spread to the BLR. Thus, to determine the commercial benchmark, 
we used the average commercial BLR rates as published by Bank Negara, 
the central bank of Malaysia, plus an average spread of 1.5 percent. 
This is consistent with the benchmark methodology used in the last two 
administrative reviews. (See, e.g., Extruded Rubber Thread from 
Malaysia; Final Results of Countervailing Duty Administrative Review) 
(Final Results of 1992 Review) (60 FR 17515; April 6, 1995).
    Based on a comparison of the ECR rates and the benchmark rate, we 
find that ECR loans continue to be provided at preferential interest 
rates. To calculate the benefit from ECR loans on which interest was 
paid in 1994, we used our short-term loan methodology which has been 
applied consistently in previous determinations. (See, e.g., Final 
Affirmative Countervailing Duty Determination and Countervailing Duty 
Order: Butt-Weld Pipe Fittings from Thailand (55 FR 1695; January 18, 
1990); and the Malaysian Rubber Thread Final Determination in this case 
(57 FR 38474; August 27, 1992). See also section 355.44(b)(3) of the 
Proposed Regulations. 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. 
Because the pre-shipment loans were not shipment-specific, we included 
all loans on which interest was paid during the review period.
    To calculate the benefit, we compared the amount of interest 
actually paid on these loans during the review period with the amount 
that would have been paid at the benchmark rate of 8.98 percent. 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 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 net subsidy from pre-
shipment loans to be the following for each of the reviewed companies:

------------------------------------------------------------------------
                                                             Net subsidy
              Net subsidies--producer/exporter                  rate %  
------------------------------------------------------------------------
Heveafil/Filmax............................................         0.22
Rubberflex.................................................         0.19
Filati.....................................................         0.00
Rubfil.....................................................         0.15
------------------------------------------------------------------------

    For post-shipment loans, we preliminarily determine the ad valorem 
net subsidy to be the following for each of the reviewed companies:

------------------------------------------------------------------------
                                                             Net subsidy
              Net subsidies--producer/exporter                  rate %  
------------------------------------------------------------------------
Heveafil/Filmax............................................         0.00
Rubberflex.................................................         0.00
Filati.....................................................         2.59
Rubfil.....................................................         0.23
------------------------------------------------------------------------

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. 
Furthermore, 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 the 
program to constitute an export subsidy with respect to that company. 
In addition, in past administrative reviews, we reviewed the pioneer 
status of Filati and Filmax and found the program countervailable with 
respect to both of these companies because pioneer status was granted 
to each based on a commitment that they would export a majority of 
their production. (See Final Results of 1992 Review.) No new 
information or evidence of changed circumstances has been submitted in 
this proceeding to warrant reconsideration of these findings. 
Rubberflex, Filati and Filmax continued to hold pioneer status during 
the review period. However, no benefits were provided to any of these 
companies because either the company (1) did not file a tax return, or 
(2) had a tax loss during this review period.
    Rubfil was the only company to claim the tax exemption under 
pioneer status during the review period. However, in the original 
investigation and in prior administrative reviews of this order, Rubfil 
either did not use this program or did not participate in the review. 
Therefore, a determination as to the countervailability of this program 
with respect to Rubfil has not been made.
    During verification of this review we examined the application 
process which led to the granting of Rubfil's pioneer status. We 
verified that in its pioneer agreement, Rubfil committed to export a 
majority of its production. Therefore, since pioneer status was 
conferred upon Rubfil contingent upon its export commitment, we 
determine this program constitutes an export subsidy with respect to 
that company.
    To calculate the benefit, we determined the tax savings from this 
program during the review period and divided those savings by total 
exports. On this basis, we preliminarily determine the ad valorem net 
subsidy from this program to be the following for each of the reviewed 
companies:

------------------------------------------------------------------------
                                                             Net subsidy
              Net subsidies--producer/exporter                  rate %  
------------------------------------------------------------------------
Heveafil/Filmax............................................         0.00
Rubberflex.................................................         0.00
Filati.....................................................         0.00
Rubfil.....................................................         0.15
------------------------------------------------------------------------

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

[[Page 29537]]

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 used this program during the review period. To calculate 
the benefit, we determined 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 net subsidy 
from this program to be the following for each of the reviewed 
companies:

------------------------------------------------------------------------
                                                             Net subsidy
              Net subsidies--producer/exporter                  rate %  
------------------------------------------------------------------------
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 used this program during the review period. To calculate 
the benefit, we calculated the tax savings 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 net subsidy 
from this program to be the following for each of the reviewed 
companies:

------------------------------------------------------------------------
                                                             Net subsidy
              Net subsidies--producer/exporter                  rate %  
------------------------------------------------------------------------
Heveafil/Filmax............................................         0.02
Rubberflex.................................................         0.00
Filati.....................................................         0.00
Rubfil.....................................................         0.00
------------------------------------------------------------------------

II. Programs Preliminarily Determined to be Not Used

    We examined the following programs and preliminarily find that the 
producers and/or exporters subject to review 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,
     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.

Preliminary Results of Review

    In accordance with section 355.22(c)(4)(ii) of the Department's 
Interim Regulations, we have 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 preliminarily 
determine the ad valorem net subsidies to be as follows:

------------------------------------------------------------------------
                                                             Net subsidy
              Net subsidies--producer/exporter                  Rate %  
------------------------------------------------------------------------
Heveafil/Filmax............................................         0.24
Rubberflex.................................................         0.19
Filati.....................................................         2.58
Rubfil.....................................................         0.52
------------------------------------------------------------------------

    If the final results of this review remain the same as these 
preliminary results, the Department intends to instruct the U.S. 
Customs Service to assess countervailing duties as indicated above. The 
Department also intends to instruct the U.S. Customs Service to collect 
cash deposits of estimated countervailing duties as indicated 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 companies no countervailing duties will be assessed or cash 
deposits required.
    The URAA replaced the general rule in favor of a country-wide rate 
with a general rule in favor of individual rates for investigated and 
reviewed companies. The procedures for countervailing duty cases are 
now essentially the same as those in antidumping cases, except as 
provided for in section 777(e)(2)(B) of the Act. Requests for 
administrative reviews must now specify the companies to be reviewed. 
See Sec. 355.22(a) of the Interim Regulations. The requested review 
will normally cover only those companies specifically named. Pursuant 
to 19 CFR 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 
CFR 353.22(e), the antidumping regulation on automatic assessment, 
which is identical to 19 CFR 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 
17515; April 6, 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.

[[Page 29538]]

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 CFR 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 CFR 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 29, 1996.
Paul L. Joffe,
Acting Assistant Secretary for Import Administration.
[FR Doc. 96-14741 Filed 6-10-96; 8:45 am]
BILLING CODE 3510-DS-P