[Federal Register Volume 61, Number 208 (Friday, October 25, 1996)]
[Notices]
[Pages 55272-55278]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-27358]


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

DEPARTMENT OF COMMERCE
[C-557-806]


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

AGENCY: Import Administration, International Trade Administration, 
Department of Commerce.

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

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

SUMMARY: On June 11, 1996, the Department of Commerce (``the 
Department'' published in the Federal Register its preliminary results 
of administrative review of the countervailing duty order on extruded 
rubber thread from Malaysia for the period January 1, 1994 through 
December 31, 1994 (61 FR 29534). The Department has now completed this 
administrative review in accordance with section 751(a) of the Tariff 
Act of 1930, as amended. For information on the net subsidy for each 
reviewed company, and for all non-reviewed companies, please see the 
Final Results of Review section of this notice. We will instruct the 
U.S. Customs Service to assess countervailing duties as detailed in the 
Final Results of Review section of this notice.

EFFECTIVE DATE: October 25, 1996.

FOR FURTHER INFORMATION CONTACT: Judy Kornfeld, Office of CVD/AD 
Enforcement VI, Import Administration, International Trade 
Administration, U.S. Department of Commerce, 14th Street and 
Constitution Ave., N.W., Washington, D.C. 20230; telephone: (202) 482-
2786.

SUPPLEMENTARY INFORMATION:

Background

    Pursuant to section 355.22(a) of the Department's Interim 
Regulations, this review covers only those producers or exporters of 
the subject merchandise for which a review was specifically requested. 
See Antidumping and Countervailing Duties: Interim Regulations; request 
for comments, 60 FR 25130, 25139 (May 11, 1995) (``Interim 
Regulations''). Accordingly, this review covers Heveafil Sdn. Bhd., 
Filmax Sdn. Bhd., Rubberflex Sdn. Bhd., Filati Elastofibre Sdn. Bhd. 
(Filati), and Rubfil Sdn. Bhd. Heveafil and Filmax are affiliated 
companies. This review also covers the period from January 1, 1994 to 
December 31, 1994 and 13 programs.
    Since the publication of the preliminary results on June 11, 1996 
(61 FR 29534), the following events have occurred: We invited 
interested parties to comment on the preliminary results. On July 11, 
1996, case briefs were submitted by the Government of Malaysia (GOM) 
and Heveafil, Filmax, Rubberflex, Filati and Rubfil, producers of the 
subject merchandise which exported extruded rubber thread to the United 
States during the review period (respondents).

Applicable Statute and Regulations

    Unless otherwise indicated, all citations to the statute are 
references to the provisions of the Tariff Act of 1930, as amended by 
the Uruguay Round Agreements Act (``URAA'') effective January 1, 1995 
(``the Act''). References to the Countervailing Duties; Notice of 
Proposed Rulemaking and Request for Public Comments, 54 FR 23366 (May 
31, 1989) (``Proposed Regulations''), are provided solely for further 
explanation of the Department's countervailing duty practice. Although 
the Department has withdrawn the particular rulemaking proceeding 
pursuant to which the Proposed Regulations were issued, the subject 
matter of these regulations is being considered in connection with an 
ongoing rulemaking proceeding which, among other things, is intended to 
conform the Department's regulations to the URAA. See Advance Notice of 
Proposed Rulemaking and Request for Public Comments, 60 FR 80 (January 
3, 1995).

Scope of the Review

    Imports covered by this review are shipments of extruded rubber 
thread from Malaysia. Extruded rubber thread is defined as vulcanized 
rubber thread obtained by extrusion of stable or concentrated natural 
latex of any cross sectional shape; measuring from 0.18 mm, which is 
0.007 inch or 140 gauge, to 1.42 mm, which is 0.056 inch or 18 gauge, 
in diameter. Such merchandise is classifiable under item number 
4007.00.00 of the Harmonized Tariff Schedule (HTS). The HTS item number 
is provided for convenience and Customs purposes. The written 
description is dispositive.

Affiliated Parties or Trading Companies

    Heveafil owns and controls Filmax and both companies produce 
subject merchandise. Therefore, we determine them to be affiliated 
companies under section 771(33) of the Act. As such, and consistent 
with prior reviews of this order, we have calculated only one rate for 
both of these companies. See Extruded Rubber Thread From Malaysia; 
Preliminary Results of Countervailing Duty Administrative Review, 59 FR 
46392 (September 8, 1994). For further information, see Memorandum to 
File from Judy Kornfeld Regarding Status as Affiliated Parties dated 
May 22, 1996, on file in the public file of the Central Records Unit, 
Room B-099 of the Department of Commerce.

Verification

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

Analysis of Programs

    Based upon the responses to our questionnaires, the results of 
verification, and written comments from interested parties we determine 
the following:

I. Programs Conferring Subsidies

Programs Previously Determined to Confer Subsidies
A. Export Credit Refinancing (ECR)
    In the preliminary results, we found that this program conferred 
countervailable subsidies on the subject merchandise. Our analysis of 
the comments submitted by the interested parties, summarized below, has 
led us to modify our findings in the preliminary results for this 
program. Accordingly, the net subsidies from pre-shipment loans are as 
follows:

------------------------------------------------------------------------
                                                                 Rate   
                   Manufacturer/exporter                      (percent) 
------------------------------------------------------------------------
Heveafil/Filmax............................................         0.21

[[Page 55273]]

                                                                        
Rubberflex.................................................         0.19
Filati.....................................................         0.00
Rubfil.....................................................         0.15
------------------------------------------------------------------------

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

------------------------------------------------------------------------
                                                                 Rate   
                   Manufacturer/exporter                      (percent) 
------------------------------------------------------------------------
Heveafil/Filmax............................................         0.00
Rubberflex.................................................         0.00
Filati.....................................................         1.39
Rubfil.....................................................         0.08
------------------------------------------------------------------------

B. Pioneer Status
    In the preliminary results, we found that this program conferred 
countervailable subsidies on the subject merchandise. Our analysis of 
the comments submitted by the interested parties, summarized below, has 
not led us to change our findings from the preliminary results. 
Accordingly, the net subsidies for this program are as follows:

------------------------------------------------------------------------
                                                                 Rate   
                   Manufacturer/exporter                      (percent) 
------------------------------------------------------------------------
Heveafil/Filmax............................................         0.00
Rubberflex.................................................         0.00
Filati.....................................................         0.00
Rubfil.....................................................         0.15
------------------------------------------------------------------------

C. Industrial Building Allowance
    In the preliminary results, we found that this program conferred 
countervailable subsidies on the subject merchandise. We did not 
receive any comments on this program from the interested parties. 
Accordingly, the net subsidies for this program are as follows:

------------------------------------------------------------------------
                                                                 Rate   
                   Manufacturer/exporter                      (percent) 
------------------------------------------------------------------------
Heveafil/Filmax............................................       <0.005
Rubberflex.................................................         0.00
Filati.....................................................         0.00
Rubfil.....................................................         0.00
------------------------------------------------------------------------

D. Double Deduction for Export Promotion Expenses
    In the preliminary results, we found that this program conferred 
countervailable subsidies on the subject merchandise. We did not 
receive any comments on this program from the interested parties. 
Accordingly, the net subsidies for this program are as follows:

------------------------------------------------------------------------
                                                                 Rate   
                   Manufacturer/exporter                      (percent) 
------------------------------------------------------------------------
Heveafil/Filmax............................................         0.02
Rubberflex.................................................         0.00
Filati.....................................................         0.00
Rubfil.....................................................         0.00
------------------------------------------------------------------------

II. Programs Found to be Not Used

    In the preliminary results, we found that the producers and/or 
exporters of the subject merchandise did not apply for or receive 
benefits under the following programs:
     Investment Tax Allowance,
     Abatement of a Percentage of Net Taxable Income Based on 
the F.O.B. Value of Export Sales,
     Abatement of Five Percent of Taxable Income Due to 
Location in a Promoted Industrial Area,
     Abatement of Taxable Income of Five Percent of Adjusted 
Income of Companies due to Capital Participation and Employment Policy 
Adherence,
     Double Deduction of Export Credit Insurance Payments,
     Abatement of Taxable Income of Five Percent of Adjusted 
Income of Companies Due to Capital Participation and Employment Policy 
Adherence, and
     Preferential Financing for Bumiputras.
    Our analysis of the comments submitted by the interested parties, 
summarized below, has not led us to change our findings from the 
preliminary results.
Analysis of Comments
    Comment 1: Respondents allege that the Department initiated the 
original investigation pursuant to Section 303(a)(2) of the Act, and, 
therefore, the Department can impose countervailing duties under this 
section only if there is an injury determination by the International 
Trade Commission (ITC). (The ITC discontinued its injury determination 
under Section 303(a)(2) because the duty-free status of rubber thread 
from Malaysia was terminated.) Respondents contend that without an 
injury determination, the Department had no authority to issue a 
countervailing duty order and to require the payment of cash deposits. 
Respondents further maintain that the Department cannot simply transfer 
the jurisdiction for an investigation from Section 303(a)(2) to Section 
303(a)(1) without issuing a public notice that it intends to proceed 
with the investigation under a different statutory provision. See, 
Certain Textile Mill Products and Apparel from Turkey (50 FR 9817; 
March 12, 1987); Certain Textile Mill Products and Apparel from the 
Philippines (50 FR 1195; March 26, 1985) and Certain Textile Mill 
Products and Apparel from Indonesia (50 FR 9861; March 12, 1985). 
Furthermore, because there was no initiation notice or a preliminary 
determination under Section 303(a)(1), a final determination under that 
section was not appropriate. If the Department wanted to proceed with 
the investigation, it was required to reinitiate under the appropriate 
provision.
    In addition, respondents argue that the Department's untimeliness 
theory in previous reviews is misplaced. They state that the Department 
has the power to modify its judgements or correct its errors and that 
Ceramica Regiomontana v. United States, 64 F.3d 1579 (Fed. Cir. 1995) 
(Ceramica 1995) confirmed the right to challenge the continuing 
validity of an order during a review proceeding.
    Department's Position: As the Department pointed out in the 
previous reviews, respondents' challenge to the Department's authority 
to issue the order is untimely. Challenges to the issuance of an order 
must be filed within 30 days of the date the order is published. See 19 
U.S.C. Sec. 1516a(a)(2). The countervailing duty order on extruded 
rubber thread from Malaysia was published on August 25, 1992. 
Respondents voluntarily withdrew a timely-filed complaint challenging 
the order on these same grounds. Respondents' attempt to revive that 
challenge in this proceeding is untimely.
    Contrary to respondents' assertions, there was no requirement that 
the Department reinitiate its investigation as a result of the decision 
by the United States to terminate the duty-free status of Malaysian 
rubber thread. Indeed, respondents' interpretation could create an 
impermissible gap in statutory coverage, which Congress did not intend. 
See Techsnabexport, Ltd. v. United States, 802 F. Supp. 469, 472 (CIT 
1992). Nor do the administrative cases relied upon by respondents 
support their position. In those cases, the Department published notice 
that authority to continue the particular investigations was 
transferred from section 303 of the Tariff Act of 1930 to Title VII of 
the Act.
    In the course of administrative reviews conducted under this order, 
respondents have misconstrued judicial precedent regarding the 
correction of ``jurisdictional defects.'' Gilmore Steel Corp. v. United 
States, 585 F. Supp. 670, 674 (CIT 1984) (Gilmore), involved a 
challenge to the termination of a pending investigation based upon 
information obtained in the course of that investigation. In 
particular, the petitioner contended that the

[[Page 55274]]

Department lacked the authority to rescind the investigation based upon 
insufficient industry support for the petition after the 20-day 
initiation period had elapsed. 585 F. Supp. at 673. In upholding the 
Department's determination, the court recognized that administrative 
officers have the authority to correct errors, such as ``jurisdictional 
defects,'' at anytime during the proceeding. Id. at 674-75. The court 
did not state or imply that the Department may reverse a decision to 
issue an antidumping duty order in the context of an administrative 
review under section 751 of the Act. Indeed, the case did not even 
involve an administrative review. The court simply held that the 
administering authority may, in the context of the original 
investigation, rescind an ongoing proceeding after expiration of the 
20-day initiation period. In short, Gilmore says nothing to excuse 
respondents' failure to timely challenge the issuance of the order in 
this case.
    Similarly, we disagree with respondents' reliance on Ceramica 1995. 
Ceramica 1995 challenged the continued imposition of countervailing 
duties following Mexico's change in status to a ``country under the 
Agreement'' which entitled it to an injury test. Unlike respondents, 
Ceramica 1995 did not challenge the validity of the original 
countervailing duty order, nor did the Federal Circuit determine that 
the issuance of the order was invalid. Consequently, Ceramica 1995 is a 
similarly inappropriate basis to excuse respondents' failure to timely 
challenge the issuance of the order.
    Comment 2: Respondents argue that the Department must liquidate 
entries during 1994 without regard to countervailing duties because the 
URAA does not provide an injury test for 1994 entries as required under 
the Agreement on Subsidies and Countervailing Measures (Subsidies 
Agreement). Citing Article 32.3 of the Subsidies Agreement, respondents 
argue that the Subsidies Agreement is applicable to all reviews, 
including the instant review, initiated pursuant to requests made after 
January 1, 1995. Respondents argue that the requirements of the 
Agreement include the application of an injury test to entries covered 
by such a review. According to respondents, however, the URAA did not 
provide a mechanism to implement this obligation; rather, the URAA only 
provides an injury test for merchandise entered on or after January 1, 
1995. Therefore, respondents assert that assessment of countervailing 
duties on 1994 entries would violate U.S. obligations under the 
Subsidies Agreement.
    Department's Position: Respondents have misinterpreted both U.S. 
law and the Subsidies Agreement. There is no legal basis under U.S. law 
for respondents' claim. Because Malaysia became a Subsidies Agreement 
country on January 1, 1995, only entries made on or after January 1, 
1995 are entitled to the injury test. See section 753 of the Act; 19 
U.S.C. Sec. 1675b. Section 753(a)(4) makes this clear by suspending 
liquidation of entries of subject merchandise made ``on or after * * * 
the date on which the country * * * becomes a Subsidies Agreement 
country * * *'' See, also, Ceramica Regiomontana, S.A. v. United 
States, 64 F3d 1579 (Fed. Cir. 1995) (the right to an injury test is 
conferred at the time of importation (entry) in the United States). 
Therefore, countervailing duties may be assessed on Malaysian imports 
entered before January 1, 1995, without regard to an injury test.
    Moreover, Article 32.3 of the Subsidies Agreement does not require 
an injury determination for merchandise entered prior to January 1, 
1995. (See, also, Footwear from Brazil GATT Panel Decision confirming 
that liability for countervailing duties attaches at the time of 
importation, not assessment.) In sum, given that the subject 
merchandise was not entitled to an injury determination when it was 
entered in 1994, liability for countervailing duties attached at the 
time of entry. Therefore, there is no obligation under the Subsidies 
Agreement to supply an injury test to these 1994 entries.
    Comment 3: Respondents argue that the Department improperly 
assigned company-specific rates without first determining whether the 
overall country-wide subsidy rate was above de minimis. They contend 
that the Department acted contrary to its established practice of 
applying its two-part test in measuring levels of subsidization. 
According to respondents, the Department should first calculate the net 
subsidy on a country-wide basis to determine whether the country-wide 
rate was above de minimis, in accordance with Ceramica Regiomontana, 
S.A. v. United States, 853 Supp. 431,439 (Ct. Int'l Trade 1994) 
(Ceramica 1994). If the country-wide benefit is de minimis, the overall 
subsidy level would be zero. Only if the country-wide rate was above de 
minimis would the Department proceed to the second step of its test to 
determine if individual rates would apply. Respondents cite Certain 
Iron Metal Castings from India, Preliminary Results of Countervailing 
duty Administrative Review (61 FR 25623; May 22, 1996); Carbon Steel 
Butt-Welde Pipe Fittings from Thailand; Final Results of Countervailing 
Administrative Review (61 FR 4959; Feb. 9, 1996); Extruded Rubber 
Thread from Malaysia, Final Results of Countervailing Duty 
Administrative Review (60 FR 51982, 51983; October 4, 1995), in which 
the Department applied its two-step test.
    According to respondents, as a precondition to imposing 
countervailing duties, the statute requires subsidization to occur with 
respect to imports of the subject merchandise on an overall or 
aggregated basis. In addition, respondents contend that the URAA 
altered the assessment provision but not the requirement to determine 
whether subsidies were being provided on a country-wide basis.
    Department's Position: There is no legal basis to support 
respondents' argument. Pursuant to the URAA, there is no longer a 
preference for calculating a single country-wide subsidy rate in 
countervailing duty proceedings. The URAA replaced the former practice 
of calculating subsidies on a country-wide basis in favor of individual 
rates for reviewed companies. The procedures for countervailing duty 
cases are now essentially the same as those in antidumping cases, 
except as provided for in section 777A(e)(2)(B) of the Act. See also 
section 355.22 of the Interim Regulations (60 FR 25130; May 11, 1995). 
Section 777A(e) requires the calculation of an individual 
countervailable subsidy rate for each known producer/exporter of the 
subject merchandise, except where it is not practicable to determine 
individual countervailable subsidy rates because of the large number of 
exporters or producers involved in the investigation or review. This 
exception was inapplicable in this review as there were only five known 
producers/exporters.
    As a result, the judicial and administrative precedents relied upon 
by respondents are inappropriate as they refer to the requirements as 
they existed prior to the URAA. All of the reviews cited by respondents 
were requested and initiated prior to January 1, 1995, the effective 
date of the URAA. More pertinent citations would be to reviews 
conducted under the URAA. See, e.g., Certain Hot-Rolled Lead and 
Bismuth Carbon Steel Products From the United Kingdom; Preliminary 
Results of Countervailing Duty Administrative Review (61 FR 20,238, 
20,242; May 6, 1996), since that review was initiated pursuant to 
requests for administrative reviews filed after January 1, 1995.
    Comment 4: Respondents argue that the Department cannot countervail

[[Page 55275]]

benefits under the ECR loan program or the Pioneer Industries program 
because neither involves a financial contribution by the GOM. The WTO 
Subsidies Agreement defined the term ``subsidy'' as one involving a 
``financial contribution,'' therefore adding a new requirement to the 
pre-existing notion of a subsidy. Accordingly, a program cannot be a 
countervailable subsidy unless it involves a ``financial 
contribution.'' In the case of the ECR loans, they argue that there is 
no financial contribution because the funds that the GOM lends to 
exporters generate a profit--the funds are lent on a short-term basis 
at an interest rate higher than the cost of those funds. And in the 
case of the Pioneer Industries program, they argue that because the 
only company claiming the tax exemption would have paid the same amount 
of taxes without the exemption, the GOM did not forgo or fail to 
collect any revenues as a result of the program. Respondents believe 
that the Department's preliminary determination overlooks this new 
requirement.
    Department's Position: We disagree with respondents that the 
Department overlooked the requirement of financial contribution. Under 
section 771(5)(D)(i) and (ii) of the Act, a financial contribution is 
defined as ``the direct transfer of funds, such as grants, loans, and 
equity infusions, or the potential direct transfer of funds or 
liabilities, such as loan guarantees,'' or ``foregoing or not 
collecting revenue that is otherwise due, such as granting tax credits 
or deductions from taxable income.'' The ECR loan and Pioneer 
Industries tax programs clearly fall within these definitions. We also 
note that under Article 1.1(a)(1)(i) and (ii) of the Subsidies 
Agreement, a financial contribution is defined as ``where government 
practice involves a direct transfer of funds (e.g., grants, loans, and 
equity infusions), potential direct transfers of funds or liabilities 
(e.g., loan guarantees)'' or ``government revenue that is otherwise 
due, is foregone or not collected (e.g., fiscal incentives such as tax 
credits).''
    Respondents mistakenly focus on the ``financial contribution'' 
concept in terms of the cost to the Malaysian government. As explained 
in the previous reviews, the Department has a longstanding practice of 
valuing the benefit to the recipient rather than the cost to the 
government for the purpose of calculating countervailing duty rates. 
This practice is now reflected in section 771(5)(E) of the Act, which 
states that the subsidy benefit ``shall normally be treated as 
conferred where there is a benefit to the recipient.'' In addition, 
Article 14 of the Subsidies Agreement defines the method for 
calculating the amount of a subsidy in terms of the benefit to the 
recipient.
    In the case of ECR loans, the funds that the GOM lends to the 
exporters are lent on a short-term basis at an interest rate below the 
commercial benchmark rate. In the case of the Pioneer Industries 
program, a company that has received pioneer status is allowed not to 
pay taxes otherwise due to the government. (Also, see Department's 
Position to Comment 10 on Pioneer Status.) Therefore, under both 
programs, financial contributions are provided to the recipients (the 
respondents) and the Department properly treated those benefits as 
countervailable subsidies.
    Comment 5: Respondents contend that the Department overstated the 
benefit received under the ECR program in its administrative review 
because it used an inappropriate benchmark. They argue that the 
Department should rely on its past practice of using the bankers' 
acceptances (BA) rates because they are identical to ECR financing in 
terms of risk, maturity and purpose. Respondents further contend that 
the Department's use of the ``predominant source'' of financing as a 
benchmark is no longer authorized. Instead, the URAA requires that the 
calculation of any benefits be based upon ``the amount the recipient of 
the loan pays on the loan and the amount the recipient would pay on a 
comparable commercial loan'' (citing 19 U.S.C. Sec. 1677(E)(ii)). They 
assert that it makes no sense to compare trade financing to other 
financing such as short-term loans and overdrafts and that BAs are the 
most comparable form of financing.
    Department's Position: We first note that the respondents are 
incorrect when they state that the Department should rely on its past 
practice of using BA rates as the benchmark. In each of the prior 
administrative reviews of this order, the Department has used the Base 
Lending Rate (BLR) as the commercial benchmark rather than the BA rate. 
However, we do agree with respondents that the benchmark should be 
comparable to the government loan in question. To the extent that the 
predominant source of financing is not comparable to the loans in 
question or could not actually be obtained by the exporter, then we 
agree that the predominant source of financing cannot be used as a 
benchmark under the new statute.
    In Malaysia, ECR financing was provided in two different forms: it 
was provided as a line of credit based on the company's previous 12 
months' export performance, and it was also provided based on the 
financing of the invoice, with the interest discounted. The maximum 
period for a loan based on invoice financing is 180 days. However, if 
the exporter receives early payment on the sale from its customer, then 
the exporter is required to repay the loan at that time rather than at 
the end of 180 days. The exporter also assumes the risk for late-
payment or non-payment. With financing under the line of credit, the 
exporter is charged interest based on the outstanding balance and that 
interest must be paid on a monthly basis.
    Based upon the information on the record, we have determined that 
BAs are a comparable form of alternative short-term financing available 
to respondents for post-shipment loans under the ECR program. Both BAs 
and post-shipment loans are short-term borrowing instruments used in 
trade financing of exports. Therefore, we have used the 1994 BA rates 
and commissions provided at verification (see, Verification Report for 
the Government of Malaysia, Exhibit 10) as the benchmark for ECR post-
shipment loans and have recalculated the benefit conferred by these 
loans using this revised benchmark. However, we disagree that BAs are 
comparable to ECR pre-shipment loans. This is because pre-shipment 
financing used by the respondents is based on a line of credit, much 
like a general short-term loan in the Malaysian market. We are using 
the BLR because we have verified, based on meetings with commercial 
banks in Malaysia, that the BLR serves as the basis for determining the 
interest rates charged by commercial banks in Malaysia on short-term 
loans, which would include short-term borrowing using a line of credit.
    Comment 6: Respondents argue that, if the Department does not use 
the BA benchmark, it should use the Average Lending Rate (ALR) provided 
in the Bank Negara Statistical Bulletin rather than the BLR plus an 
estimated spread. If the Department, nevertheless, uses this method, 
then the spread should be calculated by deducting the average BLR rate 
calculated by the Department from the ALR published in the Bank Negara 
Statistical Bulletin.
    Department's Position: We disagree with respondents. The most 
appropriate benchmark for pre-shipment financing under the ECR program 
is based upon the BLR. During verification of the 1992 and 1994 
administrative reviews, we found that ALR rates published in the Bank 
Negara Statistical Bulletin included both short-term and long-term 
rates, while the BLR rates are strictly based on short-term loans. (See 
Memorandum to the File from Judy

[[Page 55276]]

Kornfeld and Lorenza Olivas Regarding Extruded Rubber Thread from 
Malaysia; Benchmark Information (Public Document) dated August 15, 
1995, on file in the public file of the Central Records Unit, Room B-
099 of the Department of Commerce). Therefore, we disagree with 
respondents that we should use the ALR rate because it would improperly 
include long-term rates. Finally, we disagree with respondents' 
argument that we should calculate the spread by deducting the average 
BLR rate from the average of the ALR rates because this would again 
improperly include long-term rates in the benchmark calculation and it 
does not reflect the spread that the commercial banks charge above the 
BLR rate on short-term loans. During verification, commercial banking 
officials stated that the BLR serves as the basis for determining the 
short-term interest rates charged by commercial banks in Malaysia. The 
commercial bank officials also stated that banks add a 1.00 to 2.00 
percent spread to the BLR. (See, Verification Report of Commercial 
Bank.) Accordingly, we have determined that it is appropriate to 
continue to use the average of the commercial BLR rates published in 
Bank Negara Statistical Bulletin, plus an average 1.5 percent spread, 
as a benchmark.
    Comment 7: Respondents contend that the Department should not have 
used a single annual average benchmark interest rate because it 
distorts the analysis in a year characterized by steadily decreasing 
interest rates. The Department previously used a semi-annual average 
benchmark interest rate in the 1987 and 1988 reviews of Oil Country 
Tubular Goods from Argentina; Final Results of Countervailing Duty 
Administrative Reviews, 56 FR 38118 (August 12, 1991) (OCTG). 
Respondents claim that because the loans in this review had a normal 
maturity of 180 days and the rates were fixed at the time of the loan 
initiation, they fit the same conditions as in OCTG.
    Department's Position: We disagree with respondents. Our practice, 
as reflected in section 355.44(b)(3)(ii) of the Proposed Regulations, 
is that ``unless short-term interest rates in the country in question 
have fluctuated significantly during the year in question, the 
Secretary will calculate a single, annual average benchmark interest 
rate.'' In the OCTG case relied upon by respondents, there was 
significant hyperinflation and an average annual rate would therefore 
have been distorted by the compounding of very high monthly interest 
rates which varied widely from the first to the second half of the year 
of review. See OCTG at 38118. Respondents have not shown any comparable 
circumstances in Malaysia to warrant the use of semi-annual average 
rates.
    Comment 8: Respondents argue that the Department overstated the net 
subsidy for the review period and for duty deposit purposes because in 
calculating eligibility for the pre-shipment export financing, the 
Department failed to take account of the exclusion by Heveafil and 
Filmax of U.S. exports from the calculation of eligibility for the pre-
shipment export financing. In addition, respondents claim that the two 
companies did not use funds from exports to the United States to repay 
any of the pre-shipment loans. They claim that in a similar situation, 
the Department concluded that exports to the United States did not 
receive benefits from short-term financing. See, Suspension of 
Countervailing Duty Investigation; Certain Forged Steel Crankshafts 
from Brazil (52 FR 28177, 28179; July 28, 1987) (Brazilian Crankshafts 
Suspension Agreement). Although in the first administrative review, the 
Department rejected this method of eliminating the effect of a subsidy, 
respondents maintain that Heveafil and Filmax received no benefit with 
regard to U.S. shipments.
    Respondents further assert that the Department found a subsidy in 
this case in part because there was no strict segregation of U.S. 
exports and the materials used in their manufacture from materials and 
exports to other markets financed with ECR loans. However, according to 
the respondents, the Department was presented with exactly the same 
issue in Crankshafts from Brazil and in that case the Department did 
not require that the exporters segregate raw materials purchased with 
export financing.
    Department's Position: The GOM provides ECR financing based on 
export performance. The explicit purpose of this program is to promote 
the export of manufactured and approved agricultural products. Two 
types of ECR financing are available: pre-shipment and post-shipment 
financing. There is no evidence that the GOM limits these ECR loans to 
increase exports only to markets other than the United States, nor is 
there evidence of a provision that prevents exporters from receiving 
ECR loans for exports to the United States.
    During the review period, both Heveafil and Filmax applied for and 
used pre-shipment financing based on certificates of performance (CP). 
Pre-shipment financing based on CPs is a line of credit based on 
previous exports and, when received, cannot be tied to specific sales 
in specific markets. Where a benefit is not tied to a particular 
product or market, it is the Department's practice to allocate the 
benefit to all products exported by a firm where the benefit is 
received pursuant to an export program. See 19 C.F.R. Sec. 355.47(c) of 
the Proposed Regulations (54 FR 23375, May 31, 1989). Because pre-
shipment loans were not shipment-specific, we included all loans in 
calculating the company-specific duty rate.
    By excluding exports to the United States from their application 
for export financing, the companies merely reduced the amount of 
financing they received. Reducing the pool of funds available for total 
export financing does not eliminate financing to any particular market 
or for any particular product. Tying occurs in the provision of the 
subsidy, usually through government mandate requirements or in certain 
limited situations where the application for the subsidy can be 
isolated to specific shipments, e.g. post-shipment loans provided on a 
shipment-by-shipment basis where the company can demonstrate through 
source documentation that it did not apply for or receive loans on 
shipments to the U.S. See Certain Iron Metal Castings from India; 
Preliminary Results of Countervailing Duty Administrative Review (61 FR 
25623; May, 22 1996). Hence, the companies did not eliminate financing 
for U.S. exports.
    We disagree with respondents that in similar circumstances the 
Department has concluded that the exclusion of U.S. exports from 
applications in the manner described by respondents eliminates any 
countervailable subsidy that would otherwise be present. As stated in 
the last review, respondents' reliance on the Crankshafts from Brazil 
suspension agreement is misplaced. Suspension agreements are unusual, 
negotiated arrangements in which parties to a proceeding agree to 
renounce countervailable subsidies. As such, unlike final 
determinations, they do not serve as administrative precedent. 
Moreover, the Crankshafts from Brazil suspension agreement is 
consistent with our allocation practice, as described in the Proposed 
Regulations.
    Comment 9: Respondents argue that the Department previously found 
the Pioneer Status Program not countervailable. See, Carbon Steel Wire 
Rod from Malaysia; Final Results of Countervailing Duty Administrative 
Review; 56 FR 14927 (April 12, 1991) (Wire Rod). Respondents assert 
that it is not countervailable because tax benefits under this program 
are not limited to

[[Page 55277]]

any sector or region of the Malaysian economy, nor is the program 
exclusively available to exporting companies. They contend that the 
Department confirmed in the first administrative review, both the de 
jure and de facto availability of this program to the entire Malaysian 
economy, and that the pioneer status tax benefits are not targeted to 
specific industries or companies in a discriminatory manner. 
Furthermore, the Department verified in the original investigation that 
the internal guidelines used to grant pioneer status are characterized 
by neutral criteria unrelated to exports, location or any other factors 
that could require a determination that the program is countervailable.
    Respondents further argue that the Department verified in the first 
administrative review that the GOM does not require export commitments, 
or view them as preponderant, in evaluating applications; that export 
potential is merely one of 12 factors considered in granting status; 
and that a product will not be accepted based on export potential 
alone. Furthermore, respondents argue that the Department verified in 
the first administrative review that the GOM commonly approves 
companies that do not make export commitments as well as some that do 
make them. Therefore, export performance is not viewed as a 
preponderant factor, but as one of many neutral criteria.
    Department's Position: We addressed this identical argument in the 
previous review. In Wire Rod, we concluded that benefits were not used 
by a specific industry or group of industries and that no industry or 
group of industries used the program disproportionately and found the 
program not to be countervailable. That determination, however, did not 
specifically address situations where companies had a specific export 
condition attached to their pioneer status approval. In the Wire Rod 
investigation, petitioner raised the issue of an export requirement. 
Although the requirement per se is not new, it was not at issue with 
the companies investigated in Wire Rod.
    In this case, recipients of the tax benefits conferred by Pioneer 
Status can be divided into two categories: industries and activities 
that will find market opportunities in Malaysia and elsewhere, and 
those that face a saturated domestic market. At verification of the 
first administrative review, we established that an export requirement 
may sometimes be applied to certain industries after it is determined 
that the domestic market will no longer support additional producers. 
The extruded rubber thread industry is among these industries.
    The combination of the necessary export orientation of the industry 
due to lack of domestic market opportunities and the explicit export 
condition attached to pioneer status approval in the rubber thread 
industry lead us to conclude that the Pioneer Status program 
constitutes an export subsidy to the rubber thread industry. Whether or 
not the commitment was voluntary, as respondents suggest, the company 
has obligated itself to export a very large portion of its production, 
and that commitment was a condition for approval of benefits.
    Comment 10: Respondents argue that the Department overstated the 
benefit from the Pioneer Status program because it failed to deduct the 
normal capital allowances that would have been allowed if the program 
had not been used. Respondents claim that Rubfil, in fact, received no 
cash benefits from this program. Furthermore, they claim, the 
Department incorrectly allocated pioneer status tax benefits over only 
export sales even though pioneer status tax benefits are also 
applicable to profits on domestic sales. According to the respondents, 
this is inconsistent with the Department's practice to allocate 
benefits over total sales to which they are ``tied.''
    Department's Position: We disagree with respondents. When a company 
receives pioneer status, it is allowed to accumulate the normal capital 
allowances for use in future years. Rubfil did not pay income taxes 
during the period of review because of its pioneer status. Therefore, a 
benefit has been conferred upon the company because it used its pioneer 
status to offset income. Rubfil is also able to accumulate capital 
allowances which can be used to offset taxable income in the future, 
after its pioneer status expires. Moreover, export sales should form 
the denominator because receipt of pioneer status tax benefits for the 
companies under review is contingent upon exportation. Accordingly, we 
have not overstated the benefit from the Pioneer Status Program. See 
section 355.47(a)(2) of the Proposed Rules. See also Final Affirmative 
Countervailing Duty Determination; Certain Agricultural Tillage Tools 
From Brazil (50 FR 34525; August 26, 1985) and Certain Iron-Metal 
Castings From India; Preliminary Results of Countervailing Duty 
Administrative Review (60 FR 44839; August 29, 1995).
    Comment 11: In calculating the benefit involving the industrial 
building allowance and double deduction for export promotion expenses, 
respondents claim that the Department used a different ``total export'' 
figure for Heveafil and Filmax than was used for calculating the 
benefit involving ECR financing. The second ``total export'' figure 
appears to be the result of a clerical error.
    Department's Position: We agree with respondents. The second 
``total export'' figure has been corrected in the final calculation.

Final Results of Review

    In accordance with section 355.22(c)(4)(ii) of the Department's 
Interim Regulations, we calculated an individual subsidy rate for each 
producer/exporter subject to this administrative review. For the period 
January 1, 1994 through December 31, 1994, we determine the ad valorem 
net subsidies to be:

------------------------------------------------------------------------
                                                             Net subsidy
             Net subsidies--producer/ exporter                   rate   
                                                              (percent) 
------------------------------------------------------------------------
Heveafil/Filmax............................................         0.23
Rubberflex.................................................         0.19
Filati.....................................................         1.39
Rubfil.....................................................         0.38
------------------------------------------------------------------------

    We will instruct the U.S. Customs Service (``Customs'') to assess 
countervailing duties as indicated above. The Department will also 
instruct Customs to collect cash deposits of estimated countervailing 
duties in the percentages detailed above of the f.o.b. invoice price on 
all shipments of the subject merchandise from reviewed companies, 
entered, or withdrawn from warehouse, for consumption on or after the 
date of publication of the final results of this review. As provided 
for in the Act, any rate less than 0.5 percent ad valorem in an 
administrative review is de minimis. Accordingly, for those producers/
exporters no countervailing duties will be assessed or cash deposits 
required.
    Because the URAA replaced the general rule in favor of a country-
wide rate with a general rule in favor of individual rates for 
investigated and reviewed companies, the procedures for establishing 
countervailing duty rates, including those for non-reviewed companies, 
are now essentially the same as those in antidumping cases, except as 
provided for in section 777A(e)(2)(B) of the Act. The requested review 
will normally cover only those companies specifically named. See 
section 355.22(a) of the Interim Regulations. Pursuant to 19 C.F.R. 
Sec. 355.22(g), for all companies for which a review was not requested, 
duties must be assessed at the cash deposit rate, and cash deposits 
must continue to be collected, at the rate

[[Page 55278]]

previously ordered. As such, the countervailing duty cash deposit rate 
applicable to a company can no longer change, except pursuant to a 
request for a review of that company. See Federal-Mogul Corporation and 
The Torrington Company v. United States, 822 F.Supp. 782 (CIT 1993) and 
Floral Trade Council v. United States, 822 F.Supp. 766 (CIT 1993) 
(interpreting 19 C.F.R. Sec. 353.22(e), the antidumping regulation on 
automatic assessment, which is identical to 19 C.F.R. Sec. 355.22(g)). 
Therefore, the cash deposit rates for all companies except those 
covered by this review will be unchanged by the results of this review.
    We will instruct Customs to continue to collect cash deposits for 
non-reviewed companies at the most recent company-specific or country-
wide rate applicable to the company. Accordingly, the cash deposit 
rates that will be applied to non-reviewed companies covered by this 
order are those established in the most recently completed 
administrative proceeding. See Extruded Rubber Thread From Malaysia; 
Final Results of Countervailing Duty Administrative Review, 60 FR 51982 
(October 4, 1995). These rates shall apply to all non-reviewed 
companies until a review of a company assigned these rates is 
requested. In addition, for the period January 1, 1994 through December 
31, 1994, the assessment rates applicable to all non-reviewed companies 
covered by this order are the cash deposit rates in effect at the time 
of entry.
    This countervailing duty order was determined to be subject to 
section 753 of the Act (as amended by the Uruguay Round Agreements Act 
of 1994). Countervailing Duty Order; Opportunity to Request a Section 
753 Injury Investigation, 60 FR 27,963 (May 26, 1995), amended 60 FR 
32,942 (June 26, 1995). In accordance with section 753(a), domestic 
interested parties have requested an injury investigation with respect 
to this order with the International Trade Commission (ITC). Pursuant 
to section 753(a)(4), liquidation of entries of subject merchandise 
made on or after January 1, 1995, the date Malaysia joined the World 
Trade Organization, is suspended until the ITC issues a final injury 
determination. We will not issue assessment instructions for any 
entries made after January 1, 1995; however, we will instruct Customs 
to collect cash deposits in accordance with the final results of this 
administrative review.
    This notice serves as a reminder to parties subject to 
administrative protective order (APO) of their responsibility 
concerning the disposition of proprietary information disclosed under 
APO in accordance with 19 C.F.R. Sec. 355.34(d). Timely written 
notification of return/destruction of APO materials or conversion to 
judicial protective order is hereby requested. Failure to comply with 
the regulations and the terms of an APO is a sanctionable violation.
    This administrative review and notice are in accordance with 
section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)).

    Dated: October 9, 1996.
Robert S. LaRussa,
Acting Assistant Secretary for Import Administration.
[FR Doc. 96-27358 Filed 10-24-96; 8:45 am]
BILLING CODE 3510-DS-P