[Federal Register Volume 72, Number 231 (Monday, December 3, 2007)]
[Notices]
[Pages 67893-67911]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-23459]


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DEPARTMENT OF COMMERCE

International Trade Administration

[C-570-917]


Laminated Woven Sacks From the People's Republic of China: 
Preliminary Affirmative Countervailing Duty Determination; Preliminary 
Affirmative Determination of Critical Circumstances, In Part; and 
Alignment of Final Countervailing Duty Determination With Final 
Antidumping Duty Determination

AGENCY: Import Administration, International Trade Administration, 
Department of Commerce.
SUMMARY: The Department of Commerce (the Department) preliminarily 
determines that countervailable subsidies are being provided to 
producers and exporters of laminated woven sacks (LWS) from the 
People's Republic of China (PRC). For information on the estimated 
subsidy rates, see the ``Suspension of Liquidation'' section of this 
notice. The Department further determines preliminarily that critical 
circumstances exist, in part, with respect to imports of the subject 
merchandise. This notice also serves to align the final countervailing 
duty determination in this investigation with the final determination 
in the companion antidumping duty investigation of LWS from the PRC.

DATES: Effective Date: December 3, 2007.

FOR FURTHER INFORMATION CONTACT: Mark Hoadley, Toni Page or Jun Jack 
Zhao, AD/CVD Operations, Office 6, Import Administration, International 
Trade Administration, U.S. Department of Commerce, 14th Street and 
Constitution Avenue, NW., Washington, DC 20230; telephone: (202) 482-
3148, (202) 482-1398 and (202) 482-1396, respectively.

SUPPLEMENTARY INFORMATION: 

Case History

    The following events have occurred since the publication of the 
Department's notice of initiation in the Federal Register. See 
Laminated Woven Sacks from the People's Republic of China: Initiation 
of Countervailing Duty Investigation, 72 FR 40839 (July 25, 2007) 
(Initiation Notice).
    On July 31, 2007, the Department selected, as mandatory 
respondents, the four largest Chinese producers/exporters of LWS that 
could reasonably be examined, Han Shing Chemical Co., Ltd. (Han Shing 
Chemical), Ningbo Yong Feng Packaging Co., Ltd. (Ningbo), Shangdong 
Qilu Plastic Fabric Group, Ltd. (Qilu), and Shangdong Shouguang 
Jianyuan Chun Co., Ltd. (SSJ). See Memorandum to Stephen J. Claeys, 
Deputy Assistant Secretary for Import Administration, ``Respondent 
Selection'' (July 31, 2007). This memorandum is on file in the 
Department's Central Records Unit in Room B-099 of the main Department 
building (CRU).\1\ On August 3, 2007, we issued the countervailing duty 
(CVD) questionnaire to the Government of the People's Republic of China 
(GOC), requesting the GOC forward the company sections of the 
questionnaire to the mandatory respondent companies.
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    \1\ At the time of respondent selection, the Department had 
public information indicating that Han Shing Chemical's internet 
address was the same as that of a Han Shing Co. and a Han Shing Bulk 
Bag Co., Ltd. Moreover, the Department also had public information 
indicating that Han Shing Chemical's street address was similar to 
that of Han Shing Co. and Han Shing Bulk Bag Co., Ltd. See 
attachment 2 of our Respondent Selection Memo. Thus, in our 
questionnaire to the GOC, we instructed the GOC to forward the 
questionnaire to certain producers/exporters, including ``Han Shing 
Chemical, Ltd., aka Han Shing Bulk Bag Co., Ltd. and Han Shing Co.''
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    On August 14, 2007, the International Trade Commission (ITC) issued 
its affirmative preliminary determination that there is a reasonable 
indication that an industry in the United States is materially injured 
by reason of allegedly subsidized imports of LWS from China. See 
Laminated Woven Sacks from China, Investigation Nos. 701-TA-450 and 
731-TA-1122 (Preliminary), 72 FR 46246 (August 17, 2007).
    On September 10, 2007, we published a postponement of the 
preliminary determination of this investigation until November 26, 
2007. See Laminated Woven Sacks from the People's Republic of China: 
Postponement of Preliminary Determination in the Countervailing Duty 
Investigation, 72 FR 51641 (September 10, 2007). We received responses 
from the GOC on September 24, 2007, and SSJ and its affiliate Shandong 
Longxing Plastic Products Company Ltd. (SLP) on October 1, 2007. Han 
Shing Chemical, Ningbo, and Qilu did not submit responses to the 
Department's August 3, 2007 CVD questionnaire. However, the GOC 
provided a certification from Han Shing Bulk Bag Co. Ltd. (Han Shing 
Bag) stating that neither Han Shing Bag nor any company with which it 
is cross-owned, as defined in 19 CFR 351.525(6)(vi), produced or 
exported LWS to the United States during the period of investigation. 
In addition, the certification stated that Han Shing Bag was not 
``cross-owned'' or ``affiliated'' with Han Shing Chemical.
    On September 10, 2007, Zibo Aifudi Plastic Packaging Company 
Limited (Aifudi) submitted a voluntary response to the Department, 
pursuant to section 782(a) of the Tariff Act of 1930, as amended (the 
Act). On October 24, 2007, the Department selected Aifudi as a 
voluntary respondent for the investigation pursuant to 19 CFR 
351.204(d)(2). See Memorandum to Stephen J. Claeys, Deputy Assistant 
Secretary for Import Administration, ``Voluntary Respondent Selection'' 
(October 24, 2007). This memorandum is on file in the Department's CRU.
    On October 2, 2007, October 10, 2007, and November 5, 2007, the 
Laminated Woven Sacks Committee and its individual members, Bancroft 
Bag, Inc., Coating Excellence International, LLC, Hood Packaging 
Corporation, Mid-America Packaging, LLC, and Polytex Fibers Corporation 
(collectively, the petitioners), submitted comments regarding these 
questionnaire responses. We issued supplemental questionnaires to SSJ, 
Aifudi, and to the GOC on October 23, 2007. We received responses to 
these supplemental questionnaires from all parties on October 26, 2007 
and November 5, 2007.
    On October 17, 2007, the petitioners submitted new subsidy 
allegations regarding twelve programs. On November 2, 2007, the 
Department determined to investigate all of these newly alleged subsidy 
programs pursuant to section 775 of the Act. See Memorandum to Barbara 
E. Tillman, Office Director, ``New Subsidy Allegation'' (November 2, 
2007). Questions regarding these newly alleged subsidies were sent to 
the GOC and the respondent companies on November 2, 2007. The GOC 
submitted comments responding to the Department's initiation of new 
subsidy allegations on November 5, 2007. The GOC, SSJ, and

[[Page 67894]]

Aifudi submitted responses to the new subsidy allegations 
questionnaires on November 19, 2007. The Department does not have 
enough time to review and analyze these recently filed facts and 
arguments regarding the newly alleged subsidy allegations for purposes 
of this preliminary determination. We will therefore analyze the 
responses to these allegations and address all of the parties' 
arguments fully in a post-preliminary analysis memorandum.
    On November 5, 2007, the petitioners alleged that critical 
circumstances exist with respect to imports of LWS from the PRC. See 
section 703(e)(1) of the Act and 19 CFR 351.206(c)(2)(i). The 
Department issued questionnaires to all of the respondent companies 
regarding the critical circumstances allegation on November 9, 2007. 
Responses to these questionnaires were received from Han Shing Chemical 
on November 13, 2007 and from SSJ and Qilu on November 19, 2007. 
Commercial Packaging submitted comments regarding critical 
circumstances on November 20, 2007. We address the allegation of 
critical circumstances in the ``Critical Circumstances'' section of 
this notice.
    On November 13, 2007, the petitioners submitted pre-preliminary 
comments on the preliminary determination. On November 19, 2007, the 
GOC submitted comments in response to the petitioners' pre-preliminary 
comments.
    On November 20, 2007, the petitioners requested that the final 
determination of this countervailing duty investigation be aligned with 
the final determination in the companion antidumping duty investigation 
in accordance with section 705(a)(1) of the Act. We address this 
request below.

Scope of the Investigation

    The merchandise covered by this investigation is laminated woven 
sacks. Laminated woven sacks are bags or sacks consisting of one or 
more plies of fabric consisting of woven polypropylene strip and/or 
woven polyethylene strip; with or without an extrusion coating of 
polypropylene and/or polyethylene on one or both sides of the fabric; 
laminated by any method either to an exterior ply of plastic film such 
as biaxially-oriented polypropylene (``BOPP'') or to an exterior ply of 
paper that is suitable for high quality print graphics; \2\ printed 
with three colors or more in register; with or without lining; whether 
or not closed on one end; whether or not in roll form; with or without 
handles; with or without special closing features; not exceeding one 
kilogram in weight. Laminated woven bags are typically used for retail 
packaging of consumer goods such as pet foods and bird seed.
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    \2\ ``Paper suitable for high quality print graphics,'' as used 
herein, means paper having an ISO brightness of 82 or higher and a 
Sheffield Smoothness of 250 or less. Coated free sheet is an example 
of a paper suitable for high quality print graphics.
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    Effective July 1, 2007, laminated woven sacks are classifiable 
under Harmonized Tariff Schedule of the United States (HTSUS) 
subheadings 6305.33.0050 and 6305.33.0080. Laminated woven sacks were 
previously classifiable under HTSUS subheading 6305.33.0020. If entered 
with plastic coating on both sides of the fabric consisting of woven 
polyethylene strip and/or woven polypropylene strip, laminated woven 
sacks may be classifiable under HTSUS subheadings 3923.21.0080, 
3923.21.0095, and 3923.29.0000. If entered not closed on one end or in 
roll form, laminated woven sacks may be classifiable under HTSUS 
subheading 5903.90.2500 and 3921.19.0000. Although HTSUS subheadings 
are provided for convenience and customs purposes, the written 
description of the scope of this investigation is dispositive.

Scope Comments

    In accordance with the preamble to the Department's regulations, in 
our Initiation Notice we set aside a period of time for parties to 
raise issues regarding product coverage, and encouraged all parties to 
submit comments within 20 calendar days of publication of the 
Initiation Notice. See Antidumping Duties; Countervailing Duties, 62 FR 
27296, 27323 (May 19, 1997) (Preamble) and Initiation Notice, 72 FR at 
40839. The petitioners submitted scope comments on August 7, 2007 on 
the record of both this proceeding and on the record of the companion 
antidumping duty investigation. The scope of the products covered by 
both investigations is identical. The Department will address the 
issues raised by the petitioners with regard to both investigations in 
the preliminary determination of the companion antidumping duty 
investigation.

Use of Facts Otherwise Available

    Sections 776(a)(1) and (2) of the Act provide that the Department 
shall apply ``facts otherwise available'' if necessary information is 
not on the record or an interested party or any other person: (A) 
Withholds information that has been requested; (B) fails to provide 
information within the deadlines established, or in the form and manner 
requested by the Department, subject to subsections (c)(1) and (e) of 
section 782 of the Act; (C) significantly impedes a proceeding; or (D) 
provides information that cannot be verified as provided by section 
782(i) of the Act.
    Where the Department determines that a response to a request for 
information does not comply with the request, section 782(d) of the Act 
provides that the Department will so inform the party submitting the 
response and will, to the extent practicable, provide that party the 
opportunity to remedy or explain the deficiency. If the party fails to 
remedy the deficiency within the applicable time limits and subject to 
section 782(e) of the Act, the Department may disregard all or part of 
the original and subsequent responses, as appropriate. Section 782(e) 
of the Act provides that the Department ``shall not decline to consider 
information that is submitted by an interested party and is necessary 
to the determination but does not meet all applicable requirements 
established by the administering authority'' if the information is 
timely, can be verified, is not so incomplete that it cannot be used, 
and if the interested party acted to the best of its ability in 
providing the information. Where all of these conditions are met, the 
Act requires the Department to use the information if it can do so 
without undue difficulties.

Use of Adverse Inferences

    Section 776(b) of the Act further provides that the Department may 
use an adverse inference in applying the facts otherwise available when 
a party has failed to cooperate by not acting to the best of its 
ability to comply with a request for information. Section 776(b) of the 
Act also authorizes the Department to use as adverse facts available 
information derived from the petition, the final determination, a 
previous administrative review, or other information placed on the 
record.
    Section 776(c) of the Act provides that, when the Department relies 
on secondary information rather than on information obtained in the 
course of an investigation or review, it shall, to the extent 
practicable, corroborate that information from independent sources that 
are reasonably at its disposal. Secondary information is defined as 
``{i{time} nformation derived from the petition that gave rise to the 
investigation or review, the final determination concerning the subject 
merchandise, or any previous review under section 751 concerning the 
subject merchandise.'' See Statement of Administrative Action (SAA) 
accompanying the Uruguay Round Agreements Act, H. Doc. No. 316, 103d

[[Page 67895]]

Cong., 2d Session (1994) at 870. The Department considers information 
to be corroborated if it has probative value. See SAA at 870. To 
corroborate secondary information, the Department will, to the extent 
practicable, examine the reliability and relevance of the information 
to be used. The SAA emphasizes, however, that the Department need not 
prove that the selected facts available are the best alternative 
information. See SAA at 869.
    In deciding which facts to use as adverse facts available, section 
776(b) of the Act and 19 CFR 351.308(c)(1) authorize the Department to 
rely on information derived from (1) the petition, (2) a final 
determination in the investigation, (3) any previous review or 
determination, or (4) any information placed on the record. It is the 
Department's practice to select, as adverse facts available, the 
highest calculated rate in any segment of the proceeding. See, e.g., 
Certain In-shell Roasted Pistachios from the Islamic Republic of Iran: 
Final Results of Countervailing Duty Administrative Review, 71 FR 66165 
(November 13, 2006), and accompanying Issues and Decision Memorandum at 
2.
    The Department's practice when selecting an adverse rate from among 
the possible sources of information is to ensure that the rate is 
sufficiently adverse ``as to effectuate the purpose of the facts 
available role to induce respondents to provide the Department with 
complete and accurate information in a timely manner.'' See Notice of 
Final Determination of Sales at Less than Fair Value: Static Random 
Access Memory Semiconductors From Taiwan, 63 FR 8909, 8932 (February 
23, 1998). The Department's practice also ensures ``that the party does 
not obtain a more favorable result by failing to cooperate than if it 
had cooperated fully.'' See SAA at 870. In choosing the appropriate 
balance between providing a respondent with an incentive to respond 
accurately and imposing a rate that is reasonably related to the 
respondent's prior experience, selecting the highest prior rate 
``reflects a common sense inference that the highest prior margin is 
the most probative evidence of current margins, because, if it were not 
so, the importer, knowing of the rule, would have produced current 
information showing the margin to be less.'' See Rhone Poulenc, Inc. v. 
United States, 899 F. 2d 1185, 1190 (Fed. Cir. 1990).

Policy Loans to LWS Producers From Government-Owned Banks

    We preliminarily determine that the application of facts available 
is warranted with respect to policy loans to LWS producers from 
government-owned banks.\3\ We have identified certain instances in the 
GOC's responses in which the GOC has failed to provide information 
requested by the Department. For example, in our August 3, 2007 
questionnaire and October 23, 2007 supplemental questionnaire, we asked 
the GOC to provide the government's five-year plans for the textile 
industry. The GOC did not submit the requested five-year plans for the 
textile industry in its October 26, 2007 questionnaire response. 
Instead, the GOC stated that LWS is not part of the textile industry 
but is part of the plastics industry. In its November 5, 2007 
submission, the GOC again did not submit the requested five-year plans 
for the textile industry and stated that since ``LWS is not part of the 
textile industry, the five-year plans for the textile industry can have 
no relevance to this investigation.'' The failure to provide this 
information within the established deadlines has impeded our 
investigation. Since the GOC has withheld the information requested by 
the Department and the failure to provide this information within the 
established deadlines has impeded our investigation, we preliminarily 
find that the application of facts otherwise available is warranted 
under sections 776(a)(1)(A), (B), and (C) of the Act.
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    \3\ In the initiation checklist and the Initiation Notice, we 
referred to this program as ``Policy Loans to LWS Producers from 
Government-Owned Banks.''
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    The GOC did not provide information that the Department requested 
in two separate questionnaires. Therefore, we preliminarily determine 
that the GOC has failed to act to the best of its ability with regard 
to this matter. As such, we are using an adverse inference in applying 
facts otherwise available pursuant to section 776(b) of the Act. As an 
adverse inference, to address these omissions, we have preliminarily 
determined that the LWS industry is part of the textile industry for 
policy planning purposes and that the five-year plans for textiles 
direct preferential lending initiatives to the textiles industry. See 
Government Policy Lending program under the ``Programs Preliminarily 
Determined to be Countervailable'' section of this notice. The finding 
that certain five-year plans direct preferential loans to targeted 
industries is consistent with previous findings in other cases. See, 
e.g., the discussion of policy loans, the 10th Five Year Plan for the 
Paper Making Industry and the Integration Plan as discussed in Coated 
Free Sheet Paper from the People's Republic of China: Final Affirmative 
Countervailing Duty Determination, 72 FR 60645 (October 25, 2007) and 
accompanying Issues and Decision Memorandum at 9 (Final CFS Paper from 
the PRC).
    Finally, as an adverse inference with respect to policy lending, we 
are preliminarily determining that certain loans reported by LWS 
producers were received pursuant to the GOC's textile industry policy. 
See Government Policy Lending program under the ``Programs 
Preliminarily Determined to be Countervailable'' section of this notice 
for further discussion.

Ningbo and Qilu

    We preliminarily determine that the application of facts available 
is warranted with respect to Ningbo and Qilu. We find that neither 
company provided information we requested that is necessary to 
determine a countervailing duty rate for this preliminary 
determination. Specifically, Ningbo and Qilu did not respond to the 
Department's questionnaires.\4\ Since Ningbo and Qilu have failed to 
provide information requested by the Department and the failure to 
provide this information within the established deadlines has impeded 
our investigation, we find that the application of facts otherwise 
available is warranted under sections 776(a)(1)(A), (B), and (C) of the 
Act. Thus, in reaching our preliminary determination, pursuant to 
section 776(a)(2)(A), (B), and (C) of the Act, we have based Ningbo's 
and Qilu's countervailing duty rates on facts otherwise available.
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    \4\ Qilu did provide its monthly shipment data on November 19, 
2007, to the Department's critical circumstance questionnaire. It 
did not provide any responses on the record, however, to all other 
requests for information. Therefore, pursuant to section 782(e) of 
the Act, we have determined that this shipment data can be used 
without undue difficulty and otherwise meets the remaining criteria 
of that provision with regard to solely our critical circumstance 
analysis.
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    We note that, in its initial questionnaire response, the GOC 
claimed that, to the best of its knowledge, none of the respondent 
companies,\5\ including Ningbo and Qilu, used or received benefits from 
the programs under investigation. The GOC provided no documentary 
information on the record with regard to this statement.\6\ Thus, on 
October 23, 2007,

[[Page 67896]]

we sent supplemental questionnaires to Qilu and Ningbo explaining the 
possibility that the Department may use adverse facts available if the 
GOC's claims of non-use were determined to be insufficient.\7\ At the 
same time, we issued a supplemental questionnaire to the GOC stating 
that it needed to make more definite statements regarding non-use 
(instead of stating to the ``best of our knowledge'') and that it 
needed to contact local authorities when necessary in determining 
whether programs had been used. The GOC responded on November 5, 2007, 
stating that ``{t{time} he PRC has searched the relevant government 
records, including where applicable the records of the county offices 
of the State Tax Administration in each of the localities in which the 
respondents, including {SLP and Aifudi{time} , are located, and has 
found no record of any benefits to any of those companies other than 
those reported in the PRC's response to the initial questionnaire, and 
that {SLP{time}  received tax credits during the POI from the `Two Free 
Three Half' program.'' For other programs, the GOC referred us to the 
responses of respondent enterprises. Ningbo and Qilu did not respond to 
our October 23, 2007 questionnaires.
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    \5\ At the time of its September 24, 2007 questionnaire 
response, no mandatory respondent had submitted a questionnaire 
response. Aifudi submitted its voluntary questionnaire response on 
September 10, 2007. Aifudi was selected as a voluntary respondent on 
October 24, 2007.
    \6\ The GOC did provide information supporting some of its 
claims that a few of the alleged programs did not exist or had been 
terminated (in some cases, after the POI). It did not support its 
non-use claims, however.
    \7\ In our October 23, 2007 questionnaires to Ningbo and Qilu, 
we stated the following: ``While the Department received some 
information from the GOC regarding possible non-use of these 
programs by your company, this information may not be sufficient for 
the Department to determine that your company did not receive 
countervailable subsidies. If the Department finds the information 
provided by the GOC to be insufficient for such a determination, we 
may use the facts otherwise available on the administrative record 
in determining a countervailing duty rate to apply to exports from 
your company to the United States, in accordance with section 
776(a)(2) of the Act. Moreover, in applying facts otherwise 
available, the Department may use an inference adverse to the 
interests of your company if we determine your company has failed to 
cooperate by not complying with the Department's requests for 
information, in accordance with section 776(b) of the Act.''
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    We have determined that, for this preliminary determination, the 
GOC's statements regarding the possible non-use of these programs by 
the respondent companies, including Ningbo and Qilu, are not sufficient 
for the Department to determine that these companies did not receive 
countervailable subsidies, absent information provided by the 
respondents themselves. As discussed below, in the ``Programs 
Preliminarily Determined to be Countervailable'' section, SSJ/SLP and 
Aifudi/Golden Moon, the only two companies that submitted responses to 
the Department, have reported that they each received possible benefits 
from certain programs under investigation, partially contradicting the 
statements of the GOC. For example, the GOC apparently did not discover 
during its search of local records that SLP had received VAT benefits 
in 2005. Moreover, it appears the GOC did not attempt such searches for 
possible benefits under programs it considers non-existent; thus 
respondents received several loans from government-owned banks, but 
these were not identified in the GOC response, for example. The GOC 
also did not indicate whether it had performed searches for benefits 
received by possibly cross-owned affiliates of the respondents (other 
than SLP), and did not provide support for its statements regarding the 
eligibility of companies for benefits (e.g., no documentation 
demonstrating that Qilu and Ningbo were not SOEs, or that Qilu was not 
a foreign invested enterprise (FIE)). Thus, not only are the GOC's 
assertions unsupported by substantive evidence on the record, but there 
is affirmative evidence with respect to SSJ/SLP's and Aifudi/Golden 
Moon's responses that the GOC's claims of non-use are incorrect as a 
matter of fact. Accordingly, for this preliminary determination, we 
have determined that the GOC's statements regarding the non-use of 
programs by the selected respondents, including Ningbo and Qilu, are 
unreliable and are contradicted by other facts on the record.
    In selecting from among the facts available, the Department has 
determined that an adverse inference is warranted, pursuant to section 
776(b) of the Act, because Ningbo and Qilu did not respond to our 
requests for information. Thus, Ningbo and Qilu failed to cooperate by 
not acting to the best of their abilities, and our preliminary 
determination for these companies is based on the application of 
adverse facts available.
    Because Ningbo and Qilu failed to act to the best of their 
abilities, for each program examined, we made the adverse inference 
that Ningbo and Qilu benefitted from the program unless the record 
evidence made it clear that the companies could not have received 
benefits from the program because, for example, we have preliminarily 
found the program to be not countervailable. See, e.g., Certain Cold-
Rolled Carbon Steel Flat Products From Korea: Final Affirmative CVD 
Determination, 67 FR 62102 (October 3, 2002) and accompanying Issues 
and Decision Memorandum at 3. As such, we have not used adverse 
inferences with respect to the ``Provision of Electricity for Less than 
Adequate Remuneration'' program and the ``Exemption from Payment of 
Staff and Worker Benefit Taxes for Export-Oriented Enterprises'' 
program. To calculate the program rates, we have generally relied upon 
the highest program rate calculated for any responding company in this 
investigation as adverse facts available. See Certain In-shell Roasted 
Pistachios from the Islamic Republic of Iran: Final Results of 
Countervailing Duty Administrative Review, 71 FR 66165 (November 13, 
2006) and accompanying Issues and Decision Memorandum at 3.
    Thus, for the three value added tax (VAT) programs,\8\ and the 
Provision of Land for Less than Adequate Remuneration, we are using 
SSJ's rate for Provision of Land for Less than Adequate Remuneration. 
For the loan program,\9\ we are using SSJ's rate for Government Policy 
Loans. For the nine income tax programs,\10\ we have applied an adverse 
inference that Ningbo and Qilu paid no income tax during the period of 
investigation (POI) (i.e., calendar year 2006). The standard income tax 
rate for corporations in the PRC is 30 percent, plus a 3 percent 
provincial income tax rate. Therefore, the highest possible benefit for 
the income tax rate programs is 33 percent. We are applying the 33 
percent adverse facts available rate on a combined basis (i.e., the 
nine listed programs combined provided a 33 percent benefit). See 
Circular Welded Carbon Quality Steel Pipe from the People's Republic of 
China: Preliminary Affirmative Countervailing Duty Determination; 
Preliminary Affirmative Determination of Critical Circumstances; and 
Alignment of Final Countervailing Duty Determination with Final 
Antidumping Duty Determination, 72 FR 63875, 63879 (November 13, 2007) 
(CWP from the PRC).
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    \8\ VAT Rebate for FIE Purchases of Domestically Produced 
Equipment, VAT and Tariff Exemptions for FIEs Using Imported 
Technology and Equipment in Encouraged Industries, and VAT and 
Tariff Exemptions on Imported Equipment (Domestic Enterprises).
    \9\ Policy Loans to LWS Producers from Government-Owned Banks.
    \10\ Preferential Tax Policies for Enterprises with Foreign 
Investment (Two Free, Three Half Program), Preferential Tax Policies 
for Export-Oriented FIEs, Corporate Income Tax Refund Program for 
Reinvestment of FIE Profits in Export-Oriented Enterprises, Tax 
Benefits for FIEs in Encouraged Industries that Purchase Domestic 
Origin Machinery, Tax Program for FIEs Recognized as High or New 
Technology Enterprises, Preferential Tax Policies for Research and 
Development, Tax Subsidies to FIEs in Specially Designated 
Geographic Areas, Preferential Tax Policies for Township Enterprises 
by FIEs and Local Income Tax Exemption and Reduction Programs for 
``Productive'' FIEs.
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    We are unable to utilize company-specific rates from this 
proceeding for the grant programs since the

[[Page 67897]]

participating mandatory respondent did not receive any countervailable 
subsidies from these programs. Therefore, for the seven grant 
programs,\11\ we are applying the highest subsidy rate for any program 
otherwise listed, which in this instance is SSJ's Provision of Land for 
Less than Adequate Remuneration rate of 2.17 percent. See Memorandum to 
the File, titled ``Selection of the Adverse Facts Available Rate for 
Ningbo, Qilu, and Han Shing Chemical, Ltd. (i.e., Hanshing Bulk Bag 
Co., Ltd. and Hanshing Co.)'' (November 26, 2007) for further 
discussion of the Department's calculated adverse facts available rates 
for the preliminary determination on file in the Department's CRU.
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    \11\ The State Key Technologies Renovation Project Refund, 
Grants and Other Funding for High Technology Equipment for the 
Textile Industry, Grants to Loss-Making State-Owned Enterprises, 
Export Interest Subsidy Funds for Enterprises Located in Zhejiang 
and Gaungdong Provinces, Technology Innovation Funds Provided by 
Zhejiang Province, Programs to Rebate Antidumping Legal Fees, and 
Loan Forgiveness for LWS Producers by the GOC.
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    With regard to the requirements of section 776(c) of the Act, the 
calculated subsidy rates we are using as adverse facts available are 
not considered secondary information as they are based on information 
obtained in the course of this investigation. See section 776(c) of the 
Act; see, also, the SAA at 870. Accordingly, no corroborative excercise 
is necessary for purposes of the application of adverse facts available 
to Ningbo and Qilu. Further, Ningbo did not respond to the Department's 
critical circumstances questionnaire. Accordingly, we are applying 
adverse facts available with regard to Ningbo for critical 
circumstances purposes as well. See the ``Critical Circumstances'' 
section below for more detail.

Han Shing Chemical

    We preliminarily determine that the application of facts available 
is also warranted with respect to Han Shing Chemical. We find that Han 
Shing Chemical withheld information we requested that is necessary to 
determine a countervailing duty rate for this preliminary 
determination. Specifically, Han Shing Chemical did not respond to the 
Department's questionnaires.\12\ Since Han Shing Chemical withheld 
information requested by the Department and since the failure to 
provide this information within the established deadlines has impeded 
our investigation, we find that the application of facts otherwise 
available is warranted under sections 776(a)(1)(A), (B), and (C) of the 
Act. Thus, in reaching our preliminary determination, pursuant to 
section 776(a)(2)(A), (B), and (C) of the Act, we have based Han Shing 
Chemical's countervailing duty rates on facts otherwise available.
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    \12\ Han Shing Chemical did provide its monthly shipment data on 
November 19, 2007, in response to the Department's critical 
circumstances questionnaire. It did not provide any responses on the 
record, however, to all other requests for information. Therefore, 
pursuant to section 782(e) of the Act, we have determined that this 
information can be used without undue difficulty and otherwise meets 
the remaining criteria of that provision solely with regard to our 
critical circumstance analysis.
---------------------------------------------------------------------------

    As noted above, Han Shing Bag provided a certification stating that 
neither it nor any company with which it is cross-owned or affiliated, 
as defined by 19 CFR 351.525(b)(6)(vi), produced LWS or exported LWS to 
the United States during the POI. In addition, Han Shing Bag stated 
that it is not associated with Han Shing Chemical. See certification 
attached to the GOC's September 24, 2007 questionnaire response. In our 
October 23, 2007 supplemental questionnaire to the GOC, we asked the 
GOC to confirm the accuracy of Han Shing Bag's statement that it does 
not produce or export LWS to the United States and its statement that 
it was not affiliated with Han Shing Chemical. In its November 5, 2007 
response, the GOC stated that Han Shing Bag had confirmed that it does 
not produce or export LWS and that it was not affiliated with Han Shing 
Chemical. However, evidence filed on the record by the petitioners on 
November 13, 2007, demonstrates that Han Shing Bag is cross-owned by 
Han Shing Chemical. See Exhibit 1 of the petitioners' November 13, 2007 
submission. Moreover, information on the record indicates that Han 
Shing Chemical exported LWS to the United States during the POI. Based 
on this information, we determine that Han Shing Chemical and Han Shing 
Bag are cross-owned as defined by 19 CFR 351.525(b)(6)(vi) and that Han 
Shing Chemical/Han Shing Bag exported LWS to the United States during 
the POI. Some of the details of this evidence are business proprietary. 
As such, those details are discussed in a separate memorandum to 
Barbara E. Tillman, Director, Office 6 from Toni Page, Analyst, 
Regarding Shangdong Shouguang Jianyuan Chun Company Limited, Han Shing 
Chemical Limited, and Zibo Aifudi Plastic Packaging Company Limited: 
Cross-Ownership (Cross-Ownership Memo).
    We preliminarily find the information contained in the petitioners' 
November 13, 2007 submission to be reliable. This information, which 
was placed on the record 13 days prior to the issuance of this 
preliminary determination, directly contradicts Han Shing Bag's 
certification provided in the GOC's September 24, 2007 questionnaire 
response. While the Department preliminarily determines that there is 
cross-ownership between Han Shing Chemical and Han Shing Bag, the 
Department will consider further arguments with regard to this 
information from all interested parties for the purposes of the final 
determination.
    In selecting from among the facts available, the Department has 
determined that an adverse inference is warranted, pursuant to section 
776(b) of the Act, because Han Shing Chemical/Han Shing Bag did not 
respond to our requests for information. Thus, Han Shing Chemical/Han 
Shing Bag failed to cooperate by not acting to the best of its ability. 
We are calculating Han Shing Chemical/Han Shing Bag's rate by applying 
the same adverse facts available methodology as for Ningbo and Qilu. 
See Ningbo and Qilu section above; see, also, Memorandum to the File, 
titled ``Selection of the Adverse Facts Available Rate for Ningbo, 
Qilu, and Han Shing Chemical, Ltd. (i.e., Hanshing Bulk Bag Co., Ltd. 
and Hanshing Co.)'' (November 26, 2007) for further discussion of the 
Department's calculated adverse facts available rates for the 
preliminary determination on file in the Department's CRU.

Critical Circumstances

    On November 5, 2007, the petitioners requested that the Department 
make a finding that critical circumstances exist with respect to 
imports of LWS from the PRC. Section 703(e)(1) of the Act states that 
if the petitioner alleges critical circumstances, the Department will 
determine, on the basis of information available to it at the time, if 
there is a reason to believe or suspect the alleged countervailable 
subsidies are inconsistent with the WTO Agreement on Subsidies and 
Countervailing Measures (the SCM Agreement) and whether there have been 
massive imports of the subject merchandise over a relatively short 
period.
    In accordance with 19 CFR 351.206(c)(2)(i), because the petitioners 
submitted a critical circumstances allegation more than 20 days before 
the scheduled date of the preliminary determination, the Department 
must issue a preliminary critical circumstances determination not later 
than the date of the preliminary determination. See, e.g., Policy 
Bulletin 98/4 Regarding Timing of Issuance of Critical Circumstances 
Determinations, 63 FR 55364 (October 15, 1998). As

[[Page 67898]]

discussed in the ``Analysis of Programs'' section below, the Department 
has preliminarily determined that SSJ has received a countervailable 
import substitution subsidy.\13\ This import substitution subsidy is 
inconsistent with the SCM Agreement. Although the countervailable 
subsidy rate for this import substitution subsidy is de minimis, use of 
an import substitution subsidy program is sufficient to make an 
affirmative preliminary determination of critical circumstances under 
section 703(e)(1)(A) of the Act. See Notice of Preliminary Affirmative 
Countervailing Duty Determination, Preliminary Affirmative Critical 
Circumstances Determination, and Alignment of Final Countervailing Duty 
Determination With Final Antidumping Duty Determination: Certain 
Softwood Lumber Products From Canada, 66 FR 43186, 43189-90 (August 17, 
2001); and Notice of Amended Final Affirmative Countervailing Duty 
Determination and Notice of Countervailing Duty Order: Certain Softwood 
Lumber Products From Canada, 67 FR 36070 (May 22, 2002) (the unchanged 
final determination).
---------------------------------------------------------------------------

    \13\ See ``Value Added Tax (VAT) Rebate for FIE Purchases of 
Domestically Produced Equipment'' section below. We also note that, 
on November 2, 2007, the Department determined to investigate twelve 
newly alleged subsidy programs which include export subsidies. Since 
the responses for the Department's questionnaires on these programs 
were not received until November 16, 2007, there was not sufficient 
time before the statutory due date of this preliminary determination 
to address these programs.
---------------------------------------------------------------------------

    Regarding Qilu, Ningbo, and Han Shing Chemical, we have made an 
adverse inference that these companies benefitted from countervailable 
export and import substitution subsidies pursuant to our determination 
to apply facts available to these companies. For all other exporters, 
we are basing our finding on the experience of SSJ, and, therefore, 
find that all others have benefitted from countervailable import 
substitution subsidies.
    In determining whether there are ``massive imports'' over a 
``relatively short period,'' pursuant to section 703(e)(1)(B) of the 
Act, the Department normally compares the import volume of the subject 
merchandise for three months immediately preceding the filing of the 
petition (i.e., the base period) with the three months following the 
filing of the petition (i.e., the comparison period). Section 
351.206(h)(1) of our regulations provides that, in determining whether 
imports of the subject merchandise have been ``massive,'' the 
Department normally will examine: (i) The volume and value of the 
imports; (ii) seasonal trends; and (iii) the share of domestic 
consumption accounted for by the imports. In addition, 19 CFR 
351.206(h)(2) provides that an increase in imports of 15 percent during 
the ``relatively short period'' of time may be considered ``massive.'' 
Finally, 19 CFR 351.206(i) defines ``relatively short period'' as 
normally being the period beginning on the date the proceeding begins 
(i.e., the date the petition is filed) and ending at least three months 
later. For our analyses, we are using a three-month base and comparison 
period.
    In response to the Department's critical circumstances 
questionnaire, Han Shing Chemical, Qilu \14\ and SSJ filed their 
monthly shipment data for subject merchandise exported to the United 
States for calendar years 2005 and 2006, and for January through 
September 2007. Based upon our analysis of these data, we preliminarily 
find that SSJ's and Qilu's shipments did not increase by more than 15 
percent during the ``relatively short period'' (i.e., between April 
through June 2007 and July through September 2007). See Memorandum to 
the File ``Critical Circumstances Analysis for Han Shing Chemical's and 
SSJ's Import Shipments and All-Others'' (November 26, 2007) (Import 
Analysis Memorandum) on file in the Department's CRU. Therefore, we 
preliminarily determine that the requirements of section 703(e)(1)(B) 
of the Act have not been satisfied, and that critical circumstances do 
not exist for SSJ and Qilu.
---------------------------------------------------------------------------

    \14\ We have used Han Shing Chemical's and Qilu's shipment data 
solely for our critical circumstances analysis, pursuant to section 
782(e) as noted above.
---------------------------------------------------------------------------

    Based upon our analysis of Han Shing Chemical's data, however, we 
preliminarily find that Han Shing Chemical's shipments did increase by 
more than 15 percent during the ``relatively short period'' (i.e., 
between April through June 2007 and July through September 2007). See 
the Import Analysis Memorandum on file in the Department's CRU. 
Therefore, we preliminarily determine that the requirements of section 
703(e)(1)(B) of the Act have been satisfied, and that critical 
circumstances exist for Han Shing Chemical.
    Regarding Ningbo, as part of our adverse facts available 
determination we have made an adverse inference that there were massive 
imports from these companies over a relatively short period.\15\ See, 
e.g., Notice of Preliminary Determination of Sales at Less Than Fair 
Value and Affirmative Preliminary Determination of Critical 
Circumstances: Wax and Wax/Resin Thermal Transfer Ribbons from Japan, 
68 FR 71072, 71076-77 (December 22, 2003) (unchanged in the final 
determination). Therefore, we preliminarily determine that the 
requirements of section 703(e)(1)(B) of the Act have been satisfied, 
and that critical circumstances exist for Ningbo.
---------------------------------------------------------------------------

    \15\ Ningbo declined to answer our request for monthly shipment 
data. See the Memorandum to the file from Thomas Gilgunn, Program 
Manager, (November 21, 2007) at attachment 2.
---------------------------------------------------------------------------

    For all-others, we preliminarily determine that there were not 
massive imports over a relatively short period based on Han Shing 
Chemical's, Qilu's, and SSJ's shipment data. See Import Analysis 
Memorandum. Therefore, we preliminarily determine that the requirements 
of section 703(e)(1)(B) of the Act have not been satisfied, and that 
critical circumstances do not exist for ``all-others.''

Alignment of Final Countervailing Duty Determination With Final 
Antidumping Duty Determination

    On July 18, 2007, the Department initiated the countervailing duty 
and antidumping duty investigations on LWS from the PRC. See Initiation 
Notice and Laminated Woven Sacks from the People's Republic of China: 
Initiation of Antidumping Duty Investigation, 72 FR 40833 (July 25, 
2007). The countervailing duty investigation and the antidumping duty 
investigation scope use identical language with regard to the 
merchandise covered.
    On November 20, 2007, the petitioners submitted a letter, in 
accordance with section 705(a)(1) of the Act, requesting alignment of 
the final countervailing duty determination with the final 
determination in the companion antidumping duty investigation of LWS 
from the PRC. Therefore, in accordance with section 705(a)(1) of the 
Act, and 19 CFR 351.210(b)(4), we are aligning the final countervailing 
duty determination with the final determination in the companion 
antidumping duty investigation of LWS from the PRC. The final 
countervailing duty determination will be issued on the same date as 
the final antidumping duty determination, which is currently scheduled 
to be issued on or about April 8, 2008.

Application of the Countervailing Duty Law to Imports From the PRC

    On October 25, 2007, the Department published the final 
determination of CFS Paper from the PRC. In that determination, the 
Department found, ``given the substantial differences between the 
Soviet-style economies and the PRC's economy in recent years, the 
Department's previous decision not to apply the CVD law to these 
Soviet-style

[[Page 67899]]

economies does not act as a bar to proceeding with a CVD investigation 
involving products from China.'' See Final CFS Paper from the PRC, 72 
FR 60645 at Comment 6; see, also, the November 26, 2007 Memorandum from 
Toni Page, Analyst, to the File ``Placing the Georgetown Steel 
Memorandum on the File of the Countervailing Duty Investigation of 
Laminated Woven Sacks from the People's Republic of China (Georgetown 
Steel Memorandum) attachment 1 at 2 on file in the Department's CRU. 
This decision was also affirmed in the preliminary determination of CWP 
from the PRC. See CWP from the PRC, 72 FR 63875 at 63880.
    Based on the preliminary determination in CWP from the PRC, we are 
using the date of December 11, 2001, the date on which the PRC became a 
member of the WTO, as the date from which the Department will identify 
and measure subsidies in the PRC for purposes of this preliminary 
determination. Id. Prior to this date, there were many changes in the 
PRC's economy. Many of the obligations undertaken by the PRC pursuant 
to its accession to the WTO were in line with the PRC's objective of 
economic reform. See Report of the Working Party on the Accession of 
China, WT/ACC/CHN/49 (October 1, 2001), for example, at paragraph 4 
(found at www.wto.org). Taken together, these changes permit the 
Department to determine whether the GOC has bestowed a countervailable 
subsidy on Chinese producers. See attachment 1 of the Georgetown Steel 
Memo at 7 and Final CFS Paper from the PRC, 72 FR 60645 at Comments 1 
and 6. Finally, the GOC acknowledged the changing nature of its economy 
in so far as its Accession Protocol contemplates the application of the 
CVD law to the PRC, even while it remains a non-market economy (NME). 
See an excerpt from the Protocol of Accession of the People's Republic 
of China, WT/L/432 (November 23, 2001) at section 15(b), from the June 
28, 2007 Petition at Exhibit 83; see, also, Final CFS Paper from the 
PRC, 72 FR 60645 at Comment 1. Therefore, for this preliminary 
determination, we have selected the date of December 11, 2001, as the 
date from which we will measure countervailable subsidies in the PRC.

Period of Investigation

    The period for which we are measuring subsidies, or the POI, is 
calendar year 2006.

Subsidies Valuation Information

Allocation Period

    The average useful life (AUL) period in this proceeding as 
described in 19 CFR 351.524(d)(2) is 10 years according to the U.S. 
Internal Revenue Service's 1977 Class Life Asset Depreciation Range 
System for assets used to manufacture LWS. No party in this proceeding 
has disputed this allocation period.
    For subsidies provided under the granting of land-use rights, 
described below, the land transactions for each of the respondents 
specify the period of time for which the land-use rights have been 
granted. Therefore, in order to calculate the benefit for the 
``Provision of Land for Less than Adequate Remuneration'' program, the 
Department is allocating the benefit for this program over the terms of 
the lease for each transaction.

Denominator and Attribution of Subsidies

    When selecting an appropriate denominator for use in calculating 
the ad valorem countervailable subsidy rate, the Department considered 
the basis for SSJ's and Aifudi's approval of benefits under each 
program at issue. The bases for SSJ's and Aifudi's approval for 
benefits for the programs found countervailable was not tied to export 
performance or to the production of a particular product. As such, we 
are using total sales of all products of SSJ or Aifudi as the 
denominator in our calculations. See 19 CFR 351.525(a)(3). As discussed 
below, both SSJ and Aifudi have cross-owned suppliers that received 
benefits that were not tied to export performance or to the production 
of a particular product. For these programs, we are using total sales 
of all products of SSJ or Aifudi and their respective cross-owned 
suppliers (less any internal sales between these companies and their 
cross-owned suppliers) as the denominator in our calculations.\16\ The 
cross-ownership of the respondent companies is further discussed in the 
Cross-Ownership Memo.
---------------------------------------------------------------------------

    \16\ We will ask both SSJ and Aifudi for additional information 
regarding their respective internal sales.
---------------------------------------------------------------------------

    The Department's regulations at section 351.525(b)(6)(vi) state 
that cross-ownership exists between companies if one company can use or 
direct the company's assets in essentially the same way it uses its 
own. This section of the Department's regulations states that this 
standard will normally be met where there is a majority voting interest 
between two corporations or through common ownership of two (or more) 
corporations. In addition, 19 CFR 351.525(b)(iv) states that ``if there 
is cross-ownership between an input supplier and a downstream producer, 
and production of the input product is primarily dedicated to 
production of the downstream product, the Secretary will attribute 
subsidies received by the input producer to the combined sales of the 
input and downstream products produced by both corporations (excluding 
the sales between the two corporations).'' The Court of International 
Trade (CIT) has upheld the Department's authority to attribute 
subsidies based on whether a company could use or direct the subsidy 
benefits of another company in essentially the same way it could use 
its own subsidy benefits. See Fabrique de Fer de Charleroi v. United 
States, 166 F. Supp. 2d. 593, 604 (CIT 2001). According to 19 CFR 
351.525(b)(6)(vi), cross-ownership exists between two or more 
corporations where one corporation can use or direct the individual 
assets of the other corporation(s) in essentially the same ways it can 
use its own assets.
    Aifudi: Aifudi reported that it is an FIE owned by a U.S. company 
named FDD Associates Inc. and a private Chinese company named Zibo 
Golden Moon Plastic Packaging Co., Ltd. (Golden Moon). Golden Moon owns 
a significant portion of Aifudi and owns the land Aifudi uses. Also, 
Aifudi owns the buildings Golden Moon uses. In its November 6, 2007 
supplemental questionnaire response, Golden Moon stated that it 
contributed start-up capital to Aifudi and that it owns a significant 
portion of Aifudi. Therefore, pursuant to 19 CFR 351.525(b)(6)(vi), we 
preliminarily determine that Aifudi and Golden Moon are cross-owned 
and, pursuant to 19 CFR 351.525(b)(6)(iv), we are attributing the 
subsidies received by Golden Moon to the combined sales of Aifudi and 
Golden Moon.
    Han Shing Chemical: As noted above, Han Shing Bag provided a 
certificate stating that neither it nor any company with which it is 
cross-owned, as defined by 19 CFR 351.525(6)(vi), produced LWS nor 
exported LWS to the United States during the period of investigation. 
In addition, Han Shing Bag stated that it is not associated with Han 
Shing Chemical. See the certification attached to the GOC's September 
24, 2007 questionnaire response. Moreover, Han Shing Bag confirmed, 
through the GOC, that it does not produce or export LWS and that it was 
not affiliated with Han Shing Chemical. However, information on the 
record filed by the petitioners on

[[Page 67900]]

November 13, 2007, demonstrates that Han Shing Bag is cross-owned with 
Han Shing Chemical. Moreover, information on the record also indicates 
that Han Shing Chemical exported LWS to the United States during the 
POI. Based on this information, we determine that Han Shing Chemical 
and Han Shing Bag are cross-owned as defined by 19 CFR 351.525(6)(vi). 
The details of this evidence are business proprietary; as such, it is 
discussed in the Cross-Ownership Memo.
    SSJ: SSJ reported that it is affiliated with two companies, SLP, an 
FIE, and Shandong Xinglong Plastic Product Company Limited (Xinglong). 
SSJ owns a majority of Xinglong. Xinglong does not produce or export 
LWS nor does it supply inputs to SSJ used in the production of subject 
merchandise. SSJ and SLP responded to the Department's original and 
supplemental questionnaires. SLP is co-owned by Han Shing Chemical and 
SSJ. SLP produces inputs primarily dedicated to the production of 
subject merchandise and sells it to SSJ. SLP also appears to produce 
subject merchandise and sells it to external customers. SSJ also owns 
part of SLP and both companies share board members as well as 
management. Although there is limited information on the record 
regarding Han Shing Chemical Ltd., and its relationship with SLP and 
SSJ, for the purposes of this preliminary determination, we find that 
SSJ controls the operations of its supplier SLP. As such, pursuant to 
19 CFR 351.525(b)(6)(vi), we preliminarily determine that SSJ and SLP 
are cross-owned and, pursuant to 19 CFR 351.525(b)(6)(iv), we are 
attributing the subsidies received by SLP to the combined sales of SLP 
and SSJ. The details of this evidence are business proprietary; as 
such, it is discussed in the Cross-Ownership Memo.
    We have asked SSJ and SLP to fully explain their relationship with 
SLP's other co-owner, Han Shing Chemical Ltd. In particular, we have 
asked SSJ and SLP to fully explain how Han Shing Chemical Ltd. is 
involved in the production and/or sales of LWS as well as to provide 
copies of Han Shing Chemical Ltd.'s financial statements and the names 
of its affiliates. See the Department's October 23, 2007 questionnaire. 
In their responses, SSJ and SLP stated that Han Shing Chemical Ltd. is 
a trading company based in Hong Kong and it refused to provide any 
information concerning its ownership and other affiliates, its 
financial statements, or the scope of its involvement in the LWS 
business upon request by SLP. See SSJ's November 5, 2005 supplemental 
questionnaire response. If Han Shing Chemical Ltd. is the same company 
which the Department selected as a mandatory respondent in this case, 
and to which we have applied adverse facts available, this information 
would be relevant to our determination. In any case, the Department 
needs more information regarding this co-owner of SLP. As such, the 
Department intends, following this preliminary determination, to issue 
another questionnaire to provide SSJ and SLP an additional opportunity 
to provide that information.

Loan Benchmarks

    Summary: The Department is investigating loans received by 
respondents from Chinese banks, including state-owned commercial banks 
(SOCBs), which are alleged to have been granted on a preferential, non-
commercial basis. Section 771(5)(E)(ii) of the Act explains that the 
benefit for loans is the ``difference between the amount the recipient 
of the loan pays on the loan and the amount the recipient would pay on 
a comparable commercial loan that the recipient could actually obtain 
on the market.'' Normally, the Department uses comparable commercial 
loans reported by the company for benchmarking purposes. See 19 CFR 
351.505(a)(2)(i). However, the Department does not treat loans from 
government banks as commercial if they were provided pursuant to a 
government program. See 19 CFR 351.505(a)(2)(ii). Because the loans 
provided to the respondents by SOCBs were made under the ``Government 
Policy Lending Program,'' as explained below, these loans are the very 
loans for which we require a suitable benchmark. Additionally, if 
respondents received any loans from foreign banks, these would be 
unsuitable for use as benchmarks because, as explained in detail in the 
final determination of CFS Paper from the PRC, the GOC's intervention 
in the banking sector creates significant distortions, restricting and 
influencing even foreign banks within the PRC. See Final CFS Paper from 
the PRC, 72 FR 60645 and accompanying Issues and Decision Memorandum at 
Comments 8 and 10.
    If the firm did not have any comparable commercial loans during the 
period, the Department's regulations provide that we ``may use a 
national interest rate for comparable commercial loans.'' See 19 CFR 
351.505(a)(3)(ii). However, the Chinese national interest rates are not 
reliable as benchmarks for these loans because of the pervasiveness of 
the GOC's intervention in the banking sector. Loans provided by Chinese 
banks reflect significant government intervention and do not reflect 
the rates that would be found in a functioning market. See Final CFS 
Paper from the PRC, 72 FR 60645 and accompanying Issues and Decision 
Memorandum at Comment 10.
    The statute directs that the benefit is normally measured by 
comparison to a ``loan that the recipient could actually obtain on the 
market.'' See section 771(5)(E)(ii) of the Act. Thus, the benchmark 
should be a market-based benchmark, yet, there is not a functioning 
market for loans within the PRC. Therefore, because of the special 
difficulties inherent in using a Chinese benchmark for loans, the 
Department is selecting a market-based benchmark interest rate based on 
the inflation-adjusted interest rates of countries with similar per 
capita gross income (GNI) to the PRC, using the same regression-based 
methodology that we employed in CFS Paper from the PRC. See Final CFS 
Paper from the PRC, 72 FR 60645 and accompanying Issues and Decision 
Memorandum at Comment 10.
    The use of an external benchmark is consistent with the 
Department's practice. For example, in Softwood Lumber, the Department 
used U.S. timber prices to measure the benefit for government provided 
timber in Canada. See Final Results of the Countervailing Duty 
Investigation of Certain Softwood Lumber Products from Canada, 67 FR 
15545 (April 2, 2002), and accompanying Issues and Decision Memorandum, 
at 34 (Softwood Lumber). In the current proceeding, the Department 
preliminarily finds that the GOC's predominant role in the banking 
sector results in significant distortions that render the lending rates 
in the PRC unsuitable as market benchmarks. Therefore, as in Softwood 
Lumber, where domestic prices are not reliable, we have resorted to 
prices (i.e., benchmarks) outside the PRC.
    Discussion: In our analysis of the PRC as a non-market economy in 
the antidumping duty investigation of Certain Lined Paper Products from 
the PRC, the Department found that the PRC's banking sector does not 
operate on a commercial basis and is subject to significant 
distortions, primarily arising out of the continued dominant role of 
the government in the sector. See ``the People's Republic of China 
(PRC) Status as a Non-Market Economy,'' May 15, 2006 (May 15 
Memorandum); and ``China's Status as a Non-Market Economy,'' August 30, 
2006 (August 30 Memorandum), both of which are referenced in the Notice 
of Final Determination of Sales at Less Than Fair Value, and 
Affirmative Critical

[[Page 67901]]

Circumstances, In Part: Certain Lined Paper Products From the People's 
Republic of China, 71 FR 53079 (September 8, 2006), and as placed on 
the file of this investigation in a memorandum from Toni Page to the 
File titled ``Loan Benchmark Information'' (November 26, 2007) (Loan 
Benchmark Memo) on file in the Department's CRU. This finding was 
further elaborated in CFS Paper from the PRC. See Final CFS Paper from 
the PRC, 72 FR 60645 and accompanying Issues and Decision Memorandum at 
Comment 10. In that case, the Department found that the GOC still 
dominates the domestic Chinese banking sector and prevents banks from 
operating on a fully commercial basis. We continue to find that these 
distortions are present in the PRC banking sector and, therefore, 
preliminarily determine that the interest rates of the domestic Chinese 
banking sector do not provide a suitable basis for benchmarking the 
loans provided to respondents in this proceeding.
    Moreover, while foreign-owned banks do operate in the PRC, they are 
subject to the same restrictions as the SOCBs. Further, their share of 
assets and lending is negligible compared with the SOCBs. Therefore, as 
discussed in greater detail in Final CFS Paper from the PRC, because of 
the market-distorting effects of the GOC in the PRC banking sector, 
foreign bank lending does not provide a suitable benchmark. See Final 
CFS Paper from the PRC, 72 FR 60645 and accompanying Issues and 
Decision Memorandum at Comment 10.
    We now turn to the issue of choosing an external benchmark. 
Selecting an appropriate external interest rate benchmark is 
particularly important in this case because, unlike prices for certain 
commodities and traded goods, lending rates vary significantly across 
the world. Nevertheless, as discussed in Final CFS Paper from the PRC, 
there is a broad inverse relationship between income levels and lending 
rates. In other words, countries with lower per capita gross national 
income (GNI) tend to have higher interest rates than countries with 
higher per capita GNI, a fact demonstrated by the lending rates across 
countries reported in International Financial Statistics (IFS). See 
http://www.imfstatistics.org, at attachment 3 of the Loan Benchmark 
Memo. The Department has therefore preliminarily determined that it is 
appropriate to compute a benchmark interest rate based on the 
inflation-adjusted interest rates of countries with similar per capita 
GNIs to the PRC, using the same regression-based methodology that we 
employed in Final CFS Paper from the PRC. As explained in Final CFS 
Paper from the PRC, 72 FR 60645 and accompanying Issues and Decision 
Memorandum at Comment 10, this pool of countries captures the broad 
inverse relationship between income and interest rates. We determined 
which countries are similar to the PRC in terms of GNI, based on the 
World Bank's classification of countries as: low income; lower-middle 
income; upper-middle income; and high income. The PRC falls in the 
lower-middle income category, a group that includes 55 countries as of 
July 2007. See <web.worldbank.org, search engine term: 
``lower middle income'', at attachment 4 of the Loan Benchmark Memo.
    Many of these countries reported short-term lending and inflation 
rates to IFS. With the exceptions noted below, we used this data set to 
develop a inflation-adjusted market benchmark lending rate for short-
term RMB loans. See attachment 3 of the Loan Benchmark Memo. We did not 
include those economies that the Department considered to be non-market 
economies for AD purposes for any part of 2006: the PRC, Armenia, 
Azerbaijan, Belarus, Georgia, Moldova, Turkmenistan, and Ukraine. The 
benchmark necessarily also excludes any economy that did not report 
lending and inflation rates to IFS for 2005 or 2006. Finally, the 
Department also excluded three aberrational countries, Angola, with a 
inflation-adjusted 2005 rate of 44.718, Sri Lanka, with an inflation-
adjusted negative 2005 rate of negative 3.6, and Dominican Republic, 
with an inflation-adjusted 2004 interest rate of negative 18.866. As 
also discussed in Final CFS Paper from the PRC, this regression 
provides the most suitable market-based benchmark to measure the 
benefit from the Government Policy Lending Program, because it takes 
into account a key factor involved in interest rate formation, that of 
the quality of a country's institutions, that is not directly tied to 
state-imposed distortions in the banking sector discussed above. 
Consistent with the regression model employed in Final CFS Paper from 
the PRC, the Department calculated an inflation-adjusted 2006 benchmark 
lending rate of 7.66 percent and 8.78 percent for 2005. Because these 
are inflation-adjusted benchmarks, it is also necessary to adjust the 
interest paid by respondents on its RMB loans for inflation. This was 
done using the PRC inflation figure as reported to IFS. See attachment 
3 of the Loan Benchmark Memo. The Department then compared its 
benchmarks with respondents' inflation-adjusted interest rated to 
determine whether a benefit existed for the loans received by SSJ and 
Aifudi' s affiliate Golden Moon on which principal was outstanding or 
interest was paid during the POI.

Discount Rate for Allocation

    The Department requires a long term interest rate to use as a 
discount rate for purposes of allocating benefits received from the 
less than adequate remuneration of the provision of land-use rights 
over the relevant length of each land-use right in question. However, 
as discussed above, because of the market-distorting effect of the GOC 
in the PRC banking sector, there are no market-based interest rates, 
including long-term interest rates, in China. In Final CFS Paper from 
the PRC, the Department developed a ratio of short-term and long-term 
lending to identify and measure benefit from any long-term loans. See 
Final CFS Paper from the PRC, 72 FR 60645 and accompanying Issues and 
Decision Memorandum at Comment 10. The Department then applied this 
ratio to the benchmark short-term lending figure (discussed in the 
section on the lending benchmark) to compute a long-term lending rate. 
Specifically, the Department computed a ratio of the average one-year 
and five-year interest rates on interest rate swaps reported by the 
Federal Reserve for 2005. See attachment 3 of the Loan Benchmark Memo. 
That is, if the long-term swap rate were 25 percent higher than the 
short-term swap rate, the Department would inflate the average short-
term lending rate by 25 percent to arrive at along-term interest rate 
benchmark. This methodology is appropriate because the ratio between 
short-term and long-term interest rate swap rates offers an estimate of 
the market consensus premium that borrowers would pay on a long-term 
loan over a short-term loan. In the present investigation, the 
Department relied on the same methodology to develop long-term interest 
rates for 2005 for purposes of allocating benefits to the POI.

Creditworthiness

    As mentioned under the ``Case History'' section of this notice, the 
Department determined to investigate twelve newly alleged subsidy 
programs on November 2, 2007. One of the new allegations raised by the 
petitioners concerns the creditworthiness of SSJ. Given that the 
questionnaire responses were received on November 16, 2007 (extended in 
response to the GOC's comments), the Department does not have enough 
time to review and analyze these recently-filed facts and arguments

[[Page 67902]]

on the record with regard to the newly alleged subsidy allegations for 
purposes of this preliminary determination. We will therefore analyze 
the responses to these allegations and address all arguments fully in a 
post-preliminary analysis memorandum.

Analysis of Programs

    Based upon our analysis of the petition and the responses to our 
questionnaires, we determine the following:

I. Programs Preliminarily Determined To Be Countervailable

A. Government Policy Lending

    The petitioners allege that the GOC has targeted the textile 
industry for policy loans and that LWS is part of the textile 
industry.\17\ Thus, according to the petitioners, policy loans targeted 
towards the textile industry would be available to LWS producers. The 
petitioners argue that the GOC's five-year plans for the textile 
industry (including general goals at the national level and more 
specific targets at the provincial level) could not be accomplished 
without discounted loans from government-owned banks, such as policy 
banks and SOCBs. For example, the petitioners provided excerpts from 
the textile five-year plan of Shandong Province, which is home to two 
of the mandatory respondents and the voluntary respondent,\18\ which 
calls for a 10 percent increase in sales revenue and exports for 
textiles. In addition to the Shandong textile five-year plan, the 
petitioners cite to other documents and proclamations of the GOC, such 
as the ``National Key Technology Renovation Project: Major Content,'' 
which refers to high-end textile fabrics. See Exhibit 80 of the 
Petition. The document states ``our country will become more 
competitive in the international market and we will reach the goal of 
replacing imported products with homemade products and expanding our 
exports.'' Id. at 3. According to the petitioners, these documents 
demonstrate that the GOC will accomplish its textile industry goals by 
directing its policy banks and SOCBs to provide low-cost policy loans.
---------------------------------------------------------------------------

    \17\ Although the petitioners had also argued that LWS could be 
classified as part of the plastics industry and/or the packaging 
industry, pursuant to requests for additional information and 
clarification from the Department, the ultimate policy loan 
allegation in the Petition specified the textile industry, and the 
Department initiated on policy loans to the textile industry.
    \18\ Qilu, SSJ, and Aifudi.
---------------------------------------------------------------------------

    Pursuant to our initiation of an investigation of this program, we 
sent questions to the GOC regarding possible policy loans to the 
textile industry, and regarding some general aspects of economic 
policy, such as questions about relevant five-year plans and the 
meaning of industry and company designations. See the August 3, 2007 
questionnaire to the GOC, section A, pages 2-2 through 2-4. These 
questions were similar to questions the Department asked in the 
investigations of CFS, regarding policy loans to the forestry and paper 
industry, and of CWP, regarding policy loans to the steel industry. See 
CWP from the PRC, 72 FR at 63883. We asked that the GOC provide the 
five-year plans for the textile industry. We also asked the GOC to 
complete our standard ``Appendix 1,'' an appendix the Department 
attaches to all initial CVD questionnaires, which requests basic 
information regarding programs under investigation such as the names of 
government agencies involved, the date the program began, a description 
of the application process and eligibility requirements. As noted above 
in the ``Use of Facts Otherwise Available'' section, the GOC responded 
with a two-part reply: (1) LWS producers are not part of the textile 
industry and (2) all questions regarding a possible program of policy 
loans targeted to the textile industry are therefore irrelevant. In 
support of its contention that LWS producers are not part of the 
textile industry, the GOC provided a statement from the China National 
Textile and Apparel Council (CNTAC), dated after the POI, stating that 
LWS producers were not part of the textile industry. See September 24, 
2007 GOC questionnaire response at Exhibit A-4.
    We then issued a supplemental questionnaire to the GOC, asking, 
inter alia, for additional information regarding the CNTAC statement, 
and repeated our requests for basic information about policy loans to 
the textile industry. In particular, we asked how CNTAC and the GOC had 
made their determination regarding industry classification, and we 
repeated our request made in the initial questionnaire for five-year 
plans for the textile industry covering the AUL of this investigation 
(the Department was under the impression this would likely include only 
three textile-specific five-year plans). See the October 23, 2007 
supplemental questionnaire to the GOC, question 8 under ``Programs'' 
(request for five-year plans for the textile industry). We also 
repeated our request that the GOC complete the standard ``Appendix 1,'' 
and asked additional questions regarding policy loans (for example, we 
asked for a list of five-year plans maintained by the provinces 
relevant to this investigation). Id. at question 11 (request that 
``Appendix 1'' be completed) and question 10 (request for a list of 
five-year plans issued by Shandong and Ningbo).
    In response to this supplemental questionnaire, the GOC stated the 
following basis for its conclusion that LWS producers are not part of 
the textile industry: ``The PRC considers a company to be a member of a 
particular industry when that company is a member of the association 
covering that industry.'' See October 26, 2007 GOC questionnaire 
response. In this regard, the GOC noted that one of the four mandatory 
respondents was part of the plastic packaging manufacturers' 
association, and that none of the four was part of CNTAC. It also noted 
that CNTAC was sometimes consulted during the economic planning 
process, and it provided a second statement from CNTAC claiming that 
LWS was not part of the textile industry during the POI.\19\ See 
November 5, 2007 GOC supplemental questionnaire response, questions 1 
and 2. In response to the Department's questions concerning policy 
lending to the textile industry, the GOC responded that these questions 
were irrelevant. Thus, for a second time, the GOC did not provide the 
requested five-year plans and did not answer our standard questions. 
Id. at questions 8 and 11. It also did not answer new questions, such 
as our request for a list of provincial five-year plans.
---------------------------------------------------------------------------

    \19\ As noted, the CNTAC statement was dated after the POI. In 
our supplemental, we had asked for a statement or other evidence 
dated before the end of the POI (i.e., before the investigation had 
started). The GOC responded to this question by providing a second 
statement addressing the status of LWS producers before the end of 
the POI, but the statement is still dated after the POI.
---------------------------------------------------------------------------

    On November 8, 2007, the petitioners put further evidence on the 
record which supports this conclusion: (1) Evidence indicating the 
Zhejiang Province textiles association has mentioned LWS as a textile 
(one of the non-responding respondents is in Zhejiang Province); (2) an 
article from the China Economic Times mentioning the European Union's 
antidumping investigation of LWS in the context of a discussion of 
threats to the PRC textile industry; (3) an excerpt from a textiles 
report from a PRC statistics bureau, which includes LWS data; and, (4) 
an excerpt from a textiles report from the Web site `China Textile 
News,' which also includes LWS data. In addition, the petitioners 
placed information on the record that indicates that China has 
negotiated tariff quota agreements for textiles, which included HTS 
number 6305.33.0020 (the HTS classification of

[[Page 67903]]

LWS prior to July 1, 2007), until January 1, 2002, when such products 
were integrated into the GATT. The specific tariff sub-heading was part 
of Category 669-P (manmade fiber woven bags). Specific limits on 669-
imports from China date back to 1985.\20\
---------------------------------------------------------------------------

    \20\ In response to our question about the inclusion of LWS 
within its tariff schedule, the GOC responded that its tariff 
schedule follows the harmonized tariff schedule, and that therefore 
its inclusion of LWS within the textile chapter is, essentially, a 
matter of global conventions, not its own. However, as just noted, 
the GOC also considered LWS to be part of textiles over the long 
course of bilateral quota agreements.
---------------------------------------------------------------------------

    As discussed above in the Use of Adverse inferences section, we 
have preliminarily concluded that LWS producers are considered part of 
the textile industry for policy planning purposes. Although the GOC 
stated in its supplemental response that CNTAC is consulted during the 
course of economic planning, given the lack of information provided by 
the GOC regarding economic planning,\21\ policy loans, and the textile 
industry, we are unable to draw any meaningful conclusions about the 
significance of CNTAC in this process, or the involvement of other 
central agencies or organizations, local agencies or organizations, 
such as the Zhejiang textile association mentioned above, or the banks 
themselves.\22\
---------------------------------------------------------------------------

    \21\ Regarding the opinion of CNTAC itself, the petitioners 
provided a CNTAC-issued list of ``primary professional machinery,'' 
which includes an entry for ``polyolefin woven sacks & bags loom.'' 
The list appears to be an inventory of its members' equipment, and 
stands in contradiction to CNTAC's statement regarding its own 
classification of LWS producers as outside textiles.
    \22\ We note here the importance of the petitioners' claim that 
the specific details of the goals and the implementation of central 
five-year plans are often found in provincial plans. We also note 
the GOC's unwillingness to help us determine what five-year plans of 
the relevant provinces involve the textile industry.
---------------------------------------------------------------------------

    In addition to concluding that LWS is part of textiles policy 
planning purposes, the Department also preliminarily concludes that 
there is a program of policy lending to the textile industry. As noted 
above, the GOC did not provide requested information concerning this 
alleged program. It did not provide essential information, such as 
five-year plans for the textile industry, which were requested twice, 
or offer to provide this information at a later date. Rather, the GOC 
simply stated its belief, repeatedly, that this information was 
irrelevant. See the discussion on application of facts available, 
above. Because the GOC withheld this information and failed to act to 
the best of its ability in responding to the above questions, we are 
unable to analyze how the GOC intended to achieve its goals for the 
textile industry during the POI, or the extent to which policy loans 
might have been involved. Thus, we have preliminarily determined as 
adverse facts available, pursuant to sections 776(a) and (b) of the 
Act, this loan program is specific in law because the GOC has a policy 
in place to encourage and support the growth and development of the 
textile industry and the LWS producers within it. See section 
771(5A)(D)(i) of the Act (with regards to the requirements for 
specificity). We have also determined, as adverse facts available, that 
the program provides direct financial contributions by the GOC (i.e., 
government policy banks and SOCBs) pursuant to section 771(5)(D)(i) the 
Act, and a benefit to recipients, pursuant to section 771(5)(E)(ii). 
This program provides a benefit to the recipients equal to the 
difference between what the recipients paid on loans from government-
owned banks and the amount they would have paid on comparable 
commercial loans. See section 771(5)(E)(ii) of the Act (with regards to 
the benefit from loans). See the ``Use of Adverse Inferences'' section 
above for more details on loans.
    SSJ and its cross-owned supplier, SLP, and Golden Moon (cross-owned 
with Aifudi) had outstanding loans under this program during the POI. 
To calculate the benefit, we used the interest rates described in the 
``Benchmark'' section above and the methodology described in 19 CFR 
351.505(c)(1) and (2). We divided the benefit by each company's total 
sales to calculate a subsidy of 0.27 percent ad valorem for SSJ and 
0.07 percent ad valorem for Aifudi for this program.

B. Preferential Tax Policies for Enterprises With Foreign Investment 
(Two Free, Three Half Program)

    The petitioners allege that, according to Article 8 of the Foreign 
Invested Enterprise (i.e., a foreign joint venture) (FIE) Tax Law, an 
FIE that is ``productive'' and is scheduled to operate for not less 
than ten years may be exempted from income tax in the first two years 
of profitability and pay income taxes at half the standard rate for the 
next three years. This is known as the ``Two Free, Three Half'' 
program. FIEs are ``productive'' if they meet the conditions set forth 
in Article 72 of the Detailed Implementation Rules of the Income Tax 
Law of the People's Republic of China of Foreign Investment 
Enterprises. This provision lists industries connected to 
manufacturing, which the petitioners state include plastic packaging 
and textiles industries. The GOC, in its response, has stated that the 
Foreign Invested Enterprise and Foreign Enterprise Income Tax Law 
provides a tax exemption to qualified FIEs for the first two years in 
which they make a profit and a fifty percent reduction from the 
statutory tax rates from year three to five.
    SSJ's cross-owned supplier, SLP, is an FIE and claimed benefits 
under the Two Free, Three Half program. Aifudi stated that it is an 
FIE, but that its cross-owned parent, Golden Moon, is not an FIE. 
Aifudi stated that because it only began operations in late 2006 it did 
not file a tax return during the POI and thus did not benefit from this 
program. In addition, it had an operating loss during the POI. We 
preliminarily determine that the exemption or reduction in the income 
tax paid by ``productive'' FIEs under this program confers a 
countervailable subsidy. The exemption/reduction is a financial 
contribution in the form of revenue forgone by the GOC and it provides 
a benefit to the recipients in the amount of the tax savings. See 
section 771(5)(D)(ii) of the Act and 19 CFR 351.509(a)(1).
    We also preliminarily determine that the exemption/reduction 
afforded by this program is limited as a matter of law to certain 
enterprises, ``productive'' FIEs, and, hence, is specific under section 
771(5A)(D)(i) of the Act. The GOC states that FIEs are a separate type 
of business organization under Chinese law, subject to different 
establishment laws, corporate governance structure, capital investment, 
accounting systems, and profit sharing systems, as distinguished from 
standard corporations, partnerships, or sole partnerships. The GOC 
further states that it adopted tax standards applicable to FIEs to 
reflect the different type of business organization. The GOC argues 
that the difference in tax status is no different than the distinction 
in the United States tax law between corporations and partnerships. 
However, we have preliminarily determined that limiting a program to 
``productive'' FIEs is a sufficient basis to find specificity and, 
having found specificity as a matter of law, it is not necessary to 
reach the issue of whether the subsidy is specific in fact. See 
Statement of Administrative Action accompanying the Uruguay Round 
Agreements Act, H.R. Doc. No. 103-316, at 930 (1994) (SAA). The 
Department has also found this program to be countervailable in the CFS 
investigation. See CFS Amended Preliminary, 72 FR at 17494 (and

[[Page 67904]]

confirmed in the Final CFS Paper from the PRC, 72 FR 60645).
    To calculate the benefit from this program to SSJ, we treated the 
income tax exemption claimed by SSJ's cross-owned input supplier, SLP, 
as a recurring benefit, consistent with 19 CFR 351.524(c)(1). To 
compute the amount of tax savings, we compared the tax rate paid to the 
rate that would have been paid by SLP otherwise (as discussed below, 
SLP's tax rate was reduced during the POI from the standard central 
government rate of 30 percent to 24 percent, pursuant to another FIE 
income tax program) and multiplied the difference by SLP's taxable 
income. In accordance with 19 CFR 351.525(b)(6)(ii), we attributed the 
benefit received to the combined sales of SSJ and SLP. Additional 
information on this calculation is provided in the Calculation Analysis 
memorandum for SSJ. See ``Preliminary Results Calculation Memorandum 
for Shangdong Shouguang Jianyuan Chun Co., Ltd. (SSJ),'' November 26, 
2007 (SSJ Calculation Memo). On this basis, we preliminarily determine 
that a CVD subsidy of 0.10 percent ad valorem exists for SSJ.

C. Tax Subsidies to FIEs in Specially Designated Geographic Areas

    The petitioners allege that tax benefits are available to FIEs 
located in areas designated by the GOC as ``free trade zones,'' ``high-
technology zones,'' or other such zones. Under this program, such zones 
have reduced income tax rates for FIEs (e.g., from 30 to 24 percent) 
pursuant to Article 7 of the FIE Tax Law. According to the GOC, for 
FIEs established in a coastal economic development zone, special 
economic zone, or economic technology development zone, or other zones 
designated by law or implementing regulations, regardless of the 
industry or enterprise, the applicable corporate income tax rate is 
fifteen percent or twenty-four percent, depending on the zone.
    SLP reported that because it is located in Chenming Industrial Zone 
its central government income tax rate is reduced from 30 percent to 24 
percent. While SSJ is also located in the Chenming park, it is not a 
FIE and thus apparently is not entitled to this benefit. Aifudi and 
Golden Moon reported no benefits under this program. The income tax 
returns submitted by SSJ, Aifudi, and Golden Moon confirm that these 
companies did not benefit from this program.
    We preliminarily determine that the exemption or reduction in the 
income tax paid by ``productive'' FIEs under this program confers a 
countervailable subsidy. The exemption/reduction is a financial 
contribution in the form of revenue forgone by the GOC and it provides 
a benefit to the recipients in the amount of the tax savings. See 
section 771(5)(D)(ii) of the Act and 19 CFR 351.509(a)(1). We also 
preliminarily determine that the exemption/reduction afforded by this 
program is limited as a matter of law to certain enterprises, 
``productive'' FIEs, and, hence, is specific under section 
771(5A)(D)(i) of the Act, and that the exemption/reduction is limited 
to enterprises located in designated geographical regions and, hence, 
is also specific under section 771(5A)(D)(iv) of the Act. The 
Department has also found this program to be countervailable in the CFS 
investigation. See CFS Amended Preliminary, 72 FR at 17494 (and 
confirmed in the Final CFS Paper from the PRC, 72 FR 60645).
    To calculate the benefit from this program to SSJ, we treated the 
income tax exemption claimed by SLP as a recurring benefit, consistent 
with 19 CFR 351.524(c)(1). To compute the amount of tax savings, we 
compared the tax rate paid to the rate that would have been paid by SLP 
otherwise (24 versus 30 percent) and multiplied the difference by SLP's 
taxable income. In accordance with 19 CFR 351.525(b)(6)(ii), we 
attributed the benefit received to the combined sales of SSJ and SLP. 
Additional information on this calculation is provided in the 
Calculation Analysis memorandum for SSJ. See SSJ Calculation Memo. On 
this basis, we preliminarily determine that a CVD subsidy of 0.02 
percent ad valorem exists for SSJ.

D. Local Income Tax Exemption and Reduction Programs for ``Productive'' 
FIEs

    The petitioners allege that the governments of China's provinces, 
autonomous regions, and certain municipalities have been delegated the 
authority to provide exemptions and reductions of local income taxes 
for ``productive'' FIEs. According to the GOC, Article 9 of the FIE Tax 
Law authorizes provincial governments to grant FIEs exemptions or 
reductions on income taxes that otherwise would be owed to those 
provincial governments. In particular, in Shandong Province, any 
``productive FIEs established outside the coastal economic open area 
approved by the state, or any program invested in energy sources, 
transportation, or port construction with a total investment of more 
than US$30 million, could be exempted from local income tax.''
    In its initial questionnaire response, SLP submitted the tax return 
it filed in 2007, instead of the return filed in the POI, as requested. 
It also stated it did not benefit from this program. However, in its 
supplemental questionnaire response, it submitted the proper tax return 
(filed in 2006), which clearly indicates it benefitted from this 
program. In addition, the GOC reports on page 37 of its November 5 
supplemental questionnaire response that SLP benefitted under this 
program during the POI. SSJ itself, along with Aifudi and Golden Moon, 
reported no benefits under this program. As discussed above, the income 
tax status and returns of these three companies during the POI confirms 
they did not benefit from this program during the POI.
    We preliminarily determine that the exemption or reduction in the 
income tax paid by ``productive'' FIEs under this program confers a 
countervailable subsidy. The exemption/reduction is a financial 
contribution in the form of revenue forgone by the GOC and it provides 
a benefit to the recipients in the amount of the tax savings. See 
section 771(5)(D)(ii) of the Act and 19 CFR 351.509(a)(1). We also 
preliminarily determine that the exemption/reduction afforded by this 
program is limited as a matter of law to certain enterprises, 
``productive'' FIEs, and, hence, is specific under section 
771(5A)(D)(i) of the Act. The Department has also found this program to 
be countervailable in the CFS investigation. See CFS Amended 
Preliminary, 72 FR at 17494 (and confirmed in the Final CFS Paper from 
the PRC, 72 FR 60645).
    To calculate the benefit from this program to SSJ, we treated the 
income tax exemption claimed by SLP as a recurring benefit, consistent 
with 19 CFR 351.524(c)(1). To compute the amount of tax savings, we 
compared the tax rate paid to the rate that would have been paid by SLP 
otherwise (the standard local rate is 3 percent) and multiplied the 
difference by SLP's taxable income. In accordance with 19 CFR 
351.525(b)(6)(ii), we attributed the benefit received to the combined 
sales of SSJ and SLP. Additional information on this calculation is 
provided in the Calculation Analysis memorandum for SSJ. See SSJ 
Calculation Memo. On this basis, we preliminarily determine that a CVD 
subsidy of 0.01 percent ad valorem exists for SSJ.

[[Page 67905]]

E. Value Added Tax (VAT) Rebate for FIE Purchases of Domestically 
Produced Equipment

    The petitioners allege that the Circular of the State 
Administration of Taxation Concerning Transmitting the Interim Measure 
for the Administration of Tax Refund to Enterprises with Foreign 
Investment for the Domestic Equipment Purchases provides that the GOC 
will refund the VAT paid by FIEs on purchases of certain domestically 
produced equipment. See Guoshifa (1999) No. 171, at Art. 4 (September 
20, 1999) from Volume III of the June 28, 2007 Petition at Exhibit 77. 
VAT refunds are available for equipment falling into either the 
`encouraged' or `restricted' categories for FIEs, or for projects 
listed in the Catalogue of Key Industries, Products, and Technologies 
Encouraged for Development by the State.
    SSJ's cross-owned company SLP reported in its October 1, 2007 
questionnaire response that it applied for, and the GOC refunded, the 
VAT paid by the company for purchases of domestically produced 
equipment in 2005, before the POI. SLP further reported that it was 
entitled to this VAT refund because of its status as an FIE.
    We preliminarily determine that the rebate of the VAT paid on 
purchases of domestically produced equipment by FIEs confers a 
countervailable subsidy. We preliminarily determine that the rebates 
are a financial contribution in the form of revenue forgone by the GOC. 
We further preliminarily determine that since FIEs pay less VAT than 
they would in the absence of the program, it provides a benefit in the 
amount of the refund. See section 771(5)(D)(ii) of the Act and 19 CFR 
351.510(a)(1). We further preliminarily determine that the VAT rebates 
are contingent upon the use of domestic over imported goods and, hence, 
specific under section 771(5A)(C) of the Act.
    Since these VAT exemptions were for the purchase of capital 
equipment, we are treating these exemptions as non-recurring benefits 
in accordance with 19 CFR 351.524(c)(2)(iii). To measure the benefit 
allocable to the POI, we first conducted the ``0.5 percent test'' for 
2005, the year that SLP received the rebate payments. See 19 CFR 
351.524(b)(2). We summed the value of SLP's VAT exemptions and divided 
that sum by SLP's and SSJ's total 2005 sales in accordance with the 
attribution rules described in 19 CFR 351.525(b)(6). As a result, we 
found that the benefits were less than 0.5 percent of relevant sales 
during that year. Thus, SLP's VAT exemptions should be expensed in the 
year of receipt. On this basis, we preliminarily determine that a 
countervailable subsidy rate of 0.00 percent ad valorem exists for SSJ.

F. Provision of Land for Less Than Adequate Remuneration

    Both SSJ and Aifudi are located in industrial parks within Shandong 
Province. SSJ is located in Chenming Industrial Zone (also know as 
Chenming Industrial Park or Garden) in the Shouguang municipal division 
of the city of Weifang. Aifudi is located in Huantai New Century 
Industry Park in the neighboring city of Zibo. According to SSJ's 
supplemental response, only projects that exceed a certain amount of 
investment level are allowed to locate in the park. Moreover, payment 
for its use of land within the park is waived as long as it meets 
certain additional investment and fixed assets density (i.e., RMB per 
Mu) requirements. If it fails to meet its obligations, it must pay for 
its land-use rights. In such case, it would pay a predetermined fee 
stipulated in its contract. The exact figure is business proprietary. 
According to an excerpt from Weifang's Web site provided by the 
petitioners, preference may be given to potential residents with ``new 
productive projects'' that ``focus on paper making, textile,'' and 
several other types of products. See the petitioners' November 13, 2007 
pre-preliminary comments at Exhibit 28. Other information submitted by 
the petitioners also indicates that preference is given to ``three low, 
three high'' projects (low energy consumption, low pollution, low land 
usage, high profit, high technology, and high value-added) and that 
Chenming Industrial Park included 77 enterprises in 2007. Id. at 
Exhibit 31.
    According to Aifudi's supplemental response, it also must exceed an 
investment level threshold in order to locate in the park.\23\ Unlike 
SSJ, however, Aifudi does not receive a complete waiver of land-use 
fees after locating in the park. Instead, according to Aifudi, it 
received a price designed by the local and county governments ``to 
attract business and tax revenue to an undesirable location.'' See 
Aifudi's November 6, 2007 supplemental response at 13. Aifudi claims 
that this price applied to all sales of land in the park and that any 
business willing to invest in land in the industrial park at that time 
received the same price. Id. at 12. According to an article provided by 
the petitioners titled ``Preferential Policies of Huantai Industrial 
Park,'' Aifudi's park offers three rates for land-use rights depending 
on investment level. See the petitioners' November 13, 2007 pre-
preliminary comments at Exhibit 29. Aifudi's reported rate is the 
lowest of the three. The petitioners' information indicates Aifudi's 
park had 20 residents at the end of 2002 and was mainly focused ``on 
machinery, electronic, chemical, medical and new material industries.'' 
Id. at Exhibit 32.
---------------------------------------------------------------------------

    \23\ More precisely, Golden Moon obtained the land-use rights 
and shares its land with Aifudi. However, because we have determined 
these two companies to be cross-owned, we refer to Aifudi as the 
buyer.
---------------------------------------------------------------------------

    In their November 13, 2007 comments, the petitioners argue that 
SSJ's and Aifudi's land-use transactions are regionally specific and 
company-specific. The petitioners argue that regional specificity 
exists both as a matter of law and fact in this case. They argue that 
because companies in industrial parks receive benefits not generally 
available to all individual companies the Department should find 
regional specificity. They argue that the assignment of land-use rights 
was at the discretion of the government authority and therefore that 
there is also grounds to find company-specific specificity in this 
case.
    For the reasons described below, the Department preliminarily 
determines that the provision of land-use rights to both SSJ and Aifudi 
constitutes a countervailable subsidy in the form of land-use rights 
provided for less than adequate remuneration. Both respondents obtained 
their land-use rights from government authorities within China-SSJ from 
Shouguang municipal authorities and Aifudi from Huantai County (a 
division of the city of Zibo) authorities. According to SSJ, the 
Shouguang Municipal State Land and Resources Administration Bureau set 
the price and issued the certification of land-use rights. According to 
Aifudi, after negotiations with the local town of Guoli, its 
application for land-use rights was first approved by the Huantai 
County Land Resource Bureau, which issued a temporary land-use 
certificate, and then approved at a higher level by the provincial 
authority, which issued a permanent certificate. Thus the sale of these 
land-use rights constitutes a financial contribution from a government 
authority in the form of providing goods or services pursuant to 
section 771(5)(D)(iii) of the Act. In addition, the Department 
preliminarily determines that the sale of these land-use rights was 
specific, because it is limited to an enterprise or industry located 
within a designated geographical region pursuant to section 
771(5A)(D)(iv) of the Act. As discussed in detail above, both 
respondents are situated in industrial parks that are

[[Page 67906]]

within the jurisdiction of the authorities that provided their land-use 
rights and set the terms of those rights; i.e., SSJ's park is within 
the authority of Shouguang municipality and Aifudi's park is within the 
authority of Huantai County.\24\ By SSJ's own admission, its land-use 
fees were waived because it is located in Chenming Industrial Park. By 
Aifudi's own admission, Huantai County provided preferential land-use 
rates to companies located within Huantai New Century Industry Park. 
Thus, both respondents received land on preferential terms as a result 
of locating in their respective industrial parks.
---------------------------------------------------------------------------

    \24\ As noted, Aifudi reports that Huantai County's approval had 
to be cleared at the provincial level. Since both Aifudi and SSJ are 
within Shandong Province, presumably SSJ's land-use rights also 
required provincial-level approval. Moreover, land in municipal 
districts is ultimately owned by the central government. See, e.g., 
September 24, 2007 questionnaire response of the GOC at Exhibit S-1 
(``Implementation Regulations of the Law on Administration of Land, 
State Council Order No. 256'').
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    With regard to the petitioners' arguments that these transactions 
are also company-specific, we do not believe there is currently enough 
information on the record to substantiate such a finding. In Circular 
Welded Carbon Quality Steel Pipe from the People's Republic of China: 
Preliminary Affirmative Countervailing Duty Determination; Preliminary 
Affirmative Determination of Critical Circumstances; and Alignment of 
Final Countervailing Duty Determination with Final Antidumping Duty 
Determination, 72 FR 63875, 63885 (November 13, 2007), we stated our 
intention to seek further information regarding the possible company-
specific nature of land-use transactions in China. Likewise, in the 
preliminary determination of the rectangular pipe investigation, issued 
concurrently with this notice, the Department stated that we intend to 
seek further information on these questions and to issue an interim 
analysis describing our preliminary findings with respect to this 
program. See Light-walled Rectangular Pipe and Tube from the People's 
Republic of China: Preliminary Affirmative Countervailing Duty 
Determination and Alignment of Final Countervailing Duty Determination 
with Final Antidumping Duty Determination. Accordingly, the Department 
will consider further the facts and arguments on this issue for 
purposes of the final determination. As such, we invite parties to 
submit information and argument on the basis for making a specificity 
determination with respect to the provision of land and how adequate 
remuneration should be determined. These submissions should be made no 
later than December 21, 2007.
    We further determine that the GOC's provision of land rights is a 
financial contribution within the meaning of section 771(5)(D)(iii). 
Finally, the Department has determined that the sale of these rights 
provided a benefit pursuant to 19 CFR 351.511(a). Pursuant to section 
771(5)(E)(iv) of the Act, a benefit is conferred when the government 
provides a good or service for less than adequate remuneration. Section 
771(5)(E) of the Act further states that ``the adequacy of remuneration 
shall be determined in relation to prevailing market conditions for the 
good or service being provided * * * in the country which is subject to 
the investigation or review. Prevailing market conditions include 
price, quality, availability, marketability, transportation, and other 
conditions of * * * sale.''
    Section 351.511(a)(2) of the Department's regulations sets forth 
the basis for identifying comparative benchmarks for determining 
whether a government good or service is provided for less than adequate 
remuneration. These potential benchmarks are listed in hierarchical 
order by preference: (1) Market prices from actual transactions within 
the country under investigation; (2) world market prices that would be 
available to purchasers in the country under investigation; or (3) an 
assessment of whether the government price is consistent with market 
principles. This hierarchy reflects a logical preference for achieving 
the objectives of the statute.
(1) The Department Cannot Apply a First Tier Benchmark
    As a general matter, the most direct means of determining whether a 
government obtained adequate remuneration is normally through a 
comparison with private transactions for a comparable good or service, 
in this case, the sale of land-use rights, in the country. Thus, the 
preferred benchmark in the hierarchy is an observed market price for 
the good, in the country under investigation, from a private supplier 
(or, in some cases, from a competitive government auction) located 
either within the country, or outside the country (the latter 
transaction would be in the form of an import, and therefore not 
applicable to provision of land-use rights). This is because such 
prices generally would be expected to reflect most closely the 
commercial environment of the purchaser under investigation. However, a 
particular problem can arise in applying this standard when the 
government is the sole supplier of the good or service in the country 
or within the area where the respondent is located. In these 
situations, there may be no alternative market prices available in the 
country (e.g., private prices, competitively-bid prices, import prices, 
or other types of market reference prices). Moreover, a first tier 
benchmark is not appropriate where the government accounts for a 
significant or overwhelming portion of the sales of the good in 
question or where the government's presence in the market is likely to 
have produced significant distortions in the price formation of the 
good. See Countervailing Duties, Final Rule, Preamble, 63 FR 65347, 
65378 (November 25, 1998) (``Where it is reasonable to conclude that 
actual transaction prices are significantly distorted as a result of 
the government's involvement in the market, we will resort to the next 
alternative in the hierarchy''). In such cases, the ``commercial 
environment of the purchaser'' is distorted by the overwhelming 
presence of the government and cannot give rise to a price that is 
sufficiently free from the effects of government actions. The use of 
such an internal benchmark would be akin to comparing the benchmark to 
itself, i.e., such a benchmark would reflect the distortions of the 
government presence. See Softwood Lumber, 67 FR 15545 and accompanying 
Issues and Decision Memorandum, at 34.
    As a general matter, in our analysis of the PRC as a non-market 
economy in the recent investigation of Certain Lined Paper Products 
from the PRC, we found that real property rights in China remain poorly 
defined and weakly enforced, with a great divergence between de jure 
reforms and de facto implementation of these reforms. See attachment 2 
of the Loan Benchmark Memo at 46. In arriving at this conclusion, the 
Department also discussed the extent of government involvement in the 
PRC land market, as discussed below. Given these distinguishing 
characteristics of the land market in China, we preliminarily determine 
that we cannot rely on prices, private or otherwise, from this market 
for purposes of a first tier benchmark in this case.
    As an initial matter, we note that private land ownership is 
prohibited in China. See attachment 2 of the Loan Benchmark Memo at 41, 
citing Article 9 of the PRC Constitution. All land is owned by some 
level of government, the distinction being between land owned by the 
local government or ``collective'' at the township or village level and 
land owned by the national government (also

[[Page 67907]]

referred to as state-owned or ``owned by the whole people''). At the 
same time, however, the government permits individuals and firms to 
hold, own and transfer land-use rights for long-term non-agricultural 
use, e.g., industrial production land-use rights for up to 50 years. 
See attachment 2 of the Loan Benchmark Memo at 41-42, citing The Land 
Administration Law of the People's Republic of China (as amended August 
29, 1998) and the Interim Regulations of the People's Republic of China 
Concerning the Assignment and Transfer of the Right to the Use of the 
State-owned Land in Urban Areas (1990). These (non-agricultural) land-
use rights are transferred through government-to-enterprise (primary 
market) as well as through enterprise-to-enterprise (secondary market) 
transactions. See attachment 2 of the Loan Benchmark Memo at 43, citing 
Ho, Samuel P.S., and Lin, George C.S., Emerging Land Markets in Rural 
and Urban China: Policies and Practices (The China Quarterly, 2003), p. 
688. The question therefore arises whether prices in the secondary 
market can be used for purposes of a first tier benchmark.
    Noting that the government, either at the national or local level, 
is the ultimate owner of all land in China, we examined whether the PRC 
government exercises control over the supply side of the land market in 
China as a whole so as to distort prices in the primary and secondary 
markets.
    We first examined the supply of agricultural land available for 
non-agricultural use. Despite the de jure reforms that the PRC 
government has implemented in recent years, agricultural land-use 
rights remain limited in scope, and are poorly defined and weakly 
enforced. See attachment 2 of the Loan Benchmark Memo at 44. As a 
result, farmers in China do not have secure land-use rights and have 
severe restrictions on the right to alienate their land. Further, land 
expropriation is a source of major tensions and protests throughout 
China. Villages and other local governments have often exercised broad, 
unrestricted powers to expropriate land from farmers and sell the land-
use rights to firms or land developers, often with little or no 
compensation to the farmer. Farmers may receive only a fraction of the 
economic value of their land when it is expropriated. See attachment 2 
of the Loan Benchmark Memo at 44, citing The Economist Intelligence 
Unit, ViewsWire, China Politics: Beware of Protests Foreigners, October 
25, 2005. Moreover, the legal status of agricultural land as 
``collectively owned'' must first be changed to ``state-owned'' before 
the land can be sold for non-agricultural use. The power to effect that 
conversion rests solely with local governments. See attachment 2 of the 
Loan Benchmark Memo at 42, citing The Law of the People's Republic of 
China on Management of Urban Real Estate (January 1, 1995).
    The supply of land for non-agricultural use in the primary and 
secondary markets also depends, in part, on land previously allocated 
to state-owned enterprises (``SOEs'') on a purely administrative basis. 
In the past, the government allocated land-use rights to SOEs for a 
nominal one-time charge and annual fee. These ``allocated'' land-use 
rights do not expire, may not be leased or mortgaged, and can be 
transferred (or shared for commercial purposes) only if they are first 
converted to ``granted'' land-use rights, i.e., those rights 
transferred to private entities as described below. Again, the power to 
effect this conversion rests solely with the government. See attachment 
2 of the Loan Benchmark Memo at 43, citing The Economist Intelligence 
Unit, Country Commerce: China, 2006, at 37, and Ho, Samuel P.S., and 
Lin, George C.S., Emerging Land Markets in Rural and Urban China: 
Policies and Practices (The China Quarterly, 2003) at 687. SOEs have 
illegally used allocated land-use rights, without first converting them 
to ``granted'' land-use rights in order to attract foreign investment. 
See attachment 2 of the Loan Benchmark Memo at 45, citing The Economist 
Intelligence Unit, Country Commerce: China, 2006, at 38. This suggests 
that the conversion of allocated land-use rights to granted land-use 
rights is not a pro forma process.
    An enterprise can also purchase ``granted'' land-use rights 
directly from the government. Granted land-use rights require a large 
up-front fee but carry no annual fees aside from taxes. See attachment 
2 of the Loan Benchmark Memo at 43-44, citing Ho, Samuel P.S., and Lin, 
George C.S., Emerging Land Markets in Rural and Urban China: Policies 
and Practices (The China Quarterly, 2003) at 688, the Interim 
Regulations of the People's Republic of China Concerning the Assignment 
and Transfer of the Right to the Use of the State-owned Land in Urban 
Areas, (May 24, 1990), and the Law of the People's Republic of China on 
Management of Urban Real Estate, (January 1, 1995).
    Thus, Chinese government authorities control, albeit on a de-
centralized basis, the supply and allocation of land that can be used 
by non-state-owned enterprises for non-agricultural purposes. Moreover, 
due to the nature of the restrictions, the government controls extend 
not only to the primary market, but to the secondary market as well. 
This control significantly distorts the price paid for the granted 
land-use rights in both the primary and secondary markets. For example, 
if farmers had land-use rights that were well-defined and effectively 
enforced, there might be less land available for non-agricultural use 
and higher prices for granted land-use rights. The price of granted 
land-use rights is further distorted by the fact that the vast majority 
of such rights are still not transferred via public auctions, tenders 
or listings, as required by law, but via ``closed-door'' negotiations. 
Despite de jure reforms to increase transparency and competitive market 
conditions, one report notes that:

    One of the main problems that emerged with the system for 
granting land-use rights was that the vast majority of land grants 
were conducted by agreement rather than by auction or a tendering 
process. According to unofficial statistics, as of June 2002, 
approximately 95% of all land-use rights had been granted via 
private, bilateral agreements between local land bureaus and 
grantees. The problem is that when the agreement method is used, 
there is generally little or no competitive pricing or transparency. 
It is believed that the state has lost billions of dollars in state 
revenue through the granting of land-use rights at prices below 
market value.
    On July 1, 2002, regulations came into effect that prohibit 
grants by agreement for land to be used for commercial purposes. The 
purpose of the regulations is to promote transparency and ensure 
that market prices are maintained. The land-use rights for 
commercial land must be granted by means of auction, a tendering 
process or a new kind of ``listing'' process. When land-use rights 
are granted by means of the ``listing'' process, the land is listed 
at a land exchange center and interested parties are given a certain 
period of time within which to submit bids.

See China's Land Law: An overview, as placed on the file of this 
investigation in a memorandum from Toni Page, Analyst, to the File 
titled ``Land Benchmark Information'' (November 26, 2007) at attachment 
1 on file in the Department's CRU (Land Benchmark Memo).
    Contemporaneous with the regulations discussed above, local 
governments introduced measures to make the process of acquiring and 
developing land more transparent. Auction regulations were introduced 
in Shenzen, Guangzhou, Beijing, Shanghai and Guangxi. See The Economist 
Intelligence Unit, Viewswire, China Regulations: Local Governments 
Simplify Land-Use Rule, August 2, 2002, at attachment 2 of the Land 
Benchmark Memo. Further research indicates,

[[Page 67908]]

however, that despite efforts on the part of the central and local 
governments, auctions, tenders and listings did not become the standard 
means for transferring land-use rights at that time. For example, the 
central government issued new regulations in 2006, with the 
introduction of minimum land prices and the reiteration of the 
requirement for open market mechanisms for primary sales of industrial 
land. See Asian Industrial Property Market Flash, CB Richard Ellis, 
CBRE Research, Q1 2007. See attachment 3 of the Land Benchmark Memo at 
2. See, also, id at 5, stating that ``(t)he transfer of industrial land 
via the public bidding, listing and auction method began in Shanghai in 
the first quarter of 2007 following the new regulations issued by the 
Central Government in 2006.''
    One news article commenting on the 2006 regulations noted that, 
with respect to land:

    Market-based practices in China are still in the embryonic 
stage. In most regions, the government has transferred land through 
negotiation with investors, which led to rampant corruption. The 
ministry's statistics indicated that the government transferred 
163,000 hectares of land nationwide last year, but only 35 percent 
of it was dealt through the bidding and auction. The ministry 
considered this an achievement, representing an increase from 14.5 
percent in 2002.

See Law to Expose Illegal Land Deal, China Daily, August 1, 2006, 
attachment 4 of the Land Benchmark Memo.
    Even with the greater use of auctions, tenders and listing, the 
process behind such transfer mechanisms must be examined carefully to 
ensure that, for example, there is sufficient competition in the 
bidding process. For example, one market report describes the ``land 
use right transfer announcements'' of 120 industrial land plots posted 
in 2007, noting that:

    In addition to specifications such as plot size and plot ratio, 
the announcements included requirements concerning investment amount 
and potential bidders' industries. For example, the announcement for 
Site No. 200701001 in Jinshan District specified that bids be from 
plastic board/pipe or other material manufacturing companies and 
required a total investment of between RMB 150-175 million. Although 
the inclusion of bidder related requirements reduced competition, 
large swathes of industrial land have now been transferred through 
public bidding, listing, and auction.

See Asian Industrial Property Market Flash, CBRE, Q2 2007, attachment 5 
of the Land Benchmark Memo at 5.
    On the basis of the evidence on the record, we preliminarily 
determine that there are no usable first tier in-country benchmarks to 
measure the benefit from the transfer of land-use rights during the 
POI. Our preliminary determination with respect to internal prices for 
industrial land-use rights necessarily reflects the evidence on the 
record at this time. We will carefully review and consider all 
additional information submitted on the record during the course of 
this proceeding regarding the primary and secondary markets, including 
auctions, tenders and listings, as well as agricultural land 
conversions and other land assessment, pricing and transfer procedures.
(2) The Department Cannot Apply a Second Tier Benchmark
    The second tier benchmark, according to the regulations, relies on 
world market prices that would be available to the purchasers in the 
country in question, though not necessarily reflecting prices of actual 
transactions involving that particular producer. See 19 CFR 
351(a)(2)(iii). In selecting a world market price under this second 
approach, the Department will examine the facts on the record regarding 
the nature and scope of the market for that good to determine if that 
market price would be available to an in-country purchaser. As 
discussed in the Preamble, the Department will consider whether the 
market conditions in the country are such that it is reasonable to 
conclude that a purchaser in the country could obtain the good or 
service on the world market. See Preamble, 63 FR at 65378. As with the 
use of import prices discussed above under the first tier benchmark 
analysis, we preliminarily conclude that land, an in situ property, 
does not lend itself to be considered under this tier. Land is 
generally not simultaneously ``available to an in-country purchaser'' 
while located and sold out-of-country on the world market.
(3) The Department Will Use a Benchmark from Outside China
    Since we are not able to conduct our analysis under the second tier 
of the regulations, consistent with the hierarchy, we next consider 
whether the government pricing of land-use rights is consistent with 
market principles. This approach is also set forth in section 
351.511(a)(2)(iii) of the Department's regulations and is explained 
further in the Preamble:

    (W)here the government is the sole provider of a good or 
service, and there are no world market prices available or 
accessible to the purchaser, we will assess whether the government 
price was set in accordance with market principles through an 
analysis of such factors as the government's price-setting 
philosophy, costs (including rates of return sufficient to ensure 
future operations), or possible price discrimination. In our 
experience, these types of analysis may be necessary for such goods 
or services as electricity, land leases or water, and the 
circumstances of each may vary widely.

See Preamble, 63 FR at 65378.
    The regulations do not specify how the Department is to conduct 
such a market principle analysis. By its very nature, this analysis 
depends upon available information concerning the market sector at 
issue and, therefore, must be developed on a case-by-case basis. In the 
instant case, we preliminarily determine that due to the weak 
definitions and protection of property rights, the overwhelming 
presence of government involvement in the land-use rights market, as 
well as the documented deviation from the authorized methods of pricing 
and allocating land, the purchase of land-use rights in China is not 
conducted in accordance with market principles. Specifically, we have 
found that there is a wide divergence between the de jure reforms of 
the market for land-use rights and the de facto implementation of such 
reforms. See attachment 2 of the Loan Benchmark Memo at page 46, 
(stating that, China's land laws, regulations, and statements, although 
often vague and contradictory, seem to support the provision of secure 
land-use rights to farmers and an open, transparent system for 
transferring commercial land-use rights. In practice, however, laws and 
regulations are regularly violated by individuals and local 
governments. While the private market for land-use rights has grown, 
SOEs own a significant amount of land-use rights that they received 
free of charge. Also, commercial land sales are often conducted 
illegally. In short, property rights remain poorly defined and weakly 
enforced (emphasis added).
    Further, as cited above, ``(t)he problem is that when the agreement 
method is used (as opposed to the auction method), there is generally 
little or no competitive pricing or transparency. It is believed that 
the state has lost billions of dollars in state revenue through the 
granting of land-use rights at prices below market value.'' See 
attachment 1 of the Land Benchmark Memo. In light of all the evidence 
on the record, and given the Department's understanding that auctions 
have yet to become a widely adopted means of selling land-use rights, 
we have reason to preliminarily determine that land-use rights in China 
are not priced in accordance with market principles.

[[Page 67909]]

    Given this finding, we looked for an appropriate basis to determine 
the extent to which land-use rights are provided for less than adequate 
remuneration. We have preliminarily determined that this analysis is 
best achieved by comparing the prices for land-use rights in China with 
comparable market-based prices for land purchases in a country at a 
comparable level of economic development that is in a reasonably 
proximate region outside of China. Specifically, we have determined 
that the most appropriate benchmark analysis in this case would be to 
compare respondents' land use rights to the sales of certain industrial 
land in industrial estates, parks and zones in Thailand. For this, we 
are relying on prices from a real estate market report on Asian 
industrial property that was prepared outside the context of this 
proceeding by an independent and internationally recognized real estate 
agency with a long-established presence in Asia. See attachment 5 of 
the Land Benchmark Memo at 3, and attachment 3 of the Land Benchmark 
Memo, at 3 (collectively, the Asian Industrial Property Reports). The 
Thai government has established three industrial promotion zones in 
Thailand, with varying degrees of incentives offered in each zone. See 
attachment 5 of the Land Benchmark Memo at 11. The industrial land 
prices that form the basis of our preliminary benchmark are in Zone 1, 
which is comprised of greater Bangkok and adjacent provinces. The Asian 
Industrial Property Reports do not include indicative land values for 
Zones 2 and 3.
    As a general matter, we note that China and Thailand have similar 
levels of per capita GNI, namely, $2010 and $2990, respectively. See 
attachment 6 of the Land Benchmark Memo. Further, recognizing that it 
may be appropriate to focus on the regional characteristics relevant to 
the land under investigation, we note that both respondents are located 
in Shandong province. Shandong province has a higher per-capita GNI of 
approximately $2900 (2006), even more closely on par with Thailand. See 
Market Profiles on Chinese Cities and Provinces, attachment 7 of the 
Land Benchmark Memo. With respect to other factors that may speak to 
regional comparability, population density in China and Thailand are 
roughly comparable, with 141 persons per square kilometer (k\2\) in 
China and 127/k\2\ in Thailand. See attachment 6 of the Land Benchmark 
Memo. Population density is higher than national averages in both 
Shandong and Zone 1 in Thailand, at 562/k\2\ and 908/k\2\, 
respectively. See IIASA Data--Population Growth (2004 data) and List of 
Provinces of Thailand by Population Density (2000) data, attachments 8 
and 9, respectively, of the Land Benchmark Memo.
    Additionally, we note that producers consider a number of markets, 
including Thailand, as an option for diversifying production bases in 
Asia beyond China. Therefore, the same producers may compare prices 
across borders when deciding what land to buy. For example, the Asian 
Industrial Property Reports compare real estate prices in China with 
other prices in Asia, including Thailand. See Asian Industrial Property 
Reports, both at 3. With respect to Thailand, we note that studies by 
the Japan External Trade Organization (JETRO), which compared Asian 
alternative investment destinations to China, stated that ``Thailand 
got the highest score as the best location for establishing a 
production base over the next five to 10 years.'' See Japan firms rate 
Vietnam best alternative to China, Nikkei Weekly, April 10, 2006 at 
attachment 10 of the Land Benchmark Memo. Further, JETRO finds that 
Thailand ranks as the second-best choice after China as a location for 
expanding both high and mid to low-end production. See FY2005 Survey of 
Japanese Firms' International Operations, Japan External Trade 
Organization, March 2006 at 13 and JETRO Releases its Latest Survey of 
Japanese Manufacturers in ASEAN and India at attachments 11 and 12, 
respectively, of the Land Benchmark Memo. Finally, a report by a 
private company notes that, ``(m)any foreign companies believe that 
Thailand is still a strategic choice for a Southeast Asian production 
base.'' See Industrial Property Guide, Thailand at attachment 13 of the 
Land Benchmark Memo.
    Therefore, we preliminarily determine that the ``indicative land 
values'' for land in Thai industrial zones, estate and parks outlined 
in the Asian Industrial Property Reports present a reasonable and 
comparable benchmark to the land-use rights in Shandong industrial 
zones at issue in this investigation. As discussed above, we have 
considered certain economic and demographic factors in arriving at this 
conclusion. However, we also note that other factors may inform this 
decision, including the availability of data on prices, investment 
flows, availability of land, and industry density in a certain region. 
We intend to continue to explore this issue and invite comments from 
the parties.
    In order to calculate the benefit, we first multiplied the 
benchmark land rate (deflated from 2007 to the year the transactions 
were approved by the state authority) by the total area of SSJ's and 
Aifudi's tracts. We then subtracted the price actually paid for these 
tracts by the two respondents to derive the total unallocated benefit. 
We next conducted the ``0.5 percent test'' (19 CFR 351.524(b)(2)) for 
the years in which the transactions were approved by dividing the total 
unallocated benefit for each respondent by the appropriate sales 
denominator. As a result, we found that the benefits were greater than 
0.5 percent of relevant sales and that allocation was appropriate. We 
allocated the total unallocated benefit amount across the term of the 
land agreements using the standard allocation formula in 19 CFR 
351.524(d) and determined the amount attributable to 2006. For SSJ, we 
divided the 2006 benefit by SSJ's total sales to calculate a subsidy of 
2.17 percent ad valorem. For Aifudi, we divided the 2006 benefit by 
Aifudi and Golden Moon's total sales to calculate a subsidy of 11.51 
percent ad valorem.

II. Programs Preliminarily Determined To Be Not Countervailable

A. Provision of Electricity for Less Than Adequate Remuneration

    According to the GOC, electricity in the PRC is produced by 
numerous power plants and it is transmitted for local distribution by 
two state-owned transmission companies, State Grid and China South 
Power Grid. Generally, prices for uploading electricity to the grid and 
transmitting it are regulated by the GOC, as are the final sales 
prices. See, e.g., Circular on Implementation Measures Regarding Reform 
of Electricity Prices, (FAGAIJIAGE (2005) No. 514, National Development 
and Reform Commission) at Appendix 3 of the Provisional Measures on 
Prices for Sales of Electricity at Article 29 (``Government departments 
in charge of pricing at various levels shall be responsible for the 
administration and supervision of electricity sales prices.''), 
provided within the GOC response at Exhibit R-1 (September 24, 2007).
    Electricity consumers are divided into broad categories such as 
residential, commercial, large-scale industry, and agriculture. The 
rates charged vary across customer categories and within customer 
categories based on the amount of electricity consumed. Moreover, among 
industrial users, certain industries are specifically broken out and 
these industries receive special, discounted rates. Based on our

[[Page 67910]]

review of the rate schedules submitted for Shandong province and Zibo 
city, where respondents SSJ and Aifudi, respectively, are located, 
discounted rates are established for small and medium-sized chemical 
fertilizer producers. Thus, there is not a discounted rate for LWS 
producers. We tied the rates reported by respondents to these 
schedules. We asked the GOC to provide the number of electricity users 
in each customer-pricing category; however, the GOC replied that the 
number of users in each category is huge and that there are no compiled 
statistics on the number of customers per category.
    Based on the record evidence, we preliminarily determine that the 
provision of electricity to LWS producers in the PRC is neither de jure 
nor de facto specific. Although producers in a few particular 
industries are eligible for discounts under the law, all other 
industrial users within a locality pay the same rate for their 
electricity. Moreover, the absence of price discrimination among most 
users also supports a preliminary finding that electricity is not being 
provided to LWS producers for less than adequate remuneration. See 
Countervailing Duties; Final Rule, 63 FR 65348, 65378 (November 25, 
1998) (stating that, where the government is the sole provider of a 
good or service, especially in the case of electricity, land or water, 
the Department may assess whether the government price was set in 
accordance with market principles, which may include an analysis of 
whether there is price discrimination among the users of the good or 
service that is provided and that ``(w)e would only rely on a price 
discrimination analysis if the government good or service is provided 
to more than a specific enterprise or industry, or group thereof).'' On 
this basis, we preliminarily determine that the GOC's provision of 
electricity does not confer a countervailable subsidy. See CWP from the 
PRC, 72 FR at 63883.

III. Programs Preliminarily Determined To Be Not Used by SSJ and Aifudi

    We preliminarily determine that SSJ and Aifudi did not apply for or 
receive benefits during the POI under the programs listed below.
    A. Loan Forgiveness for LWS Producers by the GOC.
    B. The State Key Technologies Renovation Project Fund.
    C. Grants and Other Funding for High Technology Equipment for the 
Textile Industry.
    D. Grants to Loss-Making State-Owned Enterprises.
    E. Preferential Tax Policies for Export-Oriented FIEs.
    F. Corporate Income Tax Refund Program for Reinvestment of FIE 
Profits in Export-Oriented Enterprises.
    G. Tax Benefits for FIEs in Encouraged Industries that Purchase 
Domestic Origin Machinery.
    H. Tax Program for FIEs Recognized as High or New Technology 
Enterprises.
    I. Preferential Tax Policies for Research and Development.
    J. Preferential Tax Policies for Township Enterprises by FIEs.
    K. VAT and Tariff Exemptions for FIEs Using Imported Technology and 
Equipment in Encouraged Industries.
    L. VAT and Tariff Exemptions on Imported Equipment (Domestic 
Enterprises).
    M. Export Interest Subsidy Funds for Enterprises Located in 
Zhejiang and Guangdong Provinces.
    N. Technological Innovation Funds Provided by Zhejiang Province.
    O. Programs to Rebate Antidumping Legal Fees.
    For purposes of this preliminary determination, we have relied on 
SSJ's and Aifudi's responses to preliminarily determine non-use of the 
programs listed above by SSJ and Aifudi. During the course of 
verification, the Department will examine whether these programs were 
used by SSJ and Aifudi during the POI.

V. Programs Preliminarily Determined To Be Terminated

A. Exemption From Payment of Staff and Worker Benefits for Export 
Oriented Industries

    The Department determined that this program was terminated on 
January 1, 2002, with no residual benefits. See Final CFS Paper from 
the PRC, 72 FR 60645 at 16.
Verification
    In accordance with section 782(i)(1) of the Act, we intend to 
verify the information submitted by the respondents prior to making our 
final determination.
Suspension of Liquidation
    In accordance with section 703(d)(1)(A)(i) of the Act, we 
calculated an individual rate for each producer/exporter of the subject 
merchandise. We preliminarily determine the total estimated net 
countervailable subsidy rates to be:

------------------------------------------------------------------------
                                                            Net subsidy
                  Exporter/Manufacturer                      rate (%)
------------------------------------------------------------------------
Shandong Shouguang Jianyuanchun Company Limited (SSJ)...            2.57
Zibo Aifudi Plastic Packaging Co. Ltd. (Aifudi).........           11.59
Han Shing Chemical Co. Ltd. and/or Han Shing Bulk Bag              57.14
 Co., Ltd. and/or Han Shing Co..........................
Ningbo Yong Feng Packaging Co., Ltd. (Ningbo)...........           57.14
Shangdong Qilu Plastic Fabric Group, Ltd. (Qilu)........           57.14
All-Others..............................................            2.57
------------------------------------------------------------------------

    Sections 703(d) and 705(c)(5)(A) of the Act state that for 
companies not investigated, we will determine an all-others rate by 
weighting the individual company subsidy rate of each of the companies 
investigated by each company's exports of the subject merchandise to 
the United States. However, the all-others rate may not include zero 
and de minimis rates or any rates based solely on the facts available. 
Furthermore, pursuant to 19 CFR 351.204(d)(3), the Department must 
exclude the countervailable subsidy rate calculated for a voluntary 
respondent. Thus, in this investigation, we have only one rate that can 
be used to calculate the all-others rate, that of SSJ. Therefore, we 
have assigned SSJ's rate to all-others.
    In accordance with sections 703(d)(1)(B) and (2) of the Act, we are 
directing CBP to suspend liquidation of all entries of LWS from the PRC 
that are entered, or withdrawn from warehouse, for consumption on or 
after the date of the publication of this notice in the Federal 
Register, and to require a cash deposit or bond for such entries of 
merchandise in the amounts indicated above. Moreover, in accordance 
with section 703(e)(2)(A), for Ningbo and Han Shing Chemical, Ltd. 
(i.e. Han Shing Bulk Bag Co., Ltd. and Han Shing Co.), we are directing 
CBP to apply the suspension of liquidation to any unliquidated entries 
entered, or withdrawn from warehouse for consumption, on or after the 
date 90 days prior to the date of publication of this notice in the 
Federal Register.
ITC Notification
    In accordance with section 703(f) of the Act, we will notify the 
ITC of our determination. In addition, we are making available to the 
ITC all non-privileged and non-proprietary information relating to this 
investigation. We will allow the ITC access to all privileged and 
business proprietary information in our files, provided the ITC 
confirms that it will not disclose such information, either publicly or 
under an administrative

[[Page 67911]]

protective order, without the written consent of the Assistant 
Secretary for Import Administration. In accordance with section 
705(b)(2)(B) of the Act, if our final determination is affirmative, the 
ITC will make its final determination within 45 days after the 
Department makes its final determination.
Disclosure and Public Comment
    In accordance with 19 CFR 351.224(b), we will disclose to the 
parties the calculations for this preliminary determination within five 
days of its announcement. Case briefs for this investigation must be 
submitted no later than one week after the issuance of the last 
verification report. See 19 CFR 351.309(c) (for a further discussion of 
case briefs). Rebuttal briefs must be filed within five days after the 
deadline for submission of case briefs, pursuant to 19 CFR 
351.309(d)(1). A list of authorities relied upon, a table of contents, 
and an executive summary of issues should accompany any briefs 
submitted to the Department. Executive summaries should be limited to 
five pages total, including footnotes.
    Section 774 of the Act provides that the Department will hold a 
public hearing to afford interested parties an opportunity to comment 
on arguments raised in case or rebuttal briefs, provided that such a 
hearing is requested by an interested party. If a request for a hearing 
is made in this investigation, the hearing will tentatively be held two 
days after the deadline for submission of the rebuttal briefs, pursuant 
to 19 CFR 351.310(d), at the U.S. Department of Commerce, 14th Street 
and Constitution Avenue, NW., Washington, DC 20230. Parties should 
confirm by telephone the time, date, and place of the hearing 48 hours 
before the scheduled time.
    Interested parties who wish to request a hearing, or to participate 
if one is requested, must submit a written request to the Assistant 
Secretary for Import Administration, U.S. Department of Commerce, Room 
1870, within 30 days of the publication of this notice, pursuant to 19 
CFR 351.310(c). Requests should contain: (1) The party's name, address, 
and telephone numbers; (2) the number of participants; and (3) a list 
of the issues to be discussed. Oral presentations will be limited to 
issues raised in the briefs.
    This determination is issued and published pursuant to sections 
703(f) and 777(i) of the Act and 19 CFR 351.221(b)(4).

     Dated: November 26, 2007.
David M. Spooner,
Assistant Secretary for Import Administration.
 [FR Doc. E7-23459 Filed 11-30-07; 8:45 am]
BILLING CODE 3510-DS-P