[Federal Register Volume 73, Number 51 (Friday, March 14, 2008)]
[Notices]
[Pages 13850-13862]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-5182]


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DEPARTMENT OF COMMERCE

International Trade Administration

[C-570-921]


Lightweight Thermal Paper from the People's Republic of China: 
Preliminary Affirmative Countervailing Duty Determination 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 preliminarily determines that 
countervailable subsidies are being provided to producers and exporters 
of lightweight thermal paper from the People's Republic of China. For 
information on the estimated subsidy rates, see the ``Suspension of 
Liquidation'' section of this notice.

EFFECTIVE DATE: March 14, 2008.

FOR FURTHER INFORMATION CONTACT: David Layton, David Neubacher, or 
Scott Holland, AD/CVD Operations, Office 1, Import Administration, 
International Trade Administration, U.S. Department of Commerce, 14th 
Street and Constitution Avenue, NW, Washington, DC 20230; telephone: 
(202) 482-0371, (202) 482-5823, or (202) 482-1279, respectively.

SUPPLEMENTARY INFORMATION:

Case History

    The following events have occurred since the publication of the 
Department of Commerce's (the Department) notice of initiation in the 
Federal Register. See Notice of Initiation of Countervailing Duty 
Investigation: Lightweight Thermal Paper from the People's Republic of 
China, 72 FR 62209 (November 2, 2007) (``Initiation Notice'').
    On November 23, 2007, the Department selected two Chinese 
producers/exporters of lightweight thermal paper (``LWTP''), Shanghai 
Hanhong Paper Co., Ltd. (``Hanhong''), and Xiamen Anne Paper Co., Ltd. 
(``Xiamen''), as mandatory respondents. See Memorandum to Stephen J. 
Claeys, Deputy Assistant Secretary for Import Administration, 
``Respondent Selection'' (November 23, 2007). This memorandum is on 
file in the Department's Central Records Unit in Room 1117 of the main 
Department building (``CRU''). On November 29, 2007, Xiamen notified 
the Department that it did not ship the subject merchandise to the 
United States during the period of investigation (``POI''). The 
Department is accepting Xiamen's claim of no shipments of subject 
merchandise, pending verification. On December 4, 2007, we issued the 
countervailing duty (``CVD'') questionnaire to the Government of the 
People's Republic of China (``GOC''), and Hanhong.
    On December 11, 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 
threatened with material injury by reason of allegedly subsidized 
imports of LWTP from the People's Republic of China (``PRC'') and 
Germany. See Certain Lightweight Thermal Paper from China, Germany and 
Korea, Investigation Nos. 701-TA-415 and 731-TA-1126-1128, 72 FR 70343 
(Preliminary) (December 11, 2007).
    On December 11, 2007, the Department postponed the preliminary 
determination of this investigation until March 7, 2008. See 
Lightweight Thermal Paper from the People's Republic of China: Notice 
of Postponement of Preliminary Determination in the Countervailing Duty 
Investigation, 72 FR 70303 (December 11, 2007).
    On December 14, 2007, the Department sent questionnaires to 
producers/exporters Shenzhen Yuanming Industrial Development Co., Ltd. 
(``Shenzhen Yuanming'') and MDCN Technology Co., Ltd. (``MDCN'') asking 
these companies to provide their levels of shipments to the United 
States

[[Page 13851]]

during the POI. On December 26, 2007, we received a response from 
Shenzhen Yuanming to this questionnaire. MDCN did not respond to the 
Department's request for shipment information. For a detailed 
discussion on MDCN, please see the ``Use of Facts Otherwise Available'' 
section below.
    On January 7, 2008, the Department issued its memorandum selecting 
two additional mandatory respondents: Shenzhen Yuanming and Guangdong 
Guanhao High-Tech Co., Ltd. (``GG''). See Memorandum to Stephen J. 
Claeys, Deputy Assistant Secretary for Import Administration, 
``Respondent Selection: Shenzhen Yuanming Industrial Co., Ltd. and 
Guangdong Guanhao High-Tech Co., Ltd.'' (January 7, 2008). This 
memorandum is on file in the Department's CRU. On January 4, 2008, we 
issued the CVD questionnaire to Shenzhen Yuanming and GG. We did not 
receive a response from Shenzhen Yuanming. For a detailed discussion on 
Shenzhen Yuanming, please see the ``Use of Facts Otherwise Available'' 
section below.
    On January 24, 2008, Appleton Papers, Inc. (the ``petitioner'') 
requested that the Department extend the deadline for the submission of 
new subsidy allegations beyond January 27, 2008, the deadline 
established by the Department's regulations. See 19 CFR 
351.301(d)(4)(i)(A). The Department granted an extension of the 
deadline to February 14, 2008.
    We received new subsidy allegations from the petitioner on February 
8, 2008, and February 14, 2008. On March 7, 2008, the Department 
determined to investigate aspects of the newly alleged subsidies 
relating to the provision of land, electricity, and chemicals at less 
than adequate remuneration, Special Fund for Technology Innovation 
Projects in Guangdong Province, Zhanjiang Municipality Grants to Famous 
Brand/Famous Trademark Enterprises, Government Interest Discounts, 
``Enterprise Innovation Funds'' Grants, Grants from the Zhanjiang 
Economic and Technology Development Zone for High and New Technology 
Enterprises, Funding for Construction of Enterprise Technology R&D 
Centers from the Guangdong Government, Grants under the Three Science 
and Technology Expenditure Fund, and Prohibited Export Subsidies for 
Enterprises Registered in Shenzhen Municipality programs. See 
Memorandum to Susan Kuhbach, Director, AD/CVD Operations, Office 1, 
``New Subsidy Allegations'' (March 7, 2008). Questions regarding these 
newly alleged subsidies will be sent to the GOC and the respondent 
companies after the preliminary results are issued.
    We received responses to our CVD questionnaires from the responding 
companies and the GOC on January 17, 2008, January 31, 2008, and 
February 19, 2008. The petitioner filed comments on these responses as 
follows for Hanhong on January 24, 2008, and for the GOC on February 8, 
2008.
    We issued supplemental questionnaires to: Hanhong on January 30, 
2008; the GOC on February 14, 2008; and GG on February 27, 2008. We 
received responses to these supplemental questionnaires from Hanhong on 
February 6, 2008; the GOC on February 21, 2008; and GG on February 29, 
2008. The petitioner filed comments on Hanhong's supplemental response 
on February 14, 2008.
    On February 27, 2008, the petitioner submitted comments for 
consideration in the preliminary determination. On February 28, 2008, 
the petitioner submitted comments on the appropriate attribution 
methodology for subsidies received by cross-owned input suppliers.
    On March 3, 2008, petitioner 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 Tariff Act of 1930, as amended 
(the Act). We address this request below.

Scope of the Investigation

    The merchandise subject to this investigation includes certain 
lightweight thermal paper, which is thermal paper with a basis weight 
of 70 grams per square meter (``g/m\2\'') (with a tolerance of  4.0 g/m\2\) or less; irrespective of dimensions;\1\ with or 
without a base coat\2\ on one or both sides; with thermal active 
coating(s)\3\ on one or both sides that is a mixture of the dye and the 
developer that react and form an image when heat is applied; with or 
without a top coat;\4\ and without an adhesive backing. Certain 
lightweight thermal paper is typically (but not exclusively) used in 
point-of-sale applications such as ATM receipts, credit card receipts, 
gas pump receipts, and retail store receipts. The merchandise subject 
to these investigations may be classified in the Harmonized Tariff 
Schedule of the United States (``HTSUS'') under subheadings 
4811.90.8040 and 4811.90.9090.\5\ Although HTSUS subheadings are 
provided for convenience and customs purposes, the written description 
of the scope of this investigation is dispositive.
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    \1\ LWTP is typically produced in jumbo rolls that are slit to 
the specifications of the converting equipment and then converted 
into finished slit rolls. Both jumbo rolls and converted rolls (as 
well as LWTP in any other forms, presentations, or dimensions) are 
covered by the scope of these investigations.
    \2\ A base coat, when applied, is typically made of clay and/or 
latex and like materials and is intended to cover the rough surface 
of the paper substrate and to provide insulating value.
    \3\ A thermal active coating is typically made of sensitizer, 
dye, and co-reactant.
    \4\ A top coat, when applied, is typically made of polyvinyl 
acetone, polyvinyl alcohol, and/or like materials and is intended to 
provide environmental protection, an improved surface for press 
printing, and/or wear protection for the thermal print head.
    \5\ HTSUS subheading 4811.90.8000 was a classification used for 
LWTP until January 1, 2007. Effective that date, subheading 
4811.90.8000 was replaced with 4811.90.8020 (for gift wrap, a non-
subject product) and 4811.90.8040 (for ``other,'' including LWTP). 
HTSUS subheading 4811.90.9000 was a classification for LWTP until 
July 1, 2005. Effective that date, subheading 4811.90.9000 was 
replaced with 4811.90.9010 (for tissue paper, a non-subject product) 
and 4811.90.9090 (for ``other,'' including LWTP). Petitioner 
indicated that, from time to time, LWTP also may have been entered 
under HTSUS subheading 3703.90, HTSUS heading 4805, and perhaps 
other subheadings of the HTSUS.
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Scope Comments

    In accordance with the preamble to the Department's regulations, we 
set aside a period of time in our Initiation Notice for parties to 
raise issues regarding product coverage, and encouraged all parties to 
submit comments within 20 calendar days of publication of that notice. 
See Antidumping Duties; Countervailing Duties, 62 FR 27296, 27323, (May 
19, 1997) and Initiation Notice, 72 FR at 62210.
    On November 20, 2007, the petitioner submitted timely comments 
concerning the scope of the LWTP antidumping and countervailing duty 
investigations. On December 18, 2007, the Department issued a scope 
modification proposal to interested parties.\6\ The Department received 
no responses from interested parties to the scope modification 
proposal. The Department is currently evaluating the comments submitted 
by the petitioner and will issue its decision regarding the scope of 
the investigation prior to the preliminary determinations in the 
companion anti-dumping investigations due on May 6, 2008.
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    \6\ See Letter from the Department of Commerce, ``Scope 
Modification Proposal'' to Interested Parties (December 18, 2007). 
This letter is on the public record of each of the LWTP antidumping 
and countervailing duty investigations in the Department's CRU.
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Alignment of Final Countervailing Duty Determination with Final 
Antidumping Duty Determination

    On November 2, 2007, the Department initiated the countervailing 
duty and

[[Page 13852]]

antidumping duty investigations on LWTP from the PRC. See Initiation 
Notice and Notice of Initiation of Antidumping Duty Investigations: 
Lightweight Thermal Paper from Germany, the Republic of Korea, and the 
People's Republic of China, 72 FR 62430 (November 5, 2007). The 
countervailing duty investigation and the antidumping duty 
investigation have the same scope with regard to the merchandise 
covered.
    On March 3, 2008, petitioner 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 LWTP 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 LWTP from the PRC. Consequently, 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 July 21, 2008.

Period of Investigation

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

Application of the Countervailing Duty Law to Imports from the PRC

    In CFS,\7\ the Department found that, ``. . . 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 economies does not act as a bar to proceeding 
with a CVD investigation involving products from China.'' See CFS, and 
accompanying Issues and Decision Memorandum at Comment 6; see also 
Memorandum to David M. Spooner, ``Countervailing Duty Investigation of 
Coated Free Sheet Paper from the People's Republic of China - Whether 
the Analytical Elements of the Georgetown Steel Opinion are Applicable 
to China's Present-Day Economy,'' (March 29, 2007) at 2 (``Georgetown 
Steel Memo'').
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    \7\ See Coated Free Sheet Paper from the People's Republic of 
China: Final Determination of Countervailing Duty Investigation, 72 
FR 60645, 60646 (October 25, 2007) (``CFS'').
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    More recently, the Department preliminarily determined that it is 
appropriate and administratively desirable to identify a uniform date 
from which the Department will identify and measure subsidies in the 
PRC for purposes of the CVD law. 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 (November 13, 2007) (``CWP from the PRC''). 
In CWP from the PRC, we preliminarily determined that date to be 
December 11, 2001, the date on which the PRC became a member of the 
WTO. Therefore, for the reasons outlined in CWP from the PRC, we have 
limited our analysis to subsidies bestowed after December 11, 2001, for 
this preliminary determination.

Use of Facts Otherwise Available

    Sections 776(a)(1) and (2) of the Act provide that the Department 
shall apply ``facts otherwise available'' if, inter alia, 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 
statute requires the Department to use the information if it can do so 
without undue difficulties.
    In this case, MDCN and Shenzhen Yuanming did not provide 
information we requested that is necessary to determine a 
countervailing duty rate for this preliminary determination. 
Specifically, MDCN did not respond to the Department's December 14, 
2007, request for shipment data, and Shenzhen Yuanming did not respond 
to the Department's January 4, 2008, CVD questionnaire. Thus, in 
reaching our preliminary determination, pursuant to section 
776(a)(2)(A), and (C) of the Act, we have based the countervailing duty 
rate on facts otherwise available for MDCN and Shenzhen Yuanming.

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 
(``AFA'') 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 
Cong., 2d Session (1994) at 870. Corroborate means that the Department 
will satisfy itself that the secondary information to be used 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 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, by failing to submit

[[Page 13853]]

responses to the Department's requests for information, MDCN and 
Shenzhen Yuanming did not cooperate to the best of their ability in 
this investigation. Therefore, our preliminary determinations for these 
companies are based on AFA.

Selection of the Adverse Facts Available Rate

    In deciding which facts to use as AFA, 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 AFA, the highest calculated final net subsidy rate for the 
same type of program at issue. Where such information is not available, 
it is the Department's practice to apply the highest subsidy rate for 
any program otherwise listed. See CFS and accompanying Issues and 
Decision Memorandum at Comment 24.
    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 commercial activity, 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).
    Because MDCN and Shenzhen Yuanming failed to act to the best of 
their ability, as discussed above, for each program examined, we made 
the adverse inference that both companies benefitted from the program 
unless the record evidence made it clear that neither could have 
benefitted from that 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 ``Methodology and 
Background Information.'' 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 ``Analysis of Programs.''
    As discussed in further detail below, for the policy lending 
program, we have used the applied rate of 4.16 percent ad valorem. For 
value added tax (``VAT'') programs, we have used GG's rate for the VAT 
and tariff exemptions on imported equipment program of 0.57 percent ad 
valorem. For grant programs, we have used GG's rate of 0.08 percent ad 
valorem. For income tax deduction or credit programs, we are applying 
the highest subsidy rate for any program otherwise listed, which in 
this instance is 4.16 percent ad valorem.
    Finally, to calculate the program rate for the eight alleged income 
tax programs pertaining to either the reduction of the income tax or 
the payment of no tax, we have applied an adverse inference that MDCN 
and Shenzhen Yuanming paid no income tax during the POI (i.e., calendar 
year 2006). The standard income tax rate for corporations in China is 
30 percent, plus a 3 percent provincial income tax rate. Therefore, the 
highest possible benefit for these eight income tax programs is 33 
percent. We are applying the 33 percent AFA rate on a combined basis 
(i.e., the eight programs combined provided a 33 percent benefit). This 
33 percent AFA rate does not apply to tax credit and refund programs.
    On this basis, the AFA countervailable subsidy rate determined for 
MDCN and Shenzhen Yuanming is 59.50 percent ad valorem. See Memorandum 
to the File regarding ``Adverse Facts Available Rate for Shenzhen 
Yuanming Industrial Development Co., Ltd. and MDCN Technology Co., 
Ltd.'' (March 7, 2008). A copy of this memorandum is on file in the 
CRU. We do not need to corroborate the calculated subsidy rates we are 
using as AFA because they 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.

Subsidies Valuation Information

Allocation Period

    The average useful life (``AUL'') period in this proceeding as 
described in 19 CFR 351.524(d)(2) is 13 years according to the U.S. 
Internal Revenue Service's 1977 Class Life Asset Depreciation Range 
System for assets used to manufacture the subject merchandise. No party 
in this proceeding has disputed this allocation period.

Attribution of Subsidies

    The Department's regulations at 19 CFR 351.525(b)(6)(i) state that 
the Department will normally attribute a subsidy to the products 
produced by the corporation that received the subsidy. However, 19 CFR 
351.525(b)(6)(ii) directs that the Department will attribute subsidies 
received by certain other companies to the combined sales of those 
companies if (1) cross-ownership exists between the companies, and (2) 
the cross-owned companies produce the subject merchandise, are a 
holding or parent company of the subject company, produce an input that 
is primarily dedicated to the production of the downstream product, or 
transfer a subsidy to a cross-owned company. 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. This regulation 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.
    Hanhong: Hanhong responded to the Department's questionnaire on 
behalf of itself and two affiliates. The affiliates provide Hanhong 
with raw material (jumbo rolls of LWTP) for processing under a tolling 
arrangement, while maintaining title to the merchandise throughout the 
production process. These companies are located outside of

[[Page 13854]]

the PRC and are not included in our analysis.
    In its questionnaire responses, Hanhong acknowledged that it has 
several affiliated companies inside the PRC. However, Hanhong reported 
that these affiliates do not produce the subject merchandise and do not 
provide inputs to Hanhong. Therefore, because these companies do not 
produce subject merchandise or otherwise fall within the situations 
described in 19 CFR 351.525(b)(6)(iii)-(v), we do not reach the issue 
of whether these companies and Hanhong are cross-owned within the 
meaning of 19 CFR 351.525(b)(6)(iii)-(vi), and we are not attributing 
any subsidies received by these companies to Hanhong. Consequently, we 
are limiting our investigation to subsidies received by Hanhong.
    GG: GG responded to the Department's questionnaire on behalf of 
itself and its affiliate Zhanjiang Guanlong Paper Industrial Co., Ltd. 
(``Guanlong''). GG reported that Guanlong does not produce subject 
merchandise, but it supplies GG with base paper inputs for the subject 
merchandise. Based on information currently on the record supplied by 
GG, we preliminarily determine that cross-ownership exists within the 
meaning of 19 CFR 351.525(b)(6)(vi) and that Guanlong supplies an input 
to GG that is primarily dedicated to the production of the downstream 
product within the meaning of 19 CFR 351.525(b)(6)iv). Therefore, 
pursuant to 19 CFR 351.525(b)(6)(iv), we are attributing the subsidies 
received by Guanlong to the combined sales of GG and Guanlong, 
excluding the sales between the two companies.
    In its questionnaire responses, GG also acknowledged that it has 
several other affiliated companies in addition to Guanlong. However, GG 
reported that these affiliates do not produce the subject merchandise 
and do not provide inputs to GG. Therefore, because these companies do 
not produce subject merchandise or otherwise fall within the situations 
described in 19 CFR 351.525(b)(6)(iii)-(v), we do not reach the issue 
of whether these companies and GG are cross-owned within the meaning of 
19 CFR 351.525(b)(6)(iii)-(vi), and we are not attributing any 
subsidies received by these companies to GG. Consequently, we are 
limiting our investigation to subsidies received by GG and Guanlong.

Denominator

    When selecting an appropriate denominator for use in calculating 
the ad valorem subsidy rate, the Department considers the basis for 
respondents' receipt of benefits under each program at issue. See 19CFR 
351.525(b). As discussed in the ``Attribution of Subsidies'' section 
above, GG is cross-owned with Guanlong, a supplier of base paper, an 
input primarily dedicated to production of the downstream product. 
Guanlong did not export subject merchandise to the United States, but 
reported receiving certain benefits that were tied to export 
performance. For reasons discussed in the Calculation Memorandum for 
Guangdong Guanhao High-Tech Co., Ltd. (March 7, 2008) (``GG Calculation 
Memorandum''), we preliminarily determine these benefits do not provide 
a countervailable subsidy to the subject merchandise. Accordingly, for 
all benefits received by Guanlong that we find to be countervailable 
subsidies, we are using total sales of all products by GG and Guanlong 
(less any internal sales between GG and Guanlong) as the denominator in 
our calculations. See 19 CFR 351.525(b)(6)(iv).

Benchmarks and Discount Rates

Benchmarks for Short-Term RMB Denominated Loans

    The Department is investigating loans received by respondents from 
policy banks and 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 private Chinese or foreign-owned 
banks, these would be unsuitable for use as benchmarks because, as 
explained in detail in CFS, the GOC's intervention in the banking 
sector creates significant distortions, restricting and influencing 
even foreign banks within the PRC. See CFS, 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 CFS 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 rate; however, 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. See CFS, 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 Comment 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

[[Page 13855]]

``China's Status as a Non-Market Economy,'' August 30, 2006 (August 30 
Memorandum), both of which are referenced in Notice of Final 
Determination of Sales at Less Than Fair Value, and Affirmative 
Critical 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 Scott 
Holland to the File titled ``Loan Benchmark Information'' (March 5, 
2008) (``Loan Benchmark Memo'') on file in the Department's CRU. See, 
also, CFS, at Comment 10. In CFS, 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 CFS, because of the market-distorting 
effects of the GOC in the PRC banking sector, foreign bank lending does 
not provide a suitable benchmark. See CFS, 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 CFS, there is a broad inverse 
relationship between income levels and lending rates. In other words, 
countries with lower per capita 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 CFS. As explained in CFS 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 http://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 an 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 an 
inflation-adjusted 2005 rate of 44.72, the Dominican Republic, with an 
inflation-adjusted 2004 interest rate of negative 18.83 percent; and 
Samoa, with an inflation-adjusted 2004 rate of negative 5.11 percent. 
For the reasons explained in CFS, 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. See 
www.worldbank.org/wbi/governance, placed on the record in this 
Investigation in Loan Benchmark Memo.
    Consistent with the regression model employed in CFS, the 
Department calculated inflation-adjusted benchmark lending rates of: 
7.42 percent for 2006; 8.09 percent for 2005; 8.53 percent for 2004; 
and 9.96 percent for 2003. Because these are inflation-adjusted 
benchmarks, it is also necessary to adjust the interest paid by 
respondents on these RMB loans for inflation. This was done using the 
PRC inflation figure as reported to IFS. See Attachment 3 of the Loan 
Benchmark Memo.

Benchmarks for Long-Term Loans

    The lending rates reported in IFS represent short-term lending, and 
there is not sufficient publicly available long-term interest rate data 
upon which to base a robust benchmark for long- term loans. To address 
this problem in CFS, the Department developed an adjustment to the 
short-term rates to convert them to long-term rates, using a ratio of 
short-term and long-term average one-year and five-year interest rates 
on interest rate swaps reported by the Federal Reserve for 2005.
    On February 27, 2008, the petitioner filed comments regarding this 
aspect of our long-term benchmark calculation. Petitioner argues that 
the Department should modify its methodology for calculating the 
adjustment by applying the swap rates applicable to the year in which 
the respondent took out the loan.
    We agree in part with the petitioner's argument. Just as interest 
rates vary from year-to-year, so can the relationship between short- 
and long-term rates. Our consideration of the petitioner's proposal has 
led us to make additional changes for this preliminary determination.
    First, rather than base our calculation on swap rates, we have 
preliminary determined that it is more appropriate to use bank rates as 
the basis for calculating the adjustment. The interest differential 
reflected in the swap rates can be characterized as the difference 
between the expectations of the lender and borrower on a loan set for a 
particular period. As such, the swap rates only look at the 
expectations of the market rather than factors that might influence the 
premium between short-term versus long-term loans. In contrast, bonds 
rates reflect the actions of industrial borrowers raising funds under 
market conditions and also take into account the risks involved with 
defaulting on principal and interest, which swap rates do not consider. 
Therefore, as bond rates appear to better reflect market conditions and 
factors associated with borrowing, we are replacing the Federal Reserve 
swap rates with the Bloomberg U.S. corporate BB-rated bond rates to 
calculate the adjustment for long-term loans.
    Second, we have also reconsidered calculating the adjustment based 
on the rates of one-year and five-year rates. Long-term loans are taken 
out for varying time periods, and there is no reason that a single 
five-year premium should apply to all loans. Therefore, for this 
preliminary determination, we have calculated the adjustment factor 
based on the length of the long-term loan being countervailed.

[[Page 13856]]

    Parties are invited to comment on these refinements in the 
adjustment factor for long-term loans for our final determination.

Benchmarks for Short-Term Foreign Currency-Denominated Loans

    For foreign currency-denominated loans, the Department was unable 
to locate sufficient data on short-term lending rates for the countries 
in the basket of ``lower middle-income countries'' used for its 
benchmark for RMB loans. Therefore, for purposes of this preliminary 
determination, the Department used as a benchmark the one-year dollar 
interest rates for the London Interbank Offering Rate (``LIBOR''), plus 
the average spread between LIBOR and the one-year corporate bond rates 
for companies with a BB rating. Bloomberg provides data on average 
corporate bond rates for companies with a range from A-rated to B-
rated. See Bloomberg data, placed on the record of this investigation 
in Loan Benchmark Memo. For this preliminary determination, we have 
determined that BB-rated bonds, which are the highest non-investment-
grade and near the middle of the overall range, are the most 
appropriate basis for calculating the spread over LIBOR. Several of the 
countries in the basket report bond rates, but not all of these 
countries report corporate bond rates and none report corporate bond 
rates for firms in the industrial sector. The Department, therefore, 
relied on corporate bond rates for the industrial sector in the United 
States and the eurozone, because the market for dollars and euros is 
international in scope. Based on our change in methodology for both 
long-term RMB and foreign currency loans, we invite interested parties 
to comment on this change.

Discount Rates

    Consistent with 19 CFR 351.524(3)(i)(A), we have used as our 
discount rate, the long-term interest rate calculated according to the 
methodology described above for the year in which the government agreed 
to provide the benefit.

Creditworthiness

    The examination of creditworthiness is an attempt to determine if 
the company in question could obtain long-term financing from 
conventional commercial sources. See 19 CFR 351.505(a)(4). According to 
19 CFR 351.505(a)(4)(i), the Department will generally consider a firm 
to be uncreditworthy if, based on information available at the time of 
the government-provided loan, the firm could not have obtained long-
term loans from conventional commercial sources. In making this 
determination, according to 19 CFR 351.505(a)(4)(i)(A)-(D), the 
Department normally examines the following four types of information: 
(1) receipt by the firm of comparable commercial long-term loans; (2) 
present and past indicators of the firm's financial health; (3) present 
and past indicators of the firm's ability to meet its costs and fixed 
financial obligations with its cash flow; and (4) evidence of the 
firm's future financial position. If a firm has taken out long-term 
loans from commercial sources, this will normally be dispositive of the 
firm's creditworthiness. However, if the firm is government-owned, the 
existence of commercial borrowings is not dispositive of the firm's 
creditworthiness. This is because, in the case of a government-owned 
firm, a bank is likely to assume that the government will repay the 
loan in the event of a default. See Countervailing Duties; Final Rule, 
63 FR 65348, 65367 (November 28, 1998). For government-owned firms, we 
will make our creditworthiness determination by examining this factor 
and the other factors listed in 19 CFR 351.505 (a)(4)(i).
    GG and Guanlong: In the petition filed on September 19, 2007, the 
petitioner alleged that GG was uncreditworthy beginning in 2004 through 
2006. The petitioner also alleged that Guanlong was uncreditworthy in 
2003 and 2004 in its comments on the preliminary determination, 
submitted on February 27, 2008.
    Based upon our review of the allegation regarding GG, we find that 
the information provided by the petitioner does not provide a 
reasonable basis to believe or suspect that GG was uncreditworthy 
during the period 2004 through 2006. See Memorandum from the Team to 
Susan Kuhbach, ``Uncreditworthiness Allegation for Guangdong Guanhao 
High-Tech Co., Ltd.'' dated March 7, 2008. Regarding Guanlong, the 
Department received the petitioner's allegation on February 27, 2008, 
and thus continues to analyze the allegation in order to determine 
whether there is a sufficient basis for investigating whether Guanlong 
is uncreditworthy. We will issue the results of our analysis after this 
preliminary determination.

Analysis of Programs

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

Programs Preliminarily Determined to Be Countervailable

Preferential Lending

A.Government Policy Lending Program
    In CFS, the Department found that: (1) the GOC had in place a 
policy to promote the paper industry through initiatives that involved 
preferential financing and, hence, loans provided by Policy Banks and 
state-owned commercial banks (SOCBs) in the PRC constituted a direct 
financial contribution from the government (see section 771(5)(D)(i) of 
the Act); (2) the loans were de jure specific because the GOC had a 
policy ``to encourage and support the growth and development of the 
forestry and paper industry'' (see section 751(5A)(D)(i) of the Act); 
and (3) the loans conferred a benefit equal to the difference between 
what the recipient paid on the loans and what the recipient would have 
paid for a comparable commercial loans (see section 771(5)(E)(ii)). See 
CFS, 72 FR at 60645.
    In its questionnaire response in the instant investigation, the GOC 
argues that the Department erred in CFS in finding that: (1) loans by 
SOCBs are financial contributions; (2) that Chinese loans could not be 
used as benchmarks; and, (3) that the plans and policies cited by the 
Department serve as a basis for finding specificity. Regarding the role 
of SOCBs and the propriety of using a Chinese benchmark, the GOC points 
to reforms in the Chinese banking sector, including reduced state 
ownership of certain banks in 2006 (i.e., since the CFS period of 
investigation). Regarding the plans and policies, the GOC challenges 
the Department's interpretation of documents considered in CFS, and 
submits information about such plans and policies after 2005.
    Based on our review of the GOC's claims and new information, we 
preliminarily determine, as we did in CFS, that loans provided by 
Policy Banks and SOCBs in the PRC constitute a direct financial 
contribution from the government and that Chinese national interest 
rates are not reliable as benchmarks because of the pervasiveness of 
the GOC's intervention in the banking sector. The information submitted 
by the GOC shows a decreasing level of state ownership in two of the 
``Big Four'' banks, but for both, the GOC remains the majority and 
largest shareholder. Thus, the GOC has not provided a basis for the 
Department to revisit those aspects of the CFS determination.
    Regarding the plans and policies relied upon by the Department in 
CFS,

[[Page 13857]]

we have considered the GOC's claims regarding their purpose and reach. 
We have also reviewed the Guidelines of the Eleventh Five-Year Plan for 
National Economic and Social Development (2006-2010) (the Eleventh 
Five-Year Plan), the State Council Circular on Realizing the Major 
Targets in the {Eleventh Five-Year Plan{time}  and the Division of 
Tasks (Eleventh Five-Year Plan Implementing Circular). Because these 
documents were not in effect during the CFS POI, they were not analyzed 
in that case. The GOC has also submitted for this record the 2007 
Development Policy for the Papermaking Industry (2007 Paper Plan). We 
have reviewed this document and find that, although it postdates our 
POI, it contains relevant information to our analysis in this 
investigation to the extent it illustrates trends in policy lending at 
the national level.
    The GOC has made several claims in this case regarding the 11\th\ 
Five-Year Plan and its implementing circular as well as our findings 
regarding 10\th\ Five-Year Plan and the contemporaneous plans and 
policies in CFS. Among the key arguments made by the GOC are that none 
of these plans set mandatory requirements for the development of the 
industry or the financing of the industry, at least not in a way that 
pertains to the respondents in this case. Rather, the planning 
documents focus solely on encouraging vertical integration within the 
industry.
    We did not make a finding in CFS that the plans in effect during 
that investigation were focused on vertical integration, and we are not 
reconsidering those earlier findings at this time. However, the GOC 
also makes the vertical integration argument with respect to the more 
recent planning documents relevant to the POI in this case. In response 
to that argument, we have reviewed the national plans and policies and 
note that there appears to be some evidence that support at the 
national level for the papermaking industry has become increasingly 
focused. Specifically, beginning with the Integration Plan, references 
in these national level plans and policies, are less general and more 
targeted to particular activities. A key target appears to be the 
promotion of vertical integration. As explained in the Integration 
Plan, in order for the paper making industry to grow and develop, China 
must develop forests grown for papermaking and, as that supply becomes 
available, the ability to make pulp.
    The GOC's emphasis on vertical integration is also reflected in 
Decision No. 40 and the Guidance Catalogue which lists a single 
``encouraged'' activity for the papermaking industry: ``forest-paper 
integrated wood slurry, paper and cardboard production consistent with 
the requirements of economic scale.'' While it is unclear what 
significance this has, the Eleventh Five-Year Plan and its Implementing 
Circular make a distinction between allocated goals, i.e., ``Those 
targets and tasks that involve government functions . . . ,'' and other 
``targets and tasks whose realization depends on the autonomous actions 
of market subjects . . . .'' The only allocated task related to 
papermaking is the forestry paper integration project, which the NDRC 
is to coordinate.
    Information put on the record by the petitioner in its February 27, 
2008, submission further reflects the emphasis on building an 
integrated production system extending back to include forestry and 
pulp making. This information shows that the PRC has been highly 
dependent on imported fiber, and that in 2003, the NDRC approved two 
large-scale plantation and pulp processing projects in Hainan (Asia 
Pulp and Paper) and Zhanjiang (originally UPM Kymmene, a Finnish 
company, but subsequently taken over by Shandong Chenming Paper 
Holdings). The information also indicates that in 2006, the NDRC had 
plans to build 5M hectares of forest base within ten years and to 
produce 5.5 million tons more wood pulp a year.
    Moreover, references to financing or investment generally focus on 
vertical integration. This can be seen in the Integration Plan, which 
under ``Policies and Measures'' discusses the provision of capital and 
loans with interest grants, ``with a view to promoting the organic 
formation of the industrial chain of papermaking industry, forestry and 
agriculture and eventually to enabling the construction of the national 
forestry and papermaking integration project to embark on the road of 
marketized development in which businesses make their own decision to 
invest.'' The Integration Plan also refers to ``Widening the financing 
channels for the construction of forestry and papermaking 
integration.'' In Article 12 of Decision No. 40, it states that the 
Guidance Catalogue is ``an important basis for guiding investment 
directions,'' and for governments ``to formulate and implement policies 
on public finance, taxation, credit `` and, as noted above, the 
Guidance Catalogue lists integration as being encouraged. Regarding 
``allocated'' tasks in the Eleventh Five-Year Plan, the section of the 
Implementing Circular entitled ``Priority Policy Tasks'' indicates that 
the NDRC is to ``formulate and improve the investment policies for the 
priority sectors and regions that are supported by central government 
investment.''
    However, based on our review of these plans and policy documents, 
it is also clear that the GOC continues to view the development of the 
Chinese paper industry as important. Papermaking is one of a handful of 
light industries named in both the Tenth and Eleventh Five-Year Plans, 
and its importance to the national economy is spelled out in the 
Integration Plan, which states: ``In our country, with the rapid 
development of national economy, there has been a fast growth in the 
consumption of paper products and an increase in import, providing a 
wide market for the development of papermaking industry; papermaking 
industry may be cultivated into an important industry of the national 
economy, becoming a new growth pole for our economy.''
    Also, we are not persuaded by the GOC's claim that the 2001 
Papermaking Plan ceased to be in effect after the administering agency 
was dissolved in 2003. We dismissed this claim in CFS at comment 8. 
Moreover, in reviewing the status of the Chinese papermaking industry, 
the 2007 Papermaking Plan describes progress made under the Tenth Five-
Year Plan by reference to the industry's position in 2005, which 
indicates that the Tenth Five-Year Plan was in place through 2005.
    Furthermore, any emphasis on vertical integration projects in these 
planning documents does not mean that the GOC is pursuing vertical 
integration to the exclusion of other goals or targets for the 
papermaking industry. For example, the Integration Plans identified 
other problems faced by the industry: scale (the average size of 
Chinese pulp and paper producers was considerably less than in other 
countries); backward technology; water consumption and environmental 
pollution. Scale was also a concern in Decision No. 40 and the Guidance 
Catalogue. Finally, among the non-``allocated'' goals of the Eleventh 
Five-Year Plan is to reduce water resource consumption and pollutant 
discharge.''
    Turning to the 2007 Papermaking Plan as an indication of the trend 
in policy planning, we note that it continues to place importance on 
the development of the paper industry generally, similar to that seen 
in the planning documents that we examined in CFS. The 2007 Papermaking 
Plan does not appear to place a sole or primary emphasis on vertical 
integration but, rather, appears to pick up on many of the same broader

[[Page 13858]]

concerns and goals regarding the development of the industry as those 
evident in certain previous planning documents. Moreover, while Article 
1 of the 2007 Papermaking Plan calls for resources to be allocated by 
the market, with the government playing a supplementary role, Article 
54 calls on domestic banks to ``first'' consider providing financing 
for large, backbone pulp and papermaking enterprises. This raises 
questions about the extent to which the Integration Plan or the 11\th\ 
Five-Year Plan and related implementation documents represent a 
definitive, permanent shift away from the previous focus.
    According to the GOC, none of the respondent companies in this 
investigation ``achieved the required vertical integration with 
required economic scale,'' and, hence, none was covered by the plans 
and policies discussed above. Information from the companies' responses 
confirms that they are not integrated to the extent that they are 
involved in forestry or pulp making. Nonetheless, in light of the 
ambiguities in the record evidence regarding the plans and policies, we 
are not making any finding in this preliminary determination as to 
whether the national government plans and policies in themselves result 
in policy lending to the LWTP industry. Before the final determination 
we intend to seek further information to address the ambiguities. Among 
other things, we will seek information on how the national government 
supports increasing the scale of paper production, pollution control, 
and other activities mentioned in the plans and policies. We will also 
seek further information about the Eleventh Five-year and allocated 
targets and tasks under that Plan.
    Although we are making no preliminary finding as to whether the 
national government plans and policies by themselves have resulted in 
policy lending to the LWTP industry, the petitioner has submitted 
certain provincial and local plans.\8\ The Guandong Province 2005 - 
2010 Papermaking Industry Development Plan (Guangdong Paper Plan) and 
the Zhanjiang City Eleventh Five-Year Economic and Social Development 
Plan (Zhanjiang Eleventh Five-Year Plan) both include the national 
government's plan and policies regarding vertical integration for 
forestry, pulp and paper. The parallel nature of the national, 
provincial, and local plans supports our finding in CFS (cite at 53) 
that there is a requirement at the local level to implement central 
government industrial policies. In implementing those policies, it is 
clear that the provincial and local plans go beyond supporting vertical 
integration in the papermaking industry. In particular, the Guangdong 
Paper Plan states:
---------------------------------------------------------------------------

    \8\ Although our questionnaire asked the GOC to include lower 
level governments in its response, these Plans were not submitted. 
In its supplemental questionnaire response, the GOC stated that it 
is consulting with the Guangdong province and Shanghai governments 
about their own plans for the paper-making industry.
---------------------------------------------------------------------------

     In 1998, the Guangdong People's Government determined to 
foster the papermaking industry (including pulping, paper-making, and 
paper products).
     Under ``Development Emphasis,'' the Plan states ``expand 
the enterprises with dominant advantage including,'' Guanlong; and 
``specialize hi-tech industries including'' Guanlong.
     Both GG and Guanlong are named as ``backbone 
enterprises.''
     Calls for support to ``key papermaking enterprises in 
various ways,'' including, ``Financial institutes should expand their 
support to leading paper making enterprises.''
The Zhangjiang Eleventh Five-Year Plan states the government will:
     Continue prioritize backbone industries such as paper-
making (among others).
     Develop fine paper products and special type paper.
     Further increase the service consciousness and efficiency 
of government branches and financial institutes, . . . , continue 
working on VAT rebate, financing.
The Shanghai Paper-making Industry Eleventh Five-Year Development Plan 
states that the government:
     Should focus on the development and construction of Pudong 
Kangqiao paper-making base, adding it to two other paper-making bases 
developed under the Tenth Five-Year Plan.
     Prioritize paper products that have high value added (many 
types listed, though thermal paper not explicitly named)
     Try to finance through various channels to change the 
current shortage of funds. Solve this shortage of funds by, inter alia, 
gaining bank loans.
    As these excerpts demonstrate, the lower level governments have in 
place specific and detailed policies to encourage the development their 
paper industries through preferential financing initiatives. While the 
Shanghai plan postdates the POI in this investigation, it implies that 
support was also given to the papermaking industry during the period of 
the Tenth Five-Year Plan. Similarly, the Guangdong Paper Plan states 
that paper-making has been a key-backbone industry since 1998.
    Therefore, we preliminarily determine that the GOC has a policy in 
place to encourage and support the growth of the paper industry through 
preferential financing initiatives, as expressly reflected in the 
provincial and local government five-year plans. Consistent with CFS, 
we preliminarily determine that loans from Policy Banks and SOCBs in 
the PRC constitute a direct financial contribution from the government, 
pursuant to section 771(5)(D)(i) of the Act and that they provide a 
benefit equal to the difference between what the recipients paid on 
their loans and the amount they would have paid on comparable 
commercials loans. Furthermore, we preliminarily determine that the 
loans are de jure specific because of the GOC's policy, as illustrated 
in the provincial and local government plans, to encourage and support 
the growth and development of the paper industry.
    To calculate the benefit under the policy lending program, we used 
the benchmarks described in the Benchmarks and Discount Rates section 
above. And the methodology described in 19 CFR 351.505(c)(1) and (2). 
On this basis, we preliminarily determine that GG received a 
countervailable subsidy of 4.16 percent ad valorem and Hanhong received 
a countervailable subsidy of 0.18 ad valorem under this program.
B. Income Tax Reduction Under the ``Torch'' Program
    GG reported that it has been designated a high-tech domestic 
enterprise and, therefore, pays a 15[percnt] income tax rate, compared 
to the regular income tax rate of 33[percnt] (30[percnt] national plus 
3[percnt] local). As shown in GG's 2006 financial statements, the 
company was designated as a ``Key High-tech Enterprise of the Torch 
Program'' in 1997 through Guo-Ke-Huo-Zi (1997) No. 52. The company was 
also placed on Guandong Province's list of high-tech enterprises 
through Yue-Di-Shui-Han (1997) No. 49. According to Yue-Fa (1998) No. 
16 (Decision on Promoting the Optimization and Updating of Industrial 
Structure through Scientific and Technological Progress by Guangdong 
Provincial Party Committee and the Municipal Government of Guangdong 
Province of the Central Committee), GG pays a reduced 15[percnt] tax 
because it is on the provincial list of high-tech industries.

[[Page 13859]]

    We preliminarily determine that the reduced income tax rate applied 
to GG under the Yue-Fa (1998) No. 16 is a financial contribution in the 
form of revenue forgone by the GOC, and it provides a benefit to the 
recipient 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 reduction afforded by this program is limited as a matter of 
law to certain high-tech enterprises listed on Yue-Di-Shui-Han (1997) 
No. 49, and, hence, is specific under section 771(5A)(D)(i) of the Act.
    To calculate the benefit, we treated the income tax savings enjoyed 
by GG as a recurring benefit, consistent with 19 CFR 351.524(c)(1), and 
divided the company's tax savings received during the POI by the 
company's total sales during that period. To compute the amount of the 
tax savings, we compared the rate GG would have paid in the absence of 
the program (30 percent) with the rate it paid (15 percent).
    On this basis, we preliminarily determine a countervailable subsidy 
of 0.75 percent ad valorem for GG for this program.
C. Reduced Income Tax Rates for Foreign Invested Enterprises (``FIEs'') 
Based on Location
    FIEs are encouraged to locate in designated coastal economic zones, 
special economic zones, and economic and technical development zones in 
the PRC through preferential tax rates. This program was originally 
created in June 1988 by the Finance Ministry under the ``Provisional 
Rules on Exemption and Reduction of Corporate Income Tax and Business 
Tax of FIE in Coastal Economic Zone'' and is currently administered 
under the Income Tax Law of the People's Republic of China for 
Enterprises with Foreign Investment and Foreign Enterprises (FIE Tax 
Law). Under Article 7 of the FIE Tax Law, productive FIEs located in 
the designated economic zones pay corporate income tax at a reduced 
rate of either 15 or 24 percent, depending on the zone. Guanlong has 
reported that its tax rate is reduced because of its location.
    We preliminarily determine that the reduced income tax rate paid by 
``productive'' FIEs under this program confers a countervailable 
subsidy. The reduced rate is a financial contribution in the form of 
revenue forgone by the GOC and it provides a benefit to the recipient 
in the amount of the tax savings. See section 771(5)(D)(ii) of the Act 
and 19 CFR 351.509(a)(1). We further determine preliminarily that the 
reduction afforded by this program is limited to enterprises located in 
designated geographic regions and, hence, is specific under section 
771(5A)(D)(iv) of the Act. The Department has previously found this 
program to be countervailable. See CFS.
    To calculate the benefit, we treated the income tax savings enjoyed 
by Guanlong as a recurring benefit, consistent with 19 CFR 
351.524(c)(1), and divided the company's tax savings received during 
the POI by the combined total sales of GG and Guanlong (less any sales 
between the two companies) during that period. To compute the amount of 
the tax savings, we compared the rate Guanlong would have paid for 
taxes at the national level in the absence of the program (30 percent) 
with the rate the company paid.
    On this basis, we preliminarily determine that GG received a 
countervailable subsidy of 0.02 percent ad valorem under this program.
D. Two Free Three Half
    Under Article 8 of the 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. The GOC 
states that in order to participate in the program a company only needs 
to meet the above criteria (i.e., foreign invested, productive, ten-
year operation term). Guanlong reported that it was in the ``two free'' 
period under 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 recipient 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 previously found this 
program to be countervailable. See CFS.
    To calculate the benefit, we treated the income tax savings enjoyed 
by Guanlong as a recurring benefit, consistent with 19 CFR 
351.524(c)(1), and divided the company's tax savings received during 
the POI by the combined total sales of GG and Guanlong (less any sales 
between the two companies) during that period. To compute the amount of 
the tax savings, we compared the rate Guanlong would have paid in the 
absence of the program (see ``Reduced Income Tax Rates for Foreign 
Invested Enterprises (FIEs) Based on Location,'' above) with the rate 
the company paid. On this basis, we preliminarily determine that GG 
received a countervailable subsidy of 0.09 percent ad valorem under 
this program.
E. Local Income Tax Exemption and Reduction Program for ``Productive'' 
FIEs
    Under Article 9 of the FIE Tax Law, the provincial governments have 
the authority to grant an exemption or reduction in local income taxes 
to ``productive'' FIEs. The GOC states that, according to the ``Equity 
Joint Venture Tax Law,'' the local income tax rate is set at ten 
percent of the enterprise income tax rate, which is currently 30 
percent.
    Guanlong reported receiving a reduced rate or exemption of local 
income tax during the POI.
    We preliminarily determine that the exemption or reduction in the 
local 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 government and it 
provides a benefit to the recipient 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 previously found this 
program to be countervailable. See CFS.
    To calculate the benefit, we treated the income tax savings enjoyed 
by Guanlong as a recurring benefit, consistent with 19 CFR 
351.524(c)(1), and divided the company's tax savings received during 
the POI by the combined total sales of GG and Guanlong (less any sales 
between the two companies) during that period. To compute the amount of 
the tax savings, we compared the rate Guanlong would have paid in the 
absence of the program (3 percent) with the rate the company paid. On 
this basis, we preliminarily determine the countervailable subsidy 
attributable to GG to be 0.01 percent ad valorem under this program.

[[Page 13860]]

F. Reduced Income Tax Rates and Exemption from Local Tax Based on 
Location in Pudong New Area
    Hanhong reported that it is located in Shanghai Pudong New Area, 
which has been designated as a special economic zone and, as a result, 
Hanhong pays a reduced income tax rate for both the national and local 
taxes. The GOC confirmed that the Shanghai tax authorities apply a 
reduced income tax rate for virtually all enterprises located in the 
Shanghai Pudong New Area.
    We preliminarily determine that the reduced income tax rate paid by 
Hanhong confers a countervailable subsidy. The reduced rate is a 
financial contribution in the form of revenue forgone by the GOC and it 
provides a benefit to the recipient 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 reduction is limited to enterprises 
located in designated geographical regions and, hence, is specific 
under section 771(5A)(D)(iv) of the Act.
    To calculate the benefit, we treated the income tax savings enjoyed 
by Hanhong as a recurring benefit, consistent with 19 CFR 
351.524(c)(1), and divided the company's tax savings received during 
the POI by the company's total sales during that period. To compute the 
amount of the tax savings, we compared the rate Hanhong would have paid 
in the absence of the program (33 percent) with the rate it actually 
paid. On this basis, we preliminarily determine a countervailable 
subsidy of 0.39 percent ad valorem for Hanhong for this program.

Indirect Tax and Import Tariff Programs

G. VAT and Tariff Exemptions on Imported Equipment
    Enacted in 1997, the Circular of the State Council on Adjusting Tax 
Policies on Imported Equipment (GUOFA No. 37) (Circular No. 37) exempts 
both FIEs and certain domestic enterprises from the VAT and tariffs on 
imported equipment used in their production so long as the equipment 
does not fall into prescribed lists of non-eligible items. Qualified 
enterprises receive a certificate either from the NDRC or its 
provincial branch. The objective of the program is to encourage foreign 
investment and to introduce foreign advanced technology equipment and 
industry technology upgrades.
    GG and its cross-owned company, Guanlong, received VAT and duty 
exemptions under this program. GG received these exemptions due to its 
status as a qualified domestic enterprise, while Guanlong received its 
exemption due to its status as a qualified FIE. To receive the 
exemptions, a qualified enterprise only has to show this certificate 
depending on the scale of the enterprise and other factors to the 
customs officials upon importation of the equipment.
    We preliminarily determine that VAT and tariff exemptions on 
imported equipment confer a countervailable subsidy. The exemptions are 
a financial contribution in the form of revenue forgone by the GOC and 
they provide a benefit to the recipients in the amount of the VAT and 
tariff savings. See section 771(5)(D)(ii) of the Act and 19 CFR 
351.510(a)(1).
    As described above, FIEs and certain domestic enterprises are 
eligible to receive VAT and tariff exemptions under this program. No 
information has been provided to demonstrate that the beneficiary 
companies are a non-specific group. As noted above under 2F/3H, the 
Department finds FIEs to be a specific group under section 
771(5A)(D)(i). The addition of certain enterprises requiring approval 
by the NDRC does not render the program non-specific. See CFS at 
Comment 16, discussing and affirming the preliminary determination that 
this program is specific under section 771(5A)(D)(iii)(I) of the Act 
despite the fact that the ``pool of companies eligible for benefits is 
larger than FIEs.''
    Normally, we treat exemptions from indirect taxes and import 
charges, such as the VAT and tariff exemptions, as recurring benefits, 
consistent with 19 CFR 351.524(c)(1) and allocate these benefits only 
in the year that they were received. However, when an indirect tax or 
import charge exemption is provided for, or tied to, the capital 
structure or capital assets of a firm, the Department may treat it as a 
non-recurring benefit and allocate the benefit to the firm over the 
AUL. See 19 CFR 351.524(c)(2)(iii) and 19 CFR 351.524(d)(2).
    In the instant investigation, GG and Guanlong have provided lists 
of VAT and tariff exemptions that they received for imported capital 
equipment during the 13-year AUL period. In light of our preliminary 
determination to find subsidies only after December 11, 2001, we have 
examined VAT and tariff exemptions in 2002 and following years. For all 
years, the total amount of the VAT and tariff exemptions received by 
Guanlong was less than 0.5[percnt] of the combined sales of GG and 
Guanlong (less any sales between the two companies). Therefore, we do 
not need to reach the issue of whether the importations were tied to 
the capital structure or capital assets of the firm.
    For GG, the total amount of exempted VAT and tariff exemptions 
exceeded 0.5[percnt] of the company's sales for one year. Moreover, 
based on GG's information, the VAT and tariff exemption were for 
capital equipment. Accordingly, the Department is treating the 
exemptions as non-recurring benefits consistent with 19 CFR 
351.524(c)(2)(iii).
    To calculate the countervailable subsidy, we used our standard 
methodology for non-recurring grants. See 19 CFR 351.524(b). 
Specifically, we used the discount rate described above in the 
``Benchmarks and Discount Rates'' section to calculate the amount of 
the benefit for the POI. On this basis, we preliminarily determine that 
a countervailable benefit of 0.57 percent ad valorem exists for GG.

Provincial Subsidy Programs

H. Funds for Outward Expansion of Industries in Guangdong Province
    This program was established by the Implementing Measures of 
Guangdong Province concerning the Support of Development of Outward 
Privately-Held Enterprises (YUEBANFA {2003{time}  No. 17) (Implementing 
Measures). The purpose of the program is to provide eligible private 
enterprises in Guangdong Province special funding for the development 
of export activities. The Implementing Measures indicate that this 
program supports the development of international trade and economic 
cooperation through the establishment of different funds to provide 
payments to enterprises for international market exploration, export 
credit insurance assistance, the development of trade through science 
and technology, export product research and development, support for 
defense expenses in antidumping duty cases, loan interest grants for 
various export-related loans and development of outward-looking 
enterprises. The local Department of Foreign Trade and Economic 
Cooperation is responsible for approving applications filed under this 
program and the local Bureau of Finance disburses the approved funds. 
GG reported receiving a grant under the Outward Expansion Program 
during the POI.
    We preliminarily determine that the Outward Expansion Program grant 
is a countervailable subsidy within the meaning of section 771(5) of 
the Act. It is a financial contribution under section 771(5)(D)(i), and 
it provides a benefit in the amount of the grant (see 19 CFR 
351.504(a)). Finally, because it is

[[Page 13861]]

contingent upon export performance, the subsidy is specific under 
section 771(5A)(B).
    For grants reported by GG under this program, we divided the amount 
approved by GG's export sales in the year of approval and found that 
the amount was less than 0.5[percnt]. Therefore, in accordance with 19 
CFR 351.524(b)(2), we are allocating the total amount of the subsidy to 
the year received. On this basis, we preliminarily determine that a 
countervailable subsidy of 0.08 percent ad valorem exists for GG.

II. Programs Preliminarily Determined To Be Not Used By GG and Hanhong

    We preliminarily determine that Hanhong and GG (including Guanlong) 
did not apply for or receive benefits during the POI under the programs 
listed below.
A. Loans provided pursuant to the Northeast Revitalization Program
B. Loan guarantees from government-owned and controlled banks
C. Income tax exemption program for export-oriented foreign investment 
enterprises
D. Corporate income tax refund program for reinvestment of FIE Profits 
in export-oriented enterprises
E. Reduced income tax rate for technology and knowledge intensive FIEs
F. Reduced income tax rate for high or new technology FIEs
G. Preferential tax policies for research and development at FIEs
H. Income tax credits on purchases of domestically produced equipment 
by domestically owned companies
I. Export incentive payment characterized as VAT rebates
J. State Key Technology Renovation Program Fund
K. Export interest subsidy funds for enterprises located in Shenzhen 
City and Zhejiang Province
L. Loans and interest subsidies pursuant to Liaoning Province's Five-
year Framework
M. Currency retention program
    For purposes of this preliminary determination, we have relied on 
the GOC's and respondent companies' responses to preliminarily 
determine non-use of the programs listed above. During the course of 
verification, the Department will further investigate whether these 
programs were used by respondent companies during the POI.

IV. Programs for Which More Information is Required

    As mentioned under the ``Case History'' section of this notice, the 
Department determined to investigate several additional programs 
including: provision of goods for less than adequate remuneration (for 
electricity, land, and papermaking chemicals); and the ``Prohibited 
Export Subsidies for Residents of the Shenzhen Special Economic Zone'' 
program on March 7, 2008. In addition, GG and Guanlong reported that 
they received different municipal grants related to export assistance, 
research and development, and environmental protection in 2006. We are 
investigating some of the grants reported by GG and Guanlong as a 
result of the petitioner's new subsidy allegations. At this time, we do 
not have sufficient information to determine whether these programs 
confer a countervailable subsidy. We intend to seek further information 
on these programs from the GOC and the respondents and issue an interim 
analysis describing our preliminary findings with respect to these 
programs before the final determination so that parties will have the 
opportunity to comment on our findings before the final determination.

Verification

    In accordance with section 782(i)(1) of the Act, we will 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
------------------------------------------------------------------------
Guangdong Guanhao High-Tech Co., Ltd./Zhanjiang Guanlong            5.68
 Paper Industrial Co., Ltd.................................
Shanghai Hanhong Paper Co., Ltd............................     0.57 (de
                                                                minimis)
Shenzhen Yuanming Industrial Development Co., Ltd.59.50MDCN        59.50
 Technology Co., Ltd.......................................
All Others.................................................         5.68
------------------------------------------------------------------------

    In accordance with sections 703(d) and 705(c)(5)(A) of the Act, for 
companies not investigated, we determined 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. The ``all others'' rate does not include zero and de 
minimis rates or any rates based solely on the facts available. In this 
investigation, because we have only one rate that can be used to 
calculate the all-others rate, GG's rate, we have assigned that rate to 
all-others.
    In accordance with sections 703(d)(1)(B) and (2) of the Act, we are 
directing U.S. Customs and Border Protection (``CBP'') to suspend 
liquidation of all entries of LWTP 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.

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 protective order, without the written consent 
of the Assistant Secretary for Import Administration.
    In accordance with section 705(b)(2) 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

[[Page 13862]]

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, N.W., Washington, 
D.C. 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; (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 published pursuant to sections 703(f) and 
777(i) of the Act.

    Dated: March 7, 2008.
David M. Spooner,
Assistant Secretary for Import Administration.
[FR Doc. E8-5182 Filed 3-13-08; 8:45 am]
BILLING CODE 3510-DS-S