[Federal Register Volume 73, Number 175 (Tuesday, September 9, 2008)]
[Notices]
[Pages 52297-52315]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-20922]


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DEPARTMENT OF COMMERCE

International Trade Administration

[C-570-936]


Circular Welded Carbon Quality Steel Line Pipe from the People's 
Republic of China: Preliminary Affirmative Countervailing 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 circular welded carbon quality steel line 
pipe (line pipe) from the People's Republic of China (the PRC). For 
information on the estimated subsidy rates, see the ``Suspension of 
Liquidation'' section of this notice.

EFFECTIVE DATE: September 9, 2008.

FOR FURTHER INFORMATION CONTACT: Kristen Johnson or John Conniff, AD/
CVD Operations, Office 3, Operations,

[[Page 52298]]

Import Administration, U.S. Department of Commerce, Room 4014, 14th 
Street and Constitution Avenue, NW, Washington, DC 20230; telephone: 
(202) 482-4793 and (202) 482-1009, respectively.

SUPPLEMENTARY INFORMATION:

Case History

    On April 3, 2008, the Department received the petition filed in 
proper form by the petitioners.\1\ This investigation was initiated on 
April 23, 2008. See Circular Welded Carbon Quality Steel Line Pipe from 
the People's Republic of China: Notice of Initiation of Countervailing 
Duty Investigation, 73 FR 23184 (April 29, 2008) (Initiation Notice), 
and accompanying Initiation Checklist.\2\ On June 6, 2008, the 
Department postponed the deadline for the preliminary determination by 
65 days to no later than September 2, 2008. See Circular Welded Carbon 
Quality Steel Line Pipe from the People's Republic of China: Notice of 
Postponement of Preliminary Determination in the Countervailing Duty 
Investigation, 73 FR 32290 (June 6, 2008).
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    \1\ Petitioners are United States Steel Corporation, Maverick 
Tube Corporation, Tex-Tube Company, and the United Steel, Paper and 
Forestry, Rubber, Manufacturing, Energy, Allied Industrial and 
Service Workers InternationalUnion, AFL-CIO-CLC.
    \2\ A public version of this and all public Departmental 
memoranda is on file in the Central Records Unit (CRU), room 1117 in 
the main building of the Commerce Department.
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    Due to the large number of producers and exporters of line pipe in 
the PRC, we determined that it was not possible to investigate 
individually each producer or exporter and, therefore, selected two 
producers/exporters of line pipe to be mandatory respondents: Huludao 
Steel Pipe Industrial Co., Ltd./Huludao City Steel Pipe Industrial Co., 
Ltd. and Liaoning Northern Steel Pipe Co., Ltd. (Northern Steel) 
(collectively, respondents). See Memorandum from the Team through 
Melissa Skinner, Director, Office 3, Operations, to Stephen J. Claeys, 
Deputy Assistant Secretary for Import Administration, regarding 
``Respondent Selection'' (May 16, 2008).\3\
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    \3\ A public version of this memorandum is available in the CRU.
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    On May 19, 2008, we issued the initial countervailing duty (CVD) 
questionnaire to the Government of the People's Republic of China (the 
GOC) and the mandatory respondents. On July 9, 2008, the Huludao Seven-
Star Steel Pipe Group Co., Ltd. (Huludao Seven Star Group), Huludao 
Steel Pipe Industrial Co. Ltd. (Huludao Steel Pipe), and Huludao Bohai 
Oil Pipe Industrial Co. Ltd. (Huludao Bohai Oil Pipe) (collectively, 
the Huludao Companies) submitted their respective responses to the 
initial CVD questionnaire. On July 10, 2008, the GOC submitted its 
initial questionnaire response. On July 14, 2008, Northern Steel 
submitted its response to the initial CVD questionnaire.
    Regarding the GOC, we issued it supplemental questionnaires on 
August 5 and August 6, 2008, to which the GOC submitted a response on 
August 21, 2008.
    Regarding the Huludao Companies, on July 17, 2008, we issued a 
supplemental questionnaire, to which they responded on July 28, 2008. 
On July 23, 2008, we issued a supplemental questionnaire to the Huludao 
Seven Star Group, which submitted its response on August 11, 2008. On 
July 24, 2008, we issued a supplemental questionnaire to Huludao Bohai 
Oil Pipe, which submitted its questionnaire response on August 12, 
2008. On July 30, 2008, we issued a supplemental questionnaire to 
Huludao Steel Pipe, which submitted a response on August 18, 2008. On 
July 31 and August 7, 2008, we issued supplemental questionnaires to 
the Huludao Companies, which submitted their responses on August 15, 
18, and 28, 2008, respectively.
    On July 21, 2008, we issued a supplemental questionnaire to 
Northern Steel, to which it responded on August 6, 2008. On August 6 
and 12, 2008, we issued additional supplemental questionnaires to 
Northern Steel; the company submitted its responses on August 14 and 
26, 2008, respectively.
    On June 24, 2008, petitioners submitted new subsidy allegations 
regarding four programs. On August 5, 2008, the Department initiated 
investigations of the four newly alleged subsidy programs pursuant to 
section 775 of the Tariff Act of 1930, as amended (the Act). See 
Memorandum to Melissa G. Skinner, Director, Office 3 Operations, 
regarding ``New Subsidy Allegations'' (August 5, 2008). Questionnaires 
regarding these newly alleged subsidies were sent to the GOC, Northern 
Steel, and the Huludao Companies on August 6, 2008. The Huludao 
Companies submitted their response to the questionnaire on the new 
subsidy allegations on August 22, 2008. Northern Steel submitted its 
response to the questionnaire on the new subsidy allegations on August 
25, 2008. The GOC submitted its response on August 29, 2008.
    On August 1, 2008, petitioners alleged that the Huludao Companies 
are uncreditworthy and requested that the Department initiate an 
uncreditworthy inquiry as described under 19 CFR 351.505(a)(4)(i). Due 
to the timing of petitioners' submission, we are unable to address 
their uncreditworthy allegation in the context of this preliminary 
determination. Therefore, we will address the allegation after the 
issuance of the preliminary determination.

Scope of the Investigation

    The merchandise covered by this investigation is circular welded 
carbon quality steel pipe of a kind used for oil and gas pipelines 
(line pipe), not more that 406.4 mm (16 inches) in outside diameter, 
regardless of wall thickness, length, surface finish, end finish or 
stenciling.
    The term ``carbon quality steel'' includes both carbon steel and 
carbon steel mixed with small amounts of alloying elements that may 
exceed the individual weight limits for nonalloy steels imposed in the 
Harmonized Tariff Schedule of the United States (HTSUS). Specifically, 
the term ``carbon quality'' includes products in which (1) iron 
predominates by weight over each of the other contained elements, (2) 
the carbon content is 2 percent or less by weight and (3) none of the 
elements listed below exceeds the quantity by weight respectively 
indicated:
    (i)2.00 percent of manganese,
    (ii) 2.25 percent of silicon,
    (iii) 1.00 percent of copper,
    (iv) 0.50 percent of aluminum,
    (v) 1.25 percent of chromium,
    (vi) 0.30 percent of cobalt,
    (vii) 0.40 percent of lead,
    (viii) 1.25 percent of nickel,
    (ix) 0.30 percent of tungsten,
    (x) 0.012 percent of boron,
    (xi) 0.50 percent of molybdenum,
    (xii) 0.15 percent of niobium,
    (xiii) 0.41 percent of titanium,
    (xiv) 0.15 percent of vanadium, or
    (xv) 0.15 percent of zirconium.
    Line pipe is normally produced to specifications published by the 
American Petroleum Institute (API) (or comparable foreign 
specifications) including API A-25, 5LA, 5LB, and X grades from 42 and 
above, and/or any other proprietary grades or non-graded material. 
Nevertheless, all pipes meeting the physical description set forth 
above that is of a kind used in oil and gas pipelines, including all 
multiple-stenciled pipe with an API line pipe stencil is covered by the 
scope of this investigation.
    Excluded from this scope are pipes that are multiple-stenciled to a 
standard and/or structural specification and to any other 
specification, such as the API-5L specification, when it also has one 
or more of the following

[[Page 52299]]

characteristics: is 32 feet in length or less; is less than 2.0 inches 
(50 mm) in outside diameter; has a galvanized and/or painted surface 
finish; or has a threaded and/or coupled end finish. (The term 
``painted'' does not include coatings to inhibit rust in transit, such 
as varnish, but includes coatings such as polyester.)
    The line pipe products that are the subject of this investigation 
are currently classifiable in the HTSUS under subheadings 
7306.19.10.10, 7306.19.10.50, 7306.19.51.10, and 7306.19.51.50. While 
HTSUS subheadings are provided for convenience and customs purposes, 
the written description of the scope of this investigation is 
dispositive.

Scope Comments

    In the Initiation Notice, we acknowledged that the scope of the 
antidumping (AD) and CVD investigations of line pipe may include 
certain merchandise potentially subject to the AD and CVD 
investigations on circular welded carbon quality steel pipe (CWP) from 
the PRC.\4\ See Initiation Notice, 73 FR 23184. In accordance with the 
Department's regulations (see Antidumping Duties; Countervailing 
Duties, 62 FR 27296, 27323 (May 19, 1997)), 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.
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    \4\ See Notice of Final Determination of Sales at Less Than Fair 
Value and Affirmative Final Determination of Critical Circumstances: 
Circular Welded Carbon Quality Steel Pipe from the People's Republic 
of China, 73 FR 31970 (June 5, 2008), see also Circular Welded 
Carbon Quality Steel Pipe from the People's Republic of China: Final 
Affirmative Countervailing Duty Determination and Final Affirmative 
Determination of Critical Circumstances, 73 FR 31966 (June 5, 2008).
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    On May 13, 2008, Wheatland Tube Company (Wheatland), an interested 
party in this proceeding, submitted comments on the scope of the AD and 
CVD investigations on line pipe. Wheatland requested that the 
Department modify the line pipe scope to reflect the scope definition 
ultimately set out in the CWP investigations.\5\ Based on the comments 
received and resolution of the CWP scope issue, we have modified the 
scope of the line pipe investigations to eliminate the overlap that 
existed between the scope of CWP and line pipe. See Memorandum to 
Stephen J. Claeys, Deputy Assistant Secretary for Import 
Administration, from Abdelali Elouaradia, Director, Office 4 
Operations, regarding ``Antidumping and Countervailing Duty 
Investigations of Circular Welded Carbon Quality Steel Line Pipe from 
the People's Republic of China: Scope Modification'' (August 29, 2008).
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    \5\ See Wheatland's submission to the Department entitled 
``Scope of the Antidumping Duty investigations of Circular Welded 
Carbon Quality Steel Line Pipe from the Republic of Korea and the 
People's Republic of China and Countervailing Duty Investigation of 
Circular Welded Carbon Quality Steel line Pipe from the People's 
Republic of China - Comments on Scope of Investigations'' (May 13, 
2008).
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Injury Test

    Because the PRC is a ``Subsidies Agreement Country'' within the 
meaning of section 701(b) of the Act, the International Trade 
Commission (the ITC) is required to determine whether imports of the 
subject merchandise from the PRC materially injure, or threaten 
material injury to, a U.S. industry. On June 3, 2008, the ITC published 
its preliminary determination finding that there is a reasonable 
indication that an industry in the United States is materially injured 
or threatened with material injury by reason of imports from the PRC of 
the subject merchandise. See Certain Circular Welded Carbon Quality 
Steel Line Pipe from China and Korea, Investigation Nos. 701-TA-455 and 
731-TA-1149-1150 (Preliminary), 73 FR 31712 (June 3, 2008).

Period of Investigation

    The period of investigation (the POI) for which we are measuring 
subsidies is January 1, 2007, through December 31, 2007, which 
corresponds to the PRC's most recently completed fiscal year. See 19 
CFR 351.204(b)(2).

Application of the Countervailing Duty Law to Imports from the PRC

    On October 25, 2007, the Department published Coated Free Sheet 
Paper from the People's Republic of China: Final Affirmative 
Countervailing Duty Determination, 72 FR 60645 (October 25, 2007) (CFS 
Final), and accompanying decision memorandum (CFS Decision Memorandum). 
In CFS Final, 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 the PRC.
See CFS Decision Memorandum at Comment 6. The Department has affirmed 
its decision to apply the CVD law to the PRC in subsequent final 
determinations. See, e.g., Circular Welded Carbon Quality Steel Pipe 
from the People's Republic of China: Final Affirmative Countervailing 
Duty Determination and Final Affirmative Determination of Critical 
Circumstances, 73 FR 31966 (June 5, 2008) (CWP Final), and accompanying 
decision memorandum (CWP Decision Memorandum).
    Additionally, for the reasons stated in the CWP Decision 
Memorandum, we are using the date of December 11, 2001, the date on 
which the PRC became a member of the World Trade Organization (WTO), as 
the date from which the Department will identify and measure subsidies 
in the PRC for purposes of this preliminary determination. See CWP 
Decision Memorandum at Comment 2.

Subsidies Valuation Information

    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). As explained below, 
we have preliminarily determined that short-term and long-term loans of 
the Huludao Companies were received under the GOC's preferential 
lending program or constitute export-contingent loans and, thus, 
constitute loans received under an export subsidy program. Similarly, 
as explained below, we have preliminary determined that Northern 
Steel's short-term loans were issued contingent on export performance 
and, thus, constitute loans received under an export subsidy program. 
Therefore, because we have preliminarily determined that respondents' 
outstanding loans were issued pursuant to GOC programs, the loans are 
the very loans for which we require a suitable benchmark.
    Under 19 CFR 351.505(a)(3)(ii), if the respondent firm did not have 
any comparable commercial loans during the period, the Department may 
use a national interest rate for comparable commercial loans. However, 
we

[[Page 52300]]

preliminarily determine that 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 
Decision Memorandum at Comment 10.
    In our analysis of the PRC as a non-market economy in the AD 
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 Circumstances, In Part: Certain Lined Paper Products From the 
People's Republic of China, 71 FR 53079 (September 8, 2006). This 
finding was further elaborated in CFS Final. See CFS 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. See also Certain New 
Pneumatic Off-the-Road Tires from the People's Republic of China: 
Preliminary Affirmative Countervailing Duty Determination, 72 FR, 71365 
(December 17, 2007) (Tires Prelim) and upheld in Certain New Pneumatic 
Off-the-Road Tires From the People's Republic of China: Final 
Affirmative Countervailing Duty Determination and Final Negative 
Determination of Critical Circumstances, 73 FR 40480 (July 15, 2008) 
(Tires Final) and accompanying decision memorandum (Tires Decision 
Memorandum) at ``Subsidies Valuation'' section. 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 Final, because of the 
marketdistorting effects of the GOC in the PRC banking sector, foreign 
bank lending does not provide a suitable benchmark. See CFS 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, we preliminarily determine 
that 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 National Income (GNI) to the 
PRC, using the same regression-based methodology that we employed in 
recent CVD proceedings involving the PRC. See e.g., CFS Decision 
Memorandum at Comment 10 and Tires Decision Memorandum at Comment E.3 
``Role of the GOC in the PRC Banking System and Whether to Use an 
Internal or External Benchmark.''
    We note that the use of an external benchmark is consistent with 
the Department's practice. For example, in Softwood Lumber First 
Review, the Department used U.S. timber prices to measure the benefit 
for government-provided timber in Canada. See Notice of Final Results 
of Countervailing Duty Administrative Review and Rescission of Certain 
Company-Specific Reviews: Certain Softwood Lumber Products From Canada, 
69 FR 75917 (December 20, 2004) (Softwood Lumber First Review) and 
accompanying decision memorandum at ``U.S. Log Prices are a More 
Appropriate Benchmark'' section. 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 First Review, where domestic prices are not 
reliable, we have resorted to prices outside the PRC.
    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 Final, 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 Tires Prelim at ``Subsidies Valuation'' (upheld 
in Tires Final). The Department has therefore preliminarily determined 
that it is appropriate to compute a benchmark interest rate based on 
the inflationadjusted interest rates of countries with similar per 
capita GNI to the PRC, using the same regression-based methodology that 
we employed in CFS Final and Tires Final. As explained in the CFS 
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 per 
capita 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, i.e., during the POI. See Tires 
Prelim at ``Subsidies Valuation'' (upheld in Tires Final).
    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 renminbi (RMB) loans. We did not include those economies that the 
Department considered to be non-market economies for AD purposes. The 
benchmark necessarily also excludes any economy that did not report 
lending and inflation rates to IFS.
    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. The Department then compared its benchmarks with respondents' 
inflation-adjusted interest rate to determine whether a benefit existed 
for the loans received by respondents on which principal was 
outstanding or interest was paid during the POI. 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 longterm loans. Therefore, the 
Department has derived long-term benchmark rates for a given year using 
a formula that is a function of the Department's derived short-term 
benchmark interest rate for the year in question, the inflation rate 
for the year in question, long-term U.S. corporate BBrated bond rates, 
and one-year U.S. corporate BB-rated bond rates. To calculate long-term 
loan

[[Page 52301]]

benchmarks, the Department first developed a ratio of short-term and 
long-term lending. The Department then applied this ratio to the 
benchmark short-term lending figure (discussed above) to impute a long-
term lending rate. Specifically, the Department computed a ratio of 
long-term U.S. corporate BB-rated bond rates and one-year U.S. 
corporate BB-rated bond rates reported by the Federal Reserve for 2005. 
This ratio serves to reflect the mark-up that typically exists on long-
term loans, as compared to short-term loans. In calculating long-term 
benchmarks and discount rates, the Department has adjusted the long-
term U.S. corporate BB-rated bond rates to approximate as closely as 
possible the terms of the long-term loans at issue. Thus, to calculate 
the long-term loan benchmarks, we adjusted the short-term benchmark 
lending rate for the year in question to reflect inflation in the PRC 
and then applied the appropriate mark-up ratio. In our derivation of 
long-term benchmark interest rates, we have not made any inflation 
adjustment to interest paid by respondents on their long-term RMB-
denominated loans. This methodology is consistent with the Department's 
practice. See Tires Decision Memorandum at ``Loan Benchmarks and 
Discount Rates'' section and at Comment E.3 ``Role of the GOC in the 
PRC Banking System and Whether to Use an Internal or External 
Benchmark.''
    In addition, the Department requires a U.S. dollar denominated 
short-term interest rate. Consistent with past practice, for U.S. 
dollar denominated loans, the Department used as the 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, as provided by 
Bloomberg. See Tires Prelim, 72 FR 71365 (upheld in Tires Final). 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. Furthermore, consistent with past practice, the 
Department 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. Id.
    The Department also requires an RMB-denominated long-term interest 
rate to use as a discount rate for purposes of allocating benefits 
received through the provision of certain landuse rights for less than 
adequate remuneration (LTAR) over the relevant length of each land-use 
agreement. The Department also requires an RMB-denominated interest 
rate to use as a discount rate for certain countervailable long-term 
loans. In calculating the appropriate long-term markup for the 
provision of land-use rights for LTAR, we have used the 30-year 
Bloomberg U.S. corporate BB-rated bond rate because this time period 
most closely matches the 50-year terms of the leases at issue in this 
investigation. We used the same approach when deriving our long-term 
interest rate except that in calculating the long-term mark-up, we used 
the Bloomberg U.S. corporate BB-rated bond rate that corresponded to 
the duration of the countervailable loan. Our approach regarding the 
derivation of discount rates is consistent with the Department's 
practice. See Tires Decision Memorandum at ``Loan Benchmarks and 
Discount Rates'' section.

Allocation Period

    Under 19 CFR 351.524(b), non-recurring subsidies are allocated over 
a period corresponding to the average useful life (AUL) of the 
renewable physical assets used to produce the subject merchandise. 
Pursuant to 19 CFR 351.524(d)(2), there is a rebuttable presumption 
that the AUL will be taken from the U.S. Internal Revenue Service's 
1977 Class Life Asset Depreciation Range System (IRS Tables), as 
updated by the Department of Treasury. For the subject merchandise, the 
IRS Tables prescribe an AUL of 15 years. No interested party has 
claimed that the AUL of 15 years is unreasonable.
    Further, for non-recurring subsidies, we have applied the ``0.5 
percent expense test'' described in 19 CFR 351.524(b)(2). Under this 
test, we compare the amount of subsidies approved under a given program 
in a particular year to sales (total sales or total export sales, as 
appropriate) for the same year. If the amount of subsidies is less than 
0.5 percent of the relevant sales, then the benefits are allocated to 
the year of receipt rather than allocated over the AUL period.

Company History

    Northern Steel is a foreign invested enterprise that produces 
electronic resistance welded pipes for the petroleum and natural gas 
industry, including line pipe, casing pipe and tubing. The company is 
located at the Economic Development Zone in Haicheng, Liaoning. 
Northern Steel reports that it was formed on November 7, 2005, and that 
in 2006, it purchased the assets of a defunct Chinese pipe company. 
Northern Steel also reports that the sale of the assets took place in 
an open auction held by a government-owned asset management company. We 
are seeking additional information on this purchase.
    As stated above, the Huludao Companies consist of the Huludao Seven 
Star Group, Huludao Steel Pipe, and Huludao Bohai Oil Pipe. According 
to its response, the Huludao Star Group was established in June 1999. 
It is headquartered in the Longgang District of Huludao City in 
Liaoning Province. The Huludao Seven Star Group is a domestically owned 
enterprise that produces standard welded pipes. The Huludao Seven Star 
Group states that it does not produce subject merchandise. The Huludao 
Seven Star Group is owned by a group of individual shareholders.
    The manufacturing facilities and headquarters of Huludao Steel Pipe 
are also located in the Longgang District of Huludao City in Liaoning 
Province. According to its response, Huludao Steel Pipe was established 
in 1993. During the POI, the shareholders of the Huludao Seven Star 
Group along with the Huludao Seven Star Group itself owned a majority 
share of Huludao Steel Pipe. Huludao Steel Pipe is a domestically-owned 
enterprise that produces standard welded pipe, line pipe (a.k.a., 
subject merchandise), casing, and rectangular pipe.
    The manufacturing facilities and headquarters of Huludao Bohai Oil 
Pipe are located in the Beigang Industrial Zone and Huludao Development 
Zone of Huludao City in Liaoning Province. According to its response, 
Huludao Bohai Oil Pipe was established in 2006. During the POI, Huludao 
Bohai Oil Pipe was wholly owned by Huludao Steel Pipe. Huludao Bohai 
Oil Pipe is a domestically owned enterprise that produces hot-rolled 
steel strips, welded standard pipe, and line pipe.

Cross-Ownership

    Under 19 CFR 351.525(b)(6)(vi) cross-ownership exists between 
corporations if one corporation can use or direct the individual assets 
of the other corporation(s) 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. Based on the information supplied by the Huludao 
Companies indicating that common ownership exists between the three 
companies, we preliminarily determine that the Huludao Seven Star 
Group, Huludao

[[Page 52302]]

Steel Pipe, and Huludao Bohai Oil Pipe are cross-owned under 
351.525(b)(6)(vi).
    As discussed in further detail below, the Huludao Seven Star Group 
acquired two parcels of land from the Bureau of Land Resources of 
Longgang District, Huludao City in Liaoning Province in 2004 and 2006. 
The 2004 purchase was on behalf of Huludao Steel Pipe. The 2006 
purchase was on behalf of Huludao Bohai Oil Pipe. Under 19 CFR 
351.525(b)(6)(v), if a corporation producing non-subject merchandise 
received a subsidy and transferred the subsidy to a corporation with 
cross-ownership, the Department will attribute the subsidy to products 
sold by the recipient of the transferred subsidy. Thus, we 
preliminarily determine that the land purchased by the Huludao Seven 
Star Group on behalf of Huludao Steel Pipe and Huludao Bohai Oil Pipe 
constitutes a transfer of subsidies by a corporation producing non-
subject merchandise to cross-owned corporations that produce subject 
merchandise. Therefore, in accordance with 19 CFR 351.525(b)(6)(ii), we 
have attributed such subsidies received by Huludao Steel Pipe and 
Huludao Bohai Oil Pipe under the Provision of Land For LTAR program to 
the combined total sales of Huludao Steel Pipe and Huludao Bohai Oil 
Pipe (net of their respective sales to affiliates).
    We preliminarily determine that the Huludao Seven Star Group did 
not transfer any other subsidies to Huludao Steel Pipe and Huludao 
Bohai Oil Pipe during the POI. Therefore, given this preliminary 
finding and based on the statements of the Huludao Seven Star Group 
that it does not produce subject merchandise or provide any inputs to 
Huludao Steel Pipe and Huludao Bohai Oil Pipe that are primarily 
dedicated to the production of line pipe, we are not including any 
other programs used by the Huludao Seven Star Group in our subsidy 
analysis.

Adverse Facts Available

The GOC

    As discussed below, the Department is investigating whether GOC 
authorities provided hot-rolled steel (HRS), a major input in the 
production of line pipe to respondents for LTAR. In our May 19, 2008 
initial questionnaire, we asked the GOC to provide information 
pertaining to the Department's de facto specificity analysis. 
Specifically, we asked the GOC to:
    Please provide a list by industry and by region of the number of 
companies which have received benefits under this program in the year 
the provision of benefits was approved and each of the preceding three 
years. Provide the total amounts of benefits received by each type of 
industry in each region in the year the provision of benefits was 
approved and each of the preceding three years.
Concerning the GOC's alleged provision of HRS for LTAR, the GOC stated 
that:
    No such list exists, nor does any data exist from which to derive 
such a list absent inquiring with every hot-rolled steel producer in 
China. Such records would only reflect amounts sold and prices charged, 
as opposed to any ``benefit'' conferred by the transaction.
See GOC's July 10, 2008 questionnaire response at 110.
    On August 5, 2008, the Department issued a supplemental 
questionnaire to the GOC in which it requested that the GOC respond to 
Department's de facto specificity questions to the best of the GOC's 
ability. In its response the GOC stated that its initial response 
reflected its best effort. It added that:
    The sale of hot-rolled steel in the Chinese market neither 
constitutes a ``program'' nor does it confer any ``benefit'' within the 
meaning of the U.S. CVD Law or the WTO SCM Agreement. The GOC 
reiterates that the data sought by the Department simply do not exist, 
nor would it be feasible to even assemble given the multitude of 
companies that produce and consume hot-rolled steel in the Chinese 
market.
    As discussed below, the Department is also investigating whether 
the GOC sold land for LTAR. In its May 19, 2008 initial questionnaire 
the Department requested that the GOC respond to the Standard Questions 
and Provision of Goods/Services Appendices as they pertained to the 
GOC's alleged provision of land for LTAR. In its July 10, 2008 
response, the GOC stated:
    Based on the information presently available to the GOC, it does 
not consider that land use rights provided to the producer respondents 
and their reporting cross-owned affiliates was provided at ``no cost or 
nominal cost.'' For this reason, the GOC does not respond to the 
Standard Questions of Appendix 1 or the Provision of Goods/Services 
questions at Appendix 5.
See GOC's July 10, 2008 questionnaire response at 101.
    In its August 5, 2008 questionnaire, the Department requested that 
the GOC respond to the information requested in the Standard Questions 
and Provision of Goods/Services appendices. In its August 21, 2008 
supplemental questionnaire response, the GOC responded to sections of 
the appendices. However, the GOC did not provide the requested 
information pertaining to the Department's de facto specificity 
analysis. For example, in its August 5, 2008 supplemental 
questionnaire, the Department asked the GOC to provide the following as 
it pertained to the GOC's alleged provision of land for LTAR:
    Please provide a list by industry and by region of the number of 
companies which have received benefits under this program in the year 
the provision of benefits was approved and each of the preceding three 
years. Provide the total amounts of benefits received by each type of 
industry in each region in the year the provision of benefits was 
approved and each of the preceding three years.
In its August 21, 2008 response, the GOC stated that:
    No such list exists regarding the receipt of ``benefits'' through 
the administration of land use rights. At page 6 of Exhibit 54 of the 
GOC's initial questionnaire response, data is reported on land use 
rights - including allocated, granted, and secondary market transfers - 
that moved over the 2000 - 2005 period. Additional data are publically 
available and will be provided if requested.
See GOC's August 21, 2008 supplemental questionnaire response at 69.
    We note that the data provided in Exhibit 54 of the GOC's initial 
questionnaire response does not provide the information the Department 
requested for purposes of its de facto specificity analysis.
    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

[[Page 52303]]

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.
    Because the GOC failed to provide the requested information by the 
established deadlines, the Department does not have the necessary 
information on the record to determine whether the GOC provided HRS 
and/or land to producers of line pipe in a manner that was de facto 
specific within the meaning of section 771(5A)(D)(iii) of the Act. 
Therefore, the Department must base its determination on the facts 
otherwise available in accordance with sections 776(a)(2)(A) and (B) of 
the Act.
    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. For the reasons discussed below, we determine that, in 
accordance with sections 776(a)(2)(A) and (B) and 776(b) of the Act, 
the use of AFA is appropriate for the preliminary determination with 
respect to the GOC's alleged provision of HRS and land to producers of 
line pipe for LTAR.
    As noted, regarding the GOC's alleged provision of HRS and land for 
LTAR, the GOC did not provide the information the Department requested 
relating to its de facto specificity analysis. The Department issued 
supplemental questionnaires in which it instructed the GOC to provide 
the information relating to the Department's de facto specificity 
analysis. However, in its response, the GOC continued to provide 
insufficient information regarding the Department's questions 
pertaining to de facto specificity. Therefore, consistent with sections 
776(a)(2)(A) and (B) of the Act, we find that the GOC did not act to 
the best of its ability and, therefore, we are employing adverse 
inferences in selecting from among the facts otherwise available. 
Accordingly, pursuant to section 776(b) of the Act, we find that the 
provision of HRS and land to producers of line pipe by GOC authorities 
is de facto specific within the meaning of section 771(5A)(D)(iii) of 
the Act.\6\ Thus, we preliminarily determine that the provision of HRS 
and land by GOC authorities to producers of line pipe is 
countervailable to the extent that the provision of the goods 
constituted a financial contribution in accordance with 771(5)(D)(iii) 
of the Act and conferred a benefit upon producers of line pipe within 
the meaning of 771(E)(iv) of the Act. The Department's decision to rely 
on adverse inferences when lacking a response from a foreign government 
is in accordance with its practice. See, e.g., Notice of Preliminary 
Results of Countervailing Duty Administrative Review: Certain Cut-to-
Length Carbon-Quality Steel Plate from the Republic of Korea, 71 FR 
11397, 11399 (March 7, 2006) (unchanged in the Notice of Final Results 
of Countervailing Duty Administrative Review: Certain Cut-to-Length 
Carbon-Quality Steel Plate from the Republic of Korea, 71 FR 38861 
(July 10, 2006) (relying on adverse inferences in determining that the 
Government of Korea directed credit to the steel industry in a manner 
that constituted a financial contribution and was specific to the steel 
industry within the meaning of the sections 771(5)(D)(i) and 
771(5A)(D)(iii) of the Act, respectively).
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    \6\ We note that it is not necessary to rely on this AFA finding 
in instances in which respondents' land purchases are found to be de 
jure specific.
---------------------------------------------------------------------------

Analysis of Programs

I. Programs Preliminarily Determined To Be Countervailable

A. The ``Two Free, Three Half'' Program
    The ``Foreign Invested Enterprise and Foreign Enterprise Income Tax 
Law'' (FIE Tax Law), enacted in 1991, established the tax guidelines 
and regulations for foreign invested enterprises (FIEs) in the PRC. The 
intent of this law is to attract foreign businesses to the PRC.
    According to Article 8 of the FIE Tax Law, FIEs that are 
``productive'' and scheduled to operate not less than 10 years are 
exempt from income tax in their first two profitable years and pay half 
of their applicable tax rate for the following three years. FIEs are 
deemed ``productive'' if they qualify under Article 72 of the 
``Detailed Implementation Rules of the Income Tax Law of the People's 
Republic of China of Foreign Investment Enterprises and Foreign 
Enterprises.'' This provision specifies a list of industries in which 
FIEs must operate in order to qualify for benefits under this program. 
The activities listed in the law are: (1) machine manufacturing and 
electronics industries; (2) energy resource industries (not including 
exploitation of oil and natural gas); (3) metallurgical, chemical and 
building material industries; (4) light industries, and textiles and 
packaging industries; (5) medical equipment and pharmaceutical 
industries; (6) agriculture, forestry, animal husbandry, fisheries and 
water conservation; (7) construction industries; (8) communications and 
transportation industries (not including passenger transport); (9) 
development of science and technology, geological survey and industrial 
information consultancy directly for services in respect of production 
and services in respect of repair and maintenance of production 
equipment and precision instruments; and (10) other industries as 
specified by the tax authorities under the State Council. If an FIE 
meets the above conditions, eligibility is automatic and the amount 
exempted appears on the enterprise's tax return.
    Northern Steel reported that it is a ``productive'' FIE and filed a 
tax return for a ``free'' tax year under this program during the POI.
    Consistent with CFS Final, we preliminarily determine that the 
exemption or reduction in the income tax paid by ``productive'' FIEs 
under this program confers a countervailable subsidy. See CFS Decision 
Memorandum at ``Two Free/Three Half'' Program. 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 further preliminarily determine that the exemption/reduction 
afforded by this program is limited as a matter of law to certain 
enterprises, i.e., ``productive'' FIEs, and, hence, is specific under 
section 771(5A)(D)(i) of the Act.
    To calculate the benefit from this program, we treated the income 
tax exemption enjoyed by Northern Steel as a recurring benefit, 
consistent with 19 CFR 351.524(c)(1), and attributed the tax

[[Page 52304]]

savings received to the company's total sales. On this basis, we 
preliminarily determine that Northern Steel received a net 
countervailable subsidy of 4.18 percent ad valorem under this program.
B. Provision of Land for Less Than Adequate Remuneration
    The Department is investigating whether Chinese government 
authorities provided land use-rights to the respondents for LTAR. 
Northern Steel is located in the Economic Development Zone in Haicheng. 
The Economic Development Zone was established by the Anshan Municipal 
Government in 1992, and upgraded to a province-level development zone 
in 2002. In September 2006, Northern Steel purchased long-term land-use 
rights for land in the coastal economic zone from the Haicheng State-
owned Land and Resources Bureau, which is a government agency. The 
Haicheng State-owned Land and Resources Bureau controls the granting 
and approval of land-use rights and sets the price for industrial land 
within the Economic Development Zone.
    Regarding the Huludao Companies, the Huludao Seven Star Group 
reported making several land purchases. However, as discussed in the 
``Cross-Ownership'' section, we are limiting our subsidy analysis to 
those land purchases that we preliminarily determine constitute a 
transfer of subsidies by the Huludao Seven Star Group, a corporation 
producing non-subject merchandise, to Huludao Steel Pipe and Huludao 
Bohai Oil Pipe, cross-owned corporations that produce subject 
merchandise, as described under 19 CFR 351.525(b)(6)(v). Therefore, for 
purposes of the preliminary determination, we limited our subsidy 
analysis to the two parcels of land the Huludao Seven Star Group 
purchased from the Bureau of Land Resources of Longgang District, 
Huludao City in Liaoning Province in 2004 and 2006 on behalf of Huludao 
Steel Pipe and Huludao Bohai Oil Pipe. Regarding the 2004 purchase, the 
Huludao Seven Star Group acquired land-use rights from the local 
government for land that Huludao Steel Pipe had been using since 1993. 
Regarding the 2006 purchase, the Huludao Seven Star Group acquired land 
use rights from the local government and subsequently leased the land 
to Huludao Bohai Oil Pipe. This parcel of land was located in the 
Beigang Industrial Zone. In addition, in 2004, Huludao Steel Pipe 
acquired land-use rights from the local government.\7\
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    \7\ In its August 18, 2008 supplemental questionnaire response, 
the Huludao Steel Pipe indicates that the Seven Star Group made an 
additional land purchase in 2006. However, at this time, information 
on the record does not indicate that the land was purchased on 
behalf of Huludao Steel Pipe or Huludao Bohai Oil Pipe. Therefore, 
we have not conducted a benefit analysis with respect to this 
transaction. In addition, information from the August 18, 2008 
supplemental questionnaire response indicates that an additional 
affiliate of the Huludao Companies (whose identity is business 
proprietary) acquired land in 2004. However, information in the 
questionnaire responses of the Huludao Companies indicates that the 
affiliate does not produce subject merchandise or provide any member 
of the Huludao Companies with inputs that are primarily dedicated to 
the production of subject merchandise. Therefore, we have not 
performed a benefit analysis regarding this affiliate's 2004 land 
purchase.
---------------------------------------------------------------------------

    For the reasons described below, the Department preliminarily 
determines that the provision of land-use rights to Northern Steel and 
the Huludao Companies constitutes a countervailable subsidy in the form 
of land-use rights provided for LTAR. Northern Steel received its land-
use rights from the Haicheng State-owned Land and Resources Bureau, a 
government authority. According to the respondents, local governments 
set the prices and were the party to the land-use rights agreements. 
Thus, the sale of the 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, 
in the case of Northern Steel and with regard to the land that the 
Huludao Seven Star Group purchased in 2006, the Department 
preliminarily determines that the sales of the land-use rights are 
specific because they are limited to enterprises or an industry located 
within a designated geographical region pursuant to section 
771(5A)(D)(iv) of the Act. As discussed above, Northern Steel and the 
land purchased in 2006 by the Huludao Seven Star Group are located 
within an economic development zone that is within the jurisdiction of 
the authorities that provided to the company its land-use rights and 
set the terms of those rights.\8\ Regarding the Huludao Companies' 2004 
land purchases, as discussed above in the ``Adverse Facts Available'' 
section, the GOC did not provide the information the Department 
requested relating to its de facto specificity analysis. Therefore, in 
accordance with section 776(b) of the Act, as AFA, we preliminarily 
determine that the provision of land to the Huludao Companies in 2004 
by the Bureau of Land Resources of Longgang District is de facto 
specific pursuant to section 771(5A)(D)(iii) of the Act.
---------------------------------------------------------------------------

    \8\ The land Northern Steel purchased is within the authority of 
Haicheng City of Liaoning Province. The land that the Huludao Seven 
Star Group purchased in 2006 is located in the Beigang Industrial 
Zone that is under the authority of the Bureau of Land Resources of 
Longgang District, Huludao City in Liaoning Province.
---------------------------------------------------------------------------

    We further preliminarily determine that the sale of land-use rights 
provides 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 LTAR. 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.
    Under 19 CFR 351.511(a)(2), the Department sets forth the basis for 
identifying comparative benchmarks for determining whether a government 
good or service is provided for LTAR. 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.
    Consistent with the Sacks Final and Tires Final, we preliminarily 
determine that a first tier benchmark cannot be applied. See Laminated 
Woven Sacks from the People's Republic of China: Final Affirmative 
Countervailing Duty Determination and Final Affirmative Determination, 
in Part, of Critical Circumstances, 73 FR 35639 (June 24, 2008) (Sacks 
Final), and accompanying decision memorandum (Sacks Decision 
Memorandum) at ``Government Provision of Land for Less Than Adequate 
Remuneration'' and Comment 10 ``Whether the Department Should Select 
Either a First-Tier or Third-Tier Benchmark for the Provision of Land-
Use Rights for Less Than Adequate Remuneration;'' see also Tires Final 
and Tires Decision Memorandum at Comment H.7 ``Land Benchmark.''
    As an initial matter, we note that private land ownership is 
prohibited in the PRC and that all land is owned by some level of 
government, the distinction being between land owned by the local 
government or ``collective''

[[Page 52305]]

at the township or village level and land owned by the national 
government (also referred to as state-owned or ``owned by the whole 
people'').\9\ Noting that the GOC, either at the national or local 
level, is the ultimate owner of all land in the PRC, the Department has 
examined whether the GOC exercises control over the supply side of the 
land market in the PRC as a whole so as to distort prices in the 
primary and secondary markets.
---------------------------------------------------------------------------

    \9\ See GOC's July 9, 2008 questionnaire response at 100.
---------------------------------------------------------------------------

    Consistent with the Department's determinations in Sacks Final and 
Tires Final, we preliminarily determine that a first tier benchmark is 
not appropriate to measure the benefit from the sale of land-use rights 
during the POI because Chinese land prices are distorted by the 
significant government role in the market. The Preamble states that 
``where it is reasonable to conclude the 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.'' 
See Countervailing Duties; Final Rule, 63 FR 65348, 65377 (November 25, 
1998) (Preamble)).
    The second tier benchmark 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 351.511(a)(2)(ii). In selecting a world 
market price under this second approach, the Department examines 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 (63 FR at 65377), 
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. We 
preliminarily determine that land-use rights cannot be evaluated using 
a second tier benchmark because they cannot be simultaneously 
``available to an in-country'' purchaser'' while located and sold out-
of-country on the world market.
    Since we are not able to conduct our analysis using a benchmark 
identified under the second tier of the regulations, consistent with 
the hierarchy, we next considered whether the GOC's pricing of land-use 
rights is consistent with market principles. This approach is also set 
forth under 19 CFR 351.511(a)(2)(iii) and is explained further in the 
Preamble (63 FR at 65378):
    (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.
    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 overwhelming 
presence of government involvement in the land-use rights market, as 
well as the widespread and documented deviation from the authorized 
methods of pricing and allocating land, the purchase of land-use rights 
in the PRC is not conducted in accordance with market principles.
    Consistent with the Department's decision in Sacks Final and Tires 
Final, we preliminarily find 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 Memorandum to the File regarding 
Land Benchmark Memorandum (Land Benchmark Memorandum) (dated September 
2, 2008) at Attachment 2 (stating that the PRC'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).\10\ In practice, however, farmers' land-use rights are still 
not secure and fair compensation for farmers is an ongoing, market-
distorting issue in PRC. In addition, laws and regulations are 
routinely violated by individuals and local governments. While the 
private market for land-use rights has grown, state-owned enterprises 
(SOEs) received a significant portion of their land-use rights free of 
charge. Also, commercial land sales are often conducted illegally. In 
short, property rights remain poorly defined and weakly enforced. See 
Sacks Decision Memorandum at ``Government Provision of Land for Less 
Than Adequate Remuneration.''
---------------------------------------------------------------------------

    \10\ This public document is on file in the CRU.
---------------------------------------------------------------------------

    Also, consistent with the Department's determination in Sacks Final 
and Tires Final, we preliminarily find that another de facto problem 
with land supply in the PRC which causes market distortions is that of 
local government corruption. Local governments most often transfer land 
through non-transparent negotiations with investors despite guidance 
that land should be transferred through a transparent bidding or 
auction process. This has led to widespread corruption where much of 
the compensation is retained by the local government officials. See 
Land Benchmark Memorandum at Attachment 4 for article on ``Law to 
Expose Illegal Land Deal,'' China Daily (dated August 1, 2006).
    Given this preliminarily finding, we have looked for an appropriate 
basis to determine the extent to which land-use rights are provided for 
LTAR. We preliminarily find that a comparison of prices for land-use 
rights in the PRC with comparable market-based prices for land 
purchases in a country at a comparable level of economic development 
that is reasonably proximate to, but outside of China, is appropriate. 
Consistent with Sacks Final and Tires Final, we preliminarily determine 
that the most appropriate analysis in this case would be to compare the 
respondents' purchase of land-use rights to the sales of certain 
industrial land in industrial estates, parks, and zones in Thailand.
    As a general matter, we note that the PRC and Thailand have similar 
levels of per capita GNI, and that producers consider a number of 
markets, including Thailand, as an option for diversifying production 
bases in Asia beyond the PRC. Therefore, we preliminarily determine 
that the ``indicative land values'' for land in Thai industrial zones, 
estates, and parks provided in the Asian industrial Property Reports 
present a reasonable and comparable benchmark to the land-use rights in 
the economic zones at issue in this investigation.
    Based on the methodology set out in Sacks Final and Tires Final, we 
preliminarily determine that the land-use rights acquired by Northern 
Steel and the Huludao Companies are granted land-use rights and, thus, 
have employed the benefit calculation methodology described below.
    In order to calculate the benefit, we first multiplied the Thai 
benchmark land rate (deflated from 2007 to the year the transaction was 
officially approved

[[Page 52306]]

by the government) by the total area of the respective parcels 
purchased by Northern Steel and the Huludao Companies. We then 
subtracted the price actually paid for these respective tracts by 
Northern Steel and the Huludao Companies to derive the total 
unallocated benefit. We next conducted the ``0.5 percent test'' 
pursuant to 19 CFR 351.524(b)(2) for the years in which the transaction 
was approved by dividing the total unallocated benefit by the 
appropriate sales denominator.\11\ 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 
across the term of the land agreement using the standard allocation 
formula in 19 CFR 351.524(d) and the discount rates discussed above in 
the ``Subsidies Valuation Information'' section under ``Loan Benchmarks 
and Discount Rates,'' to determine the amount attributable to the POI.
---------------------------------------------------------------------------

    \11\ Where the approval date and approved amount of the 
unallocated benefit was not available, we used the date in which the 
transaction was conducted for purposes of the 0.5 percent test.
---------------------------------------------------------------------------

    For Northern Steel, we then divided the POI benefit by the total 
sales of Northern Steel to calculate a net countervailable subsidy of 
2.44 percent ad valorem. In the case of the Huludao Companies, as 
discussed in the ``Cross-Ownership'' section, we preliminarily 
determine that the land purchased by the Huludao Seven Star Group on 
behalf of Huludao Steel Pipe and Huludao Bohai Oil Pipe constitutes a 
transfer of subsidies by a corporation producing non-subject 
merchandise to cross-owned corporations that produce subject 
merchandise as described under 19 CFR 351.525(b)(6)(v). Therefore, in 
accordance with 19 CFR 351.525(b)(6)(ii), we have attributed such 
subsidies received by Huludao Steel Pipe and Huludao Bohai Oil Pipe 
under the Provision of Land For Less Than Adequate Remuneration program 
to the combined total sales of Huludao Steel Pipe and Huludao Bohai Oil 
Pipe (net of their respective sales to affiliates). On this basis, we 
calculated a net subsidy rate of 0.68 percent ad valorem for the 
Huludao Companies.
C. Provision of Hot-Rolled Steel for Less Than Adequate Remuneration
    The Department is investigating whether GOC authorities provided 
HRS to producers of line pipe for LTAR. As instructed in the 
Department's questionnaires, the Huludao Companies and Northern Steel 
identified the suppliers from whom they purchased HRS during the POI. 
In addition to the supplier names, the Huludao Companies and Northern 
Steel indicated the date of payment, quantity, unit of measure, and 
purchase price for the HRS purchased during the POI. Having obtained 
permission from the Huludao Companies and Northern Steel to disclose 
the proprietary names of their respective suppliers to the GOC, we 
asked the GOC to provide certain information regarding the respondents' 
domestic suppliers of hot-rolled steel (HRS) (e.g., percentage of 
government ownership). See for Northern Steel, Memorandum to the File 
from Kristen Johnson, Trade Analyst, Office 3, Operations, ``Consent to 
Release Company-Specific Proprietary Information to the Government of 
China'' (July 18, 2008), a public document on file in the CRU; See for 
the Huludao Companies, Memorandum to the File from John Conniff, Trade 
Analyst, Office 3, Operations, ``Consent to Release Company-Specific 
Proprietary Information to the Government of China'' (August 1, 2008), 
a public document on file in the CRU.
    In order to assess whether an entity should be considered to be the 
government for the purposes of a CVD investigation, the Department has 
in previous cases considered the following factors to be relevant: 1) 
the government's ownership; 2) the government's presence on the 
entity's board of directors; 3) the government's control over the 
entity's activities; 4) the entity's pursuit of governmental policies 
or interests; and 5) whether the entity is created by statute. However, 
the Department has found that conducting such a test is not necessary 
absent information that calls into question whether government 
ownership does not mean government control. See Tires Decision 
Memorandum at 10. Further, not all of these criteria must be satisfied 
for an entity to be considered a government entity, but taken together, 
these five criteria can inform our decision. See e.g., Coated Free 
Sheet Paper from the Republic of Korea: Final Affirmative 
Countervailing Duty Determination, 72 FR 60639 (October 25, 2007) (CFS 
from Korea), and accompanying decision memorandum (CFS from Korea 
Decision Memorandum) at Comment 11. In addition, we instructed the GOC 
to indicate whether the domestic suppliers of HRS to the Huludao 
Companies and Northern Steel were trading companies, and if so, to 
provide information related to the five factors listed above as it 
pertains to the entities from whom the trading companies purchased the 
HRS.
    Based on our review of the information submitted by the GOC, we 
preliminarily determine that certain domestic suppliers of HRS were 
majority-owned by the GOC during the POI and, therefore, constitute 
government authorities.
    In addition, in its response the GOC identified which domestic HRS 
suppliers of the Huludao Companies were trading companies.\12\ 
Regarding these domestic trading companies, the GOC was unable to 
provide the requested information concerning the entities from which 
the trading companies acquired the input, even in instances involving 
government-owned trading companies. Further, the GOC was unable to 
provide the requested information concerning the ``Five Factor Test'' 
as it pertains to the suppliers from whom the domestic trading 
companies purchased the HRS. Thus, we preliminarily determine that the 
necessary information is not on the record, and we are resorting to the 
use of facts available (FA) within the meaning of sections 776(a)(1) 
and (2) of the Act.
---------------------------------------------------------------------------

    \12\ Northern Steel reported that it did not purchase HRS from 
trading companies during the POI. See Northern Steel's August 14, 
2008 questionnaire response at 2.
---------------------------------------------------------------------------

    In its initial questionnaire response, the GOC provided information 
on the amount of HRS produced by SOEs, collectives, and private 
producers in the PRC. See GOC's July 9, 2008 questionnaire response at 
page 102. Using these data, we derived the ratio of HRS produced by 
government entities (SOEs and collectives) during the POI (60.77 
percent). Thus, pursuant to sections 776(a)(1) and (2) of the Act, for 
purposes of this preliminary determination we are resorting to the use 
of FA with regard to the HRS sold to the Huludao Companies by domestic 
trading companies. Specifically, we are assuming that the percentage 
produced by government authorities is equal to the ratio of HRS 
produced by SOEs and collectives during the POI.\13\ This approach is 
consistent with the Department's practice. See CWP Decision Memorandum 
at ``Hot-rolled Steel for Less Than Adequate Remuneration;'' see also 
Light-Walled Rectangular Pipe and Tube From People's Republic of China: 
Final Affirmative Countervailing Duty Investigation Determination, 73 
FR 35642 (June 24, 2008) (LWP Final), and accompanying decision 
memorandum (LWP Decision Memorandum) at ``Hot-rolled Steel for Less 
Than Adequate Remuneration.'' For further discussion, see our 
description of the benefit

[[Page 52307]]

calculations below. For purposes of the final determination, the 
Department will seek additional information regarding the amount of HRS 
purchased by domestic trading companies that was produced by SOEs and 
collectives.
---------------------------------------------------------------------------

    \13\ In other words, as FA, we are assuming that 60.77 of the 
HRS purchased by domestic trading companies during the POI was 
produced by SOEs.
---------------------------------------------------------------------------

    Having identified the extent to which the Huludao Companies and 
Northern Steel obtained HRS from GOC authorities, we preliminarily 
determine that the GOC authorities' provision of HRS constitutes a 
financial contribution under section 771(5)(D)(iii) of the Act.\14\ 
Furthermore, as discussed above in the ``Adverse Facts Available'' 
section, pursuant to section 776(b) of the Act, we find that the 
provision of HRS to producers of line pipe by GOC authorities is de 
facto specific within the meaning of section 771(5A)(D)(iii) of the 
Act.
---------------------------------------------------------------------------

    \14\ For purposes of this preliminary determination, we find 
that private producers that provided HRS to the respondents during 
the POI do not constitute government authorities and, thus, their 
provision of HRS does not constitute a financial contribution within 
the meaning of section 771(5)(D)(iii) of the Act.
---------------------------------------------------------------------------

    The Department's regulations at 19 CFR 351.511(a)(2) set forth the 
basis for identifying appropriate market-determined benchmarks for 
measuring the adequacy of remuneration for government-provided goods or 
services. These potential benchmarks are listed in hierarchical order 
by preference: (1) market prices from actual transactions within the 
country under investigation (e.g., actual sales, actual imports or 
competitively run government auctions) (tier one); (2) world market 
prices that would be available to purchasers in the country under 
investigation (tier two); or (3) an assessment of whether the 
government price is consistent with market principles (tier three). As 
provided in our regulations, the preferred benchmark in the hierarchy 
is an observed market price from actual transactions within the country 
under investigation.\15\ because such prices generally would be 
expected to reflect most closely the prevailing market conditions of 
the purchaser under investigation.
---------------------------------------------------------------------------

    \15\ See also Notice of Final Affirmative Countervailing Duty 
Determination and Final Negative Critical Circumstances 
Determination: Certain Softwood Lumber Products from Canada, 67 FR 
15545 (April 2, 2002) (Softwood Lumber Investigation), and 
accompanying decision memorandum at 36 (Softwood Lumber 
Investigation Memorandum).
---------------------------------------------------------------------------

    Based on the hierarchy established above, we must first determine 
whether there are market prices from actual sales transactions 
involving Chinese buyers and sellers that can be used to determine 
whether the GOC authorities sold HRS to the respondents for LTAR. 
Notwithstanding the regulatory preference for the use of prices 
stemming from actual transactions in the country, where the Department 
finds that the government provides the majority, or a substantial 
portion of, the market for a good or service, prices for such goods and 
services in the country will be considered significantly distorted and 
will not be an appropriate basis of comparison for determining whether 
there is a benefit.\16\
---------------------------------------------------------------------------

    \16\ See Preamble, 63 FR at 65377.
---------------------------------------------------------------------------

    As explained above, for purposes of this preliminary determination, 
we find that SOEs and collectives account for approximately 60.77 
percent of the HRS production in the PRC during the POI. Consequently, 
because of the government's overwhelming involvement in the HRS market, 
the use of private producer prices in the PRC would be akin to 
comparing the benchmark to itself (i.e., such a benchmark would reflect 
the distortions of the government presence).\17\ As we explained in 
Softwood Lumber Investigation:
---------------------------------------------------------------------------

    \17\ See Softwood Lumber Investigation Memorandum at ``There are 
no market-based internal Canadian benchmarks'' section.
---------------------------------------------------------------------------

    Where the market for a particular good or service is so dominated 
by the presence of the government, the remaining private prices in the 
country in question cannot be considered to be independent of the 
government price. It is impossible to test the government price using 
another price that is entirely, or almost entirely, dependent upon it. 
The analysis would become circular because the benchmark price would 
reflect the very market distortion which the comparison is designed to 
detect.\18\
---------------------------------------------------------------------------

    \18\ See Canadian Lumber Memorandum at 38-39.
---------------------------------------------------------------------------

For these reasons, prices stemming from private transactions within the 
PRC cannot give rise to a price that is sufficiently free from the 
effects of the GOC's actions and, therefore, cannot be considered to 
meet the statutory and regulatory requirement for the use of market-
determined prices to measure the adequacy of remuneration.
    The GOC also placed on the record aggregate import price data for 
HRS from various countries for the POI. Information from the GOC 
indicates that imports of HRS accounted for 0.63 percent of the volume 
HRS available in the Chinese market during the POI. Because the volume 
of imports of HRS into the PRC is small relative to Chinese domestic 
production of HRS, we are not using the aggregate import price data in 
our benchmark calculations. We note that this approach is similar to 
the Department's approach in LWP Final, in which the Department 
declined to use aggregate import price data supplied by the GOC for 
benchmark purposes because of the small size of the import quantities 
relative to Chinese domestic production. See LWP Decision Memorandum at 
Comment 7.
    Given that we have preliminarily determined that no tier one 
benchmark prices are available, we next evaluated information on the 
record to determine whether there is a tier two world market price 
available to producers of subject merchandise in the PRC. We note that 
petitioners provided data from the Steel Benchmarker Report which 
contains monthly ``world'' prices for hot-rolled band. See Exhibit 4-A 
of petitioners' April 21, 2008 amendment to the April 3, 2008, 
petition. We preliminarily determine that data in the Steel Benchmarker 
Report may serve as a world market benchmark price for HRS that would 
be available to purchasers of HRS in the PRC. We note that the 
Department has relied on pricing data from the Steel Benchmarker Report 
in recent CVD proceedings involving the PRC. See CWP Final and LWP 
Final.
    The prices for HRS in the Steel Benchmarker Report are expressed in 
U.S. dollars (USD) per metric ton (MT). Therefore, to calculate the 
benefit, we first converted the benchmark prices from U.S. dollars to 
renminbi (RMB) using USD to RMB exchange rates, as reported by the 
Federal Reserve Statistical Release.
    Under 19 CFR 351.511(a)(2)(iv), when measuring the adequacy of 
remuneration under tier one or tier two, the Department will adjust the 
benchmark price to reflect the price that a firm actually paid or would 
pay if it imported the product, including delivery charges and import 
duties. Therefore, when deriving the benchmark prices, we adjusted the 
data from the Steel Benchmarker Report to include the value added tax 
(VAT) and import duties that would have been levied on imports of HRS 
during the POI. The GOC provided the applicable tax rates in its 
questionnaire response. Regarding delivery charges, we note that the 
data in the Steel Benchmarker Report do not include a freight cost 
component. However, because no data regarding freight costs are 
available on the record, we have not adjusted the benchmark prices of 
HRS for freight. We invite interested parties to submit comments on 
whether and, if so, how freight should be included in the derivation of 
the HRS benchmark price.
    We then compared the benchmark unit prices to the unit prices the

[[Page 52308]]

respondents paid to domestic suppliers of HRS during the POI that the 
Department has preliminarily determined constitute government 
authorities. In instances in which the benchmark unit price was greater 
than the price paid to GOC authorities, we multiplied the difference by 
the quantity of HRS purchased from the GOC authorities to arrive at the 
benefit. As explained above, in instances in which the Huludao 
Companies purchased HRS from government trading companies and/or 
private trading companies, we multiplied the product of the price 
difference per unit and the quantity of HRS purchased by 60.77 percent 
to arrive at the benefit.
    To calculate the net subsidy rate, we divided the total benefit by 
each respondent's total sales during the POI. In the case of the 
Huludao Companies, the total sales denominator consisted solely of 
sales by Huludao Steel Pipe and Huludao Bohai Oil Pipe. On this basis, 
we preliminarily calculated a net countervailable subsidy rate of 23.01 
percent ad valorem for Northern Steel and 17.18 percent ad valorem for 
the Huludao Companies.
D. Foreign Trade Development Fund Program\19\
---------------------------------------------------------------------------

    \19\ This program was referred to as the Northeast 
Revitalization Program in the Initiation Notice.
---------------------------------------------------------------------------

    The GOC reports that Northern Steel and Huludao Steel Pipe received 
grants during the POI under the ``Provisional Administration Measures 
on Northeast Old Industrial Base Foreign Trade Development Fund of 
Liaoning Province'' (No. 559), established on November 18, 2004. The 
provisional measure states that the Foreign Trade Development Fund 
supports projects undertaken by exporting enterprises to improve the 
competitiveness of their exported products, to develop an export 
processing base, to support the registration of trademarks in foreign 
countries, to support the training of foreign trade professionals, and 
to explore international markets.\20\The provisional measure states 
that monies distributed by the fund are to be used only for the 
approved project and that the funding proportion of the applied project 
shall not exceed 50 percent of the total expense of the project.\21\ 
The fund is administered by the Liaoning Provincial Bureau of Foreign 
Trade and Economic Cooperation and Liaoning Department of Finance. 
Companies eligible for assistance are export enterprises with legal 
person status and export performance in Liaoning Province,\22\ and are 
required to submit a separate application to the authorities each time 
assistance is requested.
---------------------------------------------------------------------------

    \20\ See GOC's August 21, 2008 supplemental questionnaire 
response at Exhibit 22, Chapter III ``Major Directions of Support,'' 
Article 6.
    \21\ Id. at Chapter VI ``Supervision and Administration,'' 
Article 11 and 12.
    \22\ Id. at Chapter IV ``Application Criteria,'' Article 7.
---------------------------------------------------------------------------

    We preliminary determine that the export interest subsidies that 
Huludao Steel Pipe and Northern Steel received from the Liaoning 
provincial government constitute a financial contribution in the form 
of a direct transfer of funds from the government bestowing a benefit 
in the amount of the grants within the meaning of sections 771(5)(D)(i) 
and 771(5)(E) of the Act. We also find that, because the receipt of the 
export interest subsidies is contingent upon export performance, the 
program is specific within the meaning of section 771(5A)(A) of the 
Act.
    In the case of Huludao Steel Pipe, it received grants under the 
program in 2005, 2006, and 2007. The ``0.5 percent expense test'' 
calculation for Northern Steel and Huludao Steel Pipe, respectively, 
demonstrate that the amounts of the subsidies were less than 0.5 
percent of the relevant export sales denominator. Because the amounts 
of the subsidies are less than 0.5 percent of the relevant sales, we 
are expensing the benefit from the grant in the year of receipt. In 
conducting the ``0.5 percent expense test'' for grants received by 
Huludao Steel Pipe in 2005 and 2006, we used the exports sales of 
Huludao Steel Pipe because Huludao Bohai Oil Pipe had no export sales 
in those years. For grants received by Huludao Steel Pipe in 2007, we 
used the combined exports sales of Huludao Steel Pipe and Huludao Bohai 
Oil Pipe.
    On this basis, we preliminarily determine that Northern Steel 
received a net countervailable subsidy of 0.05 percent ad valorem under 
this program and that the Huludao Companies received a net 
countervailable subsidy of 0.08 percent ad valorem under the program.
    Huludao Steel Pipe also reported that during the POI it received 
VAT refunds on its purchases of fixed assets under Foreign Trade 
Development Fund program. According to the GOC, the VAT program was 
established on September 14, 2004 by the ``Circular of the Ministry of 
Finance and State Tax Administration on Printing and Distributing the 
Regulations on Relevant Issues with Respect to Expansion of VAT 
Deduction Scope in the Northeast Areas.'' It is administered by the 
Huludao State Tax Administration. Under the program, VAT tax payers 
that are members of the equipment manufacturing, petrochemical, 
metallurgical, ship building, automobile, and agricultural products 
industries may deduct VAT for purchases of fixed assets from the VAT 
for sales of finished goods. The cap for such VAT deductions is the 
incremental increase in VAT liability from the previous year. According 
to Article 2 of the ``Circular of the Ministry of Finance and State Tax 
Administration on Printing and Distributing the Regulations on Relevant 
Issues with Respect to Expansion of VAT Deduction Scope in the 
Northeast Areas,'' the VAT exemption is limited to firms located in the 
northeast region of the PRC. See GOC's July 9, 2008 questionnaire 
response at Exhibit 67. The GOC states that the VAT program is not 
contingent upon exports.
    We preliminarily determine that this program constitutes a 
financial contribution in the form of revenue forgone and a benefit in 
the amount equal to the VAT refunds under sections 771(5)(D)(ii) and 
771(5)(E) of the Act. We also preliminarily determine that this program 
is specific under section 771(5A)(D)(iv) of the Act because the VAT 
refunds provided under the program are limited to companies located in 
a certain geographical region. Huludao Bohai Oil Pipe and the Huludao 
Seven Star group did not use this program.
    In accordance with 19 CFR 351.524(c), we find that VAT refunds 
provided under the program constitute recurring benefits. Therefore, to 
calculate the benefit, we divided the total amount of VAT refunds 
Huludao Steel Pipe received under the program by the combined total 
sales of Huludao Steel Pipe and Huludao Bohai Oil Pipe. On this basis, 
we preliminarily determine that the Huludao Companies received a net 
countervailable subsidy of 0.10 percent ad valorem.
E. Export Interest Subsidies
    Huludao Steel Pipe and Northern Steel received export interest 
subsidies from the Liaoning provincial government during the POI. The 
GOC reports that the export interest subsidies are provided for under 
the ``Provisional Administrative Measures on High-Tech Products and 
Equipment Manufacturing Products Export Financial Interest Assistance 
of Liaoning Province'' (No. 671), established on December 16, 2004. 
This provisional measure provides assistance to companies to expand the 
exportation of high-tech products and equipment manufacturing products, 
and supports the development of enterprises

[[Page 52309]]

located in Liaoning Province.\23\ This program is administered by the 
Liaoning Provincial Bureau of Foreign Trade and Economic Cooperation, 
Liaoning Department of Finance, and the Economic Commission of Liaoning 
Province.
---------------------------------------------------------------------------

    \23\ Id. at 48 and Exhibit D-25.
---------------------------------------------------------------------------

    The interest assistance provided to exporting enterprises is to be 
used to pay interest on bank loans.\24\ The provisional measure states 
that the Liaoning Department of Finance determines the interest 
assistance amount in accordance with the short-term loan benchmark 
interest rate of commercial banks, the term of the enterprise's short-
term loans, and the shortterm loan amounts.\25\ Specifically, Article 5 
of the provisional measure refers to ``export loans,'' which means 
``short-term loans obtained by enterprises that produc{e{time}  high-
tech products and equipment manufacturing products in {the{time}  
province from banks and non-bank financial institutions due to the 
shortage of necessary funds for production and operation between 
products export declaration and receipt of payment.''\26\
---------------------------------------------------------------------------

    \24\ Id. at Exhibit D-25, Article 20.
    \25\ Id. at Exhibit D-25, Article 18.
    \26\ Id. at Exhibit D-25,Article 5.
---------------------------------------------------------------------------

    The GOC states that to be eligible for interest assistance a 
legally registered enterprise must have an annual exportation value 
above $1,000,000, have exported products that fall in the scope of the 
``China High-Tech Product Export Catalog'' or the scope of equipment 
manufacturing products, and have short-term loans provided during the 
period from the products' export declaration to receipt of payment.\27\
---------------------------------------------------------------------------

    \27\ Id. at 51 and Exhibit D-25, Article 12.
---------------------------------------------------------------------------

    To receive interest assistance, eligible companies must submit a 
separate application each year assistance is requested accompanied with 
export contracts, export declaration forms, a description of the 
exported product, and bank loan contracts.\28\ Northern Steel reported 
that it was eligible for the export interest subsidies because the 
company's total export sales in 2006 was greater than $15,000,000,\29\ 
the company's loan interest rate was higher than the basic loan 
interest rate of the People's Bank of China,\30\ and the company 
exported high-technology products.\31\ Huludao Steel Pipe reported that 
it was eligible for export interest subsidies because it belonged to 
the equipment manufacturing industry and made export sales from 
Liaoning Province.
---------------------------------------------------------------------------

    \28\ Id. at 50-51 and Exhibit D-25, Article 13.
    \29\ See Northern Steel's July 14, 2008 questionnaire response 
at 11.
    \30\ See Northern Steel's July 14, 2008 questionnaire response 
at Attachment 8 and August 6, 2008 questionnaire response at 36.
    \31\ See Northern Steel's August 26, 2008 questionnaire response 
at 5.
---------------------------------------------------------------------------

    We preliminary determine that the export interest subsidies that 
Huludao Steel Pipe and Northern Steel received from the Liaoning 
provincial government constitute a financial contribution in the form 
of a direct transfer of funds from the government bestowing a benefit 
in the amount of the grants within the meaning of sections 771(5)(D)(i) 
and 771(5)(E) of the Act. We also find that, because the receipt of the 
export interest subsidies is contingent upon export performance, the 
program is specific within the meaning of section 771(5A)(A) of the 
Act.
    Because neither Huludao Steel Pipe nor Northern Steel receive 
export interest subsidies on an on-going basis and must submit a 
separate application for consideration of the assistance, we are 
treating the export interest subsidies as a non-recurring grant. In 
accordance with 19 CFR 351.524(b)(2), we applied the ``0.5 percent 
expense test.'' The calculation demonstrates that the total amount of 
export interest subsidies approved during the POI is less than 0.5 
percent of Northern Steel's 2007 total export sales. In the case of 
Huludao Steel Pipe, the calculation demonstrates that the total amount 
of export interest subsidies approved in 2006, the year of approval/
receipt, was less than 0.5 percent. Because the amount of subsidies is 
less than 0.5 percent of the relevant sales, we are expensing the 
benefit from the export interest subsidies in the year of receipt 
rather than allocating the benefits over the AUL period.
    On this basis, we preliminarily determine that Northern Steel 
received a net countervailable subsidy of 0.43 ad valorem under this 
program. Regarding the Huludao Companies, we preliminarily determine 
that the grant received under the program was fully expensed prior to 
the POI.
F. Export Loans
    In its response to questions regarding this program and submission 
of its short-term loan data, Northern Steel reported conflicting 
information on the loans outstanding during the POI. Specifically, 
Northern Steel reported that none of its outstanding loans were export 
loans. However, as discussed above in the ``Export Interest Subsidies'' 
section, to be eligible to receive the export interest subsidies a 
company must have export loans outstanding, specifically postshipment 
export financing. Thus, we preliminarily determine that the record 
lacks the necessary information needed to identify which loans, 
provided by a government bank, are the export loans against which the 
export interest subsidy was calculated. As a result, we are resorting 
to the use of AFA within the meaning of section 776(b) of the Act. 
Therefore, as AFA, we preliminarily find all of Northern Steel's short-
term loans outstanding in the POI, against which the company paid 
interest, to be export loans. For the Huludao Companies, we have 
evidence on the record that they had outstanding during the POI two 
short-term export loans provided by a government bank. Therefore, as 
AFA, we preliminarily find that these two export loans were used by the 
Huludao Companies for the receipt of the export interest subsidies. We 
will continue to seek information from Northern Steel and the Huludao 
Companies regarding export-contingent loans the companies received from 
government banks.
    Pursuant to section 771(5A)(A) of the Act, we preliminarily 
determine that the export loans received by the respondents are 
specific because receipt of the financing is contingent upon exporting. 
We also preliminarily determine that the export financing constitutes a 
financial contribution in the form of a loan within the meaning of 
section 771(5)(D)(i) of the Act and confers a benefit within the 
meaning of section 771(5)(E)(ii) of the Act. We note that the 
Department's finding in this regard is consistent with the Department's 
current practice. See e.g., CFS from Korea Decision Memorandum at 
``Export and Import Credit Financing from KEXIM,'' where the Department 
found that export loans issued by government-owned banks like the Korea 
Export Import Bank (KEXIM) constituted countervailable export 
subsidies.
    To calculate the benefit under this program, we compared the amount 
of interest paid against the export loans to the amount of interest 
that would have been paid on a comparable commercial loan. As our 
benchmark, we used the short-term interest rates discussed above in the 
``Subsidies Valuation Information'' section. To calculate the net 
countervailable subsidy rate, we divided the benefit received by each 
company's respective export sales value for 2007. On this basis, we 
preliminarily determine the net countervailable subsidy rate for the 
Huludao Companies to be 0.02 percent ad valorem and for Northern Steel 
to be 1.54 percent ad valorem.

[[Page 52310]]

G. Liaoning Province Grants - Five Points One Line Program
    The Huludao Companies report that Huludao Steel Pipe and Huludao 
Bohai Oil Pipe received grants in the form of loan interest subsidies 
in 2006 and 2007 under the Five Points One Line Program. The Huludao 
Companies also report that Huludao Bohai Oil Pipe received certain fee 
exemptions during the POI under the program. The program was introduced 
on January 21, 2006 by the Liaoning Provincial Government pursuant to 
the ``Opinion of Liaoning Province Encouraging the Expansion of 
Opening-Up in Coastal Key Developing Areas.'' Interest subsidies 
provided under the program are administered by the Liaoning Development 
and Reform Commission and the Liaoning Finance Bureau. Fee exemptions 
provided under the program are administered by the Huludao Beigang 
Industrial Park, Industry, and Commerce Authority.
    The GOC states that the goal of the Five Points One Line Program is 
to accelerate the development of the coastal economic belt of Liaoning 
Province. Eligibility under the program is limited to enterprises 
located within designated industrial zones and other areas within 
Liaoning Province, as specified under the program.
    We preliminary determine that the grants and fees received by 
Huludao Steel Pipe and Huludao Bohai Oil Pipeunder the program 
constitute a financial contribution, in the form of a direct transfer 
of funds from the government, which bestow a benefit equal to the 
amount of the grants within the meaning of sections 771(5)(D)(i) and 
771(5)(E) of the Act. We also find that, because the receipt of grants 
under the program are limited to enterprises located in certain 
geographical regions within the Liaoning Province, the program is 
specific within the meaning of section 771(5A)(D)(iv) of the Act.
    Because Huludao Steel Pipe and Huludao Bohai Oil Pipe did not 
receive grants on an ongoing basis and must submit a separate 
application to receive additional assistance under this program, we are 
treating the assistance received under the program as a non-recurring 
grant. In accordance with 19 CFR 351.524(b)(2), we applied the ``0.5 
percent expense test.'' The calculation demonstrates that the grant 
amounts received by Huludao Steel Pipe and Huludao Bohai Oil Pipe in 
2006 and 2007 are less than 0.5 percent of the total sales 
denominator.\32\ Because the amount of the subsidies is less than 0.5 
percent of the relevant sales (total sales), we are expensing the 
benefit from the grants in 2006 and 2007, the years of receipt, rather 
than allocating the benefits over the AUL period. On this basis, we 
preliminarily determine that the grants Huludao Steel Pipe and Huludao 
Bohai Oil Pipe received in 2006 did not benefit the Huludao Companies 
during the POI. Regarding the grant amount received by Huludao Steel 
Pipe in 2007, we preliminarily determine the countervailable net 
subsidy rate to be 0.30 percent ad valorem.
---------------------------------------------------------------------------

    \32\ We note that Huludao Bohai Oil Pipe did not have any sales 
in 2006. Therefore, in performing the ``0.5 percent expense test,'' 
we used the 2006 total sales of Huludao Steel Pipe.
---------------------------------------------------------------------------

    In addition, we preliminarily determine that the fee exemptions 
that Huludao Bohai Oil Pipe received during the POI constitute a 
financial contribution in the form of revenue forgone under section 
771(5)(D)(ii) of the Act and a benefit under section 771(5)(E) of the 
Act in an amount equal to the fee exemption. We further preliminarily 
determine that the fee exemptions are specific under section 
771(5A)(D)(iv) of the Act because they are limited to enterprises 
located in certain geographical regions. In accordance with 19 CFR 
351.524(c), we find that the fee exemptions are recurring subsidies 
and, thus, have expensed them to the POI. Specifically, we divided the 
fee exemptions received during the POI by the combined total sales of 
Huludao Steel Pipe and Huludao Bohai Oil Pipe. On this basis, we 
preliminarily determine that the net subsidy rate from the fee 
exemptions is less than 0.005 percent ad valorem.
H. Income Tax Credits on Purchases of Domestically-Produced Equipment 
by Domestically Owned Companies
    Huludao Steel Pipe reported receiving an income tax deduction on 
the tax return it filed during the POI under the Income Tax Credits on 
Purchases of Domestically Produced Equipment by Domestically Owned 
Companies program. According to the GOC, this program was established 
on July 1, 1999 by the ``Provisional Measures on Enterprise Income Tax 
Credit for Investment in Domestically Produced Equipment for Technology 
Renovation Projects.'' The GOC states that under the program a 
domestically invested company may claim tax credits on the purchase of 
domestic equipment if the project is compatible with the industrial 
policies of the GOC. Tax credit up to 40 percent of the purchase price 
of the domestic equipment may apply to the incremental increase in tax 
liability from the previous year. The GOC further states that pursuant 
to the ``Circular on Relevant Issues with Respect to Ceasing 
Implementing of Income Tax Credit to Purchase of Domestically Produced 
Equipment by Enterprises,'' the program was terminated effective 
January 1, 2008.
    We preliminarily determine that the income tax deductions provided 
under the program constitute a financial contribution, in the form of 
revenue forgone, and a benefit, in an amount equal to the tax savings, 
under sections 771(5)(D)(i) and 771(5)(E) of the Act, respectively. We 
further find that this program is specific under section 771(5A)(A) of 
the Act because the receipt of the tax savings is contingent upon the 
use of domestic over imported goods.
    To calculate the benefit, we summed the amount of tax savings the 
Huludao Steel Pipe received on the tax return it filed during the POI 
in accordance with 19 CFR 351.509(a)(2)(b). In accordance with 19 CFR 
351.509(c), we have allocated benefits received under the program to 
the POI.
    To calculate the net subsidy rate, we divided the benefit by the 
combined 2007 sales of Huludao Steel Pipe and Huludao Bohai Oil Pipe. 
On this basis, we calculated a net countervailable subsidy rate of 0.38 
percent ad valorem for the Huludao Companies.
    We will continue to examine whether the purported termination of 
this program constitutes a program-wide change under 19 CFR 351.526.
I. Preferential Lending of Policy Loans to State-Owned Enterprises and 
the Steel Industry by State-Owned and Controlled Banks
    In CWP Final, the Department discussed its findings regarding the 
GOC's policy lending. See CWP Decision Memorandum at Comment 8. The 
Department described the various industrial plans that the GOC had 
established in recent years in which policy goals pertaining to the 
steel industry are discussed. Regarding the National and Economic and 
Social Development 11\th\ Five-Year Plan (11\th\ Five-Year Plan), the 
Department found that while the plan lists specific policy goals 
relating to the steel industry, it did not provide for financing and 
credit. Therefore, the Department found that the plan did not provide a 
basis for finding that policy lending exists for the CWP industry. Id.
    In the CWP Final, the Department also examined the ``Interim 
Provisions on Promoting Industrial Structure Adjustment'' (ISA). Id. 
Regarding this provision, the Department noted that

[[Page 52311]]

Article 17 of the ISA stated that with regard to ``encouraged 
projects,'' all financial institutions shall provide credit in 
compliance with credit principals. Id. The Department explained that 
such ``encouraged projects'' covered under the ISA are listed in the 
``Directory Catalogue on Readjustment of Industrial Structure'' 
(Directory Catalogue). Id. The Department further explained that though 
pipe products were listed under the Directory Catalogue, the ISA did 
not identify any specific financing tools that are provided to 
``encouraged industries'' and, thus, the Department determined that no 
preferential lending was received pursuant to the ISA or the Directory 
Catalogue. Id.
    Because the information on the record of the CWP investigation is 
similar to the information on the record of the instant investigation, 
we have, for purposes of the preliminary determination, reached the 
same conclusion as those made by the Department in CWP Final as it 
pertains to the industrial plans discussed above.
    In addition, the Department examined the ``Council Circular on 
Printing Circulating Certain Supporting Policies for Implementation of 
the Outline of Medium and Long-Term Plan for National Scientific and 
Technological Development'' (Technology Development Plan). In CWP 
Final, the Department found that the Technology Development Plan 
explicitly provides for policy lending to high technology enterprises. 
Id. In particular, the Department found that Article 15 of the 
Technology Development Plan states that the China Development Bank and 
the Export-Import Bank of China may provide soft loans to high and new 
technology enterprises for taking part in project investment, and 
provide financial support to export and import key technologies. Id. 
Also, the Department found that Article 16: (1) instructs commercial 
banks to lend to high-tech projects ``in accordance with national 
investment policy and credit policy;'' and (2) further encourages the 
nominally ``commercial banks'' to ``prioritize'' loans to support the 
exportation of the products of high technology enterprises.
    For purposes of this preliminary determination, we find that there 
is no information indicating that Northern Steel and the Huludao 
Companies received any loans outstanding during the POI that were 
issued pursuant to the Technology Development Plan. We will continue to 
examine whether respondents received any such loans under this GOC 
plan.
    In CWP Final, the Department also examined the ``Development 
Policies for the Iron and Steel Industry Plan'' (Iron and Steel 
Policy). Id. The Department explained that as an initial matter, it was 
unable to definitively determine what was meant by the GOC's use of the 
term ``major iron and steel projects'' as specified under the Iron and 
Steel Policy. Id. In an attempt to define the term, the GOC provided a 
copy of a page from a 2006 metal products industry publication to 
demonstrate that the term ``metal products'' relates exclusively to 
``steel wire products'' and not steel products writ large. Id. However, 
the Department concluded that the metal industry publication did not 
provide sufficient proof to demonstrate that pipe products were not 
covered by the Iron and Steel Policy.
    Notwithstanding the lack of definitive evidence that the Iron and 
Steel Policy was limited to steel wire products, the Department found 
in CWP Final that the policy includes only one reference to using loans 
to support particular producers or activities. Specifically, in CWP 
Final, the Department noted that Article 16 of the Iron and Steel 
Policy states:
    For a major iron and steel product that is based on home-made 
equipment as newly developed, that state shall grant policy supports in 
such aspects as taxation, discounted interest rates, and scientific 
research funds.
See CWP Decision Memorandum at Comment 8.
    In CWP Final, the Department found that none of the respondents 
received loans for ``home-made'' (e.g., domestically produced 
equipment) that were outstanding during the POI. Id. Therefore, in CWP 
Final, the Department concluded that producers of CWP did not receive 
loans during the POI under the Iron and Steel Policy. Id.
    In the instant investigation, the GOC has made similar claims 
regarding the scope of the Iron and Steel Policy. In particular, the 
GOC has placed the same page from the 2006 metal publication discussed 
above in support of its contention that the scope of the Iron and Steel 
Policy is limited to steel wire products. See Exhibit D-8 of the GOC's 
August 21, 2008 supplemental questionnaire response. The GOC further 
claims in the response that the term ``discounted interest rates,'' 
cited by the Department in CWP Final as part of Article 16 of the Iron 
and Steel Policy, constitutes an inaccurate translation. In the instant 
investigation, the GOC claims that the phrase involving loans in 
Article 16 of the Iron and Steel Policy, in fact, refers to the 
provision of lump sum interest subsidy payments by the GOC and not to 
the provision of loans with discounted interest rates. On this basis, 
the GOC claims that the Department cannot rely on Article 16 as the 
basis for finding that the Iron and Steel Policy provides preferential 
lending to steel producers, including producers of line pipe.
    As in CWP Final, we continue to find that the information from the 
2006 metal publication does not provide sufficient information to 
enable to the Department to definitively conclude that line pipe 
products are not considered ``major iron and steel proudcts'' covered 
by the Iron and Steel Policy. Regarding the GOC's claims concerning the 
translation of Article 16 of the policy, we note that the English 
translation of Article 16 submitted by the GOC continues to make 
reference to ``discounted loans.'' See GOC's August 21, 2008 
questionnaire response at Exhibit D-12. Therefore, for purposes of the 
preliminary determination, we find that line pipe products are covered 
under the scope of the Iron and Steel Policy.
    Given that Article 16 of the Iron and Steel Policy states that the 
GOC ``shall grant policy supports in such aspects as . . . discounted 
loans,'' we asked Northern Steel and the Huludao Companies to indicate 
whether any of their loans outstanding during the POI were issued for 
the purpose of acquiring or paying for domestically produced equipment. 
In its August 6, 2008 questionnaire response, Northern Steel indicates 
that none of its loans outstanding during the POI were received for the 
purpose of acquiring or purchasing domestic equipment. Concerning the 
Huludao Companies, in their August 28, 2008 questionnaire response, 
they indicated that none of the loans issued to the Huludao Seven Star 
Group and Huludao Steel Pipe that were outstanding during the POI were 
for the purpose of acquiring domestically produced equipment. However, 
in the case of Huludao Bohai Oil Pipe, information submitted by the 
Huludao Companies indicates that the nature of all of the loans the 
company had outstanding during the POI from GOC-owned banks could have 
involved the acquisition of domestically equipment. See the Huludao 
Companies' August 28, 2008 questionnaire response.\33\
---------------------------------------------------------------------------

    \33\ The exact nature of the loans Huludao Bohai Oil Pipe had 
outstanding during the POI are business proprietary.
---------------------------------------------------------------------------

    Based on the information supplied by respondents, we preliminarily 
determine that Northern Steel, the

[[Page 52312]]

Huludao Seven Star Group, and Huludao Steel Pipe did not have any loans 
received for the purpose of acquiring domestically produced equipment 
that were outstanding during the POI. However, based on the information 
supplied by the Huludao Companies, we preliminarily determine that 
there is a sufficient basis to determine that Huludao Bohai Oil Pipe 
had loans outstanding during the POI that would be covered under 
Article 16 of the Iron and Steel Policy.
    Based on the information in Article 16 of the Iron and Steel Policy 
(e.g., that the ``state shall grant policy supports in such aspects as 
. . . discounted interest rates'' for projects based on domestically 
produced equipment), we preliminarily determine that the loans Huludao 
Bohai Oil Pipe received from GOC-owned banks during the POI constitute 
a financial contribution under section 771(5)(D)(i) of the Act. We 
further preliminarily determine that the loans in question confer a 
benefit under section 771(5)(E)(ii) of the Act to the extent that the 
interest payments made on the government loans during the POI are less 
than what would have been paid on a comparable commercial loan. In 
addition, we preliminarily determine that the loans Huludao Bohai Oil 
Pipe had outstanding during the POI from GOC-owned banks are specific 
under the statute because financing provided under Article 16 of the 
Iron and Steel Policy is limited to major iron and steel products, 
which for purposes of this determination we find includes line pipe.
    To calculate the benefit under this program, we compared the amount 
of interest paid against the loans provided under the program to the 
amount of interest that would have been paid on a comparable commercial 
loan. As our benchmark, we used the short-term and long-term benchmark 
interest rates discussed above in the ``Subsidies Valuation 
Information'' section.
    To calculate the net countervailable subsidy rate, we divided the 
benefit received by Huludao Bohai Oil Pipe by the total sales of 
Huludao Steel Pipe and Huludao Bohai Oil Pipe during the POI. On this 
basis, we preliminarily determine the net countervailable subsidy rate 
for the Huludao Companies to be 0.15 percent ad valorem.

II. Programs Preliminarily Determined Not To Confer Benefits During the 
POI

A. Additional Grants Received by the Huludao Companies
    In the Department's May 19, 2008 initial questionnaire response, 
the Department instructed respondents to indicate whether the GOC or 
any other local or provincial government provided them with any other 
form of assistance. In its July 9, 2008 initial questionnaire response, 
Huludao Steel Pipe reported that it received no other forms of 
assistance apart from the assistance indicated in its initial response. 
However, in response to the Department's request in its July 30, 2008 
supplemental questionnaire for Huludao Steel Pipe to break out its 
capital account, the company indicated that it received three 
additional grants from certain provincial and municipal 
institutions.\34\ Specifically, Huludao Steel Pipe reported that it 
received grants in 2005 and 2006. The GOC did not provide any 
information concerning these three grants in its August 21, 2008 
supplemental questionnaire response.
---------------------------------------------------------------------------

    \34\ The identity of the government institutions and the details 
concerning the grant amounts are business proprietary. See Huludao's 
August 18, 2008 supplemental questionnaire response.
---------------------------------------------------------------------------

    Because the assistance reported by Huludao Steel Pipe was provided 
in the form of grants, we have applied the ``0.5 percent expense test'' 
described in 19 CFR 351.524(b)(2). If the amount of subsidies is less 
than 0.5 percent of the relevant sales, then the benefits are allocated 
to the year of receipt rather than allocated over the AUL period. 
However, Huludao Steel Pipe did not provide any information regarding 
the amount of subsidies approved or the dates on which the relevant 
government authority approved the subsidies. Lacking this information, 
we have performed the ``0.5 percent expense test'' using the amount of 
grants actually received and their corresponding dates of receipt. 
Further, because we lack information from the GOC concerning the 
eligibility requirements of the government programs under which the 
grants were provided, we are not able to discern the corresponding 
sales denominator that should be used in the denominator of the ``0.5 
percent expense test.'' Therefore, in accordance with section 776(a) of 
the Act, because the necessary information is not available on the 
record, we have used the facts otherwise available in conducting the 
``0.5 percent expense test.'' Specifically, we have used the smallest 
available sales denominators for the Huludao Companies for the years in 
which the grants were received. Specifically, we used the total export 
sales of Huludao Steel Pipe as the denominator of the ``0.5 percent 
expense test'' for years 2005 and 2006.\35\ The calculation 
demonstrates that the grant amounts were less than 0.5 percent of their 
relevant sales denominators. Because the amount of the grants is less 
than 0.5 percent of the relevant sales, we have expensed the benefits 
from the grants to the year of receipt. On this basis, we preliminarily 
determine that, regardless of whether the grants were received under a 
countervailable subsidy program, any such benefits are not attributable 
to the POI.
---------------------------------------------------------------------------

    \35\ Huludao Bohai Oil Pipe did not report any sales in 2005 or 
2006.
---------------------------------------------------------------------------

B. No-Payment Loans
    In 1996, Huludao Steel Pipe received two loans from government 
institutions located in Liaoning Province.\36\ In its July 9, 2008 
initial questionnaire response, Huludao Steel Pipe reported that had 
not paid any interest on either of the two the loans since their 
receipt in 1996. In addition, Huludao reported it had not made any 
principal payments on one of the loans and only sporadic principal 
payments on the other loan. Huludao Steel Pipe further reported that no 
loan agreements or contracts were signed between the company and the 
government institutions at the time of receipt of the loans. 
Information supplied by Huludao Steel Pipe indicates that there have 
been no agreements or contracts signed between the company and 
government since receipt of the loans.
---------------------------------------------------------------------------

    \36\ The names of the government institutions are business 
proprietary.
---------------------------------------------------------------------------

    As explained above, 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. Because these loans were 
received prior to the December 11, 2001 ``cut-off'' date, we 
preliminarily determine that the loans did not confer benefits upon 
Huludao Steel Pipe during the POI.

III. Programs For Which Additional Information Is Required

Liaoning Province Grant: Liaoning Enterprise Technology Renovation 
Project Interest Assistance
    Huludao Steel Pipe and Huludao Bohai Oil Pipe received grants from 
the Government of Liaoning Province under the Liaoning Enterprise 
Technology Renovation Project Interest Assistance program. The grant 
received by Huludao Steel Pipe was approved in 2005 and disbursed in 
2006 and 2007. Huludao Bohai Oil Pipe's grant was approved and received 
in 2006. The GOC reports that grants under the program are provided for 
under the ``Liaoning Administrative Measures on Enterprise Technology 
Renovation Loan Interest

[[Page 52313]]

Subsidy Fund,'' which was enacted on December 22, 2005. The program is 
designed to assist in technology upgrades by providing grants to cover 
interest expenses companies incur in financing technology renovation 
projects. The program is administered by the Economic Commission and 
Financial Departments of the Government of Liaoning Province.
    According to the GOC, in order to be eligible to receive assistance 
under the program, firms must be located in Liaoning Province and 
engage in technology renovation projects that pertain to the production 
of raw materials and equipment or involve the following industries: 
chemical, textiles, pharmaceutical, information technology, and 
agricultural processing industries. The GOC states that this program is 
not contingent upon export performance.
    Huludao Steel Pipe and Huludao Bohai Oil Pipe did not receive 
grants on an ongoing basis and submitted separate applications for 
consideration of the assistance they received, thus we are treating the 
assistance received under the Liaoning Enterprise Technology Renovation 
Project Interest Assistance program as non-recurring grants.
    We preliminarily determine that grants provided under the program 
constitute a financial contribution, in the form of a direct transfer 
of funds, and a benefit, in an amount equal to the grants received, 
under sections 771(5)(D)(i) and 771(5)(E) of the Act, respectively. 
Regarding specificity, at this time, we lack sufficient information to 
determine whether this program is specific under section 771(5A)(A) of 
the Act.
    However, for purposes of the preliminarily determination, we find 
that regardless of whether the program is found to be countervailable, 
the grants received to Huludao Steel Pipe and Huludao Bohai Oil Pipe in 
2006 are not attributable to the POI due to the fact that the approval 
amounts of the grants were less than 0.5 percent of their relevant 
sales denominator in the year of approval.\37\ Therefore, in accordance 
with 19 CFR 351.525(b)(2), we have expensed the grants provided under 
the program to their respective years of receipt rather than allocating 
the benefits over the AUL period. As a result, we preliminarily 
determine that the grants received by Huludao Steel Pipe and Huludao 
Bohai Oil Pipe in 2006 were fully expensed prior to the POI.
---------------------------------------------------------------------------

    \37\ Huludao Bohai Oil Pipe did not have any sales in 2006. 
Therefore, in conducting the ``0.5 percent expense test'' under 19 
CFR 351.524(c), we used the 2005 total sales of Huludao Steel Pipe.
---------------------------------------------------------------------------

    Regarding the grant amounts disbursed to Huludao Steel Pipe, as 
explained above, we lack sufficient specificity information for this 
program at this time. Therefore, we will seek additional specificity 
information regarding this program in order to allow the Department to 
make a subsidy determination with respect to grant amounts disbursed to 
Huludao Steel Pipe during the POI.

IV. 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 is transmitted for local distribution to 
virtually all end users by two state-owned transmission companies, the 
State Grid and China South Power Grid. The State Grid is responsible 
for transmitting electricity to Liaoning Province. Generally, prices 
for uploading electricity to the power grid and transmitting it are 
regulated by the GOC, as are the final sales prices. The following 
measures set forth the basic rules for determining electricity prices: 
``Circular on Implementation Measures Regarding Reform of Electricity 
Prices'' (FAGAIJIAGE {2005{time}  No. 514, National Development and 
Reform Commission), ``Provisional Administrative Measures on Prices for 
Transmission of Electricity,'' and ``Provisional Administrative 
Measures on Prices for Sales of Electricity'' (which states at Article 
29 ``Government departments in charge of pricing at various levels 
shall be responsible for the administration and supervision of 
electricity sales prices.'').\38\ The GOC reports that all areas of 
Liaoning Province are subject to the same electricity price 
schedule.\39\
---------------------------------------------------------------------------

    \38\ See GOC's July 9, 2008 questionnaire response at Exhibit 
60.
    \39\ The electricity price schedule was submitted at exhibit D-
17 of the GOC's August 21, 2008 questionnaire response.
---------------------------------------------------------------------------

    Electricity consumers are divided into broad categories including 
residential, commercial, large-scale industry, and agriculture. The 
rates charged by the utilities vary across customer categories and 
within customer categories based on the amount of electricity consumed. 
The Huludao Companies and Northern Steel are subject to the standard 
electricity price for largescale industries in Liaoning Province. 
Within the industrial categories, there are different rates set based 
on the level of kilowatt consumption. For certain industrial users, the 
rates are specifically broken out and these industries receive special, 
discounted rates. Based on our review of the rate schedules submitted 
for Liaoning Province, specific discounted rates are not provided to 
line pipe producers.
    Northern Steel provided to the Department a chart of its 
electricity rates and payments for the POI. The company explained that 
its electricity rate is equal to the basic rate and actual costs. Based 
on the information reported by Northern Steel, the electricity rates 
paid by the company during the POI were higher than the large-scale 
industries rate listed in the Liaoning Province electricity price 
schedule.
    The Huludao Companies reported that their electricity rates are 
equal to three rates: offpeak, basic, and peak. Based on the 
information reported by the Huludao Companies, the electricity rates 
paid by Huludao Steel Pipe and Huludao Bohai Oil Pipe were equal to the 
rate schedule applicable to the rate charged to large-scale industries 
in the Liaoning Province.
    Based on the record evidence, we preliminarily determine that the 
provision of electricity to large-scale industries in Liaoning Province 
is neither de jure nor de facto specific because all such industries 
pay the same rate for their electricity, including the line pipe 
producers we examined. However, we will continue to examine at 
verification the electricity rates paid by the respondents during the 
POI.
B. VAT Export Rebates
    According to the GOC, the ``exemption, deduction, and refund'' of 
VAT applies if a manufacturer exports its self-produced goods by itself 
or via a trading company. See Article 1 of the ``Circular on Further 
Promotion of Methodology of Exemption, Deduction, and Refund' of Tax 
for Exported Goods'' (CAISHUI (2002) No. 7) at Exhibit 48 of the GOC's 
July 9, 2008 questionnaire response. Under the VAT refund system, when 
a producer/exporter purchases inputs (e.g., raw materials, components, 
fuel, and power), it pays a VAT based on the purchase price of the 
inputs. The GOC reported that VAT rates paid by line pipe producers/
exporters for inputs are as follows: raw materials (e.g., hot-rolled 
steel strip) and electricity at a rate of 17 percent; fuel at 13 
percent; and water at 6 percent.\40\ Once the producer/exporter exports 
subject merchandise, a VAT payment and tax exemption form is prepared 
and filed with the relevant tax

[[Page 52314]]

authority. Line pipe exporters receive a VAT refund of 13 percent of 
the export price.\41\
---------------------------------------------------------------------------

    \40\ See GOC's July 9, 2008 questionnaire response at 89.
    \41\ Id. at 88.
---------------------------------------------------------------------------

    The Department's regulations state that in the case of an exemption 
upon export of indirect taxes, a benefit exists only to the extent that 
the Department determines that the amount exempted ``exceeds the amount 
levied with respect to the production and distribution of like products 
when sold for domestic consumption.'' See 19 CFR 351.517(a) and 351.102 
(for a definition of ``indirect tax). Information in the respondents' 
responses show that the Huludao Companies and Northern Steel paid the 
VAT on their inputs and applied for and received a VAT refund on their 
export sales.
    To determine whether a benefit was provided under this program, we 
analyzed whether the amount of VAT exempted during the POI exceeded the 
amount levied with respect to the production and distribution of like 
products when sold for domestic consumption. Because the VAT rate 
levied on line pipe in the domestic market (i.e., 17 percent) exceeded 
the amount of VAT exempted upon the export of line pipe (i.e., 13 
percent), we preliminarily determine that, for the purposes of this 
investigation, the VAT refund received upon export of line pipe by the 
respondents does not confer a countervailable benefit. We note our 
finding in this regard is consistent with the Department's practice. 
See e.g., Tires Decision Memorandum at ``VAT Export Rebates'' section.

V. Programs Preliminarily Determined To Be Not Used

    We preliminarily determine that the Huludao Companies and Northern 
Steel did not apply for or receive benefits during the POI under the 
programs listed below:
A. Preferential Loans
    1. Preferential Loans for Key Projects and Technologies
B. Debt-to-Equity Swaps for State-Owned Enterprises
C. Tax Benefit Programs
    1. Income Tax Reduction for Export-Oriented FIEs
    2. Income Tax Reductions for FIEs Based on Location
    3. Preferential Tax Programs for FIEs that Quality as Technology-
Intensive or Knowledge Intensive
    4. Preferential Tax Programs for FIEs Recognized as High or New 
Technology Enterprises
    5. Preferential Tax Programs for FIEs that are Engaged in Research 
and Development
    6. Income Tax Reduction for FIEs that Reinvest Profits into Export-
Oriented Enterprises
    7. Local Income Tax Exemption and Reduction Programs for 
``Productive'' FIEs
    8. Income Tax Credits on Purchases of Domestically-Produced 
Equipment by FIEs
D. VAT Programs
    1. VAT Exemptions for Use of Imported Equipment
E. Grant Programs
    1. Interest Subsidies for Key Projects and Technologies
    2. State Key Technologies Renovation Project Fund
    3. Central Government's Famous Brands Program
    4. Government of Guandong Province Provision of Grants to Companies 
for Outward Expansion and Export Performance
    5. Grants to SOEs Operating at a Loss
F. Provision of Water for Less Than Adequate Remuneration\42\
---------------------------------------------------------------------------

    \42\ The Huludao Companies and Northern Steel obtain water 
directly from their own ground wells. The GOC and Northern Steel 
reported that the company paid water resource fees to the Haicheng 
Water Resources Bureau during the POI. The GOC reported that the 
Huludao Companies did not pay any water fees. (See GOC's August 21, 
2008 questionnaire response at 33.) We will further examine the 
payment of water fees at verification.
---------------------------------------------------------------------------

G. Provincial Programs
    1. Liaoning Province Framework
    2. Sub-Central Government Programs to Promote Famous Brands
H. New Subsidies Programs
    The Huludao Companies and Northern Steel reported non-use of the 
following programs. The GOC's response to the new subsidies 
questionnaire was submitted to the Department on August 29, 2008. We, 
therefore, will continue to examine these programs.
    1. Preferential Income Tax Policy for Enterprises in the Northeast 
Region (Northeast Tax Preference Policy)
    2. Provisions on Expanding the Qualifications of Fixed Asset Input 
VAT Deductions in the Northeast Region (Northeast Region VAT Deduction 
Program)
    3. Haicheng City Government VAT and Business Tax Incentives
    4. Debt Forgiveness Provided to Huludao Companies

Verification

    In accordance with section 782(i)(1) of the Act, we intend to 
verify the information submitted by the Huludao Companies, Northern 
Steel, and the GOC prior to making our final determination.

Suspension of Liquidation

    In accordance with section 703(d)(1)(A)(i) of the Act, we have 
calculated an individual rate for each producer/exporter of the subject 
merchandise. We preliminarily determine the total estimated net 
countervailable subsidy rate to be:

------------------------------------------------------------------------
                    Producer/Exporter                      Subsidy Rate
------------------------------------------------------------------------
Liaoning Northern Steel Pipe Co., Ltd...................   31.65 percent
                                                              ad valorem
Huludao Seven-Star Steel Pipe Group Co., Ltd. (Huludao     18.89 percent
 Seven Star Group), Huludao Steel Pipe Industrial Co.         ad valorem
 Ltd. (Huludao Steel Pipe), and Huludao Bohai Oil Pipe
 Industrial Co. Ltd. (Huludao Bohai Oil Pipe)
 (collectively, the Huludao Companies)..................
All Others..............................................   25.27 percent
                                                              ad valorem
------------------------------------------------------------------------

    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 net subsidy rates, or any rates based solely on the 
facts available.
    Notwithstanding the language of section 705(c)(1)(B)(i)(I) of the 
Act, we have not calculated the all-others rate by weight averaging the 
rates of the Huludao Companies and Northern Steel because doing so 
risks disclosure of proprietary information. Therefore, for the all-
others rate, we have calculated a simple average of the two responding 
firms' rates.
    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 the subject merchandise 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 the merchandise 
in the amounts indicated above.

[[Page 52315]]

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), the Department 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, which must be 
limited to issues raised in the case briefs, must be filed within five 
days after the deadline for submission of case briefs. See 19 CFR 
351.309(d). 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.
    In accordance with 19 CFR 351.310(c), we will hold a public 
hearing, if requested, to afford interested parties an opportunity to 
comment on this preliminary determination. Individuals who wish to 
request a hearing must submit a written request within 30 days of the 
publication of this notice in the Federal Register to the Assistant 
Secretary for Import Administration, U.S. Department of Commerce, Room 
1870, 14\th\ Street and Constitution Avenue, NW, Washington, DC 20230. 
Parties will be notified of the schedule for the hearing and parties 
should confirm the time, date, and place of the hearing 48 hours before 
the scheduled time. Requests for a public hearing should contain: (1) 
party's name, address, and telephone number; (2) the number of 
participants; and (3) to the extent practicable, an identification of 
the arguments to be raised at the hearing.
    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: September 2, 2008.
David M. Spooner,
Assistant Secretary for Import Administration.
[FR Doc. E8-20922 Filed 9-8-08; 8:45 am]
BILLING CODE 3510-DS-S