[Federal Register Volume 75, Number 45 (Tuesday, March 9, 2010)]
[Notices]
[Pages 10774-10789]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-5007]


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DEPARTMENT OF COMMERCE

International Trade Administration

(C-570-959)


Certain Coated Paper Suitable For High-Quality Print Graphics 
Using Sheet-Fed Presses from the People's Republic of China: 
Preliminary Affirmative Countervailing Duty Determination and Alignment 
of Final Countervailing Duty Determination with Final Antidumping Duty 
Determination

AGENCY: Import Administration, International Trade Administration, 
Department of Commerce.
SUMMARY: The Department of Commerce preliminarily determines that 
countervailable subsidies are being provided to producers and exporters 
of certain coated paper suitable for high-quality print graphics using 
sheet-fed presses from the People's Republic of China (``PRC''). For 
information on the estimated subsidy rates, see the ``Suspension of 
Liquidation'' section of this notice.

EFFECTIVE DATE: March 9, 2010.

FOR FURTHER INFORMATION CONTACT: David Neubacher, Jennifer Meek, Mary 
Kolberg, AD/CVD Operations, Office 1, Import Administration, 
International Trade Administration, U.S. Department of Commerce, 14th 
Street and Constitution Avenue, NW, Washington, DC 20230; telephone: 
(202) 482-5823, (202) 482-2778, (202) 482-1785, respectively.

SUPPLEMENTARY INFORMATION:

Case History

    The following events have occurred since the publication of the 
Department of Commerce's (``Department'') notice of initiation in the 
Federal Register. See Certain Coated Paper Suitable For High-Quality 
Print Graphics Using Sheet-Fed Presses from the People's Republic of 
China: Initiation of Countervailing Duty Investigation, 74 FR 53703 
(October 20, 2009) (``Initiation Notice''), and the accompanying 
Initiation Checklist.
    On November 16, 2009, the Department selected two Chinese 
producers/exporters of certain coated paper suitable for high-quality 
print graphics using sheet-fed presses (``coated paper'') as mandatory 
respondents: 1) Gold East Trading (Hong Kong) Company Limited 
(``GEHK''), Gold East Paper (Jiangsu) Co., Ltd. (``GEP'') and Gold 
Huasheng Paper Co., Ltd. (``GHS'') (collectively, ``Gold companies'') 
and 2) Shandong Sun Paper Industry Joint Stock Co., Ltd. (``Sun 
Paper'') and its affiliate Yanzhou Tianzhang Paper Industry Co., Ltd. 
(``Yanzhou Tianzhang'') (collectively, ``Sun Paper companies''). See 
Memorandum to John M. Andersen, Acting Deputy Assistant Secretary for 
Antidumping and Countervailing Duty Operations (November 16, 2009). A 
public version of this memorandum is on file in the Department's 
Central Records Unit in Room 1117 of the main Department building 
(``CRU'').
    On November 17, 2009, we issued questionnaires to the Government of 
the PRC (``GOC''), Gold companies and Sun Paper companies. On December 
8, 2009, the Department postponed the deadline for the preliminary 
determination in this investigation until February 22, 2009. See 
Certain Coated Paper Suitable for High-Quality Print Graphics Using 
Sheet-Fed Presses from the People's Republic of China: Postponement of 
Preliminary Determination in the Countervailing Duty Investigation, 74 
FR 64669 (December 8, 2009).
    We received responses to our questionnaire from the GOC, Gold 
companies and Sun Paper companies on January 7 and 8, 2010. See the 
GOC's Original Questionnaire Response (January 7, 2010) (``GQR''), Gold 
companies' Original Questionnaire Response (January 7, 2010) 
(``GEQR''), Sun Paper's Original Questionnaire Response (January 7, 
2010) (``SPQR''), and Yanzhou Tianzhang's Original Questionnaire 
Response (January 7, and 8, 2010) (``YTQR'').
    We sent supplemental questionnaires to the Gold companies, Sun 
Paper companies and the GOC on February 4, 2010. We received responses 
to these supplemental questionnaires on February 12, 2010. See GOC's 
First Supplemental Questionnaire Response (February 12, 2010) 
(``G1SQR''), Sun Paper companies' First Supplemental Questionnaire 
Response (February 12, 2010) (``SP1SQR''), and Gold companies' First 
Supplemental Questionnaire Response (February 12, 2010).
    On January 7, 2010, Appleton Coated LLC, NewPage Corporation, 
S.D.Warren Company d/b/a Sappi Fine Paper North America, and United 
Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied 
Industrial and Service Workers International Union (collectively, 
``Petitioners'') requested that the Department extend the deadline for 
the submission of new subsidy

[[Page 10775]]

allegations beyond the January 13, 2010, deadline established by the 
Department's regulations. On January 8, 2010, we extended the deadline. 
On January 13 and 14, 2010, Petitioners submitted two sets of new 
subsidy allegations. The Department is still reviewing these 
allegations.
    On January 19, 2010, Petitioners submitted an allegation that the 
Asia Pulp and Paper companies (referred to herein as the Gold 
companies), including GEP, should be considered uncreditworthy for the 
period 2003 - 2008. Petitioners requested the Department to reaffirm 
its prior determination with regard to the uncreditworthiness of the 
Gold companies for the period 2003-2005\1\ and initiate an 
investigation into the creditworthiness of the Gold companies during 
the period 2006-2008. Petitioners have submitted financial ratios for 
certain Gold companies and have pointed to other evidence on the record 
to argue that these companies were uncreditworthy for the period 2006 - 
2008. See ``Creditworthiness'' section below.
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    \1\ See Coated Free Sheet Paper from the People's Republic of 
China: Final Affirmative Countervailing Duty Determination, 72 FR 
60645 (October 25, 2007) (``CFS from the PRC''), and the 
accompanying Issues and Decision Memorandum (``CFS Decision 
Memorandum'') at p. 8.
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    On January 20, 2010, we issued a letter requesting that the GOC 
update its original questionnaire response for the cross-owned 
affiliates for which the Gold companies filed questionnaire responses. 
The GOC filed its response on February 12, 2010. See GOC's Supplemental 
Response (February 12, 2010) (``GSR'').
    On January 21, 2010, we issued a letter notifying the GOC that it 
did not provide responses to certain questions in the original 
questionnaire. In response to this letter, on February 12, and 25, 
2010, the GOC filed information pertaining to the Chinese banking 
sector and provision of chemicals. See GOC's Additional Supplemental 
Response (February 25, 2010) (``G2SR'').
    On February 16, 18, 19, 23 and 25, 2010, Petitioners submitted 
comments for the preliminary determination. The Gold companies 
submitted comments for the preliminary determination on February 24, 
2010.
    The Department originally extended the deadline for this 
preliminary determination until February 22, 2010. As explained in the 
memorandum from the Deputy Assistant Secretary for Import 
Administration, the Department has exercised its discretion to toll 
deadlines for the duration of the closure of the Federal Government 
from February 5, through February 12, 2010. Thus, all deadlines in this 
segment of the proceeding have been extended by seven days. The revised 
deadline for the preliminary determination of this investigation is now 
March 1, 2010. See Memorandum to the Record from Ronald Lorentzen, DAS 
for Import Administration, regarding ``Tolling of Administrative 
Deadlines As a Result of the Government Closure During the Recent 
Snowstorm,'' dated February 12, 2010.

Scope Comments

    In accordance with the preamble to the Department's regulations, we 
set aside a period of time in our Initiation Notice for parties to 
raise issues regarding product coverage, and encouraged all parties to 
submit comments within 20 calendar days of publication of that notice. 
See Antidumping Duties; Countervailing Duties, 62 FR 27296, 27323 (May 
19, 1997), and Initiation Notice, 74 FR at 53703. We received comments 
concerning the scope of the antidumping duty (``AD'') and 
countervailing duty (``CVD'') investigations of coated paper from the 
PRC.
    Timely comments were filed collectively by the GEP, GHS, PT Pindo 
Deli Pulp and Paper Mills, and PT Pabrik Kertas Tjimi Kimia Tbk. 
(collectively, ``Scope Respondents'') on November 6, 2009. These 
parties asked the Department to clarify the scope of these 
investigations by inserting language stating that multi-ply coated 
paperboard is not covered. According to Scope Respondents, multi-ply 
coated paperboard is not the same as subject coated paper and 
paperboard. First, Scope Respondents claim its end-use is not for 
graphic printing purposes or as a cover for graphic applications as 
stated in the petition, but primarily for packaging functions (e.g., 
cosmetics, cigarettes, etc.). Moreover, the physical characteristics of 
this product and its production process differ from those of subject 
coated paper. In addition, Scope Respondents note the Harmonized Tariff 
Schedule (``HTS'') number for multi-ply coated paper products was not 
included in the scope by Petitioners and, thus, it was not their 
intention to consider this product subject to the order. Finally, Scope 
Respondents claim that including multi-ply coated paperboard would call 
into question the Department's industry standing analysis.
    In response to Scope Respondents' submission, Petitioners submitted 
comments on November 16, 2009. Petitioners assert the scope provides 
clear, specific criteria (e.g., sheets, suitable for high quality print 
graphics, using sheet-fed press, coated, 80 or higher GE brightness 
level, weight no more than 340 gsm, etc.) for determining covered 
merchandise. Petitioners also point out that neither the petitions nor 
the initiation documents indicate that plies are a relevant physical 
characteristic. Furthermore, that multi-ply products produced by Scope 
Respondents are suitable for more than a single use. Thus, if the 
coated paper product, including multi-ply coated paperboard, meets the 
criteria stated in the scope, the product is subject to these 
investigations and the arguments provided by Scope Respondents (e.g., 
characteristics, production process, HTS numbers, etc.) are immaterial. 
Finally, Petitioners claim that there is no reason to re-examine the 
analysis conducted at the initiation phase of the investigation 
regarding Petitioners' standing.
    On December 16, 2009, Scope Respondents requested that the 
Department revisit its determination regarding industry support. While 
acknowledging that the deadline had passed, Scope Respondents claimed 
that neither the statute nor the Department's regulations preclude it 
from extending the deadline and revisiting its industry support 
determination.
    On December 28, 2009, Petitioners responded that the statute and 
Statement of Administrative Action are clear that an industry support 
determination cannot be reconsidered in the context of the 
investigation. On February 19, 2010, representatives of Scope 
Respondents met with Department officials to discuss their scope 
comments. See Memorandum to the File from Nancy Decker, regarding ``Ex-
Parte Meeting with Counsel to Respondents'' (March 1, 2010). On 
February 23, 2010, Scope Respondents filed documents and photographs of 
items presented to the Department at this ex parte meeting. On February 
22, 2010, representatives of Petitioners met with Department officials 
to discuss their scope comments. See Memorandum to the File from Nancy 
Decker, regarding ``Ex-Parte Meeting with Counsel to Petitioners'' 
(March 1, 2010). On February 23, 2010, Petitioners filed a submission 
in which they included a calculation presented to the Department during 
this ex parte meeting.
    On February 25, 2010, Petitioners filed additional comments 
rebutting the documents filed by Scope Respondents and restating their 
prior claims. In response to a question the Department posed during the 
ex parte meeting, Petitioners stated that the phrase ``suitable for 
high quality print graphics''

[[Page 10776]]

could be stricken from the description of the subject merchandise 
without altering the scope of these investigations.
    Based on our review of the scope, we agree with Petitioners that 
the number of plies is not among the specific physical characteristics 
(e.g., brightness, coated, weight, etc.) defining the subject 
merchandise. Accordingly, we preliminarily find that multi-ply coated 
paper is covered by the scope of these investigations, to the extent 
that it meets the description of the merchandise in the scope.
    Given that Petitioners' most recent submission regarding the 
suitability language was received shortly before these preliminary 
determinations, we have not had sufficient time to analyze this issue. 
Accordingly, we have not amended the scope and we invite parties to 
further comment with respect to whether the phrase ``suitable for high 
quality print graphics'' can be stricken from the description of the 
subject merchandise without altering the scope of these investigations. 
These scope comments must be filed within 20 calendar days of 
publication of this notice, and they must be filed on the record of 
this investigation, as well as the records of the concurrent AD 
investigations on coated paper from Indonesia and the PRC and the CVD 
investigation of coated paper from Indonesia.
    In their February 25, 2010 submission, Petitioners also stated that 
the phrase in the scope, ``(c) any other coated paper that meets the 
scope definition'' should also include the word ``paperboard.'' We 
agree that the word ``paperboard'' was inadvertently omitted (e.g., it 
is already explicitly included in the first sentence of the scope 
language and in ``(b)'' of the second paragraph) and have corrected the 
scope language to read ``(c) any other coated paper and paperboard that 
meets this scope definition.''

Scope of the Investigation

    The scope of this investigation consists of Coated Paper, which are 
certain coated paper and paperboard\2\ in sheets suitable for high 
quality print graphics using sheet-fed presses; coated on one or both 
sides with kaolin (China or other clay), calcium carbonate, titanium 
dioxide, and/or other inorganic substances; with or without a binder; 
having a GE brightness level of 80 or higher;\3\ weighing not more than 
340 grams per square meter; whether gloss grade, satin grade, matte 
grade, dull grade, or any other grade of finish; whether or not 
surface-colored, surface-decorated, printed (except as described 
below), embossed, or perforated; and irrespective of dimensions.
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    \2\ `` `Paperboard' refers to Coated Paper that is heavier, 
thicker and more rigid than coated paper which otherwise meets the 
product description. In the context of Coated Paper, paperboard 
typically is referred to as `cover,' to distinguish it from `text.' 
''
    \3\ One of the key measurements of any grade of paper is 
brightness. Generally speaking, the brighter the paper the better 
the contrast between the paper and the ink. Brightness is measured 
using a GE Reflectance Scale, which measures the reflection of light 
off of a grade of paper. One is the lowest reflection, or what would 
be given to a totally black grade, and 100 is the brightest measured 
grade.
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    Coated Paper includes: (a) coated free sheet paper and paperboard 
that meets this scope definition; (b) coated groundwood paper and 
paperboard produced from bleached chemi-thermo-mechanical pulp 
(``BCTMP'') that meets this scope definition; and (c) any other coated 
paper and paperboard that meets this scope definition.\4\
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    \4\ As noted supra in the Scope Comments section, we have 
determined that the word ``paperboard'' was inadvertently left out 
of the sentence in the Initiation Notice and have corrected it for 
the preliminary determination.
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    Coated Paper is typically (but not exclusively) used for printing 
multi-colored graphics for catalogues, books, magazines, envelopes, 
labels and wraps, greeting cards, and other commercial printing 
applications requiring high quality print graphics.
    Specifically excluded from the scope are imports of paper and 
paperboard printed with final content printed text or graphics.
    As of 2009, imports of the subject merchandise are provided for 
under the following categories of the Harmonized Tariff Schedule of the 
United States (``HTSUS''): 4810.14.11, 4810.14.1900, 4810.14.2010, 
4810.14.2090, 4810.14.5000, 4810.14.6000, 4810.14.70, 4810.19.1100, 
4810.19.1900, 4810.19.2010, 4810.19.2090, 4810.22.1000, 4810.22.50, 
4810.22.6000, 4810.22.70, 4810.29.1000, 4810.29.5000, 4810.29.6000, 
4810.29.70. While HTSUS subheadings are provided for convenience and 
customs purposes, the written description of the scope of this 
investigation is dispositive.
    The HTSUS subheadings are provided for convenience and customs 
purposes only, the written description of the scope of this 
investigation is dispositive.

Injury Test

    Because the PRC is a ``Subsidies Agreement Country'' within the 
meaning of section 701(b) of the Tariff Act of 1930, as amended (``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 
November 9, 2009, the U.S. International Trade Commission (``ITC'') 
issued its affirmative preliminary determination that there is a 
reasonable indication that an industry in the United States is 
materially injured by reason of allegedly subsidized imports of coated 
paper from the PRC. See Certain Coated Paper Suitable for High-Quality 
Print Graphics Using Sheet-Fed Presses From China and Indonesia; 
Determinations, Investigation Nos. 701-TA-470-471 and 731-TA-1169-1170, 
74 FR 61174 (November 23, 2009).

Alignment of Final Countervailing Duty Determination with Final 
Antidumping Duty Determination

    On October 14, 2009, the Department initiated the CVD and AD 
investigations of coated paper from Indonesia and the PRC. See 
Initiation Notice, Certain Coated Paper From Indonesia: Initiation of 
Countervailing Duty Investigations, 74 FR 53707 (October 20, 2009) and 
Certain Coated Paper Suitable for High-Quality Print Graphics Using 
Sheet-Fed Presses From Indonesia and the People's Republic of China: 
Initiation of Antidumping Duty Investigations, 74 FR 53710 (October 20, 
2009). The CVD and the AD investigations have the same scope with 
regard to the merchandise covered.
    On February 25, 2010, Petitioners submitted a letter, in accordance 
with section 705(a)(1) of the Act, requesting alignment of the final 
CVD determinations with the final determinations in the companion AD 
investigations of coated paper from Indonesia and the PRC. Therefore, 
in accordance with section 705(a)(1) of the Act and 19 CFR 
351.210(b)(4), we are aligning the final CVD determination with the 
final determination in the companion AD investigation of coated paper 
from the PRC. Consequently, the final CVD determination will be issued 
no later than July 12, 2010, unless postponed in the companion AD 
investigation.

Period of Investigation

    The period for which we are measuring subsidies, i.e., the period 
of investigation (``POI''), is January 1, 2008, through December 31, 
2008.

Application of the Countervailing Duty Law to Imports from the PRC

    On October 25, 2007, the Department published CFS from the PRC, and 
the accompanying CFS Decision Memorandum. In CFS from the PRC, the 
Department found that


[[Page 10777]]


    given the substantial differences between the Soviet-style 
economies and China's economy in recent years, the Department's 
previous decision not to apply the CVD law to these Soviet-style 
economies does not act as a bar to proceeding with a CVD investigation 
involving products from China.
See CFS 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), and accompanying Issues and 
Decision Memorandum (``CWP Decision Memorandum''), at Comment 1.

    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, as the 
date from which the Department will identify and measure subsidies in 
the PRC. See CWP Decision Memorandum, at Comment 2.

Use of Facts Otherwise Available and Adverse Inferences

    Sections 776(a)(1) and (2) of the Act provide that the Department 
shall apply ``facts otherwise available'' if necessary information is 
not on the record or an interested party or any other person: (A) 
withholds information that has been requested; (B) fails to provide 
information within the deadlines established, or in the form and manner 
requested by the Department, subject to subsections (c)(1) and (e) of 
section 782 of the Act; (C) significantly impedes a proceeding; or (D) 
provides information that cannot be verified as provided by section 
782(i) of the Act.
    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.

GOC - Papermaking Chemicals (Kaolin Clay, Calcium Carbonate, Titanium 
Dioxide)

    The Department is investigating the alleged provision of kaolin 
clay, calcium carbonate, and titanium dioxide for less than adequate 
remuneration by the GOC. We requested information from the GOC 
regarding the specific companies that produced these papermaking 
chemicals used by the Gold companies and Sun Paper companies, and more 
generally about the market in the PRC for these chemicals.
    With respect to the specific companies that produced the 
papermaking chemicals purchased by the Gold companies and Sun Paper 
companies, we were seeking information that would allow us to determine 
whether the producers are ``authorities'' within the meaning of section 
771(5)(B) of the Act. Specifically, we stated in our questionnaire that 
the Department normally treats producers that are majority owned by the 
government or a government entity as ``authorities.'' Thus, for any 
producers of kaolin clay, calcium carbonate, or titanium dioxide that 
were majority government-owned, the GOC needed to provide the requested 
information only if it wished to argue that those producers were not 
authorities. For any suppliers that the GOC claimed were directly, 100-
percent owned by individual persons during the POI, we requested the 
following:

    <bullet> Translated copies of source documents that demonstrate the 
supplier's ownership during the POI, such as capital verification 
reports, articles of association, share transfer agreements, or 
financial statements.
    <bullet> Identification of the owners, members of the board of 
directors, or managers of the suppliers who were also government or 
Chinese Communist Party (``CCP'') officials during the POI.
    <bullet> A discussion of whether and how operational or strategic 
decisions that are made by the management or board of directors are 
subject to government review or approval.

Finally, for input suppliers with some direct corporate ownership or 
less-than-majority state ownership during the POI, we explained that it 
was necessary to trace back the ownership to the ultimate individual or 
state owners. For these suppliers, we requested the following:

    <bullet> The total level (percentage) of state ownership of the 
company's shares; the names of all government entities that own shares, 
either directly or indirectly, in the company; whether any of the 
owners are considered ``state-owned enterprises'' by the government; 
and the amount of shares held by each government owner.
    <bullet> For each level of ownership, a translated copy of the 
section(s) of the articles of association showing the rights and 
responsibilities of the shareholders and, where appropriate, the board 
of directors, including all decision making (voting) rules for the 
operation of the company.
    <bullet> For each level of ownership, identification of the owners, 
members of the board of directors, or managers of the suppliers who 
were also government or CCP officials during the POI.
    <bullet> A discussion of whether and how operational or strategic 
decisions that are made by the management or board of directors are 
subject to government review or approval.
    <bullet> A statement of whether any of the shares held by 
government entities have any special rights, priorities, or privileges, 
e.g., with regard to voting rights or other management or decision-
making for the company; a statement of whether there are any 
restrictions on conducting, or acting through, extraordinary meetings 
of shareholders; whether there are any restrictions on the shares held 
by private shareholders; and the nature of the private shareholders' 
interest in the company, e.g., operational, strategic, or investment-
related, etc.

    In the GQR at 127, the GOC stated that it had not obtained complete 
ownership information for the companies that produced these papermaking 
chemicals purchased by the Gold companies and Sun Paper companies. The 
GOC further stated that it expected to provide such information when 
the Department determined which cross-owned affiliates of the mandatory 
respondents would be required to file responses. See GQR at 127-128.
    On January 20, 2010, we issued a letter requesting that the GOC 
update its initial questionnaire response for the cross-owned 
affiliates for which the Gold companies filed questionnaire responses. 
The GOC filed its response on February 12, 2010.
    On January 21, 2010, we issued a separate letter noting that the 
GOC did not provide responses to certain questions in the original 
questionnaire regarding chemical suppliers. We pointed out that the GOC 
had not requested, and the Department had not granted, an extension of 
the deadline for submitting this information. We stated that the 
requested information must be submitted by February 4, 2010. 
Subsequently, the deadline was extended to February 25, 2010.
    On February 16, 2010, the GOC submitted a list of the producers of 
these papermaking chemicals purchased by Respondents during the POI and

[[Page 10778]]

documents that appear to establish the direct owners of most of them. 
Additional documentation was submitted on February 25, 2010 regarding 
the ownership of additional papermaking chemical suppliers. Based on 
the submitted information, the papermaking chemical producers present a 
variety of ownership structures: majority government owned; corporate 
ownership; corporate and individual ownership; and individual 
ownership. Where there was ownership by individuals, the GOC did not 
answer the question on whether owners, members of the board of 
directors, or managers of the suppliers were also government or CCP 
officials during the POI. The GOC also did not discuss whether and how 
operational or strategic decisions that are made by the management or 
board of directors are subject to government review or approval. For 
producers with some direct corporate ownership or less-than-majority 
state ownership during the POI, the GOC did not respond to our requests 
for the following information:

    <bullet> The total level (percentage) of state ownership of the 
company's shares; the names of all government entities that own shares, 
either directly or indirectly, in the company; whether any of the 
owners are considered ``state-owned enterprises'' by the government; 
and the amount of shares held by each government owner.
    <bullet> For each level of ownership, identification of the owners, 
members of the board of directors, or managers of the suppliers who 
were also government or CCP officials during the POI.
    <bullet> A discussion of whether and how operational or strategic 
decisions that are made by the management or board of directors are 
subject to government review or approval.
    <bullet> A statement of whether any of the shares held by 
government entities have any special rights, priorities, or privileges, 
e.g., with regard to voting rights or other management or decision-
making for the company; a statement of whether there are any 
restrictions on conducting, or acting through, extraordinary meetings 
of shareholders; whether there are any restrictions on the shares held 
by private shareholders; and the nature of the private shareholders' 
interest in the company, e.g., operational, strategic, or investment-
related, etc.

    Based on the above, we preliminarily determine that the GOC has 
withheld necessary information that was requested of it and, thus, that 
the Department must rely on ``facts available'' in making our 
preliminary determination. See sections 776(a)(1) and (a)(2)(A) of the 
Act. Moreover, we preliminarily determine that the GOC has failed to 
cooperate by not acting to the best of its ability to comply with our 
request for information. Consequently, an adverse inference is 
warranted in the application of facts available. See section 776(b) of 
the Act. Therefore, we are assuming adversely that all of Respondents' 
non-cross-owned suppliers of kaolin clay, calcium carbonate, and 
titanium dioxide are ``authorities.''
    As explained above, the Department also requested more general 
information from the GOC about the markets in the PRC for these 
chemicals. This additional information is necessary to determine 
whether these papermaking chemicals have been provided for less than 
adequate remuneration because it allows us to establish a benchmark for 
determining whether a benefit has been provided. The GOC initially 
provided information in the GSR and then updated this information in 
the G2SR. Upon review of the submitted information, we determine we 
require additional information, including information about the GOC's 
ownership classifications, other ways in which the GOC may influence 
the markets for these papermaking chemicals in the PRC, and the efforts 
the GOC has made to obtain certain of the requested data. Therefore, 
while we have preliminarily determined that the producers of the 
papermaking chemicals purchased by the Gold companies and Sun Paper 
companies are ``authorities,'' we are not making a finding that these 
chemicals have been provided for less than adequate remuneration for 
this preliminary determination and have listed these alleged subsidies 
under the ``Programs for Which More Information Is Required'' section, 
below.

GOC - Electricity

    The GOC also did not provide a complete response to the 
Department's request for information regarding the GOC's alleged 
provision of electricity for less than adequate remuneration. 
Specifically, the Department requested that the GOC explain how 
electricity cost increases are reflected in retail price increases. In 
its GSR, the GOC responded that it was gathering this information, but 
it did not request an extension from the Department for submitting this 
information after the original questionnaire deadline date.
    As explained above in connection with the information requested 
about the producers of papermaking chemicals purchased by the Gold 
companies and Sun Paper companies, the Department made clear that its 
standard investigation procedures require the GOC to request an 
extension when it is not able to meet a deadline. See, e.g., 19 CFR 
351.302(c). In this regard, the Department notes that the GOC has 
participated in numerous CVD investigations and the GOC is familiar 
with this standard procedure. Because the GOC did not ask for or 
receive an extension of that deadline, we preliminarily determine that 
the GOC has failed to provide necessary information and, thus, the 
Department must rely on ``facts available'' in making our preliminary 
determination. See section 776(a)(1), section 776(a)(2)(A) of the Act. 
Moreover, we preliminarily determine that the GOC has failed to 
cooperate by not acting to the best of its ability to comply with our 
request for information as it did not respond by the deadline dates, 
nor did it provide any explanation stating why it was unable to provide 
the requested information by the established deadlines, with the result 
that an adverse inference is warranted in the application of facts 
available. See section 776(b) of the Act.
    In drawing an adverse inference, we find that the GOC's provision 
of electricity constitutes a financial contribution within the meaning 
of section 771(5)(D) of the Act and is specific within the meaning of 
section 771(5A) of the Act. We have also relied on an adverse inference 
in selecting the benchmark for determining the existence and amount of 
the benefit. See discussion infra at I.D.1 ``Provision of Electricity'' 
further explaining the Department's determinations with respect to 
financial contribution, benefit, and specificity. The benchmark rates 
we have selected as adverse facts available are based on GOC 
electricity grid rates we obtained for various provinces in the PRC. 
See GSR at Exhibit 9, and Memorandum to File from David Neubacher, 
International Trade Compliance Analyst, Office 1, ``Electricity Rate 
Data'' (March 1, 2010) (attaching public government rate document 
provided in the CVD investigation of ``Certain Kitchen Appliance 
Shelving and Racks from the People's Republic of China'').
    For details on the calculation of the subsidy rate for Respondents, 
see below at section I.D.1, ``Provision of Electricity for Less Than 
Adequate Remuneration.''

[[Page 10779]]

Yanzhou Tianzhang - Exemption for City Maintenance and Construction 
Taxes and Education Surcharges for FIEs

    In response to the Department's questionnaire, Yanzhou Tianzhang 
reported that it did not use the ``Exemption for City Maintenance and 
Construction Taxes and Education Surcharges for FIEs'' program. Despite 
this, proprietary information submitted by Yanzhou Tianzhang shows the 
company did not pay these taxes or surcharges. As explained below in 
the section where we discuss this program, there appears to have been 
some confusion about the term ``exemption'' and, in particular, whether 
companies can be ``exempted'' from paying taxes they have never been 
subject to.
    Because Yanzhou Tianzhang failed to provide the information needed 
to calculate its benefit under this program (e.g., what the company 
would have owed had it been subject to these taxes and surcharges), we 
are relying on facts otherwise available to calculate a preliminary 
margin pursuant to section 776(a) of the Act. Because we were not able 
to seek clarification from Yanzhou Tianzhang before this preliminary 
determination, we are unable to determine whether the failure to 
provide this information resulted from a failure to cooperate within 
the meaning of section 776(b) of the Act. Accordingly, we are applying 
the Gold companies' calculated rate for this program as neutral facts 
available.

Subsidies Valuation Information

Allocation Period

    The average useful life (``AUL'') period in this proceeding, as 
described in 19 CFR 351.524(d)(2), is 13 years according to the U.S. 
Internal Revenue Service's 1977 Class Life Asset Depreciation Range 
System. See U.S. Internal Revenue Service Publication 946 (2008), How 
to Depreciate Property, at Table B-2: Table of Class Lives and Recovery 
Periods. No party in this proceeding has disputed this allocation 
period.

Attribution of Subsidies

    The Department's regulations at 19 CFR 351.525(b)(6)(i) state that 
the Department will normally attribute a subsidy to the products 
produced by the corporation that received the subsidy. However, 19 CFR 
351.525(b)(6)(ii)-(v) directs that the Department will attribute 
subsidies received by certain other companies to the combined sales of 
those companies if (1) cross-ownership exists between the companies, 
and (2) the cross-owned companies produce the subject merchandise, are 
a holding or parent company of the subject company, produce an input 
that is primarily dedicated to the production of the downstream 
product, or transfer a subsidy to a cross-owned company.
    According to 19 CFR 351.525(b)(6)(vi), cross-ownership exists 
between two or more corporations where one corporation can use or 
direct the individual assets of the other corporation(s) in essentially 
the same ways it can use its own assets. This regulation states that 
this standard will normally be met where there is a majority voting 
interest between two corporations or through common ownership of two 
(or more) corporations. The U.S. Court of International Trade (``CIT'') 
has upheld the Department's authority to attribute subsidies based on 
whether a company could use or direct the subsidy benefits of another 
company in essentially the same way it could use its own subsidy 
benefits. See Fabrique de Fer de Charleroi v. United States, 166 F. 
Supp. 2d 593, 600-604 (CIT 2001).

Gold companies

    GEP and the other mandatory respondent, GHS, producers of subject 
merchandise, responded on behalf of themselves and the following 
affiliates: Sinar Mas Paper (China) Investment Co., Ltd. (``SMPI''); 
Ningbo Zhonghua Paper Co., Ltd. (``NBZH''); Ningbo Asia Pulp & Paper 
Co., Ltd. (``NAPP''); Gold Zuan Chemicals (Suzhou) Co., Ltd. (``GZC''); 
Gold Lun Chemicals (Zhenjiang) Co., Ltd. (``GLC''); Gold Sheng 
Chemicals (Zhenjiang) Co., Ltd. (``GSC''); Hainan Jinhai Pulp & Paper 
Co., Ltd. (``JHP''); Sichan Jianan Pulp Co., Ltd. (``JAP''); Guangxi 
Jingui Forestry Co., Ltd. (``JGF''); Guangxi Jinqinzhou High-Yield 
Forest Co., Ltd. (``JQZ''); Jinqing Yuan Timber land (Paper Mill) Co., 
Ltd. (``JQY''); Hainan Jinhua Forestry Co., Ltd. (``JHF''); Jinshaoguan 
First Quality Timberland (Paper Mill) Ltd. (``JSG''); Yangjiang Golden 
Sun Forestry Co., Ltd. (``YJGS''); Leizhou Golden Sun Forestry Co., 
Ltd. (``LZGS''); Ganzhou Golden Sun Forestry Co., Ltd. (``GZGS''); and 
Wenshan Jin Wenshan Forestry Co., Ltd. (``WSGWS''). GEP reported the 
above companies as cross-owned within the meaning of 19 CFR 
351.525(b)(6)(vi) by virtue of ownership, majority-ownership, or common 
control. See GEQR at 7-9. Therefore, based on information on the 
record, we preliminarily determine that cross-ownership existed between 
GEP, GHS and the above companies during the POI pursuant to 19 CFR 
351.525(b)(6)(vi).
    SMPI is the parent of the responding Gold companies. There is no 
evidence that SMPI served as a conduit for subsidies to a particular 
subsidiary. Therefore, in accordance with 19 CFR 351.525(b)(6)(iii), we 
have attributed the subsidies received by SMPI to the consolidated 
sales of SMPI and its subsidiaries.
    GEP and GHS reported that NBZH and NAPP produced multi-ply coated 
paper during the POI. Although the Gold companies claim that multi-ply 
paper products are excluded from this investigation, we disagree that 
they are per se excluded (see ``Scope Comments'' section above). 
Because NBZH and NAPP produced multi-ply products that meet the scope 
criteria (e.g., weight, brightness, coating, etc.) we are treating both 
NBZH and NAPP as producers of subject merchandise and, pursuant to 19 
CFR 351.525(b)(6)(ii), we are attributing the subsidies received by 
NBZH and NAPP to the combined sales of GEP, GHS, NAPP, and NBZH minus 
any intercompany sales.
    GZC, GLC, and GSC supplied papermaking chemicals to GEP and GHS 
during POI. JHP and JAP supplied GEP and GHS with pulp during the POI 
during the POI. Finally, JGF, JQZ, JQY, JHF, JSG, YJGS, LZGS, GZGS, and 
WSGWS supplied wood to JHP for the production of pulp during the POI. 
See GEQR at 7-9. GEP and GHS argue that any subsidies to the cross-
owned pulp and wood producers should not be attributed to producers of 
subject merchandise because the pulp and wood were used only to produce 
paper sold in the PRC.
    With regard to the cross-owned suppliers of papermaking chemicals, 
we preliminarily determine that the papermaking chemicals are 
``primarily dedicated'' to the production of the downstream product, 
paper, based on Respondents having identified them as ``papermaking 
chemicals.'' See GEQR at 5. Thus, pursuant to 19 CFR 525(b)(6)(iv), we 
are attributing subsidies received by GSC, GZC, and GLC to the combined 
sales of the input and downstream products produced by each company 
(excluding sales between the companies).
    In addition, we preliminarily determine that subsidies received by 
the cross-owned pulp and wood suppliers should be attributed to the 
combined sales of the input and the downstream products produced from 
those inputs (excluding sales between the companies). This is 
consistent with the Department's prior determination that pulp is 
``primarily dedicated'' to the production of paper, as required by 19 
CFR 351.525(b)(6)(iv). See, e.g., CFS Decision Memorandum at Comment 18 
and Final Affirmative Countervailing

[[Page 10780]]

Duty Determination and Final Negative Critical Circumstances 
Determination: Certain Lined Paper Products from Indonesia, 71 FR 47174 
(August 16, 2006), and accompanying Issues and Decision Memorandum at 
Comment 3.
    With regard to GEP's and GHS's argument that these inputs are not 
included in the downstream products exported to the United States, we 
note the Department has addressed this issue in other proceedings. See, 
e.g., Light-Walled Rectangular Pipe and Tube From People's Republic of 
China: Final Affirmative Countervailing Duty Investigation 
Determination, 73 FR 35642 (June 24, 2008) (``LWRP from the PRC'') and 
accompanying Issues and Decision Memorandum (``LWRP Decision 
Memorandum'') at Comment 8 and CFS Decision Memorandum at Comment 18. 
We have found that it would be improper to trace subsidized inputs 
through a company's production process and it would be improper to tie 
subsidies bestowed on the input product exclusively to sales in the 
domestic market. See, e.g., LWRP Decision Memorandum at Comment 8. 
Therefore, we have rejected GEP's and GHS's argument.

Sun Paper companies

    Sun Paper and Yanzhou Tianzhang responded on behalf of themselves. 
They reported that Yanzhou Tianzhang is the producer of the subject 
merchandise and Sun Paper is the parent company of Yanzhou Tianzhang. 
See I.D.1 ``Provision of Electricity'' section below. There is no 
evidence that Sun Paper served as a conduit for subsidies to a 
particular subsidiary. Therefore, in accordance with 19 CFR 
351.525(b)(6)(iii), we have attributed the subsidies received by Sun 
Paper to the consolidated sales of Sun Paper and its subsidiaries. Sun 
Paper identified two other affiliated companies that produce the 
subject merchandise. Sun Paper notes that these two companies, 
International Paper & Sun Cartonboard Co., Ltd. and Shandong 
International Paper and Sun Coated Paperboard Co., Ltd., are 50/50 
joint ventures between International Paper, and Sun Paper. However, Sun 
Paper claims that cross-ownership does not exist between itself and the 
joint venture companies because Sun Paper states that it cannot use or 
direct the individual assets of these two joint venture companies in 
the same way that it can use its own assets as required under 19 CFR 
351.525(b)(6)(vi). In support of this claim, Sun Paper cites to the 
articles of association for both companies. See SP1SQR at 2-3. The 
information contained in the documents is proprietary and we address it 
in a proprietary memorandum. See Memorandum to the File from Mary 
Kolberg, International Trade Analyst, regarding ``Sun Paper 
Calculations for the Preliminary Determination'' (March 1, 2010). Based 
on the information and analysis described in that memorandum, we 
preliminarily determine that Sun Paper is not cross-owned with these 
joint ventures within the meaning of 19 CFR 351.525(b)(6)(vi). We 
intend to examine this issue further following the preliminary 
determination.
    Finally, Sun Paper and Yanzhou Tianzhang identified several other 
affiliated companies, but reported that these affiliates do not produce 
the subject merchandise, provide an input to the downstream product or 
otherwise fall within the situations described in 19 CFR 
351.525(b)(6)(iii)-(v). See SPQR at 1-3, YTQR at 1-3, and SP1SQR at 3 
and 4. Therefore, we do not reach the issue of whether these companies 
and Sun Paper are cross-owned within the meaning of 19 CFR 
351.525(b)(6)(vi) and we are not including these companies in our 
subsidy calculations.

Entered Value (``EV'') Adjustment

    The Gold companies have reported that their sales of subject 
merchandise to the United States occur under toll processing agreements 
with two affiliated trading companies. Thus, they have requested the 
Department make an adjustment to the calculated subsidy rate to account 
for the mark-up between the export value from the PRC and the entered 
value of subject merchandise into the United States.
    Citing the CFS Decision Memorandum, CWASP from the PRC, and 
Bearings from Thailand,\5\ the Gold companies note the Department has 
generally looked at six criteria to determine whether to grant such an 
adjustment. The six criteria are: 1) the price on which the alleged 
subsidy is based differs from the U.S. invoiced price; 2) the exporters 
and the party that invoices the customer are affiliated; 3) the U.S. 
invoice establishes the customs value to which CVDs are applied; 4) 
there is a one-to-one correlation between the invoice that reflects the 
price on which subsidies are received and the invoice with the mark-up 
that accompanies the shipment; 5) the merchandise is shipped directly 
to the United States; and 6) the invoices can be tracked as back-to-
back invoices that are identical except for price.
---------------------------------------------------------------------------

    \5\ See CFS Decision Memorandum at 9, Circular Welded Austenitic 
Stainless Pressure Pipe from the People's Republic of China: Final 
Affirmative Countervailing Duty Determination, 74 FR 4936 (January 
28, 2009) and accompanying Issues and Decision Memorandum at 11-12 
(``CWASP from the PRC''), and Ball Bearings and Parts Thereof From 
Thailand; Final Results of Countervailing Duty Administrative 
Review, 57 FR 26646, 26647 (June 15, 1992) (``Bearings from 
Thailand'').
---------------------------------------------------------------------------

    On February 19, 2010, Petitioners filed comments acknowledging that 
the Department should establish a CVD rate that is commensurate with 
the entered value of the subject merchandise, but arguing against the 
specific adjustment proposed by the Gold companies. First, they argue 
the proposed adjustment is inconsistent with law as it results in an 
undercollection of duties. Second, they claim the Gold companies have 
not provided sufficient supporting information in regard to the six 
criteria for granting the adjustment. Third, they cite to proprietary 
information to argue that the adjustment calculated by the Gold 
companies is flawed. Finally, Petitioners argue, the best method to 
achieve the goal of matching the subsidy calculation with the duties 
that are eventually collected is to use GEP's consolidated sales value 
as the denominator in the subsidy rate calculation. If the Department 
does make the adjustment requested by the Gold companies, Petitioners 
request that the Department recalculate the adjustment because the Gold 
companies have included data in their claimed adjustment not related to 
the entered value of the subject merchandise. (The exact nature of this 
data is proprietary.)
    Petitioners supplemented their comments on February 23, 2010, with 
additional concerns on the adjustment information submitted by the Gold 
companies and also provided an alternative adjustment formula to the 
one used by the Department in prior cases. Finally, the Department 
received comments from the Gold companies responding to Petitioners' 
arguments on February 24, 2010, and Petitioners responded to the Gold 
companies' submission with additional comments on February 25, 2010.
    As indicated by the determinations cited by the Gold companies, the 
Department has a practice to make an adjustment to the calculated 
subsidy rate when the sales value used to calculate that subsidy rate 
does not match the entered value of the merchandise, i.e., where 
subject merchandise exported to the United States is produced under 
tolling agreements, and where the respondent can provide data to 
demonstrate that the six criteria above are met. In the instant case, 
we have not made the adjustment because the information submitted by 
the Gold companies did not permit an accurate calculation of the 
adjustment.

[[Page 10781]]

    In GESQR at S1-23, the Gold companies state the adjustment concerns 
all four paper producing companies and two affiliated offshore trading 
companies, GEHK and China Union (Macao Offshore) Company Limited. 
Moreover, the Gold companies assert that the sample documentation they 
provided demonstrates that each of the four companies meet the criteria 
as outlined in the above-mentioned cases. We disagree, however, that 
adequate support documentation was provided for each of the producer/
trading company combinations. Moreover, for the producer/trading 
company combinations for which adequate information was provided, we 
were not able to disaggregate their sales so that we could apply the 
adjustment to them.
    The Department has not applied the requested adjustment in this 
preliminary determination because the supporting information was not 
submitted and not because we have rejected or changed our practice. 
However, Petitioners' claims about the propriety of the current 
adjustment methodology have raised issues that could not be fully 
evaluated in the limited time available before the preliminary 
determination. Thus, we intend to examine these claims and invite 
parties to provide additional comments on the Department's entered 
value EV adjustment methodology following the preliminary determination 
in their case and rebuttal briefs.

Benchmarks and Discount Rates

    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)(3)(i). If the firm did not have any comparable commercial 
loans during the period, the Department's regulations provide that we 
``may use a national interest rate for comparable commercial loans.'' 
See 19 CFR 351.505(a)(3)(ii).
    As noted above, section 771(5)(E)(ii) of the Act indicates that the 
benchmark should be a market-based rate. For the reasons explained in 
CFS from the PRC,\6\ loans provided by Chinese banks reflect 
significant government intervention in the banking sector and do not 
reflect rates that would be found in a functioning market. Because of 
this, any loans received by Respondents from private Chinese or 
foreign-owned banks would be unsuitable for use as benchmarks under 19 
CFR 351.505(a)(3)(i). Similarly, the GOC's intervention in the banking 
sector precludes us from using a national interest rate for commercial 
loans as envisaged by 19 CFR 351.505(a)(3)(ii). Therefore, because of 
the special difficulties inherent in using a Chinese benchmark for 
loans, the Department is selecting an external market-based benchmark 
interest rate. The use of an external benchmark is consistent with the 
Department's practice.
---------------------------------------------------------------------------

    \6\ See CFS from the PRC at Comment 10.
---------------------------------------------------------------------------

    We are calculating the external benchmark using the regression-
based methodology first developed in CFS from the PRC\7\ and more 
recently updated in LWTP from the PRC.\8\ This benchmark interest rate 
is based on the inflation-adjusted interest rates of countries with per 
capita gross national incomes (``GNI'') similar to the PRC, and takes 
into account a key factor involved in interest rate formation, that of 
the quality of a country's institutions, that is not directly tied to 
the state-imposed distortions in the banking sector discussed above.
---------------------------------------------------------------------------

    \7\ See CFS from the PRC at Comment 10.
    \8\ See Lightweight Thermal Paper From the People's Republic of 
China: Final Affirmative Countervailing Duty Determination, 73 FR 
57323 (October 2, 2008) (``LWTP from the PRC'') and accompanying 
Issues and Decision Memorandum (``LWTP Decision Memorandum'') at 8-
11.
---------------------------------------------------------------------------

    Following the methodology developed in CFS from the PRC, we first 
determined which countries are similar to the PRC in terms of GNI, 
based on the World Bank's classification of countries as: low income; 
lower-middle income; upper-middle income; and high income. The PRC 
falls in the lower-middle income category, a group that includes 55 
countries as of July 2007. As explained in CFS from the PRC, this pool 
of countries captures the broad inverse relationship between income and 
interest rates.
    Many of these countries reported lending and inflation rates to the 
International Monetary Fund and they are included in that agency's 
international financial statistics (``IFS''). With the exceptions noted 
below, we have used the interest and inflation rates reported in the 
IFS for the countries identified as ``low middle income'' by the World 
Bank. First, we did not include those economies that the Department 
considered to be non-market economies for AD purposes for any part of 
the years in question, for example: Armenia, Azerbaijan, Belarus, 
Georgia, Moldova, Turkmenistan. Second, the pool necessarily excludes 
any country that did not report both lending and inflation rates to IFS 
for those years. Third, we removed any country that reported a rate 
that was not a lending rate or that based its lending rate on foreign-
currency denominated instruments. For example, Jordan reported a 
deposit rate, not a lending rate, and the rates reported by Ecuador and 
Timor L'Este are dollar-denominated rates; therefore, the rates for 
these three countries have been excluded. Finally, for each year the 
Department calculated an inflation-adjusted short-term benchmark rate, 
we have also excluded any countries with aberrational or negative real 
interest rates for the year in question.
    The resulting inflation-adjusted benchmark lending rates are 
provided in the Respondents' preliminary calculation memoranda. See, 
e.g., Preliminary Determination Calculation Memoranda for Gold 
companies and Sun Paper (March 1, 2010). Because these are inflation-
adjusted benchmarks, it is necessary to adjust Respondents' interest 
payments for inflation. This was done using the PRC inflation figure as 
reported in the IFS. Id.
    The lending rates reported in the IFS represent short- and medium-
term lending, and there are not sufficient publicly available long-term 
interest rate data upon which to base a robust benchmark for long-term 
loans. To address this problem, the Department has developed an 
adjustment to the short- and medium-term rates to convert them to long-
term rates using Bloomberg U.S. corporate BB-rated bond rates. See LWRP 
from the PRC and LWRP Decision Memorandum at 6-8. In Citric Acid from 
the PRC, this methodology was revised by switching from a long-term 
mark-up based on the ratio of the rates of BB-rated bonds to applying a 
spread which is calculated as the difference between the two-year BB 
bond rate and the n-year BB bond rate, where ``n'' equals or 
approximates the number of years of the term of the loan in question. 
See Citric Acid and Certain Citrate Salts From the People's Republic of 
China: Final Affirmative Countervailing Duty Determination, 74 FR 16836 
(April 13, 2009) (``Citric Acid from the PRC'') and accompanying Issues 
and Decision Memorandum (``Citric Acid from the PRC Decision 
Memorandum'') at Comment 14. Finally, because these long-term rates are 
net of inflation as noted above, we adjusted the PRC Respondents' 
payments to remove inflation.

[[Page 10782]]

Benchmarks for Foreign Currency-Denominated Loans

    For foreign currency-denominated short-term loans, the Department 
used as benchmarks one-year London Interbank Offering Rate (``LIBOR'') 
rates for the currency in which the loan was denominated, plus the 
average spread between LIBOR and the one-year corporate bond rates for 
companies with a BB rating. For long-term foreign currency-denominated 
loans, the Department added to the applicable short-term LIBOR rate a 
spread which was calculated as the difference between the one-year BB 
bond rate and the n-year BB bond rate, where ``n'' equals or 
approximates the number of years of the term of the loan in question. 
See LWTP Decision Memorandum at 10.

Uncreditworthiness Benchmark

    As discussed below, the Department is finding the Gold companies 
uncreditworthy in 2003 through 2005. To construct the uncreditworthy 
benchmark rate for those years, we used the long-term rates described 
above as the ``long-term interest rate that would be paid by a 
creditworthy company'' in the formula presented in 19 CFR 
351.505(a)(3)(iii).

Discount Rates

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

Creditworthiness

    The examination of creditworthiness is an attempt to determine if 
the company in question could obtain long-term financing from 
conventional commercial sources. See 19 CFR 351.505(a)(4). According to 
19 CFR 351.505(a)(4)(i), the Department will generally consider a firm 
to be uncreditworthy if, based on information available at the time of 
the government-provided loan, the firm could not have obtained long-
term loans from conventional commercial sources. In making this 
determination, according to 19 CFR 351.505(a)(4)(i)(A)-(D), the 
Department normally examines the following four types of information: 
(1) receipt by the firm of comparable commercial long-term loans; (2) 
present and past indicators of the firm's financial health; (3) present 
and past indicators of the firm's ability to meet its costs and fixed 
financial obligations with its cash flow; and (4) evidence of the 
firm's future financial position. If a firm has taken out long-term 
loans from commercial sources, this will normally be dispositive of the 
firm's creditworthiness. However, if the firm is government-owned, the 
existence of commercial borrowings is not dispositive of the firm's 
creditworthiness. This is because, in the case of a government-owned 
firm, a bank is likely to consider that the government will repay the 
loan in the event of a default. See Countervailing Duties; Final Rule, 
63 FR 65348, 65367 (November 25, 1998). For government-owned firms, we 
will make our creditworthiness determination by examining receipt by 
the firm of comparable commercial long-term loans and the other factors 
listed in 19 CFR 351.505 (a)(4)(i).

Gold East

    In CFS from the PRC, the Department found that GEP and its cross-
owned subsidiaries were uncreditworthy for the period 2003 through 
2005. See CFS Decision Memorandum at 8. In our questionnaire, we noted 
our previous finding from CFS from the PRC and explained that if the 
Gold companies wished to contest it, the companies should provide 
certain information.
    The Gold companies provided information concerning 
creditworthiness, including the proprietary final creditworthiness memo 
from CFS from the PRC. Based on our review, no new information was 
submitted that would lead us to reconsider our prior analysis and, 
thus, we preliminarily reaffirm our determination in CFS from the PRC. 
Therefore, we are preliminarily finding the Gold companies, including 
GEP and its cross-owned affiliates, to be uncreditworthy for the period 
2003 through 2005.
    According to 19 CFR 351.505(a)(6), the Department ``will not 
consider the uncreditworthiness of a firm absent a specific allegation 
by petitioner that is supported by information establishing a 
reasonable basis to believe or suspect that the firm is 
uncreditworthy.'' As noted above in the Case History section, 
Petitioners have submitted financial ratios for the Gold companies and 
have pointed to other evidence on the record to argue that these 
companies were uncreditworthy for the period 2006 through 2008. We are 
still analyzing this data to determine if they provide a reasonable 
basis to believe or suspect that the Gold companies were uncreditworthy 
during 2006 through 2008. If we determine to investigate the Gold 
companies' creditworthiness for the 2006 through 2008 period, we will 
make a preliminary finding on this matter prior to our final 
determination and will provide the parties with an opportunity to 
comment on that preliminary finding.
    No creditworthiness allegation was made with respect to the Sun 
Paper companies.

Analysis of Programs

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

I. Programs Preliminarily Determined To Be Countervailable

A. Preferential Lending To The Coated Paper Industry

1. Policy Loans to Coated Paper Producers and Related Pulp Producers 
from State-Owned Commercial Banks and Government Policy Banks

    In the CVD investigation of coated free sheet paper, the Department 
found that, ``the GOC has a policy in place to encourage and support 
the growth and development of the paper industry through preferential 
financing initiatives, as illustrated in the five-year plans and 
industrial policies on the record.''\9\ The Department further 
determined that, ``loans provided by Policy Banks and state-owned 
commercial banks (``SOCBs'') in the PRC constitute a direct financial 
contribution from the government `` In LWTP from the PRC, the 
Department affirmed its earlier finding and extended it through the 
POI.
---------------------------------------------------------------------------

    \9\ See CFS Decision Memorandum at 9 and 49.
---------------------------------------------------------------------------

    Based on the record of the instant investigation, the Department 
preliminarily determines that the five-year plans and industrial 
policies cited in the CFS Decision Memorandum and LWTP Decision 
Memorandum continue to be in effect.\10\ Specifically, the Tenth Five-
Year and 2010 Special Plan for the Construction of National Forestry 
and Papermaking Integration Project;\11\ the Development Policy for 
Papermaking Industry (2007);\12\ the Decision of the State Council on 
Promulgating and Implementing the Provisional Regulation on Promoting 
Industrial Structure Adjustment GUOFA (2005) No. 40,\13\ the Guiding 
Catalogue for Industry Restructuring (2005 version),\14\ together 
indicate that the GOC has in place a policy to promote specifically the 
pulp and paper industry. Additionally, the five-year plans of

[[Page 10783]]

provinces and municipalities where Respondents in this investigation 
are located provide evidence of sub-national government support for 
these objectives. For example:
---------------------------------------------------------------------------

    \10\ See CFS Decision Memorandum at 9 - 11 and LWTP from the PRC 
and LWTP Decision Memorandum at 11 - 12.
    \11\ See Petition at Exhibit IV-34.
    \12\ See Petition at Exhibit IV-39.
    \13\ See GQR at Exhibit A-1.
    \14\ See GQR at Exhibit A-2.

    The Outline of the Tenth Five-year Plan (Jihua) of Social and 
Economic Development of Jiangsu Province: In describing how it seeks to 
adjust the province's economic structure, the plan states `` we will 
selectively develop such industries with local advantages, including 
modern papermaking `` See GQR at A-3, Chapter II (``Adjustment of 
Economic Structure''), Section 5 (``Optimize Industrial Structure to 
Enhance Overall Competitiveness''), paragraph 12.
    Outline of the Eleventh Five-year Plan (Guihua) for Economic and 
Social Development of Jiangsu: In describing its ``Priorities in 
Development and Policy Making,'' this provincial plan states that 
Jiangsu will ``push the efficiency'' of the forest industry and, in 
developing its manufacturing industry, it will ``lay emphasis upon the 
development of competitive industries. By setting up industrial bases 
of paper making, we shall increase shares of competitive industries in 
manufacturing `` See GQR at A - 4, Volume III (``Priorities in 
Development and Policy Making''); Chapter V (``Industry Development''), 
Section 1 (``Developing Modern and Efficient Agriculture'') and Section 
2 (``Developing Advanced Manufacturing Industry'').
    Tenth Five-year Plan (Jihua) of Social and Economic Development of 
Suzhou Municipality: In describing the municipality's goals, the plan 
states `` focus on the development of paper making `` See GQR at A-5, 
Chapter 2 (``Economic Development''), Section 2 (``Industry'').
    Outline of the Tenth Five-year Plan (Jihua) for Economic and Social 
Development of Zhenjiang: In describing its goals for ``Optimizing and 
enhancing the secondary industry industry,'' this plan specifically 
identifies respondent, Gold East (`` strive to form super large 
enterprises which have annual sales amount over 5 billion yuan 
including Gold East Paper '') and names ``paper and paper products 
processing'' as ``champion'' products. See GQR at A-7, ``Main direction 
and target of the development of the 10\th\ Five-year' plan,'' Section 
2 (``Giving prominence to the main line of structure adjustment, 
improving the overall economy quality'').
    Notice from the People's Government of Zhenjiang on Issuing the 
``Guideline for the 11th Five-year Plan (Jihua) of Economy and Social 
Development of Zhenjiang: Among its goals, this plan states that 
Zhenjiang will ``Expand leading industries'' including papermaking. See 
GQR at A-7, Chapter 7 (``Optimize Industrial Structure and Improve 
Quality of Economic Growth''), Section 1 (``Development of Manufacture 
Industries'').
    Outline of Tenth Five-year Plan (Jihua) for Economic and Social 
Development of Shandong: In describing this province's desire to 
``Promote the optimization and upgrade of traditional industries, this 
plan specifically addresses the papermaking industry and identifies 
numerous actions, including: make efforts to enhance product grades; 
cultivate large groups; and rely on large tracts of land suitable for 
forestation and key enterprises to build a 700 thousand ton hardwood 
pulp project.'' See GQR at A-8, ``III. Emphasis on the industrial 
development and structural adjustment,'' ``(7) Promote the optimization 
and upgrade of traditional industries,'' ``6. Paper-making Industry.''
    Outline of the Eleventh Five-year Plan (Guihua) for Economic and 
Social Development of Shandong: This plan addresses both forestry and 
papermaking in its call to ``accelerate building the forest base of 
industrial raw materials'' and in identifying papermaking among the new 
material industries to be developed. See GQR at A-09, Chapter 5 
(``Accelerate the Development of Modern Agriculture'') and Chapter 6 
(``Efforts on Construction of the Powerful Manufacture Industry 
Province'').
    Outline of the Tenth Five-year Plan (Jihua) of Social and Economic 
Development of Jining Municipality: This plan discusses reform of 
traditional industries including papermaking and describes as a goal 
developing coated paper. It also specifically names Sun Paper as among 
the producers to be supported in expanding, upgrading and constructing 
its forest-paper project. See GQR at A-10, ``I. To vigorously develop 
modern manufacturing industry,'' ``2. To reform traditional industries 
and shore up and foster emerging industries.'' Virtually identical 
language appears in the Outline of the Eleventh Five-year Program 
(GUIHUA) of Social and Economic Development of Jining Municipality. See 
GQR at A-11, ``I. To vigorously develop modern manufacturing 
industry,'' ``2. To reform traditional industries and shore up and 
foster emerging industries.''

    In Citric Acid from the PRC,\15\ the Department stated:
---------------------------------------------------------------------------

    \15\ See Citric Acid from the PRC Decision Memorandum at Comment 
5 (citations omitted).

    In general, the Department looks to whether government plans or 
other policy directives lay out objectives or goals for developing the 
industry and call for lending to support those objectives or goals. 
Where such plans or policy directives exist, then we will find a policy 
lending program that is specific to the named industry (or producers 
that fall under that industry). Once that finding is made, the 
Department relies upon the analysis undertaken in CFS from the PRC to 
further conclude that national and local government control over the 
---------------------------------------------------------------------------
SOCBs results in the loans being a financial contribution by the GOC.

    In this investigation, the GOC has not provided evidence that would 
lead us to revisit our finding in CFS from the PRC regarding government 
control of the SOCBs.\16\ Therefore, we preliminarily determine that 
the loans to Respondents from policy banks and SOCBs are a financial 
contribution in the form of a direct transfer of funds and that they 
provide a benefit equal to the difference between what the recipients 
paid on their loans and the amount they would have paid on comparable 
commercial loans. See sections 771(5)(D)(i) and 771(5)(E)(ii) of the 
Act. We further determine preliminarily that the loans are de jure 
specific within the meaning of section 771(5A)(D)(i) of the Act because 
of the GOC's policy demonstrated by the above-cited plans and 
directives to encourage and support the growth and development of the 
PRC pulp and paper industry.
---------------------------------------------------------------------------

    \16\ See CFS Decision Memorandum at Comment 8.
---------------------------------------------------------------------------

    To calculate the benefit under the policy lending program, we used 
the benchmarks described under ``Subsidies Valuation - Benchmarks and 
Discount Rates'' above. As noted in the ``Creditworthiness'' section 
above, we have determined the Gold companies to be uncreditwothy for 
the period 2003 through 2005; therefore, we have used an uncreditworthy 
benchmark as set forth under 19 CFR 351.505(a)(3)(iii) for loans 
approved in those years.

[[Page 10784]]

    For the paper producing Gold companies, we divided the benefit 
received during the POI by the combined sales of the Gold companies' 
paper producers. For the cross-owned input suppliers among the Gold 
companies, we divided the benefit by the combined sales of the Gold 
companies' paper producers that received the inputs plus the input 
suppliers' sales minus inter-company sales during the POI. For SMPI, we 
divided the benefit by its consolidated sales. We then summed the 
calculated rates.
    For Yanzhou Tianzhang, we divided its benefit received during the 
POI by its sales during the POI. For Sun Paper, we divided the benefit 
by its consolidated sales. We then summed the calculated rates.
    On this basis, we preliminarily determine that the Gold companies 
received a countervailable subsidy of 7.27 percent ad valorem and the 
Sun Paper companies received a countervailable subsidy of 0.94 percent 
ad valorem.

B. Income Tax Programs

1. Income Tax Exemption/Reduction under the Two Free/Three Half Program

    Under Article 8 of the FIE Tax Law, a foreign-invested enterprise 
(``FIE'') that is ``productive'' and is scheduled to operate for more 
than ten years may be exempted from income tax in the first two years 
of profitability and pay income taxes at half the standard rate for the 
next three years. See GQR at 34. The Department has previously found 
this program countervailable. See, e.g., OCTG Decision Memorandum\17\ 
at 16, CFS Decision Memorandum at 11 12, and Citric Acid from the PRC 
Decision Memorandum at 15-16.
---------------------------------------------------------------------------

    \17\ See Certain Oil Country Tubular Goods From the People's 
Republic of China: Final Affirmative Countervailing Duty 
Determination, Final Negative Critical Circumstances Determination, 
74 FR 64045 (December 7, 2009) and accompanying Issues and Decision 
Memorandum (``OCTG Decision Memorandum'').
---------------------------------------------------------------------------

    GEP, GHS, GZC, GLC, JHF, JAP, JQZ, and JQY reported using this 
program during the POI. See GEQR at 34. Yanzhou Tianzhang also reported 
using this program during the POI. See YTQR at 13.
    We preliminarily determine that the exemption or reduction of the 
income tax paid by productive FIEs under this program confers a 
countervailable subsidy. The exemption/reduction is a financial 
contribution in the form of revenue forgone by the GOC and it provides 
a benefit to the recipient in the amount of the tax savings. See 
section 771(5)(D)(ii) of the Act and 19 CFR 351.509(a)(1). We also 
preliminarily determine that the exemption/reduction afforded by this 
program is limited as a matter of law to certain enterprises, i.e., 
``productive'' FIEs and, hence, is specific under section 771(5A)(D)(i) 
of the Act. See CFS Decision Memorandum, at Comment 14.
    To calculate the benefit, we treated the income tax savings enjoyed 
by GEP, GHS, GZC, GLC, JHF, JAP, JQZ, JQY, and Yanzhou Tianzhang as a 
recurring benefit, consistent with 19 CFR 351.524(c)(1). To compute the 
amount of the tax savings, we compared the income tax rate the above 
companies would have paid in the absence of the program (30 percent) 
with the income tax rate the company actually paid (15 or zero 
percent).
    For the paper producing Gold companies, we divided the tax savings 
received during the POI by the combined sales of the Gold companies' 
paper producers. For the cross-owned input suppliers among the Gold 
companies, we divided the tax savings by the combined sales of the Gold 
companies' paper producers that receive the inputs plus the input 
suppliers' sales minus inter-company sales during the POI.
    For Yanzhou Tianzhang, we divided its tax savings received during 
the POI by its sales during the POI.
    On this basis, we preliminarily determine that the Gold companies 
received a countervailable subsidy of 1.37 percent ad valorem and 
Yanzhou Tianzhang received a countervailable subsidy of 1.46 percent ad 
valorem under this program.

2. Local Income Tax Exemption and Reductions for ``Productive'' FIEs

    Under Article 9 of the FIE Tax Law, the provincial governments have 
the authority to exempt FIEs from the local income tax of three 
percent. See GQR at 56. According to the Regulations on Exemption and 
Reduction of Local Income Tax of FIEs in Jiangsu Province, a 
``productive'' FIE in Jiangsu Province may be exempted from the three 
percent local income tax during the ``Two Free, Three Half'' period. 
Additionally, according to Article 6, FIEs eligible for the reduced 
income tax rate of 15 percent can also be exempted from paying local 
income tax. See GQR at Exhibit GOC-HH-3. According to the Provisional 
Rules on Exemption of Local Income Tax for FIEs and Foreign Enterprises 
(Decree 14 of Zhejiang Government, 1991) at Article 4, productive FIEs 
in Zhejiang Province are exempted from paying the local income tax for 
the first two years after their first profitable year, and pay at a 
reduced (half) rate for the next three consecutive years. See G1SR at 
Exhibit GOC-SUPP-35. The Department has previously found this program 
to be countervailable. See, e.g., OCTG Decision Memorandum at 17 - 18, 
CFS Decision Memorandum at 12-13 and Citric Acid from the PRC Decision 
Memorandum at 21.
    GEP, GHS, NBZH, GZC, GLC, GSC, JHP, JHF, JAP, JQZ, and JQY reported 
using this program during the POI. See GEQR at 39. Yanzhou Tianzhang 
also reported using this program during the POI. See YTQR at 14.
    We preliminarily determine that the exemption from or reduction in 
the local income tax received by ``productive'' FIEs under this program 
confers a countervailable subsidy. The exemption or reduction is a 
financial contribution in the form of revenue forgone by the government 
and it provides a benefit to the recipient in the amount of the tax 
savings. See section 771(5)(D)(ii) of the Act and 19 CFR 351.509(a)(1). 
We also preliminarily determine that the exemption or 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, we treated the income tax savings enjoyed 
by GEP, GHS, NBZH, GZC, GLC, GSC, JHP, JHF, JAP, JQZ, JQY, and Yanzhou 
Tianzhang as a recurring benefit, consistent with 19 CFR 351.524(c)(1). 
To compute the amount of the tax savings, we compared the income tax 
rate the above companies would have paid in the absence of the program 
(three percent) with the income tax rate the company actually paid.
    For the paper producing Gold companies, we divided the tax savings 
received during the POI by the combined sales of the Gold companies' 
paper producers. For the cross-owned input suppliers among the Gold 
companies, we divided the tax savings by the combined sales of the Gold 
companies' paper producers that receive the inputs plus the input 
suppliers' sales minus inter-company sales during the POI. For Yanzhou 
Tianzhang, we divided its tax savings received during the POI by its 
sales during the POI.
    On this basis, we preliminarily determine that the Gold companies 
received a countervailable subsidy of 0.36 percent ad valorem and 
Yanzhou Tianzhang received a countervailable subsidy of 0.31 percent ad 
valorem under this program.

[[Page 10785]]

3. Income Tax Reduction for FIEs Purchasing Domestically Produced 
Equipment

    The GOC responded that the program does not exist. See GQR at 68. 
However, Yanzhou Tianzhang reported that it received benefits under 
this program during the POI and referenced the relevant law, ``Notice 
of the Ministry of Finance and the State Administration of Taxation 
concerning the Issue of Tax Credit for Enterprise Income Tax for 
Domestic Equipment Purchased by Foreign-funded Enterprises.'' See YTQR 
at 15.
    In its questionnaire response, the GOC stated that this alleged 
subsidy program does not exist. See GQR at 68. In our supplemental 
questionnaire to the GOC, we noted that Yanzhou Tianzhang reported 
using this program and that the Department had previously found this 
program to be countervailable in Citric Acid from the PRC. See Citric 
Acid from the PRC Decision Memorandum at 16 - 17. The GOC responded 
that Yanzhou Tianzhang may have been confused between the terms 
``reduction'' and ``credit'' and that no such program exists.
    Yanzhou Tianzhang claims to have received a tax reduction under 
this program. Moreover, as noted above, the Department previously found 
this program to confer a countervailable subsidy and the GOC has 
provided no evidence showing that this program has been terminated. 
Accordingly, we are following our previous practice and preliminarily 
determine that Yanzhou Tianzhang received a countervailable benefit 
during the POI.
    The tax credits are a financial contribution in the form of revenue 
forgone by the government and provide 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 determine that these tax credits are 
contingent upon use of domestic over imported goods and, hence, are 
specific under section 771(5A)(A) and (C) of the Act.
    To calculate the benefit, we treated the income tax savings enjoyed 
by Yanzhou Tianzhang as a recurring benefit, consistent with 19 CFR 
351.524(c)(1), and divided the company's tax savings by its sales 
during the POI, pursuant to 19 CFR 351.525(b)(3).
    On this basis, we preliminarily determine that Yanzhou Tianzhang 
received a countervailable subsidy of 0.78 percent ad valorem under 
this program.

4. Income Tax Subsidies for FIEs Based on Geographic Location

    To promote economic development and attract foreign investment, 
``productive'' FIEs located in coastal economic zones, special economic 
zones or economic and technical development zones in the PRC receive 
preferential tax rates of 15 percent or 24 percent, depending on the 
zone, under Article 7 of the FIE Tax Law. See GQR, at 70. This program 
was created June 15, 1988, pursuant to the Provisional Rules on 
Exemption and Reduction of Corporate Income Tax and Business Tax of 
FIEs in Coastal Economic Development Zone issued by the Ministry of 
Finance and the July 1, 1991, FIE Tax Law continued this policy. The 
Department has previously found this program to be countervailable. See 
Citric Acid from the PRC Decision Memorandum at 14 - 15 and CFS 
Decision Memorandum at 12.
    GEP, GHS, NBZH, GZC, GLC, GSC, JHP, JQZ, and JQY reported using 
this program during the POI. See GEQR at 45
    We preliminarily determine that the reduced income tax rate paid by 
productive FIEs under this program confers a countervailable subsidy. 
The reduced rate is a financial contribution in the form of revenue 
forgone by the GOC and it provides a benefit to the recipient in the 
amount of the tax savings. See section 771(5)(D)(ii) of the Act and 19 
CFR 351.509(a)(1). We further determine preliminarily that the 
reduction afforded by this program is limited to enterprises located in 
designated geographic regions and, hence, is specific under section 
771(5A)(D)(iv) of the Act.
    To calculate the benefit, we treated the income tax savings enjoyed 
by GEP, GHS, NBZH, GZC, GLC, GSC, JHP, JQZ, and JQY as a recurring 
benefit, consistent with 19 CFR 351.524(c)(1). To compute the amount of 
the tax savings, we compared the income tax rate the above companies 
would have paid in the absence of the program (30 percent) with the 
income tax rate the company actually paid (24 or 15 percent).
    For the paper producing Gold companies, we divided the tax savings 
received during the POI by the combined sales of the Gold companies' 
paper producers. For the cross-owned input suppliers among the Gold 
companies, we divided the tax savings by the combined sales of the Gold 
companies' paper producers that receive the inputs plus the input 
suppliers' sales minus inter-company sales during the POI.
    On this basis, we preliminarily determine that the Gold companies 
received a countervailable subsidy of 1.79 percent ad valorem under 
this program.

5. Preferential Tax Policies for Research and Development (``R&D'') at 
FIEs

    According to the Circular on Relevant Issues relating to Using R&D 
Expenses to Deduct Taxable Income by FIEs (GUOSHUIFA {1999{time}  No. 
173), an FIE may deduct 150 percent of its qualifying R&D expenses from 
its taxable income when those expenses increase by 10 percent over R&D 
expenses incurred in the last tax year. The deduction is capped by 
taxable income and no carry-forward is allowed if the deduction is more 
than the taxable income of the current period. See GQR at 82.
    GEP reported using this program during the POI. See GEQR at 52.
    We preliminarily determine that the exemption from or reduction in 
the income tax received by FIEs under this program confers a 
countervailable subsidy. The exemption or reduction is a financial 
contribution in the form of revenue forgone by the government and it 
provides a benefit to the recipient in the amount of the tax savings. 
See section 771(5)(D)(ii) of the Act and 19 CFR 351.509(a)(1). We also 
preliminarily determine that the exemption or 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, we treated the income tax savings enjoyed 
by GEP as a recurring benefit, consistent with 19 CFR 351.524(c)(1). We 
divided their tax savings received during the POI by the combined sales 
of the Gold companies' paper producers minus inter-company sales during 
the POI.
    On this basis, we preliminarily determine that the Gold companies 
received a countervailable subsidy of 0.02 percent ad valorem under 
this program.

C. Indirect Tax and Import Tariff Programs

1. Value-Added Tax (``VAT'') and Tariff Exemptions on Imported 
Equipment

    Enacted in 1997, the Circular of the State Council on Adjusting Tax 
Policies on Imported Equipment (GUOFA No. 37) exempts both FIEs and 
certain domestic enterprises from the VAT and tariffs on imported 
equipment used in their production so long as the equipment does not 
fall into prescribed lists of non-eligible items. Qualified enterprises 
receive a certificate either

[[Page 10786]]

from the National Development and Reform Commission or its provincial 
branch. To receive the exemptions, qualified enterprises must 
adequately document both the product eligibility and the eligibility of 
the imported article to the local Customs authority. See GQR at 96-97. 
The Department has previously found this program to be countervailable. 
See Citric Acid from the PRC Decision Memorandum at 19 - 20 and CFS 
Decision Memorandum at 14.
    GEP, GHS, NBZH, NAPP, GZC, GLC, GSC, JHP, and JAP reported using 
this program. See GEQR at 63. Yanzhou Tianzhang reported using this 
program. See YTQR at 20.
    We preliminarily determine that VAT and tariff exemptions on 
imported equipment confer a countervailable subsidy. The exemptions are 
a financial contribution in the form of revenue forgone by the GOC and 
they provide a benefit to the recipients in the amount of the VAT and 
tariff savings. See section 771(5)(D)(ii) of the Act and 19 CFR 
351.510(a)(1). We further determine the VAT and tariff exemptions under 
this program are specific under section 771(5A)(D)(i) because the 
program is limited to certain enterprises, i.e., FIEs and domestic 
enterprises with government-approved projects. See CFS Decision 
Memorandum, at Comment 16.
    Normally, we treat exemptions from indirect taxes and import 
charges, such as the VAT and tariff exemptions, as recurring benefits, 
consistent with 19 CFR 351.524(c)(1), and expense these benefits in the 
year in which they were received. However, when an indirect tax or 
import charge exemption is provided for, or tied to, the capital 
structure or capital assets of a firm, the Department may treat it as a 
non-recurring benefit and allocate the benefit to the firm over the 
AUL. See 19 CFR 351.524(c)(2)(iii) and 19 CFR 351.524(d)(2).
    For GEP, GHS, NBZH, NAPP, GZC, GLC, GSC, JHP, JAP, and Yanzhou 
Tianzhang, we applied the ``0.5 test,'' pursuant to 19 CFR 351.524, for 
each of the years in which exemptions were reported (treating year of 
receipt as year of approval). For the years in which the amount was 
less than 0.5 percent, we have expensed the exempted amounts in the 
year of receipt, consistent with 19 CFR 351.524(a). For those years in 
which the VAT and tariff exemptions were greater than or equal to 0.5 
percent, we are treating the exemptions as non-recurring benefits, 
consistent with 19 CFR 351.524(c)(2)(iii), and allocating the benefits 
over the AUL. We used the discount rate described above in the 
``Benchmarks and Discount Rates'' section to calculate the amount of 
the benefit for the POI.
    For the paper producing Gold companies, we divided the benefits 
received in or allocated to the POI by the combined sales of the Gold 
companies' paper producers. For the cross-owned input suppliers among 
the Gold companies, we divided the benefits received in or allocated to 
the POI by the combined sales of the Gold companies' paper producers 
that receive the inputs plus the input suppliers' sales minus inter-
company sales during the POI.
    For Yanzhou Tianzhang, we divided the benefits received in or 
allocated to the POI by its sales during the POI.
    On this basis, we preliminarily determine that the Gold companies 
received a countervailable subsidy of 0.83 percent ad valorem and 
Yanzhou Tianzhang does not have a measurable subsidy under this 
program.

2. VAT Rebates on Domestically Produced Equipment

    As outlined in GUOSHUIFA (1999) No. 171, Notice of the State 
Administration of Taxation Concerning the Trial Administrative Measures 
on Purchase of Domestically Produced Equipment by FIEs, the GOC refunds 
the VAT on purchases of certain domestically produced equipment to FIEs 
if the purchases are within the enterprise's investment amount and if 
the equipment falls under a tax-free category. See GQR at 111. The 
Department has previously found this program to be countervailable. See 
Citric Acid from the PRC Decision Memorandum at 20 and CFS Decision 
Memorandum at 13 - 14.
    GEP, GHS, NBZH, NAPP, GZC, GLC, JHP, and JAP reported using the 
program. See GEQR at 67.
    We preliminarily determine that the rebate of the VAT paid on 
purchases of domestically produced equipment by FIEs confers a 
countervailable subsidy. The rebates are a financial contribution in 
the form of revenue forgone by the GOC and they provide a benefit to 
the recipients in the amount of the tax savings. See section 
771(5)(D)(ii) of the Act and 19 CFR 351.510(a)(1). We further 
preliminarily determine that the VAT rebates are contingent upon the 
use of domestic over imported goods and, hence, specific under section 
771(5A)(A) and (C) of the Act.
    Normally, we treat exemptions from indirect taxes and import 
charges, such as VAT rebates, as recurring benefits, consistent with 19 
CFR 351.524(c)(1), and expense these benefits in the year they were 
received. However, when an indirect tax or import charge exemption is 
provided for, or tied to, the capital structure or capital assets of a 
firm, the Department may treat it as a non-recurring benefit and 
allocate the benefit to the firm over the AUL. See 19 CFR 
351.524(c)(2)(iii) and 19 CFR 351.524(d)(2).
    For GEP, GHS, NBZH, NAPP, GZC, GLC, JHP, and JAP, we applied the 
``0.5 test,'' pursuant to 19 CFR 351.524, for each of the years in 
which rebates were reported (treating year of receipt as year of 
approval). For the years in which the amount was less than 0.5 percent, 
we have expensed the rebates in the year of receipt, consistent with 19 
CFR 351.524(a). For those years in which the VAT rebates were greater 
than or equal to 0.5 percent, we preliminarily determine that the VAT 
and tariff exemptions were for capital equipment based on the 
companies' information. See GEQR at 69. Therefore, we are treating the 
rebates as non-recurring benefits, consistent with 19 CFR 
351.524(c)(2)(iii), and allocating the benefits over the AUL. We used 
the discount rate described above in the ``Benchmarks and Discount 
Rates'' section to calculate the amount of the benefit for the POI.
    For the paper producing Gold companies, we divided the benefits 
received in or allocated to the POI by the combined sales of the Gold 
companies' paper producers. For the cross-owned input suppliers among 
the Gold companies, we divided the benefits received in or allocated to 
the POI by the combined sales of the Gold companies' paper producers 
that receive the inputs plus the input suppliers' sales minus inter-
company sales during the POI.
    On this basis, we preliminarily determine that the Gold companies 
received a countervailable subsidy of 0.22 percent ad valorem under 
this program.

3. Domestic VAT Refunds for Companies Located in the Hainan Economic 
Development Zone (``EDZ'')

    According to ``Circular on Publication of the Preferential Policies 
for Hainan Province Yangpu Economic Development Zone (QIONGFU 
{1999{time}  No.54),'' enterprises may receive VAT refunds based on 
level of investment. See GSR at 19 and GEQR at 71. The program was 
previously found countervailable. See CFS Decision Memorandum at 15.
    JHP reported using the program during the POI. See GEQR at 71.
    We preliminarily determine that the domestic VAT refund confers a 
countervailable subsidy. The refund is a financial contribution in the 
form of

[[Page 10787]]

revenue forgone by the local government and it provides a benefit to 
the recipient in the amount of the refunded taxes. See section 
771(5)(D)(ii) of the Act and 19 CFR 351.510(a)(1). We further 
preliminarily determine that the program is limited to enterprises 
located in a designated geographical region and, hence, is specific 
under section 771(5A)(D)(iv) of the Act.
    To calculate the benefit, we treated the VAT refund enjoyed by JHP 
as a recurring benefit, consistent with 19 CFR 351.524(c)(1). We 
divided the amount received during the POI by the combined sales of JHP 
and the Gold companies' paper producers that received the inputs from 
JHP minus inter-company sales during the POI.
    On this basis, we preliminarily determine that the Gold companies 
received a countervailable subsidy of 0.40 percent ad valorem under 
this program.

4. Exemption from City Maintenance and Construction Taxes and Education 
Surcharges for FIEs\18\
---------------------------------------------------------------------------

    \18\ This program was incorrectly listed as an income tax 
program in our Initiation Checklist.
---------------------------------------------------------------------------

    SMPI, GEP, GHS, NBZH, NAPP, GZC, GLC, GSC, JHP, and JAP stated that 
FIEs are, by law, not subject to these taxes and surcharges, and these 
companies reported what they would have paid during the POI had they 
been subject to them. See GEQR at 94. Yanzhou Tianzhang stated it did 
not use the program during the POI. See YTQR at 19.
    The GOC reported that FIEs do not pay these taxes and surcharges. 
See GQR at 94. In the G1QSR, the GOC responded to our follow-up 
question regarding this program stating that because FIEs are not 
subject to these taxes and surcharges, they have not received an 
exemption from them. See G1SQR at 4.
    We preliminarily determine that the exemptions from the city 
maintenance and construction taxes and education surcharges confer a 
countervailable subsidy. The exemptions are financial contributions in 
the form of revenue forgone by the government and provide a benefit to 
the recipient in the amount of the savings. See section 771(5)(D)(ii) 
of the Act and 19 CFR 351.509(a)(1). We also determine that the 
exemptions afforded by this program are limited as a matter of law to 
certain enterprises, FIEs and, hence, specific under section 
771(5A)(D)(i) of the Act.
    For the paper producing Gold companies, we divided the tax savings 
received in the POI by the combined sales of the Gold companies' paper 
producers. For the cross-owned input suppliers among the Gold 
companies, we divided the tax savings received in the POI by the 
combined sales of the Gold companies' paper producers that received the 
inputs plus the input suppliers' sales minus inter-company sales during 
the POI.
    As stated above, Yanzhou Tianzhang claimed not to use this program 
during the POI. However, proprietary information on the record 
indicates otherwise, although that information does not allow us to 
calculate Yanzhou Tianzhang's subsidy. See YTQR at Appendix 6. 
Therefore, as explained under the ``Use of Facts Otherwise Available 
and Adverse Inferences'' section above, we have assigned to Yanzhou 
Tianzhang the rate calculated for the Gold companies for this 
preliminary determination. We intend to seek further information from 
Yanzhou Tianzhang for use in our final determination.
    On this basis, we preliminarily determine that the Gold companies 
received a countervailable subsidy of 0.43 percent ad valorem and that 
Yanzhou Tianzhang received a countervailable subsidy of 0.43 percent ad 
valorem under this program.

D. Government Provision of Goods and Services for Less than Adequate 
Remuneration

1. Provision of Electricity

    For the reasons explained in the ``Use of Facts Otherwise Available 
and Adverse Facts Available'' section above, we are basing our 
determination regarding the government's provision of electricity in 
part on adverse facts available.
    In a CVD case, the Department requires information from both the 
government of the country whose merchandise is under investigation and 
the foreign producers and exporters. When the government fails to 
provide requested information concerning alleged subsidy programs, the 
Department, as adverse facts available, typically finds that a 
financial contribution exists under the alleged program and that the 
program is specific. See, e.g., Certain Kitchen Shelving and Racks from 
the People's Republic of China: Final Affirmative Countervailing Duty 
Determination, 74 FR 37012 (July 27, 2009) and accompanying Issues and 
Decision Memorandum at 17 ``F. Government Provision of Electricity for 
Less than Adequate Remuneration'' and OCTG Decision Memorandum at 22 
``K. Provision of Electricity for Less than Adequate Remuneration.'' 
However, where possible, the Department will normally rely on the 
responsive producer's or exporter's records to determine the existence 
and amount of the benefit to the extent that those records are useable 
and verifiable.
    Consistent with this practice, the Department finds that the GOC's 
provision of electricity confers a financial contribution, under 
section 771(5)(D)(iii) of the Act, and is specific, under section 
771(5A) of the Act. To determine the existence and amount of any 
benefit from this program, we relied on the companies' reported 
information on the amounts of electricity they purchased and the 
amounts they paid for electricity during the POI. We compared the rates 
paid by the companies who sourced electricity from the grid, SMPI, 
NBZH, NAPP, JHP, JAP, JGF, JQZ, JQY, JHF, JSG, YJGS, LZGS, GZGS, and 
WSGWS, to the highest rates that they would have paid in the PRC during 
the POI. Specifically, we have used the highest peak, valley and normal 
rates for the Gold companies based upon their user category. This 
benchmark reflects the adverse inference we have drawn as a result of 
the GOC's failure to act to the best of its ability in providing 
requested information about its provision of electricity in this 
investigation.
    On this basis, we preliminarily determine that the Gold companies 
received a countervailable subsidy of 0.14 percent ad valorem under 
this program. The Sun Paper companies did not purchase electricity from 
the government grid during the POI. Therefore, we preliminarily 
determine that the Sun Paper companies did not use this program during 
the POI.

II. Programs Preliminarily Determined To Be Not Used By Respondents or 
To Not Provide Benefits During the POI

A. Famous Brands Awards
    GHS reported receiving a famous brand award from the local 
government in 2006. See GEQR at 79.
    We preliminarily determine that the total amount of the grant was 
less than 0.5 percent of the paper-producing Gold companies' sales in 
2006. Therefore, we have preliminarily expensed the benefit in 2006 
pursuant to 19 CFR 351.524(b)(2) and we preliminarily determine that 
the Gold companies received no benefit from this program during the 
POI. As a result, we have not made a determination with respect to 
whether this program provided a countervailable subsidy.
    Based upon responses by the GOC, the Gold companies, and the Sun 
Paper companies, we preliminarily determine

[[Page 10788]]

that the Gold companies and the Sun Paper companies did not apply for 
or receive benefits during the POI under the programs listed below.
B. Preferential Lending To The Coated Paper Industry
    1. Fast-Growth High-Yield Forestry Program Loans
C. Income Tax Programs
    1. Preferential Tax Policies for Technology or Knowledge-Intensive 
FIEs
    2. Preferential Tax Programs for FIEs that are High or New 
Technology Enterprises
    3. Income Tax Reductions for High-Technology Industries in 
Guangdong Province
    4. Income Tax Credits for Domestically Owned Companies Purchasing 
Domestically Produced Equipment
    5. Income Tax Exemption Program for Export-Oriented FIEs
    6. Corporate Income Tax Refund Program for Reinvestment of FIE 
Profits in Export-Oriented Enterprises
D. Grant Programs
    1. Funds for Forestry Plantation Construction and Management
    2. The State Key Technologies Renovation Project Fund
    3. Loan Interest Subsidies for Major Industrial Technology Reform 
Projects in Wuhan
    4. Funds for Water Treatment Improvement Projects in the 
Songhuajiang Basin
    5. Special Fund for Energy Saving Technology Reform in Wuhan and 
Shouguang Municipality
    6. Clean Production Technology Fund
E. Economic Development Zone Programs
    1. Subsidies in the Nanchang EDZ
    2. Subsidies in the Wuhan EDZ
    3. Subsidies in the Zhenjiang EDZ

III. Programs for Which More Information Is Required

A. Government Provision of Goods and Services for Less than Adequate 
Remuneration
    1. Provision of Papermaking Chemicals
    As explained under ``Use of Facts Otherwise Available and Adverse 
Inferences,'' we plan to seek additional information, including 
information about the GOC's ownership classifications of the producers 
of papermaking chemicals, other ways in which the GOC may influence the 
markets for these papermaking chemicals in the PRC, and other requested 
data that the GOC identified as ``NA.''
B. Subsidies in the Yangpu EDZ
    The Gold companies reported that JHP obtained land-use rights from 
Dan Zhou city authorities, Hainan Yangpu Development Company and Hainan 
Yangpu Land Development Company. See GEQR at 88 - 90. In the GSR, the 
GOC stated JHP is located in the Yangpu EDZ, but did not purchase land-
use rights from the land administrative authority from December 11, 
2001 to the end of 2008. On February 22, 2010, the Gold companies 
submitted corrections and clarifications to their questionnaire 
responses and stated that the land obtained from Dan Zhou city is 
adjacent to, but outside of the Yanpu EDZ. See GECS at 3 - 4.
    Based on our examination of these claims and the proprietary 
documentation regarding these land-use rights submitted by the GOC and 
Gold companies, we have found inconsistencies that we are unable to 
clarify at this time. See ``Gold Companies Preliminary Calculation 
Memorandum''. Therefore, we intend to seek additional information and 
clarification from the Gold companies and the GOC following the 
preliminary determination.

Verification

    In accordance with section 782(i)(1) of the Act, we will verify the 
information submitted by Respondents prior to making our final 
determination.

Suspension of Liquidation

    In accordance with section 703(d)(1)(A)(i) of the Act, we have 
calculated a rate for each individually investigated producer/exporter 
of the subject merchandise. Section 705(c)(5)(A)(i) of the Act states 
that for companies not investigated, we will determine an ``all 
others'' rate equal to the weighted average countervailable subsidy 
rates established for exporters and producers individually 
investigated, excluding any zero and de minimis countervailable subsidy 
rates, and any rates determined entirely under section 776 of the Act.
    Notwithstanding the language of section 705(c)(5)(A)(i) of the Act, 
we have not calculated the ``all others'' rate by weight averaging the 
rates of GEP and Yanzhou Tianzhang, because doing so risks disclosure 
of proprietary information. Therefore, we have calculated a simple 
average of the two responding firms' rates.
    We preliminarily determine the total estimated net countervailable 
subsidy rates to be:

------------------------------------------------------------------------
                                                            Net Subsidy
                  Exporter/Manufacturer                        Rate
------------------------------------------------------------------------
Gold East Paper (Jiangsu) Co., Ltd, Gold Huasheng Paper            12.83
 Co., Ltd., Gold East Trading (Hong Kong) Company Ltd.,
 Ningbo Zhonghua Paper Co., Ltd., and Ningbo Asia Pulp &
 Paper Co., Ltd.........................................
Shandong Sun Paper Industry Joint Stock Co., Ltd. and               3.92
 Yanzhou Tianzhang Paper Industry Co., Ltd..............
All Others..............................................            8.38
------------------------------------------------------------------------

    In accordance with sections 703(d)(1)(B) and (d)(2) of the Act, we 
are directing U.S. Customs and Border Protection (``CBP'') to suspend 
liquidation of all entries of coated paper from the PRC that are 
entered, or withdrawn from warehouse, for consumption on or after the 
date of the publication of this notice in the Federal Register, and to 
require a cash deposit or bond for such entries of merchandise in the 
amounts indicated above.

ITC Notification

    In accordance with section 703(f) of the Act, we will notify the 
ITC of our determination. In addition, we are making available to the 
ITC all non-privileged and non-proprietary information relating to this 
investigation. We will allow the ITC access to all privileged and 
business proprietary information in our files, provided the ITC 
confirms that it will not disclose such information, either publicly or 
under an administrative protective order, without the written consent 
of the Assistant Secretary for Import Administration.
    In accordance with section 705(b)(2) of the Act, if our final 
determination is affirmative, the ITC will make its final determination 
within 45 days after the Department makes its final determination.

Disclosure and Public Comment

    In accordance with 19 CFR 351.224(b), we will disclose to the 
parties the calculations for this preliminary determination within five 
days of its announcement. Due to the anticipated timing of verification 
and issuance of verification reports, case briefs for this 
investigation must be submitted no later than one week after the 
issuance of the last verification report. See 19 CFR 351.309(c) (for a 
further discussion of case briefs). Rebuttal briefs must be filed 
within five

[[Page 10789]]

days after the deadline for submission of case briefs, pursuant to 19 
CFR 351.309(d)(1). A list of authorities relied upon, a table of 
contents, and an executive summary of issues should accompany any 
briefs submitted to the Department. Executive summaries should be 
limited to five pages total, including footnotes. See 19 CFR 
351.309(c)(2) and (d)(2).
    Section 774 of the Act provides that the Department will hold a 
public hearing to afford interested parties an opportunity to comment 
on arguments raised in case or rebuttal briefs, provided that such a 
hearing is requested by an interested party. See also 19 CFR 
351.310(c). If a request for a hearing is made in this investigation, 
the hearing will be held two days after the deadline for submission of 
the rebuttal briefs, pursuant to 19 CFR 351.310(d), at the U.S. 
Department of Commerce, 14th Street and Constitution Avenue, N.W., 
Washington, D.C. 20230. Parties should confirm by telephone the time, 
date, and place of the hearing 48 hours before the scheduled time.
    Interested parties who wish to request a hearing, or to participate 
if one is requested, must submit a written request to the Assistant 
Secretary for Import Administration, U.S. Department of Commerce, Room 
1870, 14th Street and Constitution Avenue, N.W., Washington, DC 20230, 
within 30 days of the publication of this notice, pursuant to 19 CFR 
351.310(c). Requests should contain: (1) the party's name, address, and 
telephone; (2) the number of participants; and (3) a list of the issues 
to be discussed. Oral presentations will be limited to issues raised in 
the briefs. See id.
    This determination is published pursuant to sections 703(f) and 
777(i) of the Act.

    Dated: March 1, 2010.
Carole A. Showers,
Acting Deputy Assistant Secretary for Import Administration.
[FR Doc. 2010-5007 Filed 3-8-10; 8:45 am]
BILLING CODE 3510-DS-S