[Federal Register Volume 60, Number 98 (Monday, May 22, 1995)]
[Notices]
[Pages 27080-27082]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-12500]



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

DEPARTMENT OF COMMERCE
[C-557-806]


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

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

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

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

SUMMARY: The Department of Commerce (the Department) is conducting an 
administrative review of the countervailing duty order on extruded 
rubber thread from Malaysia. We preliminarily determine the net bounty 
or grant to be 1.00 percent ad valorem for all manufacturers and 
exporters of Malaysian extruded rubber thread for the period January 1, 
1993 through December 31, 1993. If the final results remain the same as 
these preliminary results of administrative review, we will instruct 
the U.S. Customs Service to assess countervailing duties as indicated 
above. Interested parties are invited to comment on these preliminary 
results.

EFFECTIVE DATE: May 22, 1995.

FOR FURTHER INFORMATION CONTACT: Judy Kornfeld or Richard Herring, 
Office of Countervailing Compliance, Import Administration, 
International Trade Administration, U.S. Department of Commerce, 14th 
Street and Constitution Avenue, N.W., Washington, D.C. 20230; 
telephone: (202) 482-2786.

SUPPLEMENTARY INFORMATION:

Background

    On August 25, 1992, the Department published in the Federal 
Register (57 FR 38472) the countervailing duty order on extruded rubber 
thread from Malaysia. On August 3, 1994, the Department published a 
notice of ``Opportunity to Request an Administrative Review'' (59 FR 
39543) of this countervailing duty order. We received a timely request 
for review from respondents Heveafil Sdn. Bhd.(Heveafil), Filmax Sdn. 
Bhd.(Filmax), Rubberflex Sdn. Bhd.(Rubberflex), Filati Lastex 
Elastofibre Sdn. Bhd.(Filati), and Rubfil Sdn. Bhd.(Rubfil).
    We initiated the review, covering the period January 1, 1993 
through December 31, 1993, on September 16, 1994 (59 FR 47609). The 
review covers 5 manufacturers/exporters of the subject merchandise and 
12 programs.

Applicable Statute and Regulations

    The Department is conducting this administrative review in 
accordance with section 751(a) of the Tariff Act of 1930, as amended 
(the Act). Unless otherwise indicated, all citations to the statute and 
to the Department's regulations are in reference to the provisions as 
they existed on December 31, 1994. However, references to the 
Department's Countervailing Duties; Notice of Proposed Rulemaking and 
Request for Public Comments, 54 FR 23366 (May 31, 1989) (Proposed 
Regulations), are provided solely for further explanation of the 
Department's countervailing duty practice. Although the Department has 
withdrawn the particular rulemaking proceeding pursuant to which the 
Proposed Regulations were issued, the subject matter of these 
regulations is being considered in connection with an ongoing 
rulemaking proceeding which, among other things, is intended to conform 
the Department's regulations to the Uruguay Round Agreements Act. See 
60 FR 80 (Jan. 3, 1995).

Scope of Review

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

Calculation Methodology for Assessment and Deposit Purposes

    We calculated the net bounty or grant on a country-wide basis by 
first calculating the bounty or grant rate for each company subject to 
the administrtative review. We then weight-averaged the rate received 
by each company, including those with de minimis and zero rates, using 
as the weight its share of total Malaysian exports to the United States 
of subject merchandise. We then summed the individual companies' 
weighted-average rates to determine the bounty or grant rate from all 
programs benefitting exports of subject merchandise to the United 
States.
    Since the country-wide rate calculated using this methodology was 
above de minimis, as defined by 19 CFR 355.7 (1994), we proceeded to 
the next step and examined the net bounty or grant rate calculated for 
each company to determine whether individual company rates differed 
significantly from the weighted-average country-wide rate, pursuant to 
19 CFR 355.22(d)(3). In calculating the individual company rates 
described above, only one rate was calculated for Heaveafil and Filmax 
because Heveafil and Filmax are related parties.
    None of the companies had net bounty or grant rates which were 
significantly different pursuant to 19 CFR 355.22(d)(3). Therefore, all 
companies are assigned the country-wide rate.
Analysis of Programs

I. Programs Conferring Subsidies

A. Export Credit Refinancing (ECR) Program
    The ECR program was established in order to promote: (1) Exports of 
manufactured goods and agricultural food products that have significant 
value-added and high local content, (2) greater domestic linkages in 
export industries, and (3) easy access to credit facilities. In order 
to accomplish this, the Bank Negara Malaysia, the central bank of 
Malaysia, provides order-based and pre- and post-shipment financing of 
exports through commercial banks for periods of up to 120 and 180 days, 
respectively, and certificate of performance (CP)-based pre-shipment 
financing. Order-based financing is provided for specific sales to 
specific markets. CP-based financing is a line of credit based on the 
previous 12 months' [[Page 27081]] export performance, and cannot be 
tied to specific sales in specific markets.
    The Department determined that this program was countervailable in 
Final Affirmative Countervailing Duty Determination and Countervailing 
Duty Order; Extruded Rubber Thread From Malaysia (57 FR 38472; August 
25, 1992) (Malaysian Rubber Thread Final Determination) and Extruded 
Rubber Thread From Malaysia; Final Results of Countervailing Duty 
Administrative Review (60 FR 17515; April 6, 1995) (Final Results of 
First Review) because receipt of loans under this program was 
contingent upon export performance and the loans were provided at 
preferential interest rates. Heveafil, Filmax and Rubberflex used pre-
shipment ECR loans. Filati and Rubfil used post-shipment ECR loans.
    In order to determine whether these loans were provided at 
preferential rates, we compared the interest rate charged to a 
benchmark interest rate. As a benchmark for short-term loans, it is our 
practice to select the predominant source of short-term financing in 
the country as our benchmark for short-term loans. See section 
355.44(b)(3) of the Department's Proposed Regulations. In Malaysia, 
term loans and overdrafts offered by commercial banks are the most 
predominant form of short-term financing. The average interest rates 
for these types of financing, however, are not individually available. 
Therefore, we have used as our benchmark for ECR loans the average 
commercial bank lending rate as an estimate of these predominant short-
term lending rates. This rate is referred to by banks as the base 
lending rate (BLR). Commercial banks then add a 1 to 2 percent spread 
to the BLR. Therefore, to determine the commercial benchmark, we used 
the average of the commercial BLR rates as published by Bank Negara, 
the central bank of Malaysia, plus an average spread of 1.5 percent. 
(See Final Results of First Review.)
    Based on a comparison of the ECR rates and the benchmark rate, we 
find that ECR loans continue to be provided at preferential interest 
rates. To calculate the benefit from ECR loans on which interest was 
paid in 1993, we used our short-term loan methodology which has been 
applied consistently in previous determinations and the previous 
administrative review in this case. (See Final Affirmative 
Countervailing Duty Determination and Countervailing Duty Order: Butt-
Weld Pipe Fittings from Thailand (55 FR 1695; January 18, 1990); the 
Malaysian Rubber Thread Final Determination (57 FR 38474; August 27, 
1992); and the Final Results of First Review (60 FR 17515; April 6, 
1995). See also section 355.44(b)(3) of the Proposed Regulations. 
Because the post-shipment ECR loans were shipment-specific, we included 
in our calculations only those loans used to finance exports of 
extruded rubber thread to the United States. Because the pre-shipment 
loans were not shipment-specific, we included all loans on which 
interest was paid during the review period.
    To calculate the benefit, we compared the amount of interest 
actually paid on these loans during the review period with the amount 
that would have been paid at the benchmark rate of 10.53 percent. The 
difference between those amounts is the benefit. We then divided total 
interest savings by total exports, in the case of pre-shipment loans, 
because they applied to all exports, or by exports to the United 
States, in the case of post-shipment loans, because they applied to 
specific shipments of exports to the United States. On this basis, we 
preliminarily determine the net bounty or grant from pre-shipment loans 
to be 0.45 percent for all manufacturers or exporters, and from post-
shipment loans, we preliminarily determine the rate to be 0.27 percent 
for all manufacturers and exporters in Malaysia of extruded rubber 
thread.
B. Pioneer Status
    Pioneer status is a tax incentive offered to promote investment in 
the manufacturing, tourist, and agricultural sectors. Pioneer status 
was first introduced under the Pioneer Industries (Relief from Income 
Tax) Ordinance, 1958. This ordinance was replaced by the Investment 
Incentives Act (IIA) in 1968, which was subsequently replaced by the 
Promotion of Investment Act (PIA) of 1986. Under the IIA and the PIA, 
the Minister of International Trade and Industry may determine products 
or activities to be pioneer products or activities.
    Companies petition for pioneer status for products or activities 
that have already been approved and listed as pioneer products. Once a 
company receives pioneer status, its profits from the designated 
product or activity are exempt from the corporate income tax and the 
dividend tax for a period of five years, with the possibility of an 
extension for an additional five years. The five-year extension was 
abolished effective October 1, 1991. Furthermore, the computation of 
capital allowances, which are normally deducted against the adjusted 
taxable income, is postponed to the post-tax holiday period.
    In evaluating a project for pioneer status, the Malaysian 
Industrial Development Authority (MIDA) will consider whether:
    (1) The product is being produced on a commercial scale suitable to 
the economic requirement or development of the country,
    (2) There are prospects for further development, and
    (3) The product or activity meets the national and strategic 
requirements of Malaysia.
    Specifically, MIDA officials consider 12 essential criteria to 
evaluate whether a particular company should receive pioneer status. 
Two of these 12 criteria specifically address the export potential of 
the proposed product or activity. Nevertheless, companies that produce 
only for the domestic market may also receive pioneer status. 
Furthermore, some companies may be rejected even though their export 
potential is high. Under certain conditions, however, companies must 
agree to an export commitment (i.e., they must agree to export a 
certain percentage of their production) to receive pioneer status. 
Furthermore, an export requirement may sometimes be applied to certain 
industries after it is determined that the domestic market is saturated 
and will no longer support additional producers.
    Considering the implications of this criterion, the Department 
views the pioneer program as a two-faceted program. The first facet 
comprises those instances where one or more of the 12 criteria applies, 
including favorable prospects for export, but where the export criteria 
do not carry preponderant weight. The Department found this facet of 
the program not countervailable in the Malaysian Rubber Thread Final 
Determination.
    In cases where pioneer status is conferred on a company because it 
has been determined that the domestic market is saturated and will no 
longer support additional producers and because that company agrees to 
export a certain percentage of its production, the program conveys an 
export subsidy, regardless of the other ``neutral'' criteria the 
company is required to meet. This is because the company is clearly 
being approved due to the fact it will export and because receipt of 
benefits becomes contingent on export performance. In the investigation 
of this case (see Malaysian Rubber Thread Final Determination), we 
determined that pioneer status was granted to Rubberflex based on its 
obligation to export. Therefore, we found the program countervailable 
with respect to that company. See also Final Results of First Review. 
Rubberflex continues to hold pioneer status and claimed pioneer income 
during this review period. [[Page 27082]] Filmax, Filati, and Rubfil 
also held pioneer status. However, these companies experienced a tax 
loss during the period of review and, therefore, did not benefit from 
this program.
    To calculate the benefit, we determined the tax savings from this 
program during the review period and divided that by total exports. On 
this basis, we determine the net bounty or grant from this program to 
be 0.28 percent ad valorem during the reveiw period.

II. Programs Preliminarily Determined Not To Be Used

    We also examined the following programs and preliminarily determine 
that the exporters of extruded rubber thread did not use them with 
respect to exports of the subject merchandise to the United States 
during the review period:
    <bullet> Investment Tax Allowance.
    <bullet> Abatement of Five Percent of Taxable Income Due to 
Location in a Promoted Industrial Area.
    <bullet> Allowance of a Percentage of Net Taxable Income Based on 
the f.o.b. Value of Export Sales.
    <bullet> Double Deduction of Export Credit Insurance Payments.
    <bullet> Abatement of Taxable Income of Five Percent of Adjusted 
Income of Companies Due to Capital Participation and Employment Policy 
Adherence.
    <bullet> Preferential Financing for Bumiputras.
    <bullet> Abatement of Income Tax Based on the Ratio of Export Sales 
to Total Sales.
    <bullet> Industrial Building Allowance.
    <bullet> Double Deduction for Export Promotion Expenses.

III. Program Preliminarily Found to be Terminated Abatement of Five 
Percent of the Value of Indigenous Malaysian Materials Used in Exports

    This program was terminated effective January 1, 1993, and provided 
no residual benefits to manufacturers and exporters in Malaysia of 
extruded rubber thread. See Final Results of First Review.

Preliminary Results of Review

    For the period January 1, 1993, through December 31, 1993, we 
preliminarily determine that the net bounty or grant to be 1.00 percent 
ad valorem.
    If the final results of this review remain the same as these 
preliminary results, the Department intends to instruct the U.S. 
Customs Service to assess countervailing duties at 1.00 percent of the 
f.o.b. invoice price on shipments of the subject merchandise exported 
on or after January 1, 1993, and on or before December 31, 1993.
    The Department also intends to instruct the Customs Service to 
collect a cash deposit of estimated countervailing duties of 1.00 
percent for all firms on shipments of this merchandise entered, or 
withdrawn from warehouse, for consumption on or after the date of 
publication of the final results of this administrative review.
    Parties to this proceeding may request disclosure of the 
calculation methodology and interested parties may request a hearing 
not later than 10 days after date of publication of this notice. 
Interested parties may submit written arguments in case briefs on these 
preliminary results within 30 days of the date of publication. Rebuttal 
briefs, limited to arguments raised in case briefs, may be submitted 
seven days after the time limit for filing the case brief. Any hearing, 
if requested, will be held seven days after the scheduled date for 
submission of rebuttal briefs. Copies of case briefs and rebuttal 
briefs must be served on interested parties in accordance with 19 CFR 
355.38(e).
    Representatives of parties to the proceeding may request disclosure 
of proprietary information under administrative protective order no 
later than 10 days after the representative's client or employer 
becomes a party to the proceeding, but in no event later than the date 
the case briefs, under section 355.38(c), are due.
    The Department will publish the final results of this 
administrative review including the results of its analysis of issues 
raised in any case or rebuttal brief or at a hearing.
    This administrative review and notice are in accordance with 
section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)) and 19 CFR 355.22.

    Dated: May 15, 1995.
Susan G. Esserman,
Assistant Secretary for Import Administration.
[FR Doc. 95-12500 Filed 5-19-95; 8:45 am]
BILLING CODE 3510-DS-P