E6-20008. Preliminary Results of Countervailing Duty Administrative Review: Certain Welded Carbon Steel Standard Pipe From Turkey

AGENCY:

Import Administration, International Trade Administration, Department of Commerce.

SUMMARY:

The Department of Commerce (“the Department”) is conducting an administrative review of the countervailing duty (“CVD”) order on certain welded carbon steel standard pipe from Turkey for the period January 1, 2005, through December 31, 2005. We preliminarily find that the net subsidy rate for the company under review is de minimis. See the “Preliminary Results of Review” section of this notice, infra. Interested parties are invited to comment on these preliminary results. (See the “Public Comment” section, infra.)

EFFECTIVE DATE:

November 27, 2006.

FOR FURTHER INFORMATION CONTACT:

Kristen Johnson, AD/CVD Operations, Office 3, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC 20230; telephone: [phone].

SUPPLEMENTARY INFORMATION:

Background

On March 7, 1986, the Department published in the Federal Register the CVD order on certain welded carbon steel pipe and tube products from Turkey. See Countervailing Duty Order: Certain Welded Carbon Steel Pipe and Tube Products from Turkey, 51 FR 7984 (March 7, 1986). On March 2, 2006, the Department published a notice of opportunity to request an administrative review of this CVD order. See Antidumping or Countervailing Duty Order, Finding, or Suspended Investigation; Opportunity to Request Administrative Review, 71 FR 10642 (March 2, 2006). On March 23, 2006, we received a timely request for review from the Borusan Group (“Borusan”), a Turkish producer and exporter of the subject merchandise. On April 28, 2006, the Department initiated an administrative review of the CVD order on certain welded carbon steel standard pipe from Turkey, covering the period January 1, 2005, through December 31, 2005. See Initiation of Antidumping and Countervailing Duty Administrative Reviews, 71 FR 25145 (April 28, 2006).

On May 2, 2006, the Department issued a questionnaire to Borusan and the Government of the Republic of Turkey (“the GOT”); we received the GOT's questionnaire response on July 14, 2006, and Borusan's response on July 17, 2006. On September 20, 2006, we issued supplemental questionnaires to Borusan and the GOT. We received the supplemental questionnaire response from Borusan and the GOT on October 4, 2006. On October 25, 2006, we issued a second supplemental questionnaire to Borusan and received the company's response on October 31, 2006.

In accordance with 19 CFR 351.213(b), this review covers only those producers or exporters of the subject merchandise for which a review was specifically requested. The only company subject to this review is Borusan. During the period of review (“the POR”), Borusan was comprised of Borusan Mannesmann Boru Sanayi ve Ticaret A.S. (“BMB”) and Borusan Istikbal Ticaret T.A.S. (“Istikbal”). This review covers 11 programs.

Scope of the Order

The products covered by this order are certain welded carbon steel pipe and tube with an outside diameter of 0.375 inch or more, but not over 16 inches, of any wall thickness (pipe and tube) from Turkey. These products are currently provided for under the Harmonized Tariff Schedule of the United States (“HTSUS”) as item numbers 7306.30.10, 7306.30.50, and 7306.90.10. Although the HTSUS subheadings are provided for convenience and customs purposes, the written description of the merchandise is dispositive.

Period of Review

The period for which we are measuring subsidies is January 1, 2005, through December 31, 2005.

Company History

As noted above, Borusan is composed of BMB and Istikbal. BMB was previously known as Borusan Birlesik Boru Fabrikalari A.S. (“BBBF”). On December 13, 2004, BBBF changed its name to BMB subsequent to its merger with Mannesmann Boru Endustrisi T.A.S. (“MB”) on November 30, 2004.^[1] See Final Results of Countervailing Duty Administrative Review Certain Welded Carbon Steel Standard Pipe from Turkey, 71 FR 43111 (July 31, 2006) (“2004 Pipe Final”), and accompanying Issues and Decision Memorandum, at “Calculation of Ad Valorem Rate” under “Subsidies Valuation Information” (“2004 Pipe Memorandum”).

During the POR, BMB produced the subject merchandise, which was first sold to Istikbal, an affiliated export sales company, and then resold to unaffiliated customers in the United States. BMB's shares are held by Borusan Mannesmann Boru Yatirim Holding A.S., a holding company owned by Borusan Holding A.S.^[2] and Mannesmannrohren-Werke, A.G., a publicly traded company in Germany. Istikbal is majority-owned by Borusan Holding A.S.

Subsidies Valuation Information

Benchmark Interest Rates

To determine whether government-provided loans under review conferred a benefit, the Department uses, where possible, company-specific interest rates for comparable commercial loans. See 19 CFR 351.505(a). Borusan provided the interest rates it paid on short-term U.S. dollar (“US$”)-denominated commercial loans. We preliminarily find that the company-specific US$-denominated short-term loans are comparable to the export credit US$-denominated loans, provided by the Export Credit Bank of Turkey (“Export Bank”), against which Borusan paid interest during the POR. During the POR, Borusan, however, did not pay interest against short-term Turkish Lira (“YTL”)-denominated commercial loans, which are comparable to the maturity of the export financing loans provided by the Export Bank.

Where no company-specific benchmark interest rates are available, the Department's regulations direct us to use a national average interest rate as the benchmark. See 19 CFR 351.505(a)(3)(ii). According to the GOT, however, there is no official national average short-term interest rate available.^[3] Therefore, we have calculated the benchmark interest rate for short-term YTL-denominated loans based on short-term interest rate data for 2005, as reported by The Economist.^[4]

To calculate the benchmark, we sourced short-term interest rates to represent quarterly rates for Turkey in 2005. Specifically, we sourced the interest rate reported in the last weekly publication of The Economist for each quarter of 2005, i.e., the March 26, 2005, June 25, 2005, September 24, 2005, and December 24, 2005 editions. We then simple averaged those rates to calculate an annual short-term interest rate for Turkey.^[5] We then compared the nominal average interest rate with the interest rates that the company paid against the YTL-denominated Foreign Trade Companies Short-Term Export Credits and Pre-Export Credits. See Memorandum to the File concerning the Calculations for the Preliminary Results of the 2005 Review of the Countervailing Duty Order on Certain Welded Carbon Steel Standard Pipe from Turkey, at 2 (November 17, 2006). This methodology is consistent with the Department's practice. See 2004 Pipe Memorandum, at “Benchmark Interest Rates” under “Subsidies Valuation Information” and “Comment 1: Benchmark Interest Rate for Turkish Lira Loans.”

Analysis of Programs

I. Programs Preliminarily Determined To Be Countervailable

A. Deduction From Taxable Income for Export Revenue

Addendum 4108 of Article 40 of the Income Tax Law allows companies that operate internationally to claim, directly on their corporate income tax returns, a tax deduction equal to 0.5 percent of the foreign exchange revenue earned from exports and other international activities.^[6] The income tax deduction for export earnings may either be taken as a lump sum or be used to cover certain undocumented expenses, which were incurred through international activities, that would otherwise be non-deductible for tax purposes (e.g., expenses paid in cash, such as for lodging, gasoline, and food).

Consistent with the 2004 Pipe Final, we preliminarily find that this tax deduction is a countervailable subsidy. See 2004 Pipe Memorandum, at “Deduction from Taxable Income for Export Revenue” under “Programs Determined To Be Countervailable.” The deduction provides a financial contribution within the meaning of section 771(5)(D)(ii) of the Tariff Act of 1930, as amended (“the Act”), because it represents revenue forgone by the GOT. The deduction provides a benefit in the amount of the tax savings to the company pursuant to section 771(5)(E) of the Act. It is specific under section 771(5A)(B) of the Act because its receipt is contingent upon export performance. In this review, no new information or evidence of changed circumstances has been submitted to warrant reconsideration of the Department's prior findings.

During the review period, BMB, MB,^[7] and Istikbal filed separate corporate income tax returns for tax year 2004. Each company utilized the deduction for export earnings with respect to its 2004 income taxes.

The Department typically treats a tax deduction as a recurring benefit in accordance with 19 CFR 351.524(c)(1). To calculate the countervailable subsidy rate for this program, we calculated the tax savings realized by BMB, MB, and Istikbal in 2005, as a result of the deduction for export earnings. We then divided that benefit by Borusan's total export sales for 2005. On this basis, we preliminarily determine the net countervailable subsidy for this program to be 0.21 percent ad valorem.

B. Foreign Trade Companies Short-Term Export Credits

The Foreign Trade Company (“FTC”) loan program was implemented to assist large export trading companies with their export financing needs. This program is specifically designed to benefit Foreign Trade Corporate Companies (“FTCC”) and Sectoral Foreign Trade Companies (“SFTC”).^[8] An FTCC is a company whose export performance was at least US$75 million in the previous year. For eligible companies, the Export Bank will provide short-term export credits based on their past export performance. Under this credit program, the Export Bank extends short-term export credits directly to exporters in Turkish Lira and foreign currency (“FX”), up to 100 percent of the FOB export commitment. The program's interest rates are set by the Export Bank and the maturity of the loans is usually 180 days for YTL-denominated loans and 360 days for FX-denominated loans. To qualify for a FTC loan, in addition to submitting the necessary application documents, a company must provide a bank letter of guarantee, equivalent to the loan's principal and interest amount.

Istikbal, whose FTCC status was renewed in March 2005, was the only Borusan company to receive FTC credits during the POR. Istikbal paid interest against FTC loans denominated in Turkish Lira.

Consistent with previous determinations, we preliminarily find that these loans confer a countervailable subsidy within the meaning of section 771(5) of the Act. See, e.g., 2004 Pipe Memorandum at “Foreign Trade Companies Short-Term Export Credits” under “Programs Determined To Be Countervailable.” The loans constitute a financial contribution in the form of a direct transfer of funds from the GOT, under section 771(5)(D)(i) of the Act. A benefit exists under section 771(5)(E)(ii) of the Act in the amount of the difference between the payments of interest that Istikbal made on its loans during the POR and the payments the company would have made on comparable commercial loans. The program is also specific in accordance with section 771(5A)(B) of the Act because receipt of the loans is contingent upon export performance. Further, the FTC loans are not tied to a particular export destination. Therefore, we have treated this program as an untied export loan program which renders it countervailable regardless of whether the loans were used for exports to the United States. See id.

Pursuant to 19 CFR 351.505(a)(1), we have calculated the benefit as the difference between the payments of interest that Istikbal made on its FTC loans during the POR and the payments the company would have made on comparable commercial loans.^[9] In accordance with section 771(6)(A) of the Act, we subtracted from the benefit amount the fees which Istikbal paid to commercial banks for the required letters of guarantee. We then divided the resulting benefit by Borusan's total export value for 2005. On this basis, we preliminarily find that the net countervailable subsidy for this program is 0.01 percent ad valorem.

C. Pre-Export Credits

This program is similar to the FTC credit program described above; however, companies classified as either FTC or SFTC are not eligible for pre-export loans. Under the pre-export credit program, a company's past export performance is considered in evaluating a company's eligibility and establishing the company's credit limit. Like FTC loans, the Export Bank directly extends to companies pre-export loans, which are denominated in either Turkish Lira or foreign currency and have a maximum maturity of 360 and 540 days, respectively.^[10] To quality for a pre-export loan, in addition to submitting the necessary application documents, a company must provide a bank letter of guarantee, equivalent to the loan's principal and interest amount. During the POR, BMB paid interest against pre-export loans that were denominated in both Turkish Lira and U.S. dollars.

Consistent with previous determinations, we preliminarily find that these loans confer a countervailable subsidy within the meaning of section 771(5) of the Act. See, e.g., 2004 Pipe Memorandum at “Pre-Export Credits” under “Programs Determined To Be Countervailable.” The loans constitute a financial contribution in the form of a direct transfer of funds from the GOT, under section 771(5)(D)(i) of the Act. A benefit exists under section 771(5)(E)(ii) of the Act in the amount of the difference between the payments of interest that BMB made on its loans during the POR and the payments the company would have made on comparable commercial loans. The program is also specific in accordance with section 771(5A)(B) of the Act because receipt of the loans is contingent upon export performance.

Further, like the FTC loans, these loans are not tied to a particular export destination. Therefore, we have treated this program as an untied export loan program rendering it countervailable regardless of whether the loans were used for exports to the United States.

Pursuant to 19 CFR 351.505(a)(1), we have calculated the benefit as the difference between the payments of interest that BMB made on its pre-export loans during the POR and the payments the company would have made on comparable commercial loans.^[11] In accordance with section 771(6)(A) of the Act, we subtracted from the benefit amount the fees which BMB paid to commercial banks for the required letters of guarantee. We then divided the resulting benefit by Borusan's total export value for 2005. On this basis, we preliminarily find that the net countervailable subsidy for this program is 0.01 percent ad valorem.

II. Program Preliminary Determined To Not Confer Countervailable Benefits

A. Inward Processing Certificate Exemption Under the Inward Processing Certificate (“IPC”) ^[12] program, companies are exempt from paying customs duties and value added taxes (“VAT”) on raw material imports to be used in the production of exported goods. Companies may choose whether to be exempted from the applicable duties and taxes or have them refunded upon export. Under the exemption system, companies provide a letter of guarantee that is returned to the companies upon fulfillment of the committed export.

To participate in this program, a company must hold an IPC, which lists the amount of raw materials to be imported and the amount of product to be exported. There are two types of IPCs: A D-1 certificate and D-3 certificate. During the POR, Borusan utilized D-1 certificates associated with imports of raw materials for use in the production of carbon steel pipe and tube. Borusan did not utilize any D-3 certificates during the POR.^[13]

An IPC specifies the maximum quantity of inputs that can be imported under the program. Under the IPC program, the value of imported inputs may not exceed the value of the exported products. Input/output usage rates listed on an IPC are set by the GOT working in conjunction with Turkey's Exporter Associations, which are quasi-governmental organizations, whose leadership are subject to GOT approval. The input/output usage rates vary by product and industry and are determined using data from capacity reports submitted by companies that apply for IPCs. The input/output usage rates are subject to periodic review and verification by the GOT. The GOT uses the input/output usage rates to ensure that a company's expected export quantities are sufficient to cover the quantity of inputs imported duty-free under the program.^[14]

Pursuant to 19 CFR 351.519(a)(1)(ii), a benefit exists to the extent that the exemption extends to inputs that are not consumed in the production of the exported product, making normal allowances for waste, or if the exemption covers charges other than imported charges that are imposed on the input. In regard to the VAT exemption granted under this program, pursuant to 19 CFR 351.517(a), in the case of the exemption upon export of indirect taxes, a benefit exists to the extent that the Department determines that the amount exempted exceeds the amount levied with respect to the production and distribution of like products when sold for domestic consumption.

In the 2004 Pipe Final, the Department found that, in accordance with 19 CFR 351.519(a)(4)(i), the GOT has a system in place to confirm which inputs are consumed in the production of the exported product and in what amounts, and that the system is reasonable for the purposes intended. See 2004 Pipe Memorandum, at “Inward Processing Certificate Exemption” under “Programs Determined To Not Confer Countervailable Benefits.” During the POR, under D-1 certificates, Borusan received duty and VAT exemptions on certain imported inputs used in the production of steel pipes and tubes and not duty or VAT refunds. There is no evidence on the record of this review that indicates the amount of exempted inputs imported under the program were excessive or that Borusan used the imported inputs for any other product besides those exported.

Therefore, consistent with the 2004 Pipe Final, we preliminarily determine that the tax and duty exemptions, which Borusan received on imported inputs under D-1 certificates of the IPC program, did not confer countervailable benefits as Borusan consumed the imported inputs in the production of the exported product, making normal allowance for waste. We further preliminarily find that the VAT exemption did not confer countervailable benefits on Borusan because the exemption does not exceed the amount levied with respect to the production and distribution of like products when sold for domestic consumption. Further, because Borusan did not import any goods under a D-3 certificate during the POR, we preliminarily determine that this aspect of the IPC program was not used.

III. Programs Preliminarily Determined To Not Be Used

We examined the following programs and preliminarily determine that Borusan did not apply for or receive benefits under these programs during the POR:

A. VAT Support Program (Incentive Premium on Domestically Obtained Goods) ^[15] .

B. Pre-Shipment Export Credits.

C. Post-Shipment Export Loans.

D. Pre-Shipment Rediscount Loans.

E. Subsidized Turkish Lira Credit Facilities.

F. Subsidized Credit for Proportion of Fixed Expenditures.

G. Regional Subsidies.

Preliminary Results of Review

In accordance with 19 CFR 351.221(b)(4)(i), we have calculated a subsidy rate for Borusan for the period January 1, 2005, through December 31, 2005. We preliminarily determine that the total net countervailable subsidy rate is 0.23 percent ad valorem, which is de minimis, pursuant to 19 CFR 351.106(c).

The Department intends to issue assessment instructions to U.S. Customs and Border Protection (“CBP”) 15 days after the date of publication of the final results of this review. If the final results remain the same as these preliminary results, the Department will instruct CBP to liquidate without regard to countervailing duties all shipments of subject merchandise produced by Borusan entered, or withdrawn from warehouse, for consumption from January 1, 2005, through December 31, 2005. The Department will also instruct CBP not to collect cash deposits of estimated countervailing duties on all shipments of the subject merchandise produced by Borusan, entered, or withdrawn from warehouse, for consumption on or after the date of publication of the final results of this review.

We will also instruct CBP to continue to collect cash deposits for non-reviewed companies at the most recent company-specific or country-wide rate applicable to the company. Accordingly, the cash deposit rates that will be applied to companies covered by this order, but not examined in this review, are those established in the most recently completed administrative proceeding for each company. These rates shall apply to all non-reviewed companies until a review of a company assigned these rates is requested.

Public Comment

Pursuant to 19 CFR 351.224(b), the Department will disclose to parties to the proceeding any calculations performed in connection with these preliminary results within five days after the date of the public announcement of this notice. Pursuant to 19 CFR 351.309, interested parties may submit written comments in response to these preliminary results. Unless otherwise indicated by the Department, case briefs must be submitted within 30 days after the date of publication of this notice. Rebuttal briefs, limited to arguments raised in case briefs, must be submitted no later than five days after the time limit for filing case briefs, unless otherwise specified by the Department. Parties who submit argument in this proceeding are requested to submit with the argument: (1) A statement of the issues, and (2) a brief summary of the argument. Parties submitting case and/or rebuttal briefs are requested to provide the Department copies of the public version on disk. Case and rebuttal briefs must be served on interested parties in accordance with 19 CFR 351.303(f). Also, pursuant to 19 CFR 351.310, within 30 days of the date of publication of this notice, interested parties may request a public hearing on arguments to be raised in the case and rebuttal briefs. Unless the Secretary specifies otherwise, the hearing, if requested, will be held two days after the date for submission of rebuttal briefs, that is, 37 days after the date of publication of these preliminary results.

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 19 CFR 351.309(c)(ii), are due. See 19 CFR 351.305(b)(3). The Department will publish the final results of this administrative review, including the results of its analysis of arguments made in any case or rebuttal briefs.

This administrative review is issued and published in accordance with section 751(a)(1), 777(i)(1) of the Act.

Dated: November 17, 2006.

Stephen J. Claeys,

Acting Assistant Secretary for Import Administration.

Footnotes

1.  As of November 30, 2004, MB ceased to exist as a separate company. However, during the POR, MB filed its 2004 income tax return for the period January 1, 2004, through November 30, 2004. With regard to its 2004 income taxes, MB utilized the “Deduction from Taxable Income for Export Revenue” program. For more information, see “Deduction from Taxable Income for Export Revenue” under “Programs Preliminarily Determined To Be Countervailable,” infra.

2.  Borusan Holding A.S. is owned by the family of Asim Kocabiyik, the company's founder.

3.  See GOT's Questionnaire Response, at 20 (July 14, 2006).

4.  In each issue, The Economist reports short-term interest data on a percentage per annum basis for select countries.

5.  The short-term TL interest rates sourced from The Economist do not include commissions or fees paid to commercial banks, i.e., they are nominal rates. See Carbon and Certain Alloy Steel Wire Rod from Turkey; Final Negative Countervailing Duty Determination, 67 FR 55815 (August 30, 2002) (“Wire Rod”), and accompanying Issues and Decision Memorandum, at “Benchmark Interest Rates” (“Wire Rod Memorandum”).

6.  These actions include construction, repair, installation, and transportation activities that occur abroad.

7.  See “Company History” section, supra, for MB's company information.

8.  An SFTC is a grouping of small- and medium-sized companies that operate together in a similar sector.

9.  See “Benchmark Interest Rates,” supra, (discussing the benchmark rates used in these preliminary results).

10.  The Export Bank also sets the interest rates for this export loan program.

11.  See “Benchmark Interest Rates,” supra (discussing the benchmark rates used in these preliminary results).

12.  The IPC program is governed by the following Turkish provisions: Customs Code No. 4458 (Articles 80, 108, 111, 115, and 121), IPC Council of Ministers' Decree No. 2005/8391, and Communique of IPR No. Export 2005/1.

13.  For more information on D-3 certificates, see 2004 Pipe Memorandum, at “Inward Processing Certificate Exemption” under “Programs Determined To Not Confer Countervailable Benefits,” and GOT's Questionnaire Response, at 45-48 (July 14, 2006).

14.  For more information on how waste/usage rates are set by the GOT, see 2004 Pipe Memorandum, at “Inward Processing Certificate Exemption” under “Programs Determined To Not Confer Countervailable Benefits” and GOT's Questionnaire Response, at Exhibit 5, pages 10-11 (July 14, 2006).

15.  Although we found this program to be terminated in Wire Rod, residual payments for purchases made prior to the program's termination were permitted. See Wire Rod Memorandum, at “VAT Support Program” under “Programs Determined To Be Countervailable.”