E7-21874. Certain Welded Carbon Steel Standard Pipe From Turkey: Preliminary Results of Countervailing Duty Administrative Review

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, 2006, through December 31, 2006. 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.)

DATES:

Effective Date: November 7, 2007.

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, 2007, 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, 72 FR 9505 (March 2, 2007). On March 16, 2007, we received a timely request for review from Borusan Mannesmann Boru Sanayi ve Ticaret A.S. (“BMB”), Borusan Istikbal Ticaret T.A.S. (“Istikbal”) and their affiliates (collectively, the Borusan Group (“Borusan”)), a Turkish producer and exporter of the subject merchandise. On April 27, 2007, the Department initiated an administrative review of the CVD order on certain welded carbon steel standard pipe from Turkey, covering the period January 1, 2006, through December 31, 2006. See Initiation of Antidumping and Countervailing Duty Administrative Reviews, 72 FR 20986 (April 27, 2007).

On May 1, 2007, the Department issued a questionnaire to Borusan and the Government of the Republic of Turkey (“the GOT”); we received Borusan's and the GOT's questionnaire responses on July 5, 2007.

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. 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, 2006, through December 31, 2006.

Company History

BMB was the only company in the Borusan Group that produced the subject merchandise during the period of review (“POR”).^[1] During 2006, all subject merchandise sold to the United States was either sold directly to the U.S. customer by BMB, or first sold by BMB to Istikbal, the affiliated export sales company, and then resold to an unaffiliated U.S. customer.

BMB's shares are majority held by Borusan Mannesmann Boru Yatirim Holding A.S., a holding company owned by Borusan Holding A.S.^[2] and by 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). Where no company-specific benchmark interest rates are available, as is the case in this review, 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 New Turkish Lira (“YTL”) denominated loans based on short-term interest rate data for 2006, as reported by The Economist.^[4]

To calculate the benchmark, we sourced the short-term interest rate reported in the last weekly publication of The Economist for each quarter of 2006, i.e., the March 23, 2006, June 22, 2006, September 28, 2006, and December 19, 2006, 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 2006 Review of the Countervailing Duty Order on Certain Welded Carbon Steel Standard Pipe from Turkey, at 2 (November 1, 2007). This methodology is consistent with the Department's practice. See Final Results of Countervailing Duty Administrative Review: Certain Welded Carbon Steel Standard Pipe from Turkey, 72 FR 13479 (March 22, 2007) (“2005 Pipe Final”) (affirming methodology from the preliminary results, 71 FR 68550, 68551 (November 27, 2006)); see also, 2004 Pipe Memorandum at “Benchmark Interest Rates” 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, dated June 2, 1995, 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 prior determinations, we preliminarily find that this tax deduction is a countervailable subsidy. See 2005 Pipe Final, 72 FR 13429 (affirming preliminary results, 71 FR at 68552) and 2004 Pipe Memorandum, at “Deduction from Taxable Income for Export Revenue.” 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 also specific under section 771(5A)(B) of the Act because its receipt is contingent upon export earnings. In this review, no new information or evidence of changed circumstances has been submitted to warrant reconsideration of the Department's prior findings.

During 2006, the review period, BMB and Istikbal filed separate corporate income tax returns for tax year 2005. Each company utilized the deduction for export earnings with respect to its 2005 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 and Istikbal in 2006, as a result of the deduction for export earnings. We then divided that benefit by Borusan's total export sales for 2006. On this basis, we preliminarily determine the net countervailable subsidy for this program to be 0.12 percent ad valorem.

B. Foreign Trade Companies Short-Term Export Credits

The Foreign Trade Company (“FTC”) loan program was established by the Export Credit Bank of Turkey (“Export Bank”) to meet the working capital needs of exporters, manufacturer-exporters, and manufacturers supplying exporters. This program is specifically designed to benefit Foreign Trade Corporate Companies (“FTCC”) and Sectoral Foreign Trade Companies (“SFTC”).^[7] An FTCC is a company whose export performance was at least US$100 million in the previous year and whose paid in capital is at least YTL 2 million.

To eligible applicants, the Export Bank provides short-term export loans directly to companies in Turkish lira or foreign currency, based on their prior export performance, up to 100 percent of the FOB export commitment. The loan 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 foreign currency-denominated loans. To qualify for an FTC loan, along with the necessary application documents, a company must provide a bank letter of guarantee, equivalent to the loan's principal and interest amount, because the financing is a direct credit from the Export Bank. Istikbal, which has FTC status, was the only Borusan company to receive FTC credits during the POR.

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., 2005 Pipe Final, 72 FR 13429 (affirming preliminary results, 71 FR at 68552); and 2004 Pipe Memorandum at “Foreign Trade Companies Short-Term Export Credits.” 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.^[8] In accordance with section 771(6)(A) of the Act, we subtracted from the benefit amount the fees that Istikbal paid to commercial banks for the required letters of guarantee. We then divided the resulting benefit by Borusan's total export sales for 2006. On this basis, we preliminarily find that the net countervailable subsidy for this program is 0.06 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 its eligibility for loans and establishing the credit limit. Specifically, to be eligible for a loan, a company must have exported more than $200,000 of goods in the prior 12-month period. Like FTC loans, the Export Bank directly extends to companies' pre-export loans, which are contingent upon export commitment. The loans, whose interest rates are set by the Export Bank, are denominated in either Turkish lira or foreign currency and have a maximum maturity of 360 and 540 days, respectively. To quality for a pre-export loan, along with 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.

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., 2005 Pipe Final, 72 FR 13429 (affirming preliminary results, 71 FR at 68552); and 2004 Pipe Memorandum at “Pre-Export Credits.” 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 the 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. See id.

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.^[9] 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 2006. On this basis, we preliminarily find that the net countervailable subsidy for this program is 0.05 percent ad valorem.

II. Program Preliminarily Determined To Not Confer Countervailable Benefits

A. Inward Processing Certificate Exemption

Under the Inward Processing Certificate (“IPC”) ^[10] program, companies are exempt from paying customs duties and value added taxes (“VAT”) on raw materials and intermediate unfinished goods imported to be used in the production of exported goods. Companies may choose whether to be exempted from the applicable duties and taxes upon importation (i.e., the Suspension System) or have the duties and taxes reimbursed after exportation of the finished goods (i.e., the Drawback System). Under the Suspension System, companies provide a letter of guarantee that is returned to the companies upon fulfillment of the export commitment.

To participate in this program, a company must hold an IPC, which lists the amount of raw materials/intermediate unfinished goods to be imported and the amount of product to be exported. To obtain an IPC, an exporter must submit an application, which states the amount of imported raw material required to produce the finished products and a “letter of export commitment,” which specifies that the importer of materials will use the materials to produce exported goods. There are two types of IPCs: a D-1 certificate and a D-3 certificate.^[11] During the POR, Borusan utilized D-1 certificates associated with imports of hot-rolled coil and zinc used in the production of carbon steel pipe and tube. Borusan did not utilize any D-3 certificates during the POR.

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, which represent different industries. 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.^[12] Each time a company imports raw materials on a duty exempt basis, the company must present the IPC to Turkish customs.

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 prior reviews, 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 2005 Pipe Final, 72 FR 13429 (affirming preliminary results, 71 FR at 68552); and 2004 Pipe Memorandum, at “Inward Processing Certificate Exemption.” 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. Further, there is no evidence on the record of this review to warrant a reconsideration of the Department's finding that the GOT's IPC monitoring system is reasonable.

Therefore, consistent with the 2005 Pipe Final and 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)^[13]

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, 2006, through December 31, 2006. 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, 2006, through December 31, 2006. 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.

CBP will 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. Those rates shall apply to all non-reviewed companies until a review of a company assigned these rates is requested.

These deposit requirements, when imposed, shall remain in effect until further notice.

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, pursuant to 19 CFR 351.309(c)(1)(ii). 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, pursuant to 19 CFR 351.309(d)(1). 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(c), 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 and 19 CFR 351.221(b)(4).

Dated: November 1, 2007.

David M. Spooner,

Assistant Secretary for Import Administration.

Footnotes

1.  BMB was previously named Borusan Birlesik Boru Fabrikalari San ve Tic. (“BBBF”). The company's name was changed to BMB on December 13, 2004. 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 “Company Information” (“2004 Pipe Memorandum”).

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

3.  See GOT's Questionnaire Response, at 19 (July 5, 2007).

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

5.  The short-term YTL 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.  To promote exports and diversity in products exported, the GOT encouraged small and medium scale enterprises to form SFTC, which comprise five to ten companies that operate together in a similar sector.

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

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

10.  During the POR, the IPC was implemented under Resolution No. 2005/8391. A copy of this resolution was submitted by the GOT in its July 5, 2007, Questionnaire Response as Exhibit 23.

11.  For more information on D-3 certificates, see GOT's Questionnaire Response, at 38-40 (July 5, 2007); 2004 Pipe Memorandum, at “Inward Processing Certificate Exemption,” and Memorandum to Melissa Skinner, Director, AD/CVD Operations, Office 3, from Team regarding Verification of the Questionnaire Responses submitted by the Government of the Republic of Turkey, at 9-12 (March 31, 2006) (the public version of the verification report is available on the public file in the Department's Central Records Unit, room B-099).

12.  For more information on how waste/usage rates are set by the GOT, see 2004 Pipe Memorandum, at “Inward Processing Certificate Exemption”; and GOT's Questionnaire Response, at Exhibit 5, pages 10-11 (July 14, 2006).

13.  Although we found this program to be terminated in Wire Rod, residual payments for puchases made prior to the program's termination were permitted. See Wire Rod Memorandum, at “VAT Support Program.”