[Federal Register Volume 59, Number 173 (Thursday, September 8, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-22176]
[[Page Unknown]]
[Federal Register: September 8, 1994]
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DEPARTMENT OF COMMERCE
[C-557-806]
Extruded Rubber Thread From Malaysia; Preliminary Results of
Countervailing Duty Administrative Review
AGENCY: Import Administration, International Trade Administration,
Commerce.
ACTION: Notice of Preliminary Results of Countervailing Duty
Administrative Review.
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SUMMARY: The Department of Commerce (the Department) is conducting an
administrative review of the countervailing duty order on extruded
rubber thread from Malaysia for the period January 1, 1992 through
December 31, 1992. We preliminarily determine the net subsidy to be
3.27 percent ad valorem for all manufacturers and exporters of
Malaysian extruded rubber thread. We invite interested parties to
comment on these preliminary results.
EFFECTIVE DATE: September 8, 1994.
FOR FURTHER INFORMATION CONTACT: Lorenza Olivas or Chris Jimenez,
Office of Countervailing Compliance, Import Administration,
International Trade Administration, U.S. Department of Commerce, 14th
Street and Constitution Avenue, NW., Washington, DC 20230; telephone:
(202) 482-2786.
SUPPLEMENTARY INFORMATION:
Background
On August 3, 1993, the Department published in the Federal Register
a notice of ``Opportunity to Request an Administrative Review'' (58 FR
41239) of the countervailing duty order on extruded rubber thread from
Malaysia (57 FR 38472; August 24, 1992). On October 29, 1993,
respondents Heveafil Sdn. Bhd. (Heveafil), Filmax Sdn. Bhd. (Filmax),
Rubberflex Sdn. Bhd. (Rubberflex), and Filati Lastex Elastofibre Sdn.
Bhd. (Filati), requested an administrative review of the order. We
initiated the review for the period January 1, 1992 through December
31, 1992, on September 30, 1993 (58 FR 51053). The Department is now
conducting this review in accordance with section 751 of the Tariff Act
of 1930, as amended (the Act).
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 is 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.
The period of review is January 1, 1992 through December 31, 1992.
This review covers four companies and 13 programs. Two related
companies participated in the review.
Calculation Methodology for Assessment and Deposit Purposes
We calculated the benefits pursuant to section 355.51 of the
Department's Proposed Substantive Countervailing Duty Regulations
(Proposed Regulations) (54 FR 23366; May 31, 1989). First, we
calculated a country-wide rate, weight-averaging the benefits received
by the four companies subject to review to determine the overall
subsidy from all countervailing programs benefitting exports of subject
merchandise to the United States. Because the country-wide rate was
above de minimis, as defined by 19 CFR 355.7 (1993), we proceeded to
the next step in our analysis and examined the ad valorem rate we
calculated for each company for all countervailable programs to
determine whether individual company rates differed significantly from
the weighted-average country-wide rate. In calculating the individual
company rates described above, only one rate was calculated for
Heveafil and Filmax because Heveafil and Filmax are related parties.
None of the companies received aggregate benefits which were
significantly different within the meaning of 19 CFR 355.22(d)(3)(i).
Therefore, the country-wide rate is based on the weight-averaged
aggregate benefits received by the companies subject to this review.
Analysis of Programs
1. 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 of 1958. This ordinance was replaced by the Investment
Incentives Act (IIA) of 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 status 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, the
development 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, however, was abolished effective October 1, 1991.
Furthermore, the computation of capital allowances, which are normally
deducted against the adjusted income, are postponed to the post-tax
holiday period.
In evaluating a project for pioneer status, the Malaysian
Industrial Development Authority (MIDA) will generally consider
whether:
(1) The product is being produced on a commercial scale suitable to
the economic requirements 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 address the export potential of the proposed
product or activity: (1) The government considers if the applicant has
made a case for export markets to absorb the excess above the existing
demand and (2) the government considers whether the project saves
foreign exchange through substitution of imports and, alternatively,
whether it earns considerable foreign exchange by exporting a
substantial part of its output. The other 10 criteria address domestic
factors and are, therefore, export ``neutral''.
Only in cases where the export criteria carry predominant weight is
the program countervailable. 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 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,
we determined that pioneer status was granted to Rubberflex based on
its obligation to export. Therefore, the Department found the program
to be countervailable with respect to that company. Rubberflex
continues to hold pioneer status.
In this review, we reviewed the pioneer status of Filati and Filmax
to determine whether the program is also countervailable with respect
to those two companies. (Heveafil's pioneer status expired.) We
verified that both of those companies were granted pioneer status based
on a commitment that they would export a majority of their production.
Therefore, we preliminarily find this program also countervailable with
respect to Filati and Filmax.
To determine the benefit, we calculated the tax savings from this
program during the review period and divided that by total exports. On
this basis, we preliminarily determine the net subsidy from this
program to be 2.05 percent ad valorem for all manufacturers and
exporters in Malaysia of extruded rubber thread.
2. 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 pre-shipment and post-shipment financing. Pre-
shipment financing is a line of credit based on the previous 12 months'
export performance, and cannot be tied to specific sales in specific
markets. Post-shipment financing is order-based which is provided for
specific sales to specific markets.
The Department determined that this program was countervailable in
the Malaysian Rubber Thread Final Determination because receipt of
loans under this program was contingent upon export performance, and
the loans were provided at preferential interest rates. We verified
that all four companies used both pre-shipment and 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. It is our practice to select the predominant
source of short-term financing in the country as our benchmark for
short-term loans. See Sec. 355.44(b)(3) of the Proposed Regulations.
In Malaysia, overdrafts and term loans offered by commercial banks
are the 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.
Because the pre-shipment loans were not shipment-specific, we
included all loans on which interest was paid during the review period
in our calculations. 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.
We calculated the benefit by comparing the amount of interest
actually paid on the pre- and post-shipment loans during the review
period with the amount that would have been paid at the benchmark rate
of 10.83 percent. The difference between those amounts is the benefit.
We then divided each company's interest savings by that company's total
exports, in the case of pre-shipment loans, because they applied to all
exports, or by its exports to the United States, in the case of post-
shipment loans, because they applied to specific shipments to the
United States. On this basis, we preliminarily determine the net
subsidy for pre-shipment loans to be 0.33 percent for all manufacturers
or exporters. For post-shipment loans, we preliminarily determine the
rate to be 0.30 percent for all manufacturers and exporters in Malaysia
of extruded rubber thread.
3. Abatement of Income Tax Based on the Ratio of Export Sales to Total
Sales
The IIA provided for an abatement of income tax based on the ratio
of export sales to total sales. This law was repealed effective January
1, 1986, and replaced by the PIA. Among other incentives, the new law
also provides an abatement of income tax based on export performance.
Specifically, a portion of income, equal to 50 percent of the ratio of
export sales to total sales, is exempt from income tax. This program is
not available to companies still participating in programs under the
repealed IIA or to companies granted pioneer status or an investment
tax allowance under the PIA. Because this program is limited to
exporters, we determined this program to be countervailable in the
Malaysian Rubber Thread Final Determination.
We verified that only Heveafil claimed this tax abatement on its
income tax return filed during the review period. Heveafil contends
that this tax abatement did not benefit exports of the subject
merchandise to the United States. This contention is based on the fact
that the company did not include U.S. sales in the calculation of the
ratio used to determine the amount of the tax abatement.
The amount of the tax abatement is calculated using a ratio of
total exports divided by total sales. This ratio is then multiplied by
total adjusted income to calculate the claimed tax abatement. In
calculating this ratio, Heveafil deducted the amount of U.S. exports
from both the numerator and denominator, i.e., from both total exports
and total sales. Therefore, in the company's calculation there was no
significant change in the calculated ratio which was applied to the
adjusted income. Thus, the calculation methodology used by Heveafil in
its tax return did not eliminate the benefit attributable to sales of
U.S. exports conferred from the use of this program. Therefore, we
preliminarily determine that this program provides a countervailable
benefit with respect to exports of the subject merchandise.
To calculate the benefit, we calculated the tax savings from this
program during the review period and divided that by total exports,
because these benefits applied to all exports. On this basis, we
preliminarily determine the net subsidy from this program to be 0.38
percent ad valorem for all manufacturers and exporters in Malaysia of
extruded rubber thread.
4. Abatement of Five Percent of the Value of Indigenous Malaysian
Materials Used in Exports
In addition to the income tax abatement based on exports which is
discussed above, the PIA provides for an abatement of income tax in the
amount of five percent of the ratio of export sales to total sales
times the value of indigenous Malaysian materials used in the
manufacture of exported products. This program is not available to
companies still participating in programs under the repealed IIA or to
companies granted pioneer status or an investment tax allowance under
the PIA. We found this program countervailable in the Malaysian Rubber
Thread Final Determination because use of this program is contingent
upon export performance.
We verified that only Heveafil claimed this tax abatement on its
income tax return filed during the review period. Heveafil contends
that this tax abatement did not benefit exports of the subject
merchandise to the United States. This contention is based on the fact
that the company did not include U.S. sales in the calculation of the
ratio used to determine the amount of the tax abatement.
The amount of the tax abatement is calculated using a ratio of
total exports divided by total sales. This ratio is then multiplied by
five percent of the value of indigenous materials to calculate the
claimed tax abatement. In calculating this ratio, Heveafil deducted the
amount of U.S. exports from both the numerator and denominator, i.e.,
from both total exports and total sales. Therefore, in the company's
calculation there was no significant change in calculated ratio which
was applied to the value of indigenous materials to determine the
amount of the tax abatement. Thus, the calculation methodology used by
Heveafil in its tax return did not eliminate the benefit attributable
to sales of U.S. exports conferred from the use of this program.
Therefore, we preliminarily determine that this program provides a
countervailable benefit with respect to exports of the subject
merchandise.
To calculate the benefit, we calculated the tax savings from this
program during the review period and divided that by total exports,
because these benefits applied to all exports. On this basis, we
preliminarily determine the net subsidy from this program to be 0.12
percent ad valorem for all manufacturers and exporters in Malaysia of
extruded rubber thread.
5. Industrial Building Allowance
Sections 63 through 66 of the Income Tax Act of 1967, as amended,
allow an income tax deduction for a percentage of the value of
constructed or purchased buildings used in manufacturing. In 1984, this
allowance, which had been limited to manufacturing facilities, was
extended to include buildings used as warehouses to store finished
goods ready for export or imported inputs to be incorporated into
exported goods. This program includes a 10 percent initial tax
allowance and an additional 2 percent annual tax allowance (i.e., 12
percent in the first year and 2 percent thereafter). The program
effectively reduces a company's taxable income, and the tax allowance
can be carried forward to future tax years until fully exhausted.
Rubber-based exporters are eligible for this program. We found this
program countervailable in the Malaysian Rubber Thread Final
Determination because use of this allowance is limited to exporters.
We verified that Heveafil used this program during the review
period. To calculate the benefit, we calculated the tax savings from
this program during the review period for Heveafil and divided the
savings amount by total exports, because these benefits applied to all
exports. On this basis, we preliminarily determine the net subsidy from
this program to be less than 0.005 percent ad valorem for all
manufacturers and exporters in Malaysia of extruded rubber thread.
6. Double Deduction for Export Promotion Expenses
Section 41 of the Promotion of Investments Act allows companies to
deduct expenses related to the promotion of exports twice, once in
calculating net income on the financial statement and again in
calculating taxable income. Because this program is limited to
exporters, we found this program countervailable in the Malaysian
Rubber Thread Final Determination. We verified that Heveafil and Filmax
used this program during the review period.
To calculate the benefit, we calculated the tax savings from this
program during the review period for each company and divided that by
total exports, because these benefits applied to all exports. On this
basis, we preliminarily determine the net subsidy from this program to
be 0.09 percent ad valorem for all manufacturers and exporters in
Malaysia of extruded rubber thread.
7. Rubber Discount Scheme
We verified that this program was terminated effective January 1,
1992, and that the last date exports were eligible for rebates under
this program was December 31, 1991. In the Malaysian Rubber Thread
Final Determination, we determined that benefits from this program were
conferred when the product was exported. Therefore, we preliminarily
determine that this program is terminated and provides no residual
benefit.
Other Programs
We preliminarily determine that the exporters of extruded rubber
thread did not use the programs listed below with respect to exports of
the subject merchandise to the United States during the review period:
Investment Tax Allowance.
Abatement of Five Percent of Taxable Income Due to
Location in a Promoted Industrial Area.
Allowance of a Percentage of Net Taxable Income Based on
the F.O.B. Value of Export Sales.
Double Deduction of Export Credit Insurance Payments.
Abatement of Taxable Income of Five Percent of Adjusted
Income of Companies Due to Capital Participation and Employment Policy
Adherence.
Preferential Financing for Bumiputras.
Preliminary Results of Review
We preliminarily determine the net subsidy for the period January
1, 1992 through December 31, 1992, to be 3.27 percent.
If the final results of this review remain the same as these
preliminary results, the Department intends to instruct the Customs
Service to assess countervailing duties at 3.27 percent of the f.o.b.
invoice price on shipments of the subject merchandise exported on or
after April 1, 1992, and on or before December 31, 1992.
Pursuant to the International Trade Commission's termination of its
injury determination on Malaysian extruded rubber thread in light of
the revocation of duty free status under the Generalized System of
Preferences, effective March 31, 1992, the Department previously issued
instructions to Customs to liquidate entries of the subject merchandise
entered, or withdrawn from warehouse, for consumption prior to March
31, 1992. Therefore, those entries are not subject to assessment of
countervailing duties (See Amended Final Affirmative Countervailing
Duty Determination and Countervailing Duty Order; Extruded Rubber
Thread from Malaysia (58 FR 41084; August 2, 1993)).
The Department also intends to instruct the Customs Service to
collect a cash deposit of 3.27 percent on all shipments of the subject
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. In
accordance with 19 CFR 355.38(c)(1)(ii), 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 up
until 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 are due under 19 CFR 355.38(c).
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 briefs.
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: August 30, 1994.
Joseph A. Spetrini,
Acting Assistant Secretary for Import Administration.
[FR Doc. 94-22176 Filed 9-7-94; 8:45 am]
BILLING CODE 3510-DS-M
