Certain New Pneumatic Off-the-Road Tires from the People's Republic of China: Preliminary Affirmative Countervailing Duty Determination, 71360-71377 [E7-24397]

Agencies

• DEPARTMENT OF COMMERCE
• International Trade Administration

[Federal Register Volume 72, Number 241 (Monday, December 17, 2007)]
[Notices]
[Pages 71360-71377]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-24397]


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DEPARTMENT OF COMMERCE

International Trade Administration

[C-570-913]


Certain New Pneumatic Off-the-Road Tires from the People's 
Republic of China: Preliminary Affirmative Countervailing Duty 
Determination

AGENCY: Import Administration, International Trade Administration, 
Department of Commerce.
SUMMARY: The Department of Commerce (the Department) preliminarily 
determines that countervailable subsidies are being provided to 
producers and exporters of certain new pneumatic off-the-road tires 
(OTR tires) from the People's Republic of China (PRC). For information 
on the estimated subsidy rates, see the ``Suspension of Liquidation'' 
section of this notice. Interested parties are invited to comment on 
this preliminary determination. See ``Disclosure and Public Comment'' 
section below for procedures on filing comments.

EFFECTIVE DATE: December 17, 2007.

FOR FURTHER INFORMATION CONTACT: Mark Hoadley, Jun Jack Zhao, or 
Nicholas Czajkowski, AD/CVD Operations, Office 6, Import 
Administration, International Trade Administration, U.S. Department of 
Commerce, 14th Street and Constitution Avenue, NW, Washington, DC 
20230; telephone: (202) 482-3148, (202) 482-1396, and (202) 482-1395, 
respectively.

SUPPLEMENTARY INFORMATION:

Case History

    The following events have occurred since the publication of the 
Department's notice of initiation in the Federal Register. See Certain 
New Pneumatic Off-the-Road Tires From the People's Republic of China: 
Initiation of Countervailing Duty Investigation, 72 FR

[[Page 71361]]

44122 (August 7, 2007) (Initiation Notice).
    On August 17, 2007, the Department selected, as mandatory 
respondents, the three largest Chinese producers/exporters of OTR tires 
that could reasonably be examined: Guizhou Tire Co., Ltd. (Guizhou 
Tire), Hebei Starbright Tire Co., Ltd. (Starbright), and Tianjin United 
Tire & Rubber International Co., Ltd. (TUTRIC). See Memorandum to 
Stephen J. Claeys, Deputy Assistant Secretary for Import 
Administration, ``Respondent Selection'' (August 17, 2007). This 
memorandum is on file in the Department's Central Records Unit in Room 
B-099 of the main Department building (CRU). On that same day, we 
issued a countervailing duty (CVD) questionnaire to the Government of 
the People's Republic of China (GOC), requesting the GOC forward the 
company sections of the questionnaire to the mandatory respondents.
    On August 27, 2007, the International Trade Commission (ITC) issued 
its affirmative preliminary determination that there is a reasonable 
indication that an industry in the United States is materially injured 
by reason of allegedly subsidized imports of OTR tires from China. See 
Certain Off-the-Road Tires From China, Investigation Nos. 701-TA-448 
and 731-TA-1117 (Preliminary), 72 FR 50699 (September 4, 2007).
    On September 17, 2007, we published a postponement of the 
preliminary determination of this investigation until December 7, 2007. 
See Certain New Pneumatic Off-the-Road Tires from the People's Republic 
of China: Postponement of Preliminary Determination in the 
Countervailing Duty Investigation, 72 FR 52859 (September 17, 2007).
    On August 20, 2007, Aeolus Tyre Co., Ltd. (Aeolus) submitted a 
request to be a voluntary respondent in this investigation; on 
September 20, 2007, Aeolus renewed its request to be a conditional 
voluntary respondent. Aeolus' request was conditioned on certain 
eventualities, such as being selected as a respondent in the 
accompanying antidumping investigation, which it was not. On September 
24, 2007, petitioners submitted comments to the Department arguing we 
should reject Aeolus's request to be a voluntary respondent. On October 
3, Aeolus withdrew its request.
    On October 5, 2007, we initiated an investigation of several new 
subsidy allegations. See Memorandum to the File, ``Countervailing Duty 
Investigation on Certain New Pneumatic Off-the-Road Tires from the 
People's Republic of China: Initiation Analysis for New Subsidy 
Allegations'' (October 5, 2007). The allegations were submitted on 
August 24 by Titan Tire Corporation and United Steel, Paper and 
Forestry, Rubber, Manufacturing, Energy Allied Industrial and Service 
Workers International Union, AFL-CIO-CLC (collectively, petitioners) 
and on September 5 by Bridgestone Americas Holding, Inc. and its 
subsidiary, Bridgestone Firestone North America Tire, LLC 
(collectively, Bridgestone), a U.S. domestic producer of OTR tires.\1\ 
Petitioners submitted additional information supporting their new 
allegations on September 5; Bridgestone submitted additional 
information supporting its new allegation on September 19 and October 
1. On September 21 and September 26, the GOC, Starbright and TUTRIC 
submitted comments on these new subsidy allegations. On October 5, we 
issued questionnaires concerning these new allegations to the GOC and 
the mandatory respondents.
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    \1\ Since Bridgestone is a U.S. producer, it meets the 
definition of interested party as set forth in section 771(9) of the 
Tariff Act of 1930, as amended (the Act).
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    On October 15, 2007, we received responses to our initial 
questionnaire from the GOC, Guizhou Tire, Starbright, and TUTRIC. On 
October 19 and 22, Bridgestone submitted comments regarding the 
questionnaire responses from the GOC, Guizhou Tire, Starbright, and 
TUTRIC; also on October 22 and 23, petitioners submitted comments 
regarding the questionnaire responses from the GOC, Guizhou Tire, 
Starbright, and TUTRIC. On October 29, we received responses to our 
questionnaires concerning the new subsidy allegations from the GOC, 
Guizhou Tire, Starbright, and TUTRIC. On November 1, 2 and 5, 
Bridgestone submitted comments regarding the new subsidy allegation 
questionnaire responses from the GOC, Guizhou Tire, Starbright, and 
TUTRIC; and on November 2 and 5, petitioners submitted comments 
regarding the new subsidy allegation questionnaire responses from the 
GOC, Guizhou Tire, Starbright, and TUTRIC. Supplemental questionnaires 
regarding all these submissions were issued to Guizhou Tire, 
Starbright, and TUTRIC on November 9, and to the GOC on November 14. We 
received responses on November 27, 2007.
    In our initial questionnaire, we asked for information concerning 
alleged subsidies received during the period 1993 through the POI 
(based on our finding in accordance with section 351.524(d)(2) that the 
average useful life (AUL) of assets used in producing OTR Tires was 14 
years). In our supplemental questionnaires, we limited our inquiry to 
subsidies received during or after 2001, pursuant to a recent 
preliminary determination that December 11, 2001 (the date on which the 
PRC became a WTO member) was the uniform date from which the Department 
will identify and measure subsidies for purposes of the CVD law.\2\ 
However, given that the final determination regarding this uniform date 
will not be issued before March 18, 2008, the Department, on November 
21, informed the GOC and the three OTR tire respondents that 
information was required for all non-recurring subsidies received 
during the AUL. The deadline for submitting information concerning pre-
2001 subsidies is currently December 12, 2007.
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    \2\ Circular Welded Carbon Quality Steel Pipe from the People's 
Republic of China: Preliminary Affirmative Countervailing Duty 
Determination; Preliminary Affirmative Determination of Critical 
Circumstances; and Alignment of Final Countervailing Duty 
Determination with Final Antidumping Duty Determination, 72 FR 
63875, 63880 (November 13, 2007) (CWP Preliminary)
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    On November 14, 2007, the Department initiated an investigation of 
an additional new subsidy allegation pertaining only to Guizhou Tire, 
pursuant to information submitted by petitioners on October 23 and 
additional information on November 2. See Countervailing Duty 
Investigation of Certain New Pneumatic Off-the-Road Tires from the 
People's Republic of China: Initiation Analysis for New Subsidy 
Allegation (November 14, 2007). On that same day, November 14, we also 
issued a questionnaire concerning this allegation to the GOC and 
Guizhou Tire. The deadline for responding to this questionnaire is 
currently December 10, 2007. We intend to issue an interim analysis 
describing our preliminary findings with respect to this program before 
the final determination so that parties will have the opportunity to 
comment on our findings before the final determination.
    On November 9, 2007, petitioners submitted comments on loan 
benchmarks. On November 28, 29 and 30, respectively, Bridgestone, 
petitioners and the GOC submitted pre-preliminary comments. On December 
4, Starbright and TUTRIC submitted pre-preliminary comments. On 
December 5, Starbright submitted additional pre-preliminary comments.

Scope of the Investigation

    The products covered by the scope of this investigation are new 
pneumatic

[[Page 71362]]

tires designed for off-the-road (OTR) and off-highway use, subject to 
exceptions identified below. Certain OTR tires are generally designed, 
manufactured and offered for sale for use on off-road or off-highway 
surfaces, including but not limited to, agricultural fields, forests, 
construction sites, factory and warehouse interiors, airport tarmacs, 
ports and harbors, mines, quarries, gravel yards, and steel mills. The 
vehicles and equipment for which certain OTR tires are designed for use 
include, but are not limited to: (1) agricultural and forestry vehicles 
and equipment, including agricultural tractors,\3\ combine 
harvesters,\4\ agricultural high clearance sprayers,\5\ industrial 
tractors,\6\ log-skidders,\7\ agricultural implements, highway-towed 
implements, agricultural logging, and agricultural, industrial, skid-
steers/mini-loaders; \8\ (2) construction vehicles and equipment, 
including earthmover articulated dump products, rigid frame haul 
trucks,\9\ front endloaders,\10\ dozers,\11\ lift trucks, straddle 
carriers,\12\ graders,\13\ mobile cranes, compactors; and (3) 
industrial vehicles and equipment, including smooth floor, industrial, 
mining, counterbalanced lift trucks, industrial and mining vehicles 
other than smooth floor, skid-steers/mini-loaders, and smooth floor 
off-the-road counterbalanced lift trucks.\14\ The foregoing list of 
vehicles and equipment generally have in common that they are used for 
hauling, towing, lifting, and/or loading a wide variety of equipment 
and materials in agricultural, construction and industrial settings. 
The foregoing descriptions are illustrative of the types of vehicles 
and equipment that use certain OTR tires, but are not necessarily all-
inclusive. While the physical characteristics of certain OTR tires will 
vary depending on the specific applications and conditions for which 
the tires are designed (e.g., tread pattern and depth), all of the 
tires within the scope have in common that they are designed for off-
road and off-highway use. Except as discussed below, OTR tires included 
in the scope of the petitions range in size (rim diameter) generally 
but not exclusively from 8 inches to 54 inches. The tires may be either 
tube-type or tubeless, radial or non-radial, and intended for sale 
either to original equipment manufacturers or the replacement market. 
The subject merchandise is currently classifiable under Harmonized 
Tariff Schedule of the United States (HTSUS) subheadings: 
4011.20.10.25, 4011.20.10.35, 4011.20.50.30, 4011.20.50.50, 
4011.61.00.00, 4011.62.00.00, 4011.63.00.00, 4011.69.00.00, 
4011.92.00.00, 4011.93.40.00, 4011.93.80.00, 4011.94.40.00, and 
4011.94.80.00. While HTSUS subheadings are provided for convenience and 
Customs purposes, our written description of the scope is dispositive.
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    \3\ Agricultural tractors are four-wheeled vehicles usually with 
large rear tires and small front tires that are used to tow farming 
equipment.
    \4\ Combine harvesters are used to harvest crops such as corn or 
wheat.
    \5\ Agricultural sprayers are used to irrigate agricultural 
fields
    \6\ Industrial tractors are four-wheeled vehicles usually with 
large rear tires and small front tires that are used to tow 
industrial equipment.
    \7\ A log skidder has a grappling lift arm that is used to 
grasp, lift and move trees that have been cut down to a truck or 
trailer for transport to a mill or other destination.
    \8\ Skid-steer loaders are four-wheel drive vehicles with the 
left-side drive wheels independent of the right-side drive wheels 
and lift arms that lie alongside the driver with the major pivot 
points behind the driver's shoulders. Skid-steer loaders are used in 
agricultural, construction and industrial settings.
    \9\ Haul trucks, which may be either rigid frame or articulated 
(i.e., able to bend in the middle) are typically used in mines, 
quarries and construction sites to haul soil, aggregate, mined ore, 
or debris.
    \10\ Front loaders have lift arms in front of the vehicle. It 
can scrape material from one location to another, carry material in 
its bucket or load material into a truck or trailer.
    \11\ A dozer is a large four-wheeled vehicle with a dozer blade 
that is used to push large quantities of soil, sand, rubble, etc., 
typically around construction sites. They can also be used to 
perform ``rough grading'' in road construction.
    \12\ A straddle carrier is a rigid frame, engine-powered machine 
that is used to load and offload containers from container vessels 
and load them onto (or off of) tractor trailers.
    \13\ A grader is a vehicle with a large blade used to create a 
flat surface. Graders are typically used to perform ``finish 
grading.'' Graders are commonly used in maintenance of unpaved roads 
and road construction to prepare the base course onto which asphalt 
or other paving material will be laid.
    \14\ A counterbalanced lift truck is a rigid frame, engine-
powered machine with lift arms that has additional weight 
incorporated into the back of the machine to offset or 
counterbalance the weight of loads that it lifts so as to prevent 
the vehicle from overturning. An example of a counterbalanced lift 
truck is a counterbalanced fork lift truck. Counterbalanced lift 
trucks may be designed for use on smooth floor surfaces, such as a 
factory or warehouse, or other surfaces, such as construction sites, 
mines, etc.
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    Specifically excluded from the scope are new pneumatic tires 
designed, manufactured and offered for sale primarily for on-highway or 
on-road use, including passenger cars, race cars, station wagons, sport 
utility vehicles, minivans, mobile homes, motorcycles, bicycles, on-
road or on-highway trailers, light trucks, and trucks and buses. Such 
tires generally have in common that the symbol ``DOT'' must appear on 
the sidewall, certifying that the tire conforms to applicable motor 
vehicle safety standards. Such excluded tires may also have the 
following designations that are used by the Tire and Rim Association:

Prefix letter designations:

 P - Identifies a tire intended primarily for service on 
passenger cars;
 LT - Identifies a tire intended primarily for service on light 
trucks; and,
 ST - Identifies a special tire for trailers in highway 
service.

Suffix letter designations:

 TR - Identifies a tire for service on trucks, buses, and other 
vehicles with rims having specified rim diameter of nominal plus 
0.156'' or plus 0.250'';
 MH - Identifies tires for Mobile Homes;
 HC - Identifies a heavy duty tire designated for use on ``HC'' 
15'' tapered rims used on trucks, buses, and other vehicles. This 
suffix is intended to differentiate among tires for light trucks, and 
other vehicles or other services, which use a similar designation. 
Example: 8R17.5 LT, 8R17.5 HC;
 LT - Identifies light truck tires for service on trucks, 
buses, trailers, and multipurpose passenger vehicles used in nominal 
highway service; and
 MC - Identifies tires and rims for motorcycles.
    The following types of tires are also excluded from the scope: 
pneumatic tires that are not new, including recycled or retreaded tires 
and used tires; non-pneumatic tires, including solid rubber tires; 
tires of a kind used on aircraft, all-terrain vehicles, and vehicles 
for turf, lawn and garden, golf and trailer applications; and, tires of 
a kind used for mining and construction vehicles and equipment that 
have a rim diameter equal to or exceeding 39 inches. Such tires may be 
distinguished from other tires of similar size by the number of plies 
that the construction and mining tires contain (minimum of 16) and the 
weight of such tires (minimum 1500 pounds).

Scope Comments

    In accordance with the preamble to the Department's regulations, in 
our Initiation Notice we set aside a period of time for parties to 
raise issues regarding product coverage, and encouraged all parties to 
submit comments within 20 calendar days of publication of the 
Initiation Notice. See Antidumping Duties; Countervailing Duties, 62 FR 
27296, 27323 (May 19, 1997) (Preamble) and Initiation Notice, 72 FR at 
41222. On August 20, 2007, the following parties submitted comments 
concerning both the scope of this investigation and the identical scope 
of the companion antidumping duty

[[Page 71363]]

investigation: Petitioners, Bridgestone, Carlisle Tire and Wheel 
Company, Guizhou Tire, and Valmont Industries, Inc. On August 21, 
comments on the scope were submitted to both records by Agri-Fab, Inc. 
On August 27, rebuttal comments were filed on both records by 
petitioners, Bridgestone, and Guizhou Tire. The Department will address 
the issues raised by these parties with regard to both investigations 
in the preliminary determination of the antidumping duty investigation 
currently scheduled for February 5, 2008.

Application of the Countervailing Duty Law to Imports from the PRC

    On October 25, 2007, the Department published Coated Free Sheet 
Paper from the People's Republic of China: Final Affirmative 
Countervailing Duty Determination, 72 FR 60645 (October 25, 2007) and 
the accompanying Issues and Decision Memorandum (CFS Final). In that 
determination, the Department found that ``given the substantial 
differences between the Soviet-style economies and the PRC's economy in 
recent years, the Department's previous decision not to apply the CVD 
law to these Soviet-style economies does not act as a bar to proceeding 
with a CVD investigation involving products from China.'' See CFS Final 
at Comment 6. This decision was also affirmed in three recent 
preliminary determinations. See CWP Preliminary, 72 FR at 63880, 
Laminated Woven Sacks from the People's Republic of China: Preliminary 
Affirmative Countervailing Duty Determination; Preliminary Affirmative 
Determination of Critical Circumstances; and Alignment of Final 
Countervailing Duty Determination with Final Antidumping Duty 
Determination, 72 FR 67893 (December 3, 2007) (LWS Preliminary), and 
Light-walled Rectangular Pipe and Tube from the People's Republic of 
China: Preliminary Affirmative Countervailing Duty Determination and 
Alignment of Final Countervailing Duty Determination with Final 
Antidumping Duty Determination, 72 FR 67703 (November 30, 2007).
    For the reasons stated in CWP Preliminary, we are using the date of 
December 11, 2001, the date on which the PRC became a member of the 
WTO, as the date from which the Department will identify and measure 
subsidies in the PRC for purposes of this preliminary determination. 
Id. As explained in CWP Preliminary, prior to December 11, 2001, there 
were many changes in the PRC's economy. Many of the obligations 
undertaken by the PRC pursuant to its accession to the WTO were in line 
with the PRC's objective of economic reform. See, e.g., Report of the 
Working Party on the Accession of China, WT/ACC/CHN/49 (October 1, 
2001) at paragraph 4 (found at www.wto.org). Taken together, these 
changes permit the Department to determine whether the GOC has bestowed 
a countervailable subsidy on Chinese producers. See CFS Final at 
Comments 1 and 6. Finally, the GOC acknowledged the changing nature of 
its economy insofar as its accession protocol contemplates the 
application of the CVD law to the PRC, even while it remains a non-
market economy (NME). See Protocol of Accession of the People's 
Republic of China, WT/L/432 (November 23, 2001) at section 15(b) (found 
at www.wto.org); see, also, CFS Final at Comment 1. Therefore, for this 
preliminary determination, we have selected the date of December 11, 
2001, as the date from which we will measure countervailable subsidies 
in the PRC.

Period of Investigation

    The period for which we are measuring subsidies, or the POI, is 
calendar year 2006.

Subsidies Valuation Information

Allocation Period

    The allocation period for non-recurring subsidies is normally the 
AUL as described in 19 CFR 351.524(d)(2). The AUL applicable to the OTR 
tire industry is 14 years according to the U.S. Internal Revenue 
Service's 1977 Class Life Asset Depreciation Range System. No party in 
this proceeding has disputed this allocation period.

Cross-Ownership

    The Department's regulations at section 351.525(b)(6)(vi) state 
that cross-ownership exists between corporations if one corporation can 
use or direct the individual assets of the other corporation(s) in 
essentially the same way it uses its own. This section of the 
Department's regulations states that this standard will normally be met 
where there is a majority voting interest between two corporations or 
through common ownership of two (or more) corporations. Section 
351.525(b)(6)(iii) of the Department's regulations states that ``if the 
firm that received the subsidy is a holding company, including a parent 
company with its own operations, the Secretary will attribute the 
subsidy to the consolidated sales of the holding company and its 
subsidiaries.'' The Court of International Trade (CIT) has upheld the 
Department's authority to attribute subsidies based on whether a 
company could use or direct the subsidy benefits of another company in 
essentially the same way it could use its own subsidy benefits. See 
Fabrique de Fer de Charleroi v. United States, 166 F. Supp. 2d. 593, 
604 (CIT 2001).
    Guizhou Tire reported that it is affiliated with numerous 
companies. Of these, according to Guizhou Tire, two are involved in the 
production or sale of subject merchandise: Guizhou Advance Rubber Co., 
Ltd. (Guizhou Rubber), a producer of subject merchandise, and Guizhou 
Tire I&E Corp. (GTCIE), which serves as Guizhou Tire's export 
department for OTR tires.\15\ Guizhou Tire owns 98.75 percent of 
Guizhou Rubber and 100 percent of GTCIE. Therefore, pursuant to 19 CFR 
351.525(b)(6)(vi), we preliminarily determine that Guizhou Tire is 
cross-owned with Guizhou Rubber, and, pursuant to 19 CFR 
351.525(b)(6)(ii), we are attributing the subsidies received by Guizhou 
Tire and Guizhou Rubber to the combined sales of Guizhou Tire and 
Guizhou Rubber. Pursuant to 19 CFR 351.525(c), we are cumulating the 
benefits from subsidies provided to GTCIE with benefits from subsidies 
provided to Guizhou Tire. Both Guizhou Rubber and GTCIE have provided 
responses to the Department's questionnaires.
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    \15\ A third company is involved in domestic distribution.
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    TUTRIC also reported numerous affiliations. Of these, one is a 
state-owned parent company, described by TUTRIC as a ``holding 
company,'' and another is a supplier of carbon black, Dolphin Carbon 
Black (DCB), an input consumed in the production of tires. TUTRIC 
reports that the input supplier is also a subsidiary of the holding 
company. The others are either located outside the PRC or not involved 
in the production or sale of subject merchandise.\16\ Our analysis 
indicates that the holding company and the input supplier are 
essentially the same entity and that this entity controls TUTRIC. (The 
details of this analysis are business proprietary and are discussed in 
the Memorandum to Thomas Gilgunn, Program Manager, AD/CVD Operations,

[[Page 71364]]

Office 6, from Mark Hoadley, Case Analyst, ``TUTRIC's Cross-Ownership'' 
(December 7, 2007).) As such, pursuant to 19 CFR 351.525(b)(6)(vi), we 
preliminarily determine that TUTRIC is cross-owned with its parent/
holding company, and, pursuant to 19 CFR 351.525(b)(6)(iii), we are 
attributing the subsidies received by its parent/holding company to the 
combined sales of TUTRIC and the parent/holding company (hereinafter, 
DCB).
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    \16\ TUTRIC also claims affiliation with Starbright, one of the 
other two respondents in this case, based on both companies having a 
relationship with GPX International Tire Co. (GPX). Starbright also 
makes this claim. GPX is the sole owner of Starbright, and the 
nature of its relationship with TUTRIC is business proprietary. The 
Department, however, preliminarily determines that neither TUTRIC's 
relationship with GPX or Starbright rises to the level of cross-
ownership. TUTRIC does not share board members or officers with 
these companies, for example, and the facts otherwise do not 
demonstrate that TUTRIC and either of these companies could ``use or 
direct the individual assets of the other corporation(s) in 
essentially the same ways it can use its own assets.'' 19 CFR 
351.525(b)(6)(vi).
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Denominator

    When selecting an appropriate denominator for use in calculating 
the ad valorem subsidy rate, the Department considered the basis for 
respondents' receipt of benefits under each program at issue. We have 
preliminarily found that TUTRIC's, Guizhou Tire's, and Starbright's 
receipt of benefits under the programs found countervailable was not 
tied to export performance or to the production of a particular 
product. As such, for subsidies received by TUTRIC, Guizhou Tire, or 
Starbright, we are using that company's sales (and those of its cross-
owned affiliates where applicable) of all products as the denominator 
in our calculations. See 19 CFR 351.525(b)(3).
    As discussed in the ``Cross-Ownership'' section above, Guizhou Tire 
is cross-owned with Guizhou Rubber, a producer of subject merchandise 
that received benefits that were not tied to export performance or to 
the production of a particular product. As such, for benefits received 
by Guizhou Rubber, we are using total sales of all products by Guizhou 
Tire and its cross-owned producer of subject merchandise (less any 
internal sales between Guizhou Tire and its cross-owned producer) as 
the denominator in our calculations. See 19 CFR 351.525(b)(6)(iv).
    Also as discussed in the ``Cross-Ownership'' section above, we have 
preliminarily found that TUTRIC is cross-owned with a parent company 
that received subsidies that were not tied to export performance or to 
the production of a particular product. As such, for benefits received 
by TUTRIC's cross-owned parent company, we are using total sales of all 
products by TUTRIC and its cross-owned parent company (less any 
internal sales between TUTRIC and its cross-owned parent company) as 
the denominators in our calculations. See 19 CFR 351.525(b)(6)(iii).

Change In Ownership

    Starbright states that it was created in 2006 when it purchased 
substantially all the assets of Hebei Tire Co., Ltd. (Hebei Tire). 
Starbright claims that it is unable to provide information concerning 
subsidies received by Hebei Tire before the purchase, but that Hebei 
Tire had never been a (foreign invested enterprise) (FIE) and had not 
been an SOE since 2000. Starbright also claims it purchased Hebei Tire 
at arm's length and for fair market value, and responded to the 
Department's standard change-in-ownership appendix. In doing so, it 
claims the sale was at arm's length, as it had no relationship with 
Hebei Tire and no relationship with the GOC. It also provides a 
reconciliation between the assets it purchased and their assessed 
value, thus, according to Starbright, demonstrating they were purchased 
at fair market value. Starbright also provides a reconciliation between 
the debt it paid off on behalf of Hebei Tire and the lending section of 
Hebei Tire's balance sheet at the approximate time of sale.
    Petitioners and Bridgestone have stated their concerns with the 
failure of Starbright and the GOC to provide information concerning 
past non-recurring subsidies received by Hebei Tire that might continue 
to be benefitting Starbright. In particular, these parties are 
concerned that Hebei Tire may have benefitted from debt forgiveness 
provided by Hebei Province prior to the sale of the company to 
Starbright, one of the new subsidy allegations on which the Department 
initiated an investigation on October 5. In addition, according to 
petitioners and Bridgestone, it is clear from the record that Hebei 
Tire had loans from state-owned commercial banks and acquired land-use 
rights from the GOC, two more potential sources of non-recurring 
subsidies.
    The Department determines that additional information is needed 
before a full evaluation of this change in ownership can be made. Among 
other things, further information is required to determine whether 
Hebei Tire was an SOE or was otherwise related to or controlled by the 
GOC at the time of sale, as this impacts the application of our change 
in ownership methodology. This determination involves examining 
particular PRC entities and their relationship to the government that 
the Department has not yet examined within the context of a CVD 
investigation. Furthermore, regardless of Hebei Tire's relationship to 
the GOC, the Department needs additional information on exactly what 
happened before the transaction with respect to Hebei Tire and what 
role the GOC played in this transaction, and all of its elements. As 
such, the Department intends, following this preliminary determination, 
to issue additional questionnaires to provide Starbright and the GOC an 
additional opportunity to provide that information. We intend to issue 
an interim analysis describing our preliminary findings with respect to 
this program before the final determination so that parties will have 
the opportunity to comment on our findings before the final 
determination.

Loan Benchmarks

    Summary: The Department is investigating loans received by 
respondents from Chinese banks, including state-owned commercial banks 
(SOCBs), which are alleged to have been granted on a preferential, non-
commercial basis. Section 771(5)(E)(ii) of the Act explains that the 
benefit for loans is the ``difference between the amount the recipient 
of the loan pays on the loan and the amount the recipient would pay on 
a comparable commercial loan that the recipient could actually obtain 
on the market.'' Normally, the Department uses comparable commercial 
loans reported by the company for benchmarking purposes. See 19 CFR 
351.505(a)(2)(i). However, the Department does not treat loans from 
government banks as commercial if they were provided pursuant to a 
government program. See 19 CFR 351.505(a)(2)(ii). Because the loans 
provided to the respondents by SOCBs are under the Government Policy 
Lending program, as explained below, these loans are the very loans for 
which we require a suitable benchmark. Additionally, if respondents 
received any loans from foreign banks, these would be unsuitable for 
use as benchmarks because, as explained in detail in CFS Final, the 
GOC's intervention in the banking sector creates significant 
distortions, restricting and influencing even foreign banks within the 
PRC. See CFS Final at Comments 8 and 10.
    If the firm did not have any comparable commercial loans during the 
period, the Department's regulations provide that we ``may use a 
national interest rate for comparable commercial loans.'' See 19 CFR 
351.505(a)(3)(ii). However, the Chinese national interest rates are not 
reliable as benchmarks for these loans because of the pervasiveness of 
the GOC's intervention in the banking sector. Loans provided by Chinese 
banks reflect significant government intervention and do not reflect 
the rates that would be found in a functioning market. See CFS Final at 
Comment 10.
    The statute directs that the benefit is normally measured by 
comparison to a ``loan that the recipient could actually obtain on the 
market.'' See section

[[Page 71365]]

771(5)(E)(ii) of the Act. Thus, the benchmark should be a market-based 
benchmark, yet, there is not a functioning market for loans within the 
PRC. Therefore, because of the special difficulties inherent in using a 
Chinese benchmark for loans, the Department is selecting a market-based 
benchmark interest rate based on the inflation-adjusted interest rates 
of countries with similar per capita gross income (GNI) to the PRC, 
using the same regression-based methodology that we employed in CFS 
Final. See CFS Final at Comment 10.
    The use of an external benchmark is consistent with the 
Department's practice. For example, in Softwood Lumber, the Department 
used U.S. timber prices to measure the benefit for government provided 
timber in Canada. See Final Results of the Countervailing Duty 
Investigation of Certain Softwood Lumber Products from Canada, 67 FR 
15545 (April 2, 2002), and accompanying Issues and Decision Memorandum, 
34 (Softwood Lumber). In the current proceeding, the Department 
preliminarily finds that the GOC's predominant role in the banking 
sector results in significant distortions that render the lending rates 
in the PRC unsuitable as market benchmarks. Therefore, as in Softwood 
Lumber, where domestic prices are not reliable, we have resorted to 
prices outside the PRC.
    Discussion: In our analysis of the PRC as a non-market economy in 
the antidumping duty investigation of Certain Lined Paper Products from 
the PRC, the Department found that the PRC's banking sector does not 
operate on a commercial basis and is subject to significant 
distortions, primarily arising out of the continued dominant role of 
the government in the sector. See ``The People's Republic of China 
(PRC) Status as a Non-Market Economy,'' May 15, 2006 (May 15 
Memorandum); and ``China's Status as a Non-Market Economy,'' August 30, 
2006 (August 30 Memorandum), both of which are referenced in the Notice 
of Final Determination of Sales at Less Than Fair Value, and 
Affirmative Critical Circumstances, In Part: Certain Lined Paper 
Products From the People's Republic of China, 71 FR 53079 (September 8, 
2006), and as placed on the record of this investigation in a 
memorandum to the file titled ``Loan Benchmark Information'' (December 
7, 2007) (Loan Benchmark Information Memorandum) on file in the 
Department's CRU. This finding was further elaborated in CFS Final. See 
CFS Final at Comment 10. In that case, the Department found that the 
GOC still dominates the domestic Chinese banking sector and prevents 
banks from operating on a fully commercial basis. We continue to find 
that these distortions are present in the PRC banking sector and, 
therefore, preliminarily determine that the interest rates of the 
domestic Chinese banking sector do not provide a suitable basis for 
benchmarking the loans provided to respondents in this proceeding.
    Moreover, while foreign-owned banks do operate in the PRC, they are 
subject to the same restrictions as the SOCBs. Further, their share of 
assets and lending is negligible compared with the SOCBs. Therefore, as 
discussed in greater detail in CFS Final, because of the market-
distorting effects of the GOC in the PRC banking sector, foreign bank 
lending does not provide a suitable benchmark. See CFS Final at Comment 
10.
    We now turn to the issue of choosing an external benchmark. 
Selecting an appropriate external interest rate benchmark is 
particularly important in this case because, unlike prices for certain 
commodities and traded goods, lending rates vary significantly across 
the world. Nevertheless, as discussed in CFS Final, there is a broad 
inverse relationship between income levels and lending rates. In other 
words, countries with lower per capita GNI tend to have higher interest 
rates than countries with higher per capita GNI, a fact demonstrated by 
the lending rates across countries reported in International Financial 
Statistics (IFS). See www.imfstatistics.org, placed on the record of 
this investigation in Loan Benchmark Information Memorandum. The 
Department has therefore preliminarily determined that it is 
appropriate to compute a benchmark interest rate based on the 
inflation-adjusted interest rates of countries with similar per capita 
GNI to the PRC, using the same regression-based methodology that we 
employed in CFS Final. As explained in CFS Final at Comment 10, this 
pool of countries captures the broad inverse relationship between 
income and interest rates. We determined which countries are similar to 
the PRC in terms of per capita GNI, based on the World Bank's 
classification of countries as: low income; lower-middle income; upper-
middle income; and high income. The PRC falls in the lower-middle 
income category, a group that includes 55 countries as of July 2007. 
See www.worldbank.org, search engine term ``lower middle income,'' 
placed on the record of this investigation in Loan Benchmark 
Information Memorandum.
    Many of these countries reported short-term lending and inflation 
rates to IFS. With the exceptions noted below, we used this data set to 
develop an inflation-adjusted market benchmark lending rate for short-
term RMB loans. See https://www.imfstatistics.org, placed on the record 
of this investigation in Loan Benchmark Information Memorandum. We did 
not include those economies that the Department considered to be non-
market economies for AD purposes for any part of 2006: the PRC, 
Armenia, Azerbaijan, Belarus, Georgia, Moldova, Turkmenistan, and 
Ukraine. The benchmark necessarily also excludes any economy that did 
not report lending and inflation rates to IFS for 2005 or 2006. 
Finally, the Department also excluded three aberrational countries: 
Angola, with an inflation-adjusted 2005 rate of 44.72 percent; the 
Dominican Republic, with an inflation-adjusted 2004 rate of -18.83 
percent; and Samoa, with an inflation-adjusted 2004 rate of -5.11 
percent. As also discussed in CFS Final, this regression provides the 
most suitable market-based benchmark to measure the benefit from the 
Government Policy Lending program, because it takes into account a key 
factor involved in interest rate formation, that of the quality of a 
country's institutions, that is not directly tied to state-imposed 
distortions in the banking sector discussed above. See 
www.worldbank.org/wbi/governance, placed on the record of this 
investigation in Loan Benchmark Information Memorandum. Consistent with 
the regression model employed in CFS Final, the Department calculated 
an inflation-adjusted benchmark rate of 7.42 percent for 2006, 8.76 
percent for 2005, 8.53 percent for 2004, and 9.96 percent for 2003. 
Because these are inflation-adjusted benchmarks, it is also necessary 
to adjust the interest paid by respondents on its RMB loans for 
inflation. This was done using the PRC inflation figure as reported to 
IFS. See https://www.imfstatistics.org, placed on the record of this 
investigation in Loan Benchmark Information Memorandum. The Department 
then compared its benchmarks with respondents' inflation-adjusted 
interest rate to determine whether a benefit existed for the loans 
received by respondents on which principal was outstanding or interest 
was paid during the POI.
    The lending rates reported in IFS represent short-term lending, and 
there is not sufficient publicly available long-term interest rate data 
upon which to base a robust benchmark for long-term loans. To identify 
and measure any benefit from long-term loans, the Department developed 
a ratio of short-term and long-term lending. The

[[Page 71366]]

Department then applied this ratio to the benchmark short-term lending 
figure (discussed above) to impute a long-term lending rate. 
Specifically, the Department computed a ratio of the average one-year 
and five-year interest rates on interest rate swaps reported by the 
Federal Reserve for 2005. That is, if the long-term swap rate were 25 
percent higher than the short-term swap rate, the Department would 
inflate the average short-term lending rate by 25 percent to arrive at 
a long-term interest rate benchmark. This methodology is appropriate 
because the ratio between short-term and long-term interest rate swap 
rates offers an estimate of the market consensus premium that borrowers 
would pay on a long-term loan over a short-term loan. See CFS Final at 
Comment 11.
    Benchmarks for Foreign Currency-Denominated Loans: For foreign 
currency-denominated loans, the Department was unable to locate 
sufficient data on short-term lending rates for the countries in the 
basket of ``lower middle-income countries'' used for its benchmark for 
RMB loans. As a result, for purposes of this preliminary determination, 
to determine the benefit from countervailable foreign currency-
denominated loans, the Department used as a benchmark the one-year 
dollar interest rates for the London Interbank Offering Rate (LIBOR), 
plus the average spread between LIBOR and the one-year corporate bond 
rates for companies with a BB rating. Bloomberg provides data on 
average corporate bond rates for companies with a range from A-rated to 
B-rated. See Bloomberg data, placed on the record of this investigation 
in Loan Benchmark Information Memorandum. For this preliminary 
determination, we have determined that BB-rated bonds, which are the 
highest non-investment-grade and near the middle of the overall range, 
are the most appropriate basis for calculating the spread over LIBOR. 
Several of the countries in the basket report bond rates, but not all 
of these countries report corporate bond rates and none report 
corporate bond rates for firms in the industrial sector. The Department 
therefore relied on corporate bond rates for the industrial sector in 
the United States and the eurozone, because the market for dollars and 
euros is international in scope.
    On November 9, 2007, petitioners filed comments on the calculation 
of the loan benchmark. They suggested two changes to the methodology. 
First, they argue that the use of a GDP deflator would be a more 
appropriate adjustment for inflation than the use of the CPI. Second, 
they argue that there is more appropriate information than the ratio 
between one- and five-year interest rate swap rates to use in 
converting short-term interest rates to long-term interest rates. For 
purposes of this preliminary determination, we have decided not to make 
any adjustments to our benchmark rate methodology; however, we invite 
interested parties to comment on these proposals and will consider all 
comments on the benchmark in our final determination.

SOE Status of Guizhou Tire and TUTRIC

    Guizhou Tire has repeatedly noted what it perceives as the 
Department's failure to provide a definition of an SOE, implying that 
its SOE status is in doubt. However, as it states on page 5 of its 
October 15 questionnaire response, 33.39 percent of its total shares 
outstanding are ``state-owned.'' Not only are 33.39 percent of its 
shares state-owned by Guiyang State Asset Investment Management Company 
(GAMC), but the next largest shareholder owns only one percent. Thus, 
no other shareholder is in a position to challenge GAMC's dominance. In 
addition, public information indicates GAMC's self-described purpose is 
to play the role of an owner of SOEs. See November 28 Bridgestone 
comments, Exhibit 6. Finally, we note Guizhou Tire received benefits 
under the State Key Technologies Renovation Project Fund. According to 
the GOC, only SOEs were eligible for this program. See September 24, 
2007 GOC questionnaire response in the CVD investigation of laminated 
woven sacks, page 29 (``only state-owned enterprises and state-holding 
enterprises are eligible for this program''), a public version of which 
has been placed on the record of this investigation. Thus, the GOC 
considers Guizhou Tire to be an SOE. With regard to TUTRIC, based on 
the information on the record, the Department is treating TUTRIC as 
both an SOE and FIE. See, e.g., October 15 TUTRIC questionnaire 
response, page 9.

Analysis of Programs

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

I. Programs Preliminarily Determined To Be Countervailable

A. Government Policy Lending

    We initiated an investigation of policy loans\17\ to the tire 
industry based on references in the current (i.e., the eleventh) five-
year plan of Guiyang municipality to a radial tire project for Guizhou 
Tire, and references to the auto parts and tire industries in the five-
year plans, and similar or related planning documents (e.g., 
``catalogues'' of industries designated for development), of Hebei 
Province, Tianjin, and the central government. In response to our 
questionnaires, additional information was placed on the record of this 
investigation by the GOC and Guizhou Tire indicating that the tire 
industry has been targeted by the GOC, provincial, and/or municipal 
governments for preferential lending.
---------------------------------------------------------------------------

    \17\ The Department initiated on Policy Lending to the Chinese 
Tire Industry and Preferential Loans to SOEs.
---------------------------------------------------------------------------

    Of particular importance, this information indicates the targeting 
of tire producers by the provinces and certain municipalities relevant 
to this investigation: Guizhou, Hebei, and Tianjin. As the GOC has 
explained, provincial and municipality goals and objectives are in 
conformity with the central policy goals and objectives. Specifically, 
the central-level plans set goals regarding macroeconomic policies and 
``provide a vision for economic development, market and regulatory 
activities, social administration, and the provision of public 
services.'' See October 29 GOC questionnaire response, pages 13 and 19. 
The GOC explained that the provincial and municipal five-year plans are 
drafted based on the goals and objectives of the central-level plans. 
Id. at 21-22. In other words, local governments (i.e., provinces and 
municipalities) must align their policies with stated central 
government policies and carry out those polices to the extent that such 
measures affect their locality. As such, central-level plans should be 
considered a central government policy or program that local 
governments adopt and implement through their own five-year plans. See, 
also, CFS Amended Preliminary, 72 FR at 17492.
    For example, the tenth Guizhou five-year plan (2001-2005) provided 
by the GOC singled out Guizhou Tire for technology renovation for two 
meridian (i.e., radial) tire lines (OTR tires can be radial tires, as 
well as ``bias ply'' tires). See October 29 GOC questionnaire response, 
Exhibit GOC-NEW-4-6. The tenth five-year plan also states that ``policy 
bank loans and loans from abroad should continue to be allocated 
according to the plans.'' Id. In addition, business proprietary 
information provided in Guizhou Tire's supplemental response indicates 
Guizhou Tire's importance in earlier five-year plans. See Memorandum to 
Thomas Gilgunn, Program Manager, AD/CVD Operations, Office 6, from 
Nicholas Czajkowski, Case Analyst,

[[Page 71367]]

``Calculation Memorandum for Guizhou Tire'' (December 7, 2007) (Guizhou 
Tire Calculation Memorandum).
    Regarding Hebei Province, the Hebei Province Science and Technology 
11\th\ Five-year Plan & 2020 Long-Term Target, lists automobile parts 
and the rubber industry as ``key projects,'' and the Guidelines for the 
Implementation of Hebei Province Science and Technology 11\th\ Five-
year Plan directs commercial banks to support ``key projects.'' See 
Bridgestone's September 19 new subsidy allegations, Exhibits 18 and 17, 
respectively. The ninth Hebei five-year plan also mentions that the 
``automobile and components'' industry will, among other industries, be 
``developed greatly and stronger,'' see October 29 GOC questionnaire 
response, Exhibit GOC-NEW-4-8, and the tenth five-year plan states that 
``auto parts,'' among other industries, ``shall be supported,'' id. at 
Exhibit GOC-NEW-4-9.
    Regarding Tianjin, the eleventh five-year plan states that the 
``fine chemical industry {of{time}  tyre . . . will be actively 
developed,'' among other industries. Id. at Exhibit GOC-NEW-4-11. 
Moreover, the Tianjin Municipal Directory Catalogue for the Priority 
Development of High- and New Tech Industries, published in 2002, which 
claims that its purpose is to ``guide social funds,'' states, at 
paragraph 67, that ``the recent industrialization focuses include: 
Manufacturing Equipment for heavy-duty, light truck and car radial 
tires.'' See Bridgestone's September 5 New Subsidy Allegations at 
Exhibit 38. The Department noted in our investigation of CFS from the 
PRC that the NDRC equates ``social funds'' with loans, among other 
things. See Memorandum to Susan H. Kuhbach, Director, AD/CVD 
Operations, Office 1, from Lawrence Norton, Senior International 
Economist, ``Government of the People's Republic of China Verification 
Report: Policy Lending'' (August 20, 2007), a public version of which 
has been placed on the record of this investigation.
    Therefore, the Department preliminarily determines that the loans 
received by all three respondents and their cross-owned affiliates from 
SOCBs were made pursuant to a GOC policy to provide loans to the tire 
industry. The record indicates Guizhou Tire has been a key target for 
economic development by Guizhou province and Guiyang municipality since 
at least the eighth five-year plan. Furthermore, according to the 
translated excerpts provided by the GOC, the number of such 
specifically targeted enterprises is limited. For example, the GOC 
translated section 6 of the tenth Guizhou five-year plan, ``Traditional 
industry shall be improved through high technology.'' This section 
mentions only three other companies besides Guizhou Tire. In addition 
to making clear the importance of Guizhou Tire in the economic 
development of the province, the plan also is clear that loans are one 
means of development. Furthermore, the tenth Guizhou plan states 
explicitly, as noted above, the general directive that ``policy loans'' 
should be allocated according to the plans.
    In contrast to the Guizhou province and Guiyang municipalities 
plans, the plans for Hebei Province and Tianjin do not mention, insofar 
as the GOC provided translations, particular enterprises or particular 
projects. They do, however, refer to particular industries targeted for 
development. As discussed above, Hebei Province refers to the auto 
parts and rubber industries,\18\ and Tianjin refers to the tire 
industry (and, at least in one case, to heavy duty tires). Also as 
discussed above, each of these provinces provides direction in 
documents implementing their five-year plans for the use of loans to 
``guide'' and ``assist'' targeted industries.
---------------------------------------------------------------------------

    \18\ The radial tire project discussed in the Guiyang 
municipality plan is discussed within the context of identifying 
automobile parts as a key industry. See the Bridgestone October 1 
submission. Thus, given the parallels among the central and 
provincial five-year plans, it appears the GOC and provincial and 
municipal governments consider radial tires, which include OTR 
tires, to be part of the automobile parts industry.
---------------------------------------------------------------------------

    Thus, for the reasons discussed above, we preliminarily determine 
that this loan program is de jure specific pursuant to section 
771(5A)(D)(i) of the Act. We also determine the program provides direct 
financial contributions by the GOC (i.e., government policy banks and 
SOCBs) pursuant to section 771(5)(D)(i) the Act. See CFS Final at 
Comment 8. Finally, this program provides benefits to the recipients 
equal to the difference between what the recipients paid on loans from 
government-owned banks and the amount they would have paid on 
comparable commercial loans, pursuant to section 771(5)(E)(ii) of the 
Act.
    Two of the respondents, as well as their cross-owned affiliates, 
report long-term loans from state-owned banks outstanding during the 
POI. Except for TUTRIC and DCB, the reported loans were all disbursed 
after December 11, 2001, the date the Department has preliminarily 
determined to be the date from which the Department will identify and 
measure subsidies in the PRC. TUTRIC's and DCB's long-term loans ``date 
back to the 1980s and 1990s,'' before December 11, 2001. It is 
apparent, however, that the original terms and conditions of these 
loans have altered over time. Based on the Department's analysis of the 
information provided by TUTRIC and the GOC, we preliminarily determine 
that TUTRIC's treatment of these loans, and the GOC's ongoing 
acceptance of this treatment, has created new and recurring subsidies 
conferring benefits since 2001 and during the POI. Most of the details 
about these loans are business proprietary; for a more complete 
discussion see Memorandum to Thomas Gilgunn, Program Manager, AD/CVD 
Operations, Office 6, from Jack Zhao, Case Analyst, ``Calculation 
Analysis for TUTRIC'' (December 7, 2007) (TUTRIC Calculation 
Memorandum). For purposes of this preliminary determination, we are 
treating these as new loans received during the POI. We intend to 
continue seeking additional documentation regarding these loans which 
we will consider for the final determination. In addition to these 
long-term loans, two of the respondents and their cross-owned 
affiliates had short-term loans, disbursed in 2005 and 2006 with 
balances outstanding during the POI.
    To calculate the benefit, for all companies including TUTRIC, we 
used the interest rates described in the ``Loan Benchmark'' section 
above and the methodology described in 19 CFR 351.505(c)(1) and (2). We 
divided the benefit to each company by the appropriate sales 
denominator to calculate subsidy rates of 1.49, 0.45, 3.40 percent ad 
valorem for Guizhou Tire, Starbright, and TUTRIC, respectively.

B. Provision of Land for Less Than Adequate Remuneration to SOEs

    Petitioners allege that the GOC offers free land to SOEs in key 
strategic sectors. Petitioners also note that the Department concluded 
in the August 30 Memorandum (referred to above in our discussion of 
loan benchmarking) that SOEs own a significant amount of land-use 
rights that they receive free of charge. As explained above, both 
Guizhou Tire and TUTRIC are SOEs.
    Petitioners also allege that the GOC has a policy of providing 
land-use rights to certain FIEs on a preferential basis. According to 
petitioners, FIEs that are either product export enterprises or 
technologically advanced enterprises are entitled to caps on the land-
use fees that can be charged to them, and in some cases are exempt from 
such fees altogether.
    Guizhou Tire and its cross-owned affiliates (throughout this 
section

[[Page 71368]]

collectively referred to as Guizhou Tire) reported details concerning 
three tracts of land used in the production and sale of subject 
merchandise. Among many other questions the Department asked concerning 
these three tracts of land, we asked whether the relevant land-use 
rights are considered either granted land-use rights or allocated land-
use rights. See November 27 Guizhou Tire supplemental questionnaire 
response, page 29. Guizhou Tire did not answer this question. Based on 
the information the Department has collected in other cases concerning 
PRC land-use rights (e.g., the August 30 Memorandum), answers given in 
response to this question by the two other respondents, and the 
business-proprietary details given by Guizhou Tire regarding its three 
land-use agreements, we conclude that Guizhou Tire was likely provided 
with allocated land-use rights for one of its three tracts (``tract 
number 3''). Business proprietary information also indicates that these 
rights were essentially conferred after December 11, 2001. See 
Memorandum to Thomas Gilgunn, Program Manager, Office of AD/CVD 
Enforcement 6, from Mark Hoadley, Case Analyst, ``Analysis of Land-Use 
Rights for OTR Tires Respondents,'' December 7, 2007 (Land Analysis 
Memorandum).
    As discussed in the LWS Preliminary, there are two main types of 
land-use rights in China: ``granted'' (sometimes referred to as 
``conveyed'') and ``allocated.'' The GOC transfers allocated land-use 
rights to state entities for a nominal one-time charge and annual fee. 
These allocated land-use rights do not expire, may not be leased or 
mortgaged, and can be transferred (or shared for commercial purposes) 
legally only if they are first converted to granted land-use rights, 
i.e., those rights transferred to private entities as described below. 
See August 30 Memorandum at 43, citing to Ho, Samuel P.S., and Lin, 
George C.S., ``Emerging Land Markets in Rural and Urban China: Policies 
and Practices'' (The China Quarterly, 2003), 687-8, stating that 
``(a)llocation is used to dispense land use right to state-owned or non 
profit users without time limits and conveyance is used to transfer 
land-use rights to commercial users for a fixed period . . . state 
units are able to obtain land use rights at costs that are much lower 
than those paid by commercial users and with no time limit.'' Allocated 
land-use rights are substantially different from granted land-use 
rights, which were the type of land-use rights at issue in the LWS 
Preliminary. Granted land-use rights can be purchased by private 
entities directly from the government on the ``primary market'' or from 
other granted land-use rights holders on the ``secondary'' market. 
Granted land-use rights can be transferred or mortgaged and require a 
large up-front fee, but carry no annual fees aside from taxes. See 
August 30 Memorandum at 43-44. Therefore, the information on the record 
indicates that allocated land-use rights, which can only be transferred 
to state entities and which are subject to significantly different 
terms than granted land-use rights, are specific to SOEs pursuant to 
section 771(5A)(D)(i) of the Act.
    Accordingly, the Department preliminarily determines that certain 
land-use rights of Guizhou Tire, provided after December 11, 2001, are 
countervailable. The allocated land rights provided to Guizhou Tire are 
available only to SOEs and thus are specific under section 
771(5A)(D)(i) of the Act. We further determine that the GOC's provision 
of land rights is a financial contribution within the meaning of 
section 771(5)(D)(iii).
    Finally, the Department has determined that the provision of these 
rights provided a benefit pursuant to 19 CFR 351.511(a). Pursuant to 
section 771(5)(E)(iv) of the Act, a benefit is conferred when the 
government provides a good or service for less than adequate 
remuneration. Section 771(5)(E) of the Act further states that ``the 
adequacy of remuneration shall be determined in relation to prevailing 
market conditions for the good or service being provided in the country 
which is subject to the investigation or review. Prevailing market 
conditions include price, quality, availability, marketability, 
transportation, and other conditions of sale.'' Section 351.511(a)(2) 
of the Department's regulations sets forth the basis for identifying 
comparative benchmarks for determining whether a government good or 
service is provided for less than adequate remuneration. These 
potential benchmarks are listed in hierarchical order by preference: 
(1) market prices from actual transactions within the country under 
investigation; (2) world market prices that would be available to 
purchasers in the country under investigation; or (3) an assessment of 
whether the government price is consistent with market principles.

The Department Cannot Apply a First Tier Benchmark

    As a general matter, the most direct means of determining whether a 
government obtained adequate remuneration is normally through a 
comparison with private transactions for a comparable good or service, 
in this case, the sale of land-use rights, in the country. Thus, the 
preferred benchmark in the hierarchy is an observed market price for 
the good, in the country under investigation, from a private supplier 
(or, in some cases, from a competitive government auction) located 
either within the country, or outside the country (the latter 
transaction would be in the form of an import, and therefore not 
applicable to provision of land-use rights). This is because such 
prices generally would be expected to reflect most closely the 
commercial environment of the purchaser under investigation. However, a 
particular problem can arise in applying this standard when the 
government is the sole supplier of the good or service in the country 
or within the area where the respondent is located. In these 
situations, there may be no alternative market prices available in the 
country (e.g., private prices, competitively-bid prices, import prices, 
or other types of market reference prices). Moreover, a first tier 
benchmark is not appropriate where the government accounts for a 
significant or overwhelming portion of the sales of the good in 
question or where the government's presence in the market is likely to 
have produced significant distortions in the price formation of the 
good. See Countervailing Duties, Final Rule, Preamble, 63 FR 65347, 
65378 (November 25, 1998) (``Where it is reasonable to conclude that 
actual transaction prices are significantly distorted as a result of 
the government's involvement in the market, we will resort to the next 
alternative in the hierarchy''). In such cases, the ``commercial 
environment of the purchaser'' is distorted by the overwhelming 
presence of the government and cannot give rise to a price that is 
sufficiently free from the effects of government actions. The use of 
such an internal benchmark would be akin to comparing the benchmark to 
itself, i.e., such a benchmark would reflect the distortions of the 
government presence. See Softwood Lumber, 67 FR 15545 and accompanying 
Issues and Decision Memorandum, at 34.
    In our analysis of the PRC as a non-market economy in the recent 
investigation of Certain Lined Paper Products from the PRC, we found 
that real property rights in China remain poorly defined and weakly 
enforced, with a great divergence between de jure reforms and de facto 
implementation of these reforms. See August 30 Memorandum at 46. In 
arriving at this conclusion, the Department also

[[Page 71369]]

discussed the extent of government involvement in the PRC land market. 
This was also the focus of our preliminary determination with regard to 
a benchmark for land-use rights provided for less than adequate 
remuneration in the LWS Preliminary. In that case, we noted that the 
government, either at the national or local level, is the ultimate 
owner of all land in China, and we examined whether the GOC exercises 
control over the supply side of the land market in China as a whole so 
as to distort prices in the primary and secondary markets. We 
preliminarily determined that, given the p