Circular Welded Carbon Quality Steel Line Pipe from the People's Republic of China: Preliminary Affirmative Countervailing Duty Determination, 52297-52315 [E8-20922]

Agencies

• DEPARTMENT OF COMMERCE
• International Trade Administration

[Federal Register Volume 73, Number 175 (Tuesday, September 9, 2008)]
[Notices]
[Pages 52297-52315]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-20922]


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DEPARTMENT OF COMMERCE

International Trade Administration

[C-570-936]


Circular Welded Carbon Quality Steel Line Pipe 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 circular welded carbon quality steel line 
pipe (line pipe) from the People's Republic of China (the PRC). For 
information on the estimated subsidy rates, see the ``Suspension of 
Liquidation'' section of this notice.

EFFECTIVE DATE: September 9, 2008.

FOR FURTHER INFORMATION CONTACT: Kristen Johnson or John Conniff, AD/
CVD Operations, Office 3, Operations,

[[Page 52298]]

Import Administration, U.S. Department of Commerce, Room 4014, 14th 
Street and Constitution Avenue, NW, Washington, DC 20230; telephone: 
(202) 482-4793 and (202) 482-1009, respectively.

SUPPLEMENTARY INFORMATION:

Case History

    On April 3, 2008, the Department received the petition filed in 
proper form by the petitioners.\1\ This investigation was initiated on 
April 23, 2008. See Circular Welded Carbon Quality Steel Line Pipe from 
the People's Republic of China: Notice of Initiation of Countervailing 
Duty Investigation, 73 FR 23184 (April 29, 2008) (Initiation Notice), 
and accompanying Initiation Checklist.\2\ On June 6, 2008, the 
Department postponed the deadline for the preliminary determination by 
65 days to no later than September 2, 2008. See Circular Welded Carbon 
Quality Steel Line Pipe from the People's Republic of China: Notice of 
Postponement of Preliminary Determination in the Countervailing Duty 
Investigation, 73 FR 32290 (June 6, 2008).
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    \1\ Petitioners are United States Steel Corporation, Maverick 
Tube Corporation, Tex-Tube Company, and the United Steel, Paper and 
Forestry, Rubber, Manufacturing, Energy, Allied Industrial and 
Service Workers InternationalUnion, AFL-CIO-CLC.
    \2\ A public version of this and all public Departmental 
memoranda is on file in the Central Records Unit (CRU), room 1117 in 
the main building of the Commerce Department.
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    Due to the large number of producers and exporters of line pipe in 
the PRC, we determined that it was not possible to investigate 
individually each producer or exporter and, therefore, selected two 
producers/exporters of line pipe to be mandatory respondents: Huludao 
Steel Pipe Industrial Co., Ltd./Huludao City Steel Pipe Industrial Co., 
Ltd. and Liaoning Northern Steel Pipe Co., Ltd. (Northern Steel) 
(collectively, respondents). See Memorandum from the Team through 
Melissa Skinner, Director, Office 3, Operations, to Stephen J. Claeys, 
Deputy Assistant Secretary for Import Administration, regarding 
``Respondent Selection'' (May 16, 2008).\3\
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    \3\ A public version of this memorandum is available in the CRU.
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    On May 19, 2008, we issued the initial countervailing duty (CVD) 
questionnaire to the Government of the People's Republic of China (the 
GOC) and the mandatory respondents. On July 9, 2008, the Huludao Seven-
Star Steel Pipe Group Co., Ltd. (Huludao Seven Star Group), Huludao 
Steel Pipe Industrial Co. Ltd. (Huludao Steel Pipe), and Huludao Bohai 
Oil Pipe Industrial Co. Ltd. (Huludao Bohai Oil Pipe) (collectively, 
the Huludao Companies) submitted their respective responses to the 
initial CVD questionnaire. On July 10, 2008, the GOC submitted its 
initial questionnaire response. On July 14, 2008, Northern Steel 
submitted its response to the initial CVD questionnaire.
    Regarding the GOC, we issued it supplemental questionnaires on 
August 5 and August 6, 2008, to which the GOC submitted a response on 
August 21, 2008.
    Regarding the Huludao Companies, on July 17, 2008, we issued a 
supplemental questionnaire, to which they responded on July 28, 2008. 
On July 23, 2008, we issued a supplemental questionnaire to the Huludao 
Seven Star Group, which submitted its response on August 11, 2008. On 
July 24, 2008, we issued a supplemental questionnaire to Huludao Bohai 
Oil Pipe, which submitted its questionnaire response on August 12, 
2008. On July 30, 2008, we issued a supplemental questionnaire to 
Huludao Steel Pipe, which submitted a response on August 18, 2008. On 
July 31 and August 7, 2008, we issued supplemental questionnaires to 
the Huludao Companies, which submitted their responses on August 15, 
18, and 28, 2008, respectively.
    On July 21, 2008, we issued a supplemental questionnaire to 
Northern Steel, to which it responded on August 6, 2008. On August 6 
and 12, 2008, we issued additional supplemental questionnaires to 
Northern Steel; the company submitted its responses on August 14 and 
26, 2008, respectively.
    On June 24, 2008, petitioners submitted new subsidy allegations 
regarding four programs. On August 5, 2008, the Department initiated 
investigations of the four newly alleged subsidy programs pursuant to 
section 775 of the Tariff Act of 1930, as amended (the Act). See 
Memorandum to Melissa G. Skinner, Director, Office 3 Operations, 
regarding ``New Subsidy Allegations'' (August 5, 2008). Questionnaires 
regarding these newly alleged subsidies were sent to the GOC, Northern 
Steel, and the Huludao Companies on August 6, 2008. The Huludao 
Companies submitted their response to the questionnaire on the new 
subsidy allegations on August 22, 2008. Northern Steel submitted its 
response to the questionnaire on the new subsidy allegations on August 
25, 2008. The GOC submitted its response on August 29, 2008.
    On August 1, 2008, petitioners alleged that the Huludao Companies 
are uncreditworthy and requested that the Department initiate an 
uncreditworthy inquiry as described under 19 CFR 351.505(a)(4)(i). Due 
to the timing of petitioners' submission, we are unable to address 
their uncreditworthy allegation in the context of this preliminary 
determination. Therefore, we will address the allegation after the 
issuance of the preliminary determination.

Scope of the Investigation

    The merchandise covered by this investigation is circular welded 
carbon quality steel pipe of a kind used for oil and gas pipelines 
(line pipe), not more that 406.4 mm (16 inches) in outside diameter, 
regardless of wall thickness, length, surface finish, end finish or 
stenciling.
    The term ``carbon quality steel'' includes both carbon steel and 
carbon steel mixed with small amounts of alloying elements that may 
exceed the individual weight limits for nonalloy steels imposed in the 
Harmonized Tariff Schedule of the United States (HTSUS). Specifically, 
the term ``carbon quality'' includes products in which (1) iron 
predominates by weight over each of the other contained elements, (2) 
the carbon content is 2 percent or less by weight and (3) none of the 
elements listed below exceeds the quantity by weight respectively 
indicated:
    (i)2.00 percent of manganese,
    (ii) 2.25 percent of silicon,
    (iii) 1.00 percent of copper,
    (iv) 0.50 percent of aluminum,
    (v) 1.25 percent of chromium,
    (vi) 0.30 percent of cobalt,
    (vii) 0.40 percent of lead,
    (viii) 1.25 percent of nickel,
    (ix) 0.30 percent of tungsten,
    (x) 0.012 percent of boron,
    (xi) 0.50 percent of molybdenum,
    (xii) 0.15 percent of niobium,
    (xiii) 0.41 percent of titanium,
    (xiv) 0.15 percent of vanadium, or
    (xv) 0.15 percent of zirconium.
    Line pipe is normally produced to specifications published by the 
American Petroleum Institute (API) (or comparable foreign 
specifications) including API A-25, 5LA, 5LB, and X grades from 42 and 
above, and/or any other proprietary grades or non-graded material. 
Nevertheless, all pipes meeting the physical description set forth 
above that is of a kind used in oil and gas pipelines, including all 
multiple-stenciled pipe with an API line pipe stencil is covered by the 
scope of this investigation.
    Excluded from this scope are pipes that are multiple-stenciled to a 
standard and/or structural specification and to any other 
specification, such as the API-5L specification, when it also has one 
or more of the following

[[Page 52299]]

characteristics: is 32 feet in length or less; is less than 2.0 inches 
(50 mm) in outside diameter; has a galvanized and/or painted surface 
finish; or has a threaded and/or coupled end finish. (The term 
``painted'' does not include coatings to inhibit rust in transit, such 
as varnish, but includes coatings such as polyester.)
    The line pipe products that are the subject of this investigation 
are currently classifiable in the HTSUS under subheadings 
7306.19.10.10, 7306.19.10.50, 7306.19.51.10, and 7306.19.51.50. While 
HTSUS subheadings are provided for convenience and customs purposes, 
the written description of the scope of this investigation is 
dispositive.

Scope Comments

    In the Initiation Notice, we acknowledged that the scope of the 
antidumping (AD) and CVD investigations of line pipe may include 
certain merchandise potentially subject to the AD and CVD 
investigations on circular welded carbon quality steel pipe (CWP) from 
the PRC.\4\ See Initiation Notice, 73 FR 23184. In accordance with the 
Department's regulations (see Antidumping Duties; Countervailing 
Duties, 62 FR 27296, 27323 (May 19, 1997)), 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.
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    \4\ See Notice of Final Determination of Sales at Less Than Fair 
Value and Affirmative Final Determination of Critical Circumstances: 
Circular Welded Carbon Quality Steel Pipe from the People's Republic 
of China, 73 FR 31970 (June 5, 2008), see also Circular Welded 
Carbon Quality Steel Pipe from the People's Republic of China: Final 
Affirmative Countervailing Duty Determination and Final Affirmative 
Determination of Critical Circumstances, 73 FR 31966 (June 5, 2008).
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    On May 13, 2008, Wheatland Tube Company (Wheatland), an interested 
party in this proceeding, submitted comments on the scope of the AD and 
CVD investigations on line pipe. Wheatland requested that the 
Department modify the line pipe scope to reflect the scope definition 
ultimately set out in the CWP investigations.\5\ Based on the comments 
received and resolution of the CWP scope issue, we have modified the 
scope of the line pipe investigations to eliminate the overlap that 
existed between the scope of CWP and line pipe. See Memorandum to 
Stephen J. Claeys, Deputy Assistant Secretary for Import 
Administration, from Abdelali Elouaradia, Director, Office 4 
Operations, regarding ``Antidumping and Countervailing Duty 
Investigations of Circular Welded Carbon Quality Steel Line Pipe from 
the People's Republic of China: Scope Modification'' (August 29, 2008).
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    \5\ See Wheatland's submission to the Department entitled 
``Scope of the Antidumping Duty investigations of Circular Welded 
Carbon Quality Steel Line Pipe from the Republic of Korea and the 
People's Republic of China and Countervailing Duty Investigation of 
Circular Welded Carbon Quality Steel line Pipe from the People's 
Republic of China - Comments on Scope of Investigations'' (May 13, 
2008).
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Injury Test

    Because the PRC is a ``Subsidies Agreement Country'' within the 
meaning of section 701(b) of the Act, the International Trade 
Commission (the ITC) is required to determine whether imports of the 
subject merchandise from the PRC materially injure, or threaten 
material injury to, a U.S. industry. On June 3, 2008, the ITC published 
its preliminary determination finding that there is a reasonable 
indication that an industry in the United States is materially injured 
or threatened with material injury by reason of imports from the PRC of 
the subject merchandise. See Certain Circular Welded Carbon Quality 
Steel Line Pipe from China and Korea, Investigation Nos. 701-TA-455 and 
731-TA-1149-1150 (Preliminary), 73 FR 31712 (June 3, 2008).

Period of Investigation

    The period of investigation (the POI) for which we are measuring 
subsidies is January 1, 2007, through December 31, 2007, which 
corresponds to the PRC's most recently completed fiscal year. See 19 
CFR 351.204(b)(2).

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) (CFS 
Final), and accompanying decision memorandum (CFS Decision Memorandum). 
In CFS Final, 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 the PRC.
See CFS Decision Memorandum at Comment 6. The Department has affirmed 
its decision to apply the CVD law to the PRC in subsequent final 
determinations. See, e.g., Circular Welded Carbon Quality Steel Pipe 
from the People's Republic of China: Final Affirmative Countervailing 
Duty Determination and Final Affirmative Determination of Critical 
Circumstances, 73 FR 31966 (June 5, 2008) (CWP Final), and accompanying 
decision memorandum (CWP Decision Memorandum).
    Additionally, for the reasons stated in the CWP Decision 
Memorandum, we are using the date of December 11, 2001, the date on 
which the PRC became a member of the World Trade Organization (WTO), as 
the date from which the Department will identify and measure subsidies 
in the PRC for purposes of this preliminary determination. See CWP 
Decision Memorandum at Comment 2.

Subsidies Valuation Information

    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). As explained below, 
we have preliminarily determined that short-term and long-term loans of 
the Huludao Companies were received under the GOC's preferential 
lending program or constitute export-contingent loans and, thus, 
constitute loans received under an export subsidy program. Similarly, 
as explained below, we have preliminary determined that Northern 
Steel's short-term loans were issued contingent on export performance 
and, thus, constitute loans received under an export subsidy program. 
Therefore, because we have preliminarily determined that respondents' 
outstanding loans were issued pursuant to GOC programs, the loans are 
the very loans for which we require a suitable benchmark.
    Under 19 CFR 351.505(a)(3)(ii), if the respondent firm did not have 
any comparable commercial loans during the period, the Department may 
use a national interest rate for comparable commercial loans. However, 
we

[[Page 52300]]

preliminarily determine that 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 
Decision Memorandum at Comment 10.
    In our analysis of the PRC as a non-market economy in the AD 
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). This 
finding was further elaborated in CFS Final. See CFS Decision 
Memorandum 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. See also Certain New 
Pneumatic Off-the-Road Tires from the People's Republic of China: 
Preliminary Affirmative Countervailing Duty Determination, 72 FR, 71365 
(December 17, 2007) (Tires Prelim) and upheld in Certain New Pneumatic 
Off-the-Road Tires From the People's Republic of China: Final 
Affirmative Countervailing Duty Determination and Final Negative 
Determination of Critical Circumstances, 73 FR 40480 (July 15, 2008) 
(Tires Final) and accompanying decision memorandum (Tires Decision 
Memorandum) at ``Subsidies Valuation'' section. 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 
marketdistorting effects of the GOC in the PRC banking sector, foreign 
bank lending does not provide a suitable benchmark. See CFS Decision 
Memorandum 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 771(5)(E)(ii) of the Act. Thus, the benchmark 
should be a market-based benchmark, yet, we preliminarily determine 
that 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 National Income (GNI) to the 
PRC, using the same regression-based methodology that we employed in 
recent CVD proceedings involving the PRC. See e.g., CFS Decision 
Memorandum at Comment 10 and Tires Decision Memorandum at Comment E.3 
``Role of the GOC in the PRC Banking System and Whether to Use an 
Internal or External Benchmark.''
    We note that the use of an external benchmark is consistent with 
the Department's practice. For example, in Softwood Lumber First 
Review, the Department used U.S. timber prices to measure the benefit 
for government-provided timber in Canada. See Notice of Final Results 
of Countervailing Duty Administrative Review and Rescission of Certain 
Company-Specific Reviews: Certain Softwood Lumber Products From Canada, 
69 FR 75917 (December 20, 2004) (Softwood Lumber First Review) and 
accompanying decision memorandum at ``U.S. Log Prices are a More 
Appropriate Benchmark'' section. 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 First Review, where domestic prices are not 
reliable, we have resorted to prices outside the PRC.
    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 Tires Prelim at ``Subsidies Valuation'' (upheld 
in Tires Final). The Department has therefore preliminarily determined 
that it is appropriate to compute a benchmark interest rate based on 
the inflationadjusted interest rates of countries with similar per 
capita GNI to the PRC, using the same regression-based methodology that 
we employed in CFS Final and Tires Final. As explained in the CFS 
Decision Memorandum 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, i.e., during the POI. See Tires 
Prelim at ``Subsidies Valuation'' (upheld in Tires Final).
    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 renminbi (RMB) loans. We did not include those economies that the 
Department considered to be non-market economies for AD purposes. The 
benchmark necessarily also excludes any economy that did not report 
lending and inflation rates to IFS.
    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. 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 longterm loans. Therefore, the 
Department has derived long-term benchmark rates for a given year using 
a formula that is a function of the Department's derived short-term 
benchmark interest rate for the year in question, the inflation rate 
for the year in question, long-term U.S. corporate BBrated bond rates, 
and one-year U.S. corporate BB-rated bond rates. To calculate long-term 
loan

[[Page 52301]]

benchmarks, the Department first developed a ratio of short-term and 
long-term lending. The 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 
long-term U.S. corporate BB-rated bond rates and one-year U.S. 
corporate BB-rated bond rates reported by the Federal Reserve for 2005. 
This ratio serves to reflect the mark-up that typically exists on long-
term loans, as compared to short-term loans. In calculating long-term 
benchmarks and discount rates, the Department has adjusted the long-
term U.S. corporate BB-rated bond rates to approximate as closely as 
possible the terms of the long-term loans at issue. Thus, to calculate 
the long-term loan benchmarks, we adjusted the short-term benchmark 
lending rate for the year in question to reflect inflation in the PRC 
and then applied the appropriate mark-up ratio. In our derivation of 
long-term benchmark interest rates, we have not made any inflation 
adjustment to interest paid by respondents on their long-term RMB-
denominated loans. This methodology is consistent with the Department's 
practice. See Tires Decision Memorandum at ``Loan Benchmarks and 
Discount Rates'' section and at Comment E.3 ``Role of the GOC in the 
PRC Banking System and Whether to Use an Internal or External 
Benchmark.''
    In addition, the Department requires a U.S. dollar denominated 
short-term interest rate. Consistent with past practice, for U.S. 
dollar denominated loans, the Department used as the 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, as provided by 
Bloomberg. See Tires Prelim, 72 FR 71365 (upheld in Tires Final). 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. Furthermore, consistent with past practice, the 
Department 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. Id.
    The Department also requires an RMB-denominated long-term interest 
rate to use as a discount rate for purposes of allocating benefits 
received through the provision of certain landuse rights for less than 
adequate remuneration (LTAR) over the relevant length of each land-use 
agreement. The Department also requires an RMB-denominated interest 
rate to use as a discount rate for certain countervailable long-term 
loans. In calculating the appropriate long-term markup for the 
provision of land-use rights for LTAR, we have used the 30-year 
Bloomberg U.S. corporate BB-rated bond rate because this time period 
most closely matches the 50-year terms of the leases at issue in this 
investigation. We used the same approach when deriving our long-term 
interest rate except that in calculating the long-term mark-up, we used 
the Bloomberg U.S. corporate BB-rated bond rate that corresponded to 
the duration of the countervailable loan. Our approach regarding the 
derivation of discount rates is consistent with the Department's 
practice. See Tires Decision Memorandum at ``Loan Benchmarks and 
Discount Rates'' section.

Allocation Period

    Under 19 CFR 351.524(b), non-recurring subsidies are allocated over 
a period corresponding to the average useful life (AUL) of the 
renewable physical assets used to produce the subject merchandise. 
Pursuant to 19 CFR 351.524(d)(2), there is a rebuttable presumption 
that the AUL will be taken from the U.S. Internal Revenue Service's 
1977 Class Life Asset Depreciation Range System (IRS Tables), as 
updated by the Department of Treasury. For the subject merchandise, the 
IRS Tables prescribe an AUL of 15 years. No interested party has 
claimed that the AUL of 15 years is unreasonable.
    Further, for non-recurring subsidies, we have applied the ``0.5 
percent expense test'' described in 19 CFR 351.524(b)(2). Under this 
test, we compare the amount of subsidies approved under a given program 
in a particular year to sales (total sales or total export sales, as 
appropriate) for the same year. If the amount of subsidies is less than 
0.5 percent of the relevant sales, then the benefits are allocated to 
the year of receipt rather than allocated over the AUL period.

Company History

    Northern Steel is a foreign invested enterprise that produces 
electronic resistance welded pipes for the petroleum and natural gas 
industry, including line pipe, casing pipe and tubing. The company is 
located at the Economic Development Zone in Haicheng, Liaoning. 
Northern Steel reports that it was formed on November 7, 2005, and that 
in 2006, it purchased the assets of a defunct Chinese pipe company. 
Northern Steel also reports that the sale of the assets took place in 
an open auction held by a government-owned asset management company. We 
are seeking additional information on this purchase.
    As stated above, the Huludao Companies consist of the Huludao Seven 
Star Group, Huludao Steel Pipe, and Huludao Bohai Oil Pipe. According 
to its response, the Huludao Star Group was established in June 1999. 
It is headquartered in the Longgang District of Huludao City in 
Liaoning Province. The Huludao Seven Star Group is a domestically owned 
enterprise that produces standard welded pipes. The Huludao Seven Star 
Group states that it does not produce subject merchandise. The Huludao 
Seven Star Group is owned by a group of individual shareholders.
    The manufacturing facilities and headquarters of Huludao Steel Pipe 
are also located in the Longgang District of Huludao City in Liaoning 
Province. According to its response, Huludao Steel Pipe was established 
in 1993. During the POI, the shareholders of the Huludao Seven Star 
Group along with the Huludao Seven Star Group itself owned a majority 
share of Huludao Steel Pipe. Huludao Steel Pipe is a domestically-owned 
enterprise that produces standard welded pipe, line pipe (a.k.a., 
subject merchandise), casing, and rectangular pipe.
    The manufacturing facilities and headquarters of Huludao Bohai Oil 
Pipe are located in the Beigang Industrial Zone and Huludao Development 
Zone of Huludao City in Liaoning Province. According to its response, 
Huludao Bohai Oil Pipe was established in 2006. During the POI, Huludao 
Bohai Oil Pipe was wholly owned by Huludao Steel Pipe. Huludao Bohai 
Oil Pipe is a domestically owned enterprise that produces hot-rolled 
steel strips, welded standard pipe, and line pipe.

Cross-Ownership

    Under 19 CFR 351.525(b)(6)(vi) 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. Based on the information supplied by the Huludao 
Companies indicating that common ownership exists between the three 
companies, we preliminarily determine that the Huludao Seven Star 
Group, Huludao

[[Page 52302]]

Steel Pipe, and Huludao Bohai Oil Pipe are cross-owned under 
351.525(b)(6)(vi).
    As discussed in further detail below, the Huludao Seven Star Group 
acquired two parcels of land from the Bureau of Land Resources of 
Longgang District, Huludao City in Liaoning Province in 2004 and 2006. 
The 2004 purchase was on behalf of Huludao Steel Pipe. The 2006 
purchase was on behalf of Huludao Bohai Oil Pipe. Under 19 CFR 
351.525(b)(6)(v), if a corporation producing non-subject merchandise 
received a subsidy and transferred the subsidy to a corporation with 
cross-ownership, the Department will attribute the subsidy to products 
sold by the recipient of the transferred subsidy. Thus, we 
preliminarily determine that the land purchased by the Huludao Seven 
Star Group on behalf of Huludao Steel Pipe and Huludao Bohai Oil Pipe 
constitutes a transfer of subsidies by a corporation producing non-
subject merchandise to cross-owned corporations that produce subject 
merchandise. Therefore, in accordance with 19 CFR 351.525(b)(6)(ii), we 
have attributed such subsidies received by Huludao Steel Pipe and 
Huludao Bohai Oil Pipe under the Provision of Land For LTAR program to 
the combined total sales of Huludao Steel Pipe and Huludao Bohai Oil 
Pipe (net of their respective sales to affiliates).
    We preliminarily determine that the Huludao Seven Star Group did 
not transfer any other subsidies to Huludao Steel Pipe and Huludao 
Bohai Oil Pipe during the POI. Therefore, given this preliminary 
finding and based on the statements of the Huludao Seven Star Group 
that it does not produce subject merchandise or provide any inputs to 
Huludao Steel Pipe and Huludao Bohai Oil Pipe that are primarily 
dedicated to the production of line pipe, we are not including any 
other programs used by the Huludao Seven Star Group in our subsidy 
analysis.

Adverse Facts Available

The GOC

    As discussed below, the Department is investigating whether GOC 
authorities provided hot-rolled steel (HRS), a major input in the 
production of line pipe to respondents for LTAR. In our May 19, 2008 
initial questionnaire, we asked the GOC to provide information 
pertaining to the Department's de facto specificity analysis. 
Specifically, we asked the GOC to:
    Please provide a list by industry and by region of the number of 
companies which have received benefits under this program in the year 
the provision of benefits was approved and each of the preceding three 
years. Provide the total amounts of benefits received by each type of 
industry in each region in the year the provision of benefits was 
approved and each of the preceding three years.
Concerning the GOC's alleged provision of HRS for LTAR, the GOC stated 
that:
    No such list exists, nor does any data exist from which to derive 
such a list absent inquiring with every hot-rolled steel producer in 
China. Such records would only reflect amounts sold and prices charged, 
as opposed to any ``benefit'' conferred by the transaction.
See GOC's July 10, 2008 questionnaire response at 110.
    On August 5, 2008, the Department issued a supplemental 
questionnaire to the GOC in which it requested that the GOC respond to 
Department's de facto specificity questions to the best of the GOC's 
ability. In its response the GOC stated that its initial response 
reflected its best effort. It added that:
    The sale of hot-rolled steel in the Chinese market neither 
constitutes a ``program'' nor does it confer any ``benefit'' within the 
meaning of the U.S. CVD Law or the WTO SCM Agreement. The GOC 
reiterates that the data sought by the Department simply do not exist, 
nor would it be feasible to even assemble given the multitude of 
companies that produce and consume hot-rolled steel in the Chinese 
market.
    As discussed below, the Department is also investigating whether 
the GOC sold land for LTAR. In its May 19, 2008 initial questionnaire 
the Department requested that the GOC respond to the Standard Questions 
and Provision of Goods/Services Appendices as they pertained to the 
GOC's alleged provision of land for LTAR. In its July 10, 2008 
response, the GOC stated:
    Based on the information presently available to the GOC, it does 
not consider that land use rights provided to the producer respondents 
and their reporting cross-owned affiliates was provided at ``no cost or 
nominal cost.'' For this reason, the GOC does not respond to the 
Standard Questions of Appendix 1 or the Provision of Goods/Services 
questions at Appendix 5.
See GOC's July 10, 2008 questionnaire response at 101.
    In its August 5, 2008 questionnaire, the Department requested that 
the GOC respond to the information requested in the Standard Questions 
and Provision of Goods/Services appendices. In its August 21, 2008 
supplemental questionnaire response, the GOC responded to sections of 
the appendices. However, the GOC did not provide the requested 
information pertaining to the Department's de facto specificity 
analysis. For example, in its August 5, 2008 supplemental 
questionnaire, the Department asked the GOC to provide the following as 
it pertained to the GOC's alleged provision of land for LTAR:
    Please provide a list by industry and by region of the number of 
companies which have received benefits under this program in the year 
the provision of benefits was approved and each of the preceding three 
years. Provide the total amounts of benefits received by each type of 
industry in each region in the year the provision of benefits was 
approved and each of the preceding three years.
In its August 21, 2008 response, the GOC stated that:
    No such list exists regarding the receipt of ``benefits'' through 
the administration of land use rights. At page 6 of Exhibit 54 of the 
GOC's initial questionnaire response, data is reported on land use 
rights - including allocated, granted, and secondary market transfers - 
that moved over the 2000 - 2005 period. Additional data are publically 
available and will be provided if requested.
See GOC's August 21, 2008 supplemental questionnaire response at 69.
    We note that the data provided in Exhibit 54 of the GOC's initial 
questionnaire response does not provide the information the Department 
requested for purposes of its de facto specificity analysis.
    Sections 776(a)(1) and (2) of the Act provide that the Department 
shall apply ``facts otherwise available'' if, inter alia, necessary 
information is not on the record or an interested party or any other 
person: (A) withholds information that has been requested; (B) fails to 
provide information within the deadlines established, or in the form 
and manner requested by the Department, subject to subsections (c)(1) 
and (e) of section 782 of the Act; (C) significantly impedes a 
proceeding; or (D) provides information that cannot be verified as 
provided by section 782(i) of the Act.
    Where the Department determines that a response to a request for 
information does not comply with the request, section 782(d) of the Act 
provides that the Department will so inform the party submitting the

[[Page 52303]]

response and will, to the extent practicable, provide that party the 
opportunity to remedy or explain the deficiency. If the party fails to 
remedy the deficiency within the applicable time limits and subject to 
section 782(e) of the Act, the Department may disregard all or part of 
the original and subsequent responses, as appropriate. Section 782(e) 
of the Act provides that the Department ``shall not decline to consider 
information that is submitted by an interested party and is necessary 
to the determination but does not meet all applicable requirements 
established by the administering authority'' if the information is 
timely, can be verified, is not so incomplete that it cannot be used, 
and if the interested party acted to the best of its ability in 
providing the information. Where all of these conditions are met, the 
statute requires the Department to use the information if it can do so 
without undue difficulties.
    Because the GOC failed to provide the requested information by the 
established deadlines, the Department does not have the necessary 
information on the record to determine whether the GOC provided HRS 
and/or land to producers of line pipe in a manner that was de facto 
specific within the meaning of section 771(5A)(D)(iii) of the Act. 
Therefore, the Department must base its determination on the facts 
otherwise available in accordance with sections 776(a)(2)(A) and (B) of 
the Act.
    Section 776(b) of the Act further provides that the Department may 
use an adverse inference in applying the facts otherwise available when 
a party has failed to cooperate by not acting to the best of its 
ability to comply with a request for information. Section 776(b) of the 
Act also authorizes the Department to use as adverse facts available 
(AFA) information derived from the petition, the final determination, a 
previous administrative review, or other information placed on the 
record. For the reasons discussed below, we determine that, in 
accordance with sections 776(a)(2)(A) and (B) and 776(b) of the Act, 
the use of AFA is appropriate for the preliminary determination with 
respect to the GOC's alleged provision of HRS and land to producers of 
line pipe for LTAR.
    As noted, regarding the GOC's alleged provision of HRS and land for 
LTAR, the GOC did not provide the information the Department requested 
relating to its de facto specificity analysis. The Department issued 
supplemental questionnaires in which it instructed the GOC to provide 
the information relating to the Department's de facto specificity 
analysis. However, in its response, the GOC continued to provide 
insufficient information regarding the Department's questions 
pertaining to de facto specificity. Therefore, consistent with sections 
776(a)(2)(A) and (B) of the Act, we find that the GOC did not act to 
the best of its ability and, therefore, we are employing adverse 
inferences in selecting from among the facts otherwise available. 
Accordingly, pursuant to section 776(b) of the Act, we find that the 
provision of HRS and land to producers of line pipe by GOC authorities 
is de facto specific within the meaning of section 771(5A)(D)(iii) of 
the Act.\6\ Thus, we preliminarily determine that the provision of HRS 
and land by GOC authorities to producers of line pipe is 
countervailable to the extent that the provision of the goods 
constituted a financial contribution in accordance with 771(5)(D)(iii) 
of the Act and conferred a benefit upon producers of line pipe within 
the meaning of 771(E)(iv) of the Act. The Department's decision to rely 
on adverse inferences when lacking a response from a foreign government 
is in accordance with its practice. See, e.g., Notice of Preliminary 
Results of Countervailing Duty Administrative Review: Certain Cut-to-
Length Carbon-Quality Steel Plate from the Republic of Korea, 71 FR 
11397, 11399 (March 7, 2006) (unchanged in the Notice of Final Results 
of Countervailing Duty Administrative Review: Certain Cut-to-Length 
Carbon-Quality Steel Plate from the Republic of Korea, 71 FR 38861 
(July 10, 2006) (relying on adverse inferences in determining that the 
Government of Korea directed credit to the steel industry in a manner 
that constituted a financial contribution and was specific to the steel 
industry within the meaning of the sections 771(5)(D)(i) and 
771(5A)(D)(iii) of the Act, respectively).
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    \6\ We note that it is not necessary to rely on this AFA finding 
in instances in which respondents' land purchases are found to be de 
jure specific.
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Analysis of Programs

I. Programs Preliminarily Determined To Be Countervailable

A. The ``Two Free, Three Half'' Program
    The ``Foreign Invested Enterprise and Foreign Enterprise Income Tax 
Law'' (FIE Tax Law), enacted in 1991, established the tax guidelines 
and regulations for foreign invested enterprises (FIEs) in the PRC. The 
intent of this law is to attract foreign businesses to the PRC.
    According to Article 8 of the FIE Tax Law, FIEs that are 
``productive'' and scheduled to operate not less than 10 years are 
exempt from income tax in their first two profitable years and pay half 
of their applicable tax rate for the following three years. FIEs are 
deemed ``productive'' if they qualify under Article 72 of the 
``Detailed Implementation Rules of the Income Tax Law of the People's 
Republic of China of Foreign Investment Enterprises and Foreign 
Enterprises.'' This provision specifies a list of industries in which 
FIEs must operate in order to qualify for benefits under this program. 
The activities listed in the law are: (1) machine manufacturing and 
electronics industries; (2) energy resource industries (not including 
exploitation of oil and natural gas); (3) metallurgical, chemical and 
building material industries; (4) light industries, and textiles and 
packaging industries; (5) medical equipment and pharmaceutical 
industries; (6) agriculture, forestry, animal husbandry, fisheries and 
water conservation; (7) construction industries; (8) communications and 
transportation industries (not including passenger transport); (9) 
development of science and technology, geological survey and industrial 
information consultancy directly for services in respect of production 
and services in respect of repair and maintenance of production 
equipment and precision instruments; and (10) other industries as 
specified by the tax authorities under the State Council. If an FIE 
meets the above conditions, eligibility is automatic and the amount 
exempted appears on the enterprise's tax return.
    Northern Steel reported that it is a ``productive'' FIE and filed a 
tax return for a ``free'' tax year under this program during the POI.
    Consistent with CFS Final, we preliminarily determine that the 
exemption or reduction in the income tax paid by ``productive'' FIEs 
under this program confers a countervailable subsidy. See CFS Decision 
Memorandum at ``Two Free/Three Half'' Program. The exemption/reduction 
is a financial contribution in the form of revenue forgone by the GOC 
and it provides a benefit to the recipients in the amount of the tax 
savings. See Section 771(5)(D)(ii) of the Act and 19 CFR 351.509(a)(1). 
We further preliminarily determine that the exemption/reduction 
afforded by this program is limited as a matter of law to certain 
enterprises, i.e., ``productive'' FIEs, and, hence, is specific under 
section 771(5A)(D)(i) of the Act.
    To calculate the benefit from this program, we treated the income 
tax exemption enjoyed by Northern Steel as a recurring benefit, 
consistent with 19 CFR 351.524(c)(1), and attributed the tax

[[Page 52304]]

savings received to the company's total sales. On this basis, we 
preliminarily determine that Northern Steel received a net 
countervailable subsidy of 4.18 percent ad valorem under this program.
B. Provision of Land for Less Than Adequate Remuneration
    The Department is investigating whether Chinese government 
authorities provided land use-rights to the respondents for LTAR. 
Northern Steel is located in the Economic Development Zone in Haicheng. 
The Economic Development Zone was established by the Anshan Municipal 
Government in 1992, and upgraded to a province-level development zone 
in 2002. In September 2006, Northern Steel purchased long-term land-use 
rights for land in the coastal economic zone from the Haicheng State-
owned Land and Resources Bureau, which is a government agency. The 
Haicheng State-owned Land and Resources Bureau controls the granting 
and approval of land-use rights and sets the price for industrial land 
within the Economic Development Zone.
    Regarding the Huludao Companies, the Huludao Seven Star Group 
reported making several land purchases. However, as discussed in the 
``Cross-Ownership'' section, we are limiting our subsidy analysis to 
those land purchases that we preliminarily determine constitute a 
transfer of subsidies by the Huludao Seven Star Group, a corporation 
producing non-subject merchandise, to Huludao Steel Pipe and Huludao 
Bohai Oil Pipe, cross-owned corporations that produce subject 
merchandise, as described under 19 CFR 351.525(b)(6)(v). Therefore, for 
purposes of the preliminary determination, we limited our subsidy 
analysis to the two parcels of land the Huludao Seven Star Group 
purchased from the Bureau of Land Resources of Longgang District, 
Huludao City in Liaoning Province in 2004 and 2006 on behalf of Huludao 
Steel Pipe and Huludao Bohai Oil Pipe. Regarding the 2004 purchase, the 
Huludao Seven Star Group acquired land-use rights from the local 
government for land that Huludao Steel Pipe had been using since 1993. 
Regarding the 2006 purchase, the Huludao Seven Star Group acquired land 
use rights from the local government and subsequently leased the land 
to Huludao Bohai Oil Pipe. This parcel of land was located in the 
Beigang Industrial Zone. In addition, in 2004, Huludao Steel Pipe 
acquired land-use rights from the local government.\7\
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    \7\ In its August 18, 2008 supplemental questionnaire response, 
the Huludao Steel Pipe indicates that the Seven Star Group made an 
additional land purchase in 2006. However, at this time, information 
on the record does not indicate that the land was purchased on 
behalf of Huludao Steel Pipe or Huludao Bohai Oil Pipe. Therefore, 
we have not conducted a benefit analysis with respect to this 
transaction. In addition, information from the August 18, 2008 
supplemental questionnaire response indicates that an additional 
affiliate of the Huludao Companies (whose identity is business 
proprietary) acquired land in 2004. However, information in the 
questionnaire responses of the Huludao Companies indicates that the 
affiliate does not produce subject merchandise or provide any member 
of the Huludao Companies with inputs that are primarily dedicated to 
the production of subject merchandise. Therefore, we have not 
performed a benefit analysis regarding this affiliate's 2004 land 
purchase.
---------------------------------------------------------------------------

    For the reasons described below, the Department preliminarily 
determines that the provision of land-use rights to Northern Steel and 
the Huludao Companies constitutes a countervailable subsidy in the form 
of land-use rights provided for LTAR. Northern Steel received its land-
use rights from the Haicheng State-owned Land and Resources Bureau, a 
government authority. According to the respondents, local governments 
set the prices and were the party to the land-use rights agreements. 
Thus, the sale of the land-use rights constitutes a financial 
contribution from a government authority in the form of providing goods 
or services pursuant to section 771(5)(D)(iii) of the Act. In addition, 
in the case of Northern Steel and with regard to the land that the 
Huludao Seven Star Group purchased in 2006, the Department 
preliminarily determines that the sales of the land-use rights are 
specific because they are limited to enterprises or an industry located 
within a designated geographical region pursuant to section 
771(5A)(D)(iv) of the Act. As discussed above, Northern Steel and the 
land purchased in 2006 by the Huludao Seven Star Group are located 
within an economic development zone that is within the jurisdiction of 
the authorities that provided to the company its land-use rights and 
set the terms of those rights.\8\ Regarding the Huludao Companies' 2004 
land purchases, as discussed above in the ``Adverse Facts Available'' 
section, the GOC did not provide the information the Department 
requested relating to its de facto specificity analysis. Therefore, in 
accordance with section 776(b) of the Act, as AFA, we preliminarily 
determine that the provision of land to the Huludao Companies in 2004 
by the Bureau of Land Resources of Longgang District is de facto 
specific pursuant to section 771(5A)(D)(iii) of the Act.
---------------------------------------------------------------------------

    \8\ The land Northern Steel purchased is within the authority of 
Haicheng City of Liaoning Province. The land that the Huludao Seven 
Star Group purchased in 2006 is located in the Beigang Industrial 
Zone that is under the authority of the Bureau of Land Resources of 
Longgang District, Huludao City in Liaoning Province.
---------------------------------------------------------------------------

    We further preliminarily determine that the sale of land-use rights 
provides 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 LTAR. 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.
    Under 19 CFR 351.511(a)(2), the Department sets forth the basis for 
identifying comparative benchmarks for determining whether a government 
good or service is provided for LTAR. 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. This hierarchy reflects a 
logical preference for achieving the objectives of the statute.
    Consistent with the Sacks Final and Tires Final, we preliminarily 
determine that a first tier benchmark cannot be applied. See Laminated 
Woven Sacks from the People's Republic of China: Final Affirmative 
Countervailing Duty Determination and Final Affirmative Determination, 
in Part, of Critical Circumstances, 73 FR 35639 (June 24, 2008) (Sacks 
Final), and accompanying decision memorandum (Sacks Decision 
Memorandum) at ``Government Provision of Land for Less Than Adequate 
Remuneration'' and Comment 10 ``Whether the Department Should Select 
Either a First-Tier or Third-Tier Benchmark for the Provision of Land-
Use Rights for Less Than Adequate Remuneration;'' see also Tires Final 
and Tires Decision Memorandum at Comment H.7 ``Land Benchmark.''
    As an initial matter, we note that private land ownership is 
prohibited in the PRC and that all land is owned by some level of 
government, the distinction being between land owned by the local 
government or ``collective''

[[Page 52305]]

at the township or village level and land owned by the national 
government (also referred to as state-owned or ``owned by the whole 
people'').\9\ Noting that the GOC, either at the national or local 
level, is the ultimate owner of all land in the PRC, the Department has 
examined whether the GOC exercises control over the supply side of the 
land market in the PRC as a whole so as to distort prices in the 
primary and secondary markets.
---------------------------------------------------------------------------

    \9\ See GOC's July 9, 2008 questionnaire response at 100.
---------------------------------------------------------------------------

    Consistent with the Department's determinations in Sacks Final and 
Tires Final, we preliminarily determine that a first tier benchmark is 
not appropriate to measure the benefit from the sale of land-use rights 
during the POI because Chinese land prices are distorted by the 
significant government role in the market. The Preamble states that 
``where it is reasonable to conclude the 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.'' 
See Countervailing Duties; Final Rule, 63 FR 65348, 65377 (November 25, 
1998) (Preamble)).
    The second tier benchmark relies on world market prices that would 
be available to the purchasers in the country in question, though not 
necessarily reflecting prices of actual transactions involving that 
particular producer. See 19 CFR 351.511(a)(2)(ii). In selecting a world 
market price under this second approach, the Department examines the 
facts on the record regarding the nature and scope of the market for 
that good to determine if that market price would be available to an 
in-country purchaser. As discussed in the Preamble (63 FR at 65377), 
the Department will consider whether the market conditions in the 
country are such that it is reasonable to conclude that a purchaser in 
the country could obtain the good or service on the world market. We 
preliminarily determine that land-use rights cannot be evaluated using 
a second tier benchmark because they cannot be simultaneously 
``available to an in-country'' purchaser'' while located and sold out-
of-country on the world market.
    Since we are not able to conduct our analysis using a benchmark 
identified under the second tier of the regulations, consistent with 
the hierarchy, we next considered whether the GOC's pricing of land-use 
rights is consistent with market principles. This approach is also set 
forth under 19 CFR 351.511(a)(2)(iii) and is explained further in the 
Preamble (63 FR at 65378):
    (W)here the government is the sole provider of a good or service, 
and there are no world market prices available or accessible to the 
purchaser, we will assess whether the government price was set in 
accordance with market principles through an analysis of such factors 
as the government's price-setting philosophy, costs (including rates of 
return sufficient to ensure future operations), or possible price 
discrimination . . . In our experience, these types of analysis may be 
necessary for such goods or services as electricity, land leases or 
water, and the circumstances of each may vary widely.
    The regulations do not specify how the Department is to conduct 
such a market principle analysis. By its very nature, this analysis 
depends upon available information concerning the market sector at 
issue and, therefore, must be developed on a case-by-case basis. In the 
instant case, we preliminarily determine that due to the overwhelming 
presence of government involvement in the land-use rights market, as 
well as the widespread and documented deviation from the authorized 
methods of pricing and allocating land, the purchase of land-use rights 
in the PRC is not conducted in accordance with market principles.
    Consistent with the Department's decision in Sacks Final and Tires 
Final, we preliminarily find that there is a wide divergence between 
the de jure reforms of the market for land-use rights and the de facto 
implementation of such reforms. See Memorandum to the File regarding 
Land Benchmark Memorandum (Land Benchmark Memorandum) (dated September 
2, 2008) at Attachment 2 (stating that the PRC's land laws, 
regulations, and statements, although often vague and contradictory, 
seem to support the provision of secure land-use rights to farmers and 
an open, transparent system for transferring commercial land-use 
rights).\10\ In practice, however, farmers' land-use rights are still 
not secure and fair compensation for farmers is an ongoing, market-
distorting issue in PRC. In addition, laws and regulations are 
routinely violated by individuals and local governments. While the 
private market for land-use rights has grown, state-owned enterprises 
(SOEs) received a significant portion of their land-use rights free of 
charge. Also, commercial land sales are often conducted illegally. In 
short, property rights remain poorly defined and weakly enforced. See 
Sacks Decision Memorandum at ``Government Provision of Land for Less 
Than Adequate Remuneration.''
---------------------------------------------------------------------------

    \10\ This public document is on file in the CRU.
---------------------------------------------------------------------------

    Also, consistent with the Department's determination in Sacks Final 
and Tires Final, we preliminarily find that another de facto problem 
with land supply in the PRC which causes market distortions is that of 
local government corruption. Local governments most often transfer land 
through non-transparent negotiations with investors despite guidance 
that land should be transferred through a transparent bidding or 
auction process. This has led to widespread corruption where much of 
the compensation is retained by the local government officials. See 
Land Benchmark Memorandum at Attachment 4 for article on ``Law to 
Expose Illegal Land Deal,'' China Daily (dated August 1, 2006).
    Given this preliminarily finding, we have looked for an appropriate 
basis to determine the extent to which land-use rights are provided for 
LTAR. We preliminarily find that a comparison of prices for land-use 
rights in the PRC with comparable market-based prices for land 
purchases in a country at a comparable level of economic development 
that is reasonably proximate to, but outside of China, is appropriate. 
Consistent with Sacks Final and Tires Final, we preliminarily determine 
that the most appropriate analysis in this case would be to compare the 
respondents' purchase of land-use rights to the sales of certain 
industrial land in industrial estates, parks, and zones in Thailand.
    As a general matter, we note that the PRC and Thailand have similar 
levels of per capita GNI, and that producers consider a number of 
markets, including Thailand, as an option for diversifying production 
bases in Asia beyond the PRC. Therefore, we preliminarily determine 
that the ``indicative land values'' for land in Thai industrial zones, 
estates, and parks provided in the Asian industrial Property Reports 
present a reasonable and comparable benchmark to the land-use rights in 
the economic zones at issue in this investigation.
    Based on the methodology set out in Sacks Final and Tires Final, we 
preliminarily determine that the land-use rights acquired by Northern 
Steel and the Huludao Companies are granted land-use rights and, thus, 
have employed the benefit calculation methodology described below.
    In order to calculate the benefit, we first multiplied the Thai 
benchmark land rate (deflated from 2007 to the year the transaction was 
officially approved

[[Page 52306]]

by the government) by the total area of the respective parcels 
purchased by Northern Steel and the Huludao Companies. We then 
subtracted the price actually paid for these respective tracts by 
Northern Steel and the Huludao Companies to derive the total 
unallocated benefit. We next conducted the ``0.5 percent test'' 
pursuant to 19 CFR 351.524(b)(2) for the years in which the transaction 
was approved by dividing the total unallocated benefit by the 
appropriate sales denominator.\11\ As a result, we found that the 
benefits were greater than 0.5 percent of relevant sales and that 
allocation was appropriate. We allocated the total unallocated benefit 
across the term of the land agreement using the standard allocation 
formula in 19 CFR 351.524(d) and the discount rates discussed above in 
the ``Subsidies Valuation Information'' section under ``Loan Benchmarks 
and Discount Rates,'' to determine the amount attributable to the POI.
---------------------------------------------------------------------------

    \11\ Where the approval date and approved amount of the 
unallocated benefit was not available, we used the date in which the 
transaction was conducted for purposes of the 0.5 percent test.
---------------------------------------------------------------------------

    For Northern Steel, we then divided the POI benefit by the total 
sales of Northern Steel to calculate a net countervailable subsidy of 
2.44 percent ad valorem. In the case of the Huludao Companies, as 
discussed in the ``Cross-Ownership'' section, we preliminarily 
determine that the land purchased by the Huludao Seven Star Group on 
behalf of Huludao Steel Pipe and Huludao Bohai Oil Pipe constitutes a 
transfer of subsidies by a corporation producing non-subject 
merchandise to cross-owned corporations that produce subject 
merchandise as described under 19 CFR 351.525(b)(6)(v). Therefore, in 
accordance with 19 CFR 351.525(b)(6)(ii), we have attributed such 
subsidies received by Huludao Steel Pipe and Huludao Bohai Oil Pipe 
under the Provision of Land For Less Than Adequate Remuneration program 
to the combined total sales of Huludao Steel Pipe and Huludao Bohai Oil 
Pipe (net of their respective sales to affiliates). On this basis, we 
calculated a net subsidy rate of 0.68 percent ad valorem for the 
Huludao Companies.
C. Provision of Hot-Rolled Steel for Less Than Adequate Remuneration
    The Department is investigating whether GOC authorities provided 
HRS to producers of line pipe for LTAR