(65 FR 18065, April 6, 2000) C-351-818 Sunset Review Public Document MEMORANDUM TO: Robert S. LaRussa Assistant Secretary for Import Administration FROM: Jeffrey A. May Director Office of Policy SUBJECT: Issues and Decision Memo for the Sunset Review of the Countervailing Duty Order on Certain Cut-to-Length Carbon Steel Plate from Brazil; Final Results of Expedited Review Summary We have analyzed the comments of interested parties in the expedited sunset review of the countervailing duty order covering certain cut- to-length carbon steel plate ("cut-to-length plate") from Brazil. We recommend that you approve the positions we have developed in the Discussion of the Issues section of this memorandum. Below is the complete list of the issues in these expedited sunset review for which we received a substantive response: 1. Likelihood of continuation or recurrence of a countervailable subsidy A. Continuation of subsidies B. Temporary or partial termination of subsidies 2. Net Countervailable Subsidy A. Rates from investigation B. Use of a more recent rate 3. Nature of the Subsidy A. Article 3 or Article 6.1 subsidy B. Program descriptions History of the Order The Department published its final affirmative determination on cut- to-length plate from Brazil in the Federal Register on July 9, 1993 (58 FR 37295). In this determination, the Department found an estimated net subsidy of 6.07 percent for Usinas Siderurgicas de Minas Gerais S.A. ("USIMINAS"), 44.66 percent for Companhia Siderurgica Paulista ("COSIPA"), and 21.84 percent for "all others," based on six programs: (1) Equity Infusions program; (2) Fiscal Benefits by Virtue of Industrial Development Council ("CDI") program; (3) IPI Rebate Program Under Law 7554/86 program; (4) Exemption of IPI and Duties on Imports under Decree-law 2324 program;(1) (5) Banco Nacional de Desenvolvimento Economico e Social Financing ("BNDES") program; and (6) Provision of Infrastructure program. On August 17, 1993, the Department published an amended final determination and countervailing duty order.(2) On February 9, 1995, the United States Court of International Trade ("CIT") held that the Department's privatization methodology for USIMINAS was unlawful, and remanded the determinations in question.(3) In accordance with the CIT's instructions the Department re-examined the privatization transactions in question. The Department found that the privatization of USIMINAS was through sales of shares, and that the privatized entity continued to be the same entity that had received the subsidies prior to privatization.(4) Therefore, the Department determined that the pre-privatization subsides remained countervailable in full. The Department did not attribute any portion of the sales price for any of the producers to a partial repayment of prior subsidies. On April 2, 1996, the CIT affirmed the remand determinations made by the Department. In doing so the Court implicitly rejected the "repayment" aspect of the Department's privatization methodology. While the Court of Appeals for the Federal Circuit ("CAFC") recently ruled that the Department may not presume that non-recurring subsidies survive a transfer in a subsidized company's ownership, that decision is not final and conclusive. See Delverde SRL v. United States, Appeal No. Op. 99-1186 (Fed. Cir. 2000). The Department has not conducted an administrative review of this order since its imposition. Background On September 1, 1999, the Department published the notice of initiation of the sunset review of the countervailing duty order on cut-to-length plate from Brazil (63 FR 47767). The Department received a Notice of Intent to Participate on behalf of Bethlehem Steel Corporation and U.S. Steel Group, a unit of USX Corporation ("the domestic interested parties"), within the deadline specified in section 351.218(d)(1)(i) of the Department's regulations as codified 19 CFR Part 351 (1999) ("Sunset Regulations"). The domestic interested parties claimed interested party status under section 771(9)(C) of the Tariff Act of 1930, as amended ("the Act"), as U.S. manufacturers of cut-to-length plate. We received a complete substantive response from the domestic interested parties on October 1, 1999, within the 30-day deadline specified in the Sunset Regulations under section 351.218(d)(3)(i). In their substantive response, the domestic interested parties stated that they were the petitioner in the original investigations of cut-to-length plate from Brazil. Furthermore, the domestic interested parties stated that they had participated in each subsequent segment of the case. We did not receive a substantive response from any respondent interested party to this proceeding. As a result, pursuant to 19 CFR 351.218(e)(1)(ii)(C), the Department determined to conduct an expedited, 120-day, review of this order. In accordance with section 751(c)(5)(C)(v) of the Act, the Department may treat a review as extraordinarily complicated if it is a review of a transition order (i.e., an order in effect on January 1, 1995). The review at issue concerns a transition order within the meaning of section 751(c)(6)(C)(i) of the Act. Therefore, the Department determined that the sunset review of the countervailing duty order on cut-to-length plate from Brazil is extraordinarily complicated and extended the time limit for completion of the final results of this review until not later than March 29, 2000, in accordance with section 751(c)(5)(B) of the Act.(5) Discussion of the Issues In accordance with section 751(c)(1) of the Act, the Department conducted this review to determine whether revocation of the countervailing duty order would be likely to lead to continuation or recurrence of a countervailable subsidy. Section 752(b) of the Act provides that, in making this determination, the Department shall consider the net countervailable subsidy determined in the investigation and subsequent reviews, and whether any change in the program which gave rise to the net countervailable subsidy has occurred and is likely to affect that net countervailable subsidy. Pursuant to section 752(b)(3) of the Act, the Department shall provide to the International Trade Commission ("the Commission") the net countervailable subsidy likely to prevail if the order is revoked. In addition, consistent with section 752(a)(6), the Department shall provide to the Commission information concerning the nature of the subsidy and whether it is a subsidy described in Article 3 or Article 6.1 of the 1994 WTO Agreement on Subsidies and Countervailing Measures ("Subsidies Agreement"). Below we address the comments of the interested parties. 1. Likelihood of Continuation or Recurrence of a Countervailable Subsidy: Interested Party Comments In their substantive response, the domestic interested parties argue that revocation of the countervailing duty order would likely lead to continuation or recurrence of a countervailable subsidy by Brazilian manufacturers and exporters of the subject merchandise. Citing the SAA, at 888, the domestic interested parties assert that continuation, or temporary or partial termination, of a subsidy program will be highly probative of the likelihood of continuation or recurrence of countervailable subsidies, absent significant evidence to the contrary. The domestic interested parties argue that the same programs found in the original investigation are either still being used or still conferring a benefit. Specifically, the domestic interested parties note that the benefit stream from non-recurring subsides (equity infusions and BNDES long-term financing) which were allocated over time, continue to benefit USIMINAS and COSIPA, and will continue to do so in the future. Furthermore, the domestic interested parties argue that the three recurring subsides found in the original investigation (fiscal benefits by virtue of CDI, exemptions of IPI and duties on imports under decree-law 2324, and the IPI rebate program under law 7554/86), continue to confer benefits upon USIMINAS and COSIPA. Department's Position Drawing on the guidance provided in the legislative history accompanying the Uruguay Round Agreements Act ("URAA"), specifically the Statement of Administrative Action (the "SAA"), H.R. Doc. No. 103- 316, vol. 1 (1994), the House Report, H.R. Rep. No. 103-826, pt.1 (1994), and the Senate Report, S. Rep. No. 103-412 (1994), the Department issued its Sunset Policy Bulletin providing guidance on methodological and analytical issues, including the basis for likelihood determinations. The Department clarified that determinations of likelihood will be made on an order-wide basis (see section III.A.2 of the Sunset Policy Bulletin). Additionally, the Department normally will determine that revocation of a countervailing duty order is likely to lead to continuation or recurrence of a countervailable subsidy where (a) a subsidy program continues, (b) a subsidy program has been only temporarily suspended, or (c) a subsidy program has been only partially terminated (see section III.A.3.a of the Sunset Policy Bulletin). Exceptions to this policy are provided where a company has a long record of not using a program (see section III.A.3.b of the Sunset Policy Bulletin). Section 751(c)(4)(B) of the Act provides that, in addition to considering the guidance on likelihood cited above, the Department shall determine that revocation of an order is likely to lead to continuation or recurrence of a countervailable subsidy where a respondent interested party waives its participation in the sunset review. Pursuant to the SAA, at 881, in a review of a countervailing duty order, when the foreign government has waived participation, the Department shall conclude that revocation of the order would be likely to lead to a continuation or recurrence of a countervailable subsidy for all respondent interested parties.(6) In the instant review, the Department did not receive a response from the foreign government or from any other respondent interested party. Pursuant to section 351.218(d)(2)(iii) of the Sunset Regulations, this constitutes a waiver of participation. As stated above, the continued use of a program is highly probative of the likelihood of continuation or recurrence of countervailable subsidies if the order were revoked. Additionally, the continuation of a benefit stream beyond the end of the sunset review, regardless of whether the program that gave rise to the long-term benefit continues to exist, is also probative of the likelihood of continuation or recurrence of a countervailable subsidy. Absent argument or evidence to the contrary, we find that countervailable programs continue to exist and be used. Given that (i) countervailable programs continue to exist and be used; (ii) the benefit stream from non-recurring subsides allocated over time continues to benefit USIMINAS and COSIPA; (iii) the foreign government and other respondent interested parties waived their right to participate in this review before the Department; and (iv) the absence of argument and evidence to the contrary, the Department therefore concludes that revocation of the order would be likely to lead to a continuation or recurrence of a countervailable subsidy for all respondent interested parties.(7) 2. Net Countervailable Subsidy: Interested Parties Comments The domestic interested parties, citing the SAA, note that the Department normally will select the rate from the investigation as the net countervailable subsidy likely to prevail if the order is revoked, because that is the only calculated rate that reflects the behavior of exporters and foreign governments without the discipline of an order in place (see October 1, 1999, Substantive Response of the domestic interested parties regarding cut-to-length plate from Brazil, at 15). However, citing 752(b)(1)(B) of the Act, they note that the Department shall consider whether there has been any change in any of the programs, which gave rise to the net countervailable subsidy, that is likely to affect the net countervailable subsidy. Id. at 16. Pursuant to this authority, the domestic interested parties assert that the Department should report to the Commission the 9.45 percent subsidy rate calculated for USIMINAS/COSIPA in the investigation of certain hot-rolled flat-rolled carbon-quality steel products ("Hot-Rolled Steel").(8) They argue that the subsidy rate found in the Hot-Rolled Steel case is more accurate, as it takes into account changes in ownership and equity infusion received by COSIPA, and does not include any amount attributable to terminated programs. Department's Position In the Sunset Policy Bulletin, the Department stated that, consistent with the SAA and House Report, the Department normally will select a rate from the investigation as the net countervailable subsidy likely to prevail if the order is revoked, because that is the only calculated rate that reflects the behavior of exporters and foreign governments without the discipline of an order or suspension agreement in place. The Department noted that this rate may not be the most appropriate rate if, for example, the rate was derived from subsidy programs which were found in subsequent reviews to be terminated, there has been a program-wide change, or the rate ignores a program found to be countervailable in a subsequent administrative review.(9) Although, as the domestic interested parties asserted, there may have been changes in the level of subsidies received by, and in the relationship of, the Brazil manufacturers and exporters of the subject merchandise, as noted above, the Department has not conducted an administrative review of this order. While we agree with the domestic interested parties that the Department determined it appropriate to treat USIMINAS and COSIPA as a single company for purposes of the countervailing duty investigation covering hot-rolled steel, we do not agree that it is appropriate to do so for the purpose of this sunset review. In the original investigation of the merchandise subject to this order, the Department determined company- specific net subsidy rates for both USIMINAS and COSIPA. Even if we were to agree that it is appropriate to treat these companies as a single company for the purpose of this sunset review, on the basis of information on the record, we would be unable to determine the net countervailable subsidy applicable to such a single company. We do not agree with domestic interested parties that it would be appropriate to rely on the net countervailable subsidy determined in the determination with respect to hot-rolled steel. Although the same producers may be involved, different products are involved and the level of subsidization may vary from product to product. Therefore, consistent with the Sunset Policy Bulletin, we determine that the rate from the original investigation is probative of the net countervailable subsidy likely to prevail were the order to be revoked. 3. Nature of the Subsidy: In the Sunset Policy Bulletin, the Department states that, consistent with section 752(a)(6) of the Act, the Department will provide to the Commission information concerning the nature of the subsidy, and whether the subsidy is a subsidy as described in Article 3 or Article 6.1 of the Subsidies Agreement. The domestic interested parties did not address this issue in their substantive response of October 1, 1999. Because receipt of benefits provided by the Government of Brazil's ("GOB's") countervailable program Exemption of IPI and Duties on Imports under Decree-Law 2324 is contingent upon exports, this program fall within the definition of an export subsidy under Article 3.1(a) of the Subsidies Agreement. All of the other programs provided by the GOB are, however, programs that could be found inconsistent with Article 6.1 of the Subsides Agreement(10) if the net subsidy exceeds 5 percent ad valorem as measured in accordance with Annex IV of the Subsidies Agreement. However, the Department does not have enough information to calculate or determine whether the total ad valorem subsidization of the subject merchandise from these programs exceeds five-percent or whether they were meant to cover operating losses or to be used as direct forgiveness of debt. Nor does the Department believe such calculation or determination would be appropriate in the course of a sunset review. Instead, we are providing the Commission with program descriptions listed below. Equity Infusions This program enabled USIMINAS and COSIPA to receive equity infusions from the GOB in the following years: USIMINAS, 1980 to 1988; and COSIPA, 1977 through 1991. We determined that equity infusions by the GOB into USIMINAS, in these years, and into COSIPA in the years 1997 through 1989 and 1991 were made on terms inconsistent with commercial considerations. Fiscal Benefits by Virtue of the CDI The CDI provides for the reduction of up to 100 percent of the import duties and up to 10 percent of the IPI tax (value-added tax) on certain imported machinery for specific projects. IPI Rebate Program Under Law 7554/86 This Program consists of a rebate of 95 percent of the IPI tax paid on domestic sales of industrial products. BNDES Financing In this program loans were provided in terms inconsistent with commercial considerations because the companies that received the loans were uncreditworthy. Provision of Infrastructure This program provides preferential interest on purchasing agreements with a government-owned steel holding company. Final Results of Review: As a result of this review, the Department finds that revocation of the countervailing duty order would be likely to lead to continuation or recurrence of a countervailable subsidy at the rates listed below: Brazilian Manufacturers/Exporters Cash Deposit Rate (percent) --------------------------------------------------------------------- USIMINAS. . . . . . . . . . . . . . . . . . . . . .5.44 COSIPA . . . . . . . . . . . . . . . . . . . . . .48.64 All Others . . . . . . . . . . . . . . . . . . . .23.10 --------------------------------------------------------------------- Recommendation Based on our analysis of the substantive response received, we recommend adopting all of the above positions. If these recommendations are accepted, we will publish the final results of review in the Federal Register. AGREE ____ DISAGREE____ Joseph A. Spetrini Acting Assistant Secretary for Import Administration (Date) _____________________________________________________________ Footnotes: 1. In the investigation, the Department found that this program was terminated prior to the preliminary determination and no residual benefits have been provided since before the preliminary determination. Therefore, for cash deposit purposes, we adjusted the estimated net subsidy from this program to zero in accordance with section 355.50(a)(2) of the Department's Regulations. 2. The petitioners and respondents alleged that the Department made ministerial errors in calculating the subsidy rate. Specifically, the respondents contended that the Department overstated COPISA's benefit from the BNDES loan program. We agreed and reduced COSIPA's estimated net subsidy from this program from 0.96 percent to zero. Although the Department found the net subsidy during the period of review to be zero, because COSIPA resumed service payments in 1992 on its outstanding BNDES loan program, the deposit rate was set at 0.66%. Respondents argued further that the Department overstated USMINAS' benefit from the IPI rebate program. We agreed and reduced USMINAS' net subsidy from this program from 2.00 percent to 1.98 percent ad valorem. The respondents contended further that the Department overstated USIMINAS' benefit, and the petitioners argued that the Department understated COSIPA's benefits, from countervailable equity infusions. We agreed with both the respondents and the petitioners, and reduced the net subsidy from equity infusion from 3.45 percent to 3.03 percent ad valorem for USIMINAS, and increased the net subsidy from 43.12 percent to 47.40 percent ad valorem for COSIPA. See Countervailing Duty Order and Amendment to Final Affirmative Countervailing Duty Determination: Certain Steel Products from Brazil, August 17, 1993 (58 FR 43751). 3. See British Steel Plc. et al. v. United States, 879 F. Supp 1254. 4. See British Steel Plc. et al. v. United States, Slip Op. 96-6011. 5. See Extension of Time Limit for Final Results of Five-Year Reviews, 64 FR 71726 (December 22, 1999). 6. See 19 CFR 351.218(d)(2)(iv). 7. See 19 CFR 351.218(d)(2)(iv). 8. In this investigation the Department determined that USIMINAS and COSIPA should be collapsed and treated as a single entity. See Final Affirmative Countervailing Duty Determination: Certain Hot-Rolled Flat-Rolled Carbon-Quality Steel Products From Brazil, 64 FR 38742 (July 19, 1999). 9. See section III.B.3 of the Sunset Policy Bulletin 10. We note that as of January 1, 2000, Article 6.1 has ceased to apply (see Article 31 of the Subsidies Agreement).