NOTICES
DEPARTMENT OF COMMERCE
Carbon Steel Wire Rod From Brazil; Preliminary Affirmative Countervailing Duty Determination
Wednesday, July 14, 1982
*30550
AGENCY: International Trade Administration, Commerce.
ACTION: Preliminary affirmative countervailing duty determination.
SUMMARY: We preliminarily determine that certain benefits which constitute subsidies within the meaning of the countervailing duty law are being provided to manufacturers, producers, or exporters in Brazil of carbon steel wire rod. The estimated net subsidy is indicated in the "Suspension of Liquidation" section of this notice. Therefore, we are directing the U.S. Customs Service to suspend liquidation of all entries of carbon steel wire rod from Brazil which are entered, or withdrawn from warehouse, for consumption, and to require a cash deposit or bond on this product in the amount equal to the estimated net subsidy.
If this investigation proceeds normally, we will make our final determination by September 21, 1982.
EFFECTIVE DATE: July 14, 1982.
FOR FURTHER INFORMATION CONTACT:
Paul J. McGarr, Office of Investigations, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, D.C. 20230; telephone (202) 377- 1167.
SUPPLEMENTARY INFORMATION:
Preliminary Determination
Based upon our investigation, we preliminarily determine there is reason to believe or suspect that certain benefits which
constitute subsidies within the meaning of section 701 of the Tariff Act of 1930, as amended (the "Act"), are being provided
to manufacturers, producers, or exporters in Brazil of carbon steel wire rod. For purposes of this investigation, the
following programs are preliminarily found to confer subsidies:
Case History
On February 8, 1982, we received a petition from counsel for Atlantic Steel Corporation, Georgetown Steel Corporation, Georgetown Texas Steel Corporation, Keystone Consolidated Incorporated, Korf Industries Incorporated, Penn-Dixie Steel Corporation, and Raritan River Steel Corporation, filed on behalf of the U.S. industry producing carbon steel wire rod. The petition alleged that certain benefits which constitute subsidies within the meaning of section 701 of the Act are being provided, directly or indirectly, to the manufacturers, producers, or exporters in Brazil of carbon steel wire rod. Counsel for the petitioners also alleged that "critical circumstances" exist, as defined in section 703(e) of the Act.
We found the petition to contain sufficient grounds upon which to initiate a countervailing duty investigation, and on March 1, 1982, we initiated a countervailing duty investigation (47 FR 9261). We stated that we expected to issue a preliminary determination by May 4, 1982. We subsequently determined that the investigation is "extraordinarily complicated," as defined in section 703(c) of the Act, and postponed our preliminary determination for 65 days until July 8, 1982 (47 FR 17319).
Since Brazil is a "country under the Agreement" within the meaning of section 701(b) of the Act, an injury determination is required for this investigation. Therefore, we notified the U.S. International Trade Commission ("ITC") of our initiation. On March 25, 1982, the ITC preliminary determined that there is a reasonable indication that these imports are materially injuring a U.S. industry.
We presented a questionnaire concerning the allegations to the government of Brazil in Washington, D.C. On May 24, 1982, we received the response to that questionnaire.
Scope of the Investigation
For the purpose of this investigation, the term "carbon steel wire rod" covers a coiled, semi-finished, hot-rolled carbon steel product of approximately round solid cross section, not under 0.02 inch nor over 0.74 inch in diameter, not tempered, not treated, and not partly
*30551
manufactured, and valued over 4 cents per pound, as currently provided for in item 607.17 of the Tariff Schedules of the United States.
Companhia Siderurgica Belgo-Mineira ("Belgo-Mineira") and Companhia Siderurgica Da Guanabara ("COSIGUA") are the only known exporters in Brazil of carbon steel wire rod to the United States. The period for which we are measuring subsidization is calendar year 1981.
Analysis of Programs
In its response, the government of Brazil provided data for the applicable periods. Throughout this notice, general principles applied by the Department of Commerce to the facts of the current investigation concerning carbon steel wire rod are described in detail in Appendix B which appears with the notice of "Preliminary Affirmative Countervailing Duty Determination, Carbon Steel Wire Rod from Belgium," in this issue of the Federal Register (hereinafter Appendix B). Appendix B is identical to Appendix B published on June 17, 1982, with our notice of "Preliminary Affirmative Countervailing Duty Determinations, Certain Steel Products from Belgium" (47 FR 26300). Based upon our analysis to date of the petition and the response to our questionnaire, we preliminarily determine the following.
I. Programs Preliminarily Determined To Be Subsidies
We preliminarily determine that subsidies are being provided to manufacturers, producers, or exporters in Brazil of carbon steel wire rod under the following programs.
A. IPI Rebates for Capital Investment. Decree Law 1547 (April 1977) provides funding for the expansion of the Brazilian steel industry through a rebate of the Industrialized Products Tax ("IPI"), the Brazilian federal excise tax. Under this tax system, a company determines its liability for the tax at the end of each month. The net tax owed is calculated as the difference between the total IPI the company paid on purchases and the total IPI it collected on domestic sales. Normally, within five months after the end of each month, a company must pay the amount of the net tax owed directly to the Brazilian government. This net IPI tax is the basis for calculating the rebate for investment. A Brazilian steel company may deposit 95 percent of the net IPI tax in a special account with the Banco do Brasil. The amounts deposited are to be applied to steel expansion projects, and when rebated to the firms constitute tax-free capital reserves which must eventually be converted into subscribed capital. We consider the amount rebated each year as an untied grant received in that year. As such, we have applied the appropriate methodology for grants described in Appendix B. The grants were allocated over 15 years, the average useful life of capital assets in the steel industry, and the total benefit for 1981 was divided by each company's total sales for 1981. The ad valorem benefit of this subsidy is 1.77 percent.
B. IPI Export Credit Premium. The IPI export credit premium has been found to be a subsidy in previous countervailing duty investigations involving Brazilian products. After having suspended this program in December 1979, the government of Brazil reinstated it on April 1, 1981. Currently, the program is scheduled to be phased out in several steps, ending on April 1, 1983.
Exporters of carbon steel wire rod are eligible for the maximum IPI export credit premium. During the applicable period, 15 percent of the "adjusted" f.o.b. invoice price of the exported merchandise was reimbursed in cash to the exporter through the bank involved in the export transaction.
In calculating the amount the exporter is to receive, several deductions are made to the invoice price to obtain the "adjusted" f.o.b. value. These adjustments include: any agent commissions, rebates or refunds resulting from quality deficiencies or damage during transit, contractual penalties, and the value of imported inputs. In order to receive the maximum export credit premium, the exported product must consist of a minimum of 75 percent value added in Brazil. If this minimum limit is not met, there is a specific calculation to reduce the f.o.b. invoice price when calculating the base upon which the IPI export credit premium is paid.
To calculate the ad valorem subsidy, we relied on information provided by the government of Brazil. It provided us with the amount of the IPI credit received by Belgo-Mineira and COSIGUA for the period July 1, 1981 to March 31, 1982 (dating from when the companies began to receive payments), as well as the value of exports of carbon steel wire rod for the same time period. By dividing the IPI credits received by the value of their exports, we calculated an ad valorem export subsidy of 10.63 percent.
The ad valorem benefit is based on the experience of COSIGUA during this period. Although both Belgo-Mineira and COSIGUA are eligible for the same level of IPI credits, there was a considerable discrepancy in the ad valorem benefit reported for each company. We believe that the benefits received by Belgo-Mineira during this period do not accurately reflect its recent experience, because of some administrative problems. Consequently, we are relying on the value of the benefit to COSIGUA as the best information available on the receipt of this benefit by Belgo-Mineira.
This ad valorem rate is premised on an IPI export credit premium of 15 percent. The government of Brazil reduced the benefit on March 31, 1982, to 14 percent and again on June 30, 1982, to 12.5 percent. Accordingly, the Brazilian government asserts that a downward adjustment in the rate for this program is appropriate to reflect the current availability of the benefit.
We have not made such an adjustment because we must still resolve one matter. The receipt of the IPI credit occurs sometime after the merchandise is exported; therefore, the figures we relied on in making our calculation may understate the benefit. Exports reported for the first part of 1982 probably do not completely correspond to the IPI credits for those exports in the 1982 figures we received. If this is so, we will adjust the rate accordingly.
C. Preferential Working Capital Financing For Exports: Resolution 674. Under this program, companies are declared eligible to receive working capital loans by CACEX (the Department of Foreign Commerce of the Banco Central do Brasil). These loans may have a duration of up to one year. Firms in the steel industry can obtain this preferential financing for up to 20 percent of the net f.o.b. value of the previous year's exports. We preliminarily determine that such financing is an export subsidy.
The net export value is calculated by taking numerous deductions from the export value of the merchandise, including agent commissions, contractual penalties or refunds, exports denominated in cruzeiros, imported inputs over 20 percent of the export value, and a deduction for the company's trade deficit as a percentage of the value of its exports. In addition, any growth in the cruzeiro value of exports over the previous year will reduce the value of the benefit as a percentage of the current year's exports.
To determine the value of loans in existence under this program during 1981, we prorated any loans that straddled other years. For loans taken out in 1980, only that portion extending into 1981 was included in our calculation. Any 1981 loans extending into 1982 were similarly adjusted. We then divided the total value of these
*30552
loans by the total value of exports for these two companies in 1981 to calculate the amount of preferential financing they received as a percentage of exports.
As in previous Brazilian countervailing duty cases, we are looking to the rate established by the Banco do Brasil for discounting sales of accounts receivable as the commercial rate for the acquisition of short-term working capital. Although we are comparing the terms of a loan with the terms of sale of an asset, we have used this comparison because information provided by the government of Brazil indicates that, within the Brazilian financial system, working capital is normally raised through the sale of accounts receivable. Currently, the rate for discounting sales of accounts receivable is 59.6 percent plus a 6.9 percent tax on financial transactions ("IOF"). The subsidy is the difference between the interest rate available under Resolution 674 and the commercial rate.
The interest rate on loans under Resolution 674 is 40 percent, with interest payable semiannually and the principal fully payable on the due date of the loan. The effective rate of interest for these loans is 44 percent. These loans are also exempt from the IOF. Therefore, the differential between these two types of financing is 22.5 percent. When multiplying this differential by the amount of preferential financing received as a percent of exports, we calculated an ad valorem export subsidy of 1.31 percent.
D. Income Tax Exemption For Export Earnings. Exporters of carbon steel wire rod are eligible to participate in this program, under which the percentage of their profit attributable to export revenue is exempt from income tax. To arrive at this percentage, export revenue is divided by total revenue. The amount of profit exempt from the income tax is then multiplied by the 35 percent corporate income tax rate to determine the amount of the benefit.
In a program of this kind, benefits cannot be determined with finality until the books are closed sometime in the following year. Therefore, we must look at fiscal year 1980 to determine if any benefit was received in fiscal year 1981. Both Belgo-Mineira and COSIGUA received benefits under this program in 1981. By dividing the benefit received by the value of exports, we calculated an ad valorem export subsidy of 0.34 percent.
E. Industrial Development Council ("CDI") Program. This program allowed an exemption of 80 percent of the customs duties and 80 percent of the IPI tax on certain imported machinery for projects approved by the CDI. Decree Law 1726 repealed this program in 1979 and no new projects are eligible for these benefits. However, companies with projects approved prior to repeal may still receive those benefits pending the completion of the project. The government of Brazil states that COSIGUA received such benefits during 1981. By dividing the benefit received by the total value of sales, we calculated a weighted-average ad valorem benefit of this subsidy to be 0.08 percent.
F. Accelerated Depreciation For Capital Goods Manufactured In Brazil. This program allows companies that purchase Brazilian-made capital equipment as part of an approved CDI expansion project to depreciate this equipment at twice the rate normally permitted under tax laws. However, once the asset has been fully depreciated at this accelerated rate, it is then appreciated (adding to taxable income) in order to repay the benefit received earlier. This is accomplished by keeping a record of both the amount depreciated and the amount appreciated, with the yearly balances adjusted by the indexing factor. As with the income tax exemption for export earnings, the tax benefit received under this program in a particular fiscal year equals the amount by which total depreciation exceeds appreciation in the prior fiscal year. The government of Brazil states that both Belgo-Mineira and COSIGUA utilized the accelerated depreciation provisions for fiscal year 1980, but only Belgo-Mineira enjoyed a tax benefit in 1981. By dividing the benefit received by the total value of sales, we calculated a weighted-average ad valorem benefit of 0.18 percent.
II. Programs Preliminarily Determined Not To Be Subsidies
We preliminarily determine subsidies are not being provided to manufacturers, producers, or exporters in Brazil of
carbon steel wire rod under the following programs.
A. Export Financing Under Communication 331. Communication 331 is a set of rules and regulations established by the
Brazilian government to govern foreign exchange contracts for export transactions. Beyond establishing these rules, the
government has no further involvement. Banks that act as intermediaries in export transactions operate under these rules
but are free to choose whether they will discount an account receivable denominated in foreign currency, the type of
transaction at issue in this program.
The government of Brazil states that it provides no resources to banks to enable them to perform these operations nor does it establish the discount rates. The rate of discount reflects commercial considerations such as the bank's relationship with its customer, its own circumstances, and market rates of interest, which generally track the London Interbank Offered Rate (LIBOR). As such, we preliminarily determine that the discounting of foreign exchange accounts receivable under these conditions is not a subsidy.
B. Transportation Subsidies. The Brazilian government, in its response to our questionnaire, states that Belgo-Mineira and COSIGUA receive no preferential rates when using railroads and ports. We have no evidence that any programs exist which give preferential freight rates to steel exporters.
III. Programs Preliminarily Determined Not To Be Utilized
We preliminarily determine that the following programs, alleged by the petitioners to confer subsidies, were not utilized by
the manufacturers, producers, or exporters in Brazil or carbon steel wire rod.
A. The Commission For The Granting Of Fiscal Benefits For Special Export Programs ("BEFIEX"). BEFIEX grants several
types of benefits to companies that are part of certain targeted industries and that sign contracts that include specific
export commitments. These benefits include the following: A reduction of between 70 percent and 90 percent of the
import duties and the IPI tax on the import of machinery, equipment, apparatus, instruments, accessories and tools
necessary to meet the approved export commitment; an extension of the period for carrying tax losses forward from four
to six years, provided no dividends are paid during that time; and amortization of pre-operational expenses of BEFIEX projects at the discretion of
the company rather than the normal straight-line amortization over ten years. As a general rule, companies that sign
BEFIEX contracts guaranteeing these and any other benefits must make an export commitment that over the life of the
project it will generate export earnings of at least three times the value of imports for the project. The government of
Brazil states that the steel industy in Brazil has been developed primarily to supply the domestic market. Since
Belgo-Mineira and COSIGUA export only a small portion of their production, they are not in a position to make the
required export commitments. Neither Belgo-Mineira nor
*30553
COSIGUA received any benefits from this program in 1981.
B. Preferential Financing For The Storage Of Merchansdise Destined For Export: Resolution 330. This program provides financing for up to 80 percent of the value of merchandise placed in a warehouse and destined for export. Interest rates for such loans are 40 percent per annum, with interest payable semiannually. The government of Brazil states that neither Belgo-Mineira nor COSIGUA used this program, since both companies' exports are manufactured to order and there is no need to warehouse their merchandise.
C. Export Financing Under Resolution 68. This program provides financing for the export of Brazilian goods for a period of 181 days up to one year. Such financing is granted on a transaction-by-transaction basis and may cover up to 85 percent of the f.o.b. invoice price of the merchandise (plus freight and insurance). To be eligible, the exporter must show that the foreign purchaser has prepaid 15 percent of the invoice price. Neither Belgo-Mineira nor COSIGUA used Resolution 68 to finance exports of carbon steel wire rod to the United States in 1981.
IV. Program Preliminarily Determined To Be No Longer in Existence
We preliminarily determine that the following program, alleged by the petitioners to confer subsidies, is no longer in existence.
Merchandise Circulation Tax (ICM) Export Credit Premium
This program, which provided Brazilian companies an overrebate of a state value-added tax on goods destined for export, was eliminated by Convention 01- 79, published January 12, 1979.
V. Program for Which Additional Information is Needed
The provision of long-term loans at preferential rates to Belgo-Mineira and COSIGUA was alleged by the petitioners to be a subsidy. Belgo-Mineira and COSIGUA have long-term loans from various sources in both domestic and foreign currencies. The loans in foreign currencies come from numerous foreign banks, with interest rates ranging from 6.5 percent to 2.25 percent above LIBOR. The government of Brazil states that long-term financing in cruzeiros is generally available only through government-controlled financial institutions. Both companies have received loans from FINAME, a program of the government-controlled National development Bank ("BNDE"), for the purchase of capital equipment. These loans have real interest rates ranging from 7 to 11 percent, with the principal fully adjusted by the indexing factor.
At this time, we do not have sufficient information upon which to determine whether these loans are providing manufacturers, producers, or exporters in Brazil of carbon steel wire rod benefits which constitute subsidies within the meaning of the countervailing duty law. We will seek additional information regarding these loans before reaching a final determination.
Negative Determination of "Critical Circumstances"
Counsel for the petitioners alleged that imports of carbon steel wire rod from Brazil present "critical circumstances." Under section 703(e)(1) of the Act, critical circumstances exist when the alleged subsidy is inconsistent with the Subsidies Code of the General Agreement on Tariffs and Trade and "there have been massive imports of the class or kind of merchandise which is the subject of the investigation over a relatively short period."
Since this investigation was initiated, U.S. imports of carbon steel wire rod from Brazil amounted to 13,385 net tons in March, 8 net tons in April, and 3,512 net tons in May, the most recent month for which import statistics are available. In the context of this industry, this product has not recently been massively imported from Brazil over a relatively short period of time. Therefore, critical circumstances do not exist for carbon steel wire rod.
Verification
In accordance with section 776(a) of the Act, we will verify data used in making our final determination.
Suspension of Liquidation
In accordance with section 703(d) of the Act, we are directing the U.S. Customs Service to suspend liquidation of all entries of carbon steel wire rod from Brazil which are entered, or withdrawn from warehouse, for consumption, on or after the date of publication of this notice in the Federal Register and to require a cash deposit or bond for each such entry of this merchandise in the amount of 14.31 percent ad valorem. This suspension will remain in effect until further notice.
ITC Notification
In accordance with section 703(f) of the Act, we will notify the ITC of our determination. In addition, we are making available to the ITC all nonprivileged and nonconfidential information relating to this investigation. We will allow the ITC access to all privileged and confidential information in our files, provided the ITC confirms that it will not disclose such information, either publicly or under an administrative protective order, without the written consent of the Deputy Assistant Secretary for Import Administration.
Public Comment
In accordance with section 355.35 of the Commerce Department Regulations, if requested, we will hold a public hearing to afford interested parties an opportunity to comment on this preliminary determination at 2:00 p.m. on August 12, 1982, at the U.S. Department of Commerce, Room 6802, 14th Street and Constitution Avenue, NW., Washington, D.C. 20230. Individuals who wish to participate in the hearing must submit a request to the Deputy Assistant Secretary for Import Administration, Room 3099B, at the above address within ten days of this notice's publication. Requests should contain: (1) The party's name, address, and telephone number; (2) the number of participants; (3) the reason for attending; and (4) a list of the issues to be discussed. In addition, prehearing briefs must be submitted to the Deputy Assistant Secretary by August 5, 1982. Oral presentations will be limited to issues raised in the briefs. All written views should be filed in accordance with 19 CFR 355.34, on or before August 13, 1982 at the above address and in at least ten copies.
Gary N. Horlick,
Deputy Assistant Secretary for Import Administration.
July 8, 1982.