NOTICES

DEPARTMENT OF COMMERCE

Carbon Steel Wire Rod From Brazil; Suspension of Investigation

Monday, September 27, 1982

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AGENCY: International Trade Administration, Commerce.

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ACTION: Notice of suspension of investigation.

SUMMARY: The Department of Commerce has decided to suspend the countervailing duty investigation involving carbon steel wire rod from Brazil. The basis for the suspension is an agreement by the government of Brazil to offset with an export tax all benefits which we find to be subsidies on exports of the subject product to the United States.

EFFECTIVE DATE: September 27, 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, N.W., Washington, D.C. 20230, telephone: (202) 377-2786.

SUPPLEMENTARY INFORMATION:

Case History

On February 8, 1982, the Department of Commerce (the Department) received a petition from 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 Tariff Act of 1930, as amended (the Act), are being provided, directly or indirectly, to the manufacturers, producers, or exporters in Brazil of carbon steel wire rod.

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).

We presented a questionnaire concerning the allegations to the government of Brazil in Washington, D.C. on May 25, 1982, we received the response to the questionnaire. During August 2-6, 1982, we verified this information by a review of government documents and company books and records of Companhia Siderurgica Belgo-Mineira (Belgo-Mineira) and Companhia Siderurgica Da Guanabara (COSIGUA), the only known exporters in Brazil of carbon steel wire rod to the United States.

On July 8, 1982, we preliminarily determined that the government of Brazil is providing subsidies to manufacturers, producers, or exporters of carbon steel wire rod under six programs. The programs preliminarily found to confer subsidies were IPI rebates for capital investment, the IPI export credit premium, preferential working capital financing for exports, an income tax exemption for export earnings, benefits on machinery imported under the Industrial Development Council program, and accelerated depreciation for Brazilian-made capital goods. Based upon verification, we also found benefits constituting subsidies were received on export credits provided through Resolution 68. This program is countervailable because it gives export credits to importers at preferential interest rates.

Notice of the preliminary affirmative countervailing duty determination was published in the Federal Register on July 14, 1982 (47 FR 30550). We directed the U.S. Customs Service to suspend liquidation of all entries of the subject merchandise, entered or withdrawn from warehouse, for consumption on or after July 14, 1982, and to require a cash deposit or bond in the amount of 14.31 percent of the f.o.b. value of the merchandise.

On August 20, 1982, the Department initialed a proposed agreement to suspend the countervailing duty investigation involving carbon steel wire rod from Brazil. The basis for the proposed agreement to suspend was that the government of Brazil would offset by an export tax the entire amount of benefits we found to confer subsidies on exports of carbon steel wire rod to the United States.

On the same date, in compliance with the procedural requirements of section 704(e) of the Act, we called counsel for the petitioners informing them of the proposed agreement. At that time, we discussed the essential points of the proposed agreement and offered to answer any questions. These parties also received a copy of the proposed agreement on that date.

Scope of the Investigation

The product covered by this investigation is carbon steel wire rod manufactured in Brazil and exported, directly or indirectly, from Brazil to the United States. 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 manufactured, and valued over 4 cents per pound, as currently provided for in item 607.17 of the Tariff Schedules of the United States.

The period for which we are measuring subsidization is calendar year 1981.

Changes Since the Preliminary Determination

(1) IPI Export Credit Premium. Our preliminary determination on this program was based on IPI credits received from July 1, 1981 to March 31, 1982, divided by the value of exports for the same period. We noted at the time our concern that the subsidy may have been understated.

At verification, this concern proved correct. The companies record IPI credits when received, which are based on shipments that may have taken place two to three months before. The export figures we used as the denominator bear little relation to the IPI credits received during the same period.

To calculate the value of the IPI credits, we sampled Belgo-Mineira's and COSIGUA's receipts of IPI credits and traced each to the appropriate shipment. We established that the only deduction made from the value of the shipment before the IPI credit is calculated is an agent fee and that not all shipments have this deduction. For each shipment, we calculated the value of the IPI credits as a percentage of the gross value of the shipment. We made this calculation as of the date of the shipment rather than the date of receipt of the IPI credits, not taking into account the devaluation of the cruzeiro in accordance with section 771(6)(B) of the Act.

Instead of the 10.63 percent ad valorem subsidy reported in our preliminary determination, we calculated a benefit of 14.89 percent. This rate was based on the 1981 export credit premium of 15 percent. To determine the appropriate export tax, we are prorating the IPI credit found on all carbon steel wire rod shipments by the appropriate rates in the phase-out schedule of the IPI set out below:
September 30, 1982--December 30, 1982=11.0 percent
December 31, 1982--February 15, 1983=9.0 percent
February 16, 1983--April 1, 1983=4.5 percent
April 2, 1983 onward=0 percent

(2) Export Credits Under Resolution 68. During verification we discovered that loans at preferential rates had been contracted under this program in 1981.

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Normally, we do not consider that benefits are received from loans at preferential rates until payment is due. In this case, the first of four semi- annual payments by importers on all of the loans taken out under this program was not due until after the end of the review period. Consequently, there was no benefit to exports of wire rod to the United States under this program in 1981. However, the suspension agreement obligates the government of Brazil to offset, by an export tax, all current benefits on wire rod exports to the United States. Without a value as yet for 1982 exports, we must estimate the current level of subsidy. Based on 1981 exports to the United States we estimate that the benefit from the loans learned about at verification is about 0.5-0.75 percent. Any new loans since that time would, of course, increase this benefit.

(3) Long-Term Loans. We stated in our preliminary determination that we required additional information on long-term loans to Belgo-Mineira and COSIGUA before making a determination on the allegation that such loans confer subsidies. At verification, we examined several foreign currency loans and found that such loans are granted with interest rates of LIBOR plus a spread that approximates the average spread available on such LIBOR loans in Brazil. We further verified that loans from FINAME, a program of the National Bank for Economic Development (BNDE) for the purchase of capital equipment manufactured in Brazil, are fully indexed and are made at fixed real interest rates ranging from 7 to 11 percent, depending on the time the loan was granted

FINAME loans are available to a wide variety of sectors in Brazil. While the steel industry is one of the chief recipients, this appears to be warranted in view of the capital requirements of a large capital-intensive industry. Other large capital-intensive industries have received loans in similar proportions. In addition, numerous other sectors also received loans from FINAME during this period. We do not have a benchmark in Brazil for comparing the interest rates on these loans, because of a lack of alternate sources of such financing. However, the real interest rates of 7 to 11 percent are quite high by international standards. Based on the general availability of these loans, we have determined that they do not confer a subsidy.

Petitioners' Comments

The Department has consulted with counsel for the petitioners, and received the following comments from them objecting to the proposed suspension agreement. Our responses are shown for each comment.

Issues Related to the Suspension Agreement

Comment 1: The petitioners suggest that paragraph B.1.(h) be modified by inserting "including any annual review" after the phrase "in this proceeding."

DOC Position: The suggested addition is redundant. The phrase"in this proceeding" encompasses annual reviews and any action taken by the Department with respect to this case until the case is terminated or revoked.

Comment 2: The petitioners contend that the representative period chosen as a reference period for the section 704(d)(2) requirement--that exports not increase in the interim period between suspension and imposition of the export tax--perpetuates the recent surge of imports of Brazilian carbon steel wire rod into the United States.

DOC Position: We are required to select "the most recent representative period." Accordingly, we chose the period February 1982--the most recent 12- month period prior to the filing of the petition. The petitioners have contended that we should use a two-year period, 1980-1981, to reflect more accurately the long-term level of Brazilian wire rod exports to the United States. The suggested period has 19 months of non-shipment prior to entry into the market and the increase of imports. The period we have chosen begins with 6 months of non-shipment, and the time period--the 12-month period before the petition was filed--correlates with the reference period in the suspension agreement on carbon steel plate from Brazil. We note that the periods covered by this quantitative restraint is very short--until October 20, 1982, when the offsetting export tax will go into effect.

Comment 3: The petitioners request that paragraph C.2 be modified by adding the words "production, or export" after the word "manufacture," to comport with the language of the Act.

DOC Position: We have inserted the proposed amendment.

Comment 4: The petitioners state that for effective monitoring to be practicable, the agreement should require that payment of the export tax be reflected on export documents presented to the Customs Service. They claim that this would provide verification that the export tax has been paid on shipments subject to the agreement and that the Customs Service would have appropriate documentation of that fact.

DOC Position: Such a requirement would not enhance the monitoring of the agreement. The U.S. Customs Service is not the administering authority; export documents made available to the Customs Service are not normally available to the Department; and, if such information were lacking on export documents, the Customs Service would not have the authority under a suspension agreement to suspend liquidation, impose countervailing duties, or deny entry. Provided the government of Brazil can present upon request appropriate documentation that the export tax has been timely paid, the agreement can be effectively monitored.

Comment 5: The petitioners state that for effective monitoring the agreement should specify the minimum amount of information to be supplied pursuant to paragraph C.1, and that this information should include on a quarterly basis the monthly volume and value of exports of the subject product to the United States, the total amount of export tax collected and documentation of payment of the tax.

DOC Position: The suggested amendment is unnecessary because paragraph C.1 is not limiting. The Department may request, at any time, any information it deems necessary for effective monitoring of the agreement.

Comment 6: The petitioners state that the agreement should include a provision whereby the government of Brazil consents to access to verification reports by counsel for the petitioners under an administrative protective order, so that counsel may monitor independently the efficacy of the agreement.

DOC Position: Non-confidential versions of verification reports are normally available to the public. A determination concerning the request by counsel for release of the confidential version of a verification report under protective order will be made at the time such requests are submitted.

Comment 7: The petitioners state that the suspension agreement fails to fulfill the explicit statutory conditions of section 704(d)(1) of the Act that any suspension agreement be in the public interest. DOC Position: By its terms, the suspension agreement will offset completely the net subsidy, and a fortiori eliminates any injury caused by the net subsidy, without the added expense to the U.S. taxpayers, petitioners, and respondents of completing the investigation.

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Subsidy Issues

Comment 8: The petitioners assert that in calculating the net subsidy under Resolution 674 financing, the Department used an incorrect benchmark. They state that the Banco do Brasil rate for discounting accounts receivable is not a proper benchmark because the discounting of accounts receivable is no longer the most common method of raising working capital. Further, they state that the Department must factor in compensating balances (although illegal in Brazil) to determine an effective interest rate; that the Department has not used its own standard of a national average commercial rate as a benchmark; and that in determining that benchmark the Department should use as one basis of comparison the rate for borrowing in international financial markets.

DOC Position: The Department believes from evidence available to it that there is no meaningful commercial market for short-term working capital loans in Brazil. Instead, most firms meet their needs for working capital through the sale of accounts receivable. Therefore, the Department has determined that the discounting of accounts receivable provides the most appropriate basis for comparison.

In determining a national benchmark, the Department chose the Banco do Brasil rate because prior case precedent and statements of the government of Brazil suggested that this was the appropriate standard. As the largest single banking entity in Brazil (representing 35-40% of all banking assets), the Banco do Brasil acts as a price leader from which the rates of other banks vary. Documents received at verification support our preliminary determination in several respects. First, the Banco do Brasil discount rate is 59.6 percent, as claimed; numerous banks, both state-owned and private, discount receivables at rates near (both above and below) the rate set by the Banco do Brasil. Second, as it applies to Belgo-Mineira and COSIGUA, the market for discounting accounts receivable is still quite active. During the period of review both companies discounted a significant percentage of their domestic accounts receivable with a wide variety of banks, and used this facility as the chief method of raising working capital. During verification, we found no evidence of compensating balances in company records; the amount received by the company after discounting a receivable was the value of a receivable minus the discount rate, the Tax on Financial Transaction (IOF) and a small commission. Lastly, in the memorandum to our preliminary determination we addressed the issue of comparability between cruzeiro and foreign currency sources for working capital. Our analysis has not changed since that time.

Comment 9: The petitioners state that the Department erred in its calculation of the interest equivalent of the discount rate for accounts receivable. They assert that it is normal procedure for a bank to have recourse to the seller of a receivable in the event of non-payment and thus the sale of a receivable has characteristics similar to a loan that must be repaid by the borrower. Consequently, they assert that we must determine the interest equivalent of the discount rate in the event of repayment by the seller and then compound this rate to determine a yearly effective rate for discounting accounts receivable. This procedure would yield a rate substantially higher than the 59.6 percent rate used by the Department to determine the interest subsidy of loans under Resolution 674.

DOC Position: The Department calculated the rate of 59.6 percent based on the following: (1) That the sale of an account receivable constitutes the purchase of an asset by a bank, in which the bank absorbs the risk of non-payment; (2) that once the sale is completed, the seller has no further obligation (such as repayment with interest) to the bank; and (3) that a series of sales of accounts receivable is not equivalent to rolling over a loan where interest on the original loan is compounded. As a result, the discount rate we have used is a simple rate and additive.

If the sale of an account receivable does in fact have more the character of a loan than the sale of an asset, we may have to reassess our position. We will investigate this matter further and make any necessary adjustments in the calculation of the interest differential and the net subsidy.

Comment 10: The petitioners state that FINAME loans are preferential when compared to long-term foreign currency loans granted at LIBOR-plus-spread, and thus FINAME loans confer a subsidy.

DOC Position: Long-term financing in cruzeiros is available in Brazil only through government-controlled financial institutions. We do not have a benchmark in Brazil for fixed interest rate long-term loans to compare with the interest rates on FINAME loans. However, since these loans are indexed, the interest rates are real interest rates. This allows us to construct a benchmark based on the real interest rates of the only private long-term loans commercially available in Brazil --the foreign currency loans referred to by the petitioners. The comparison of that constructed benchmark and the interest rates on these loans, as described below, suggests that they are not made at preferential rates. Since LIBOR loans are continually readjusted at the prevailing interest rates we constructed the benchmark by calculating the average real interest component of LIBOR-plus-spread on long-term loans to Brazil for the period 1977-81 during which these FINAME loans were made. We than compared that average real interest rate-plus-spread to the rates at which the long-term FINAME loans were made. Our comparison showed that all the FINAME loans to Belgo-Mineira and COSIGUA were made at rates above the benchmark, which indicates that they were not made at preferential rates. We will monitor loans made by FINAME to Belgo- Mineira and COSIGUA in future section 751 administrative reviews in order to evaluate whether such loans were made at preferential rates.

Suspension of the Investigation

The Department has determined that the agreement will offset the subsidies completely with respect to the subject merchandise exported directly or indirectly to the United States, that the agreement can be monitored effectively, and that the agreement is in the public interest. We find, therefore, that the criteria for suspension of an investigation pursuant to section 704 of the Act have been met. The terms and conditions of the agreement, signed September 21, 1982, are set forth in Annex 1 to this notice.

Pursuant to section 704(f)(2)(A) of the Act, the suspension of liquidation of all entries, entered or withdrawn from warehouse, for consumption of carbon steel wire rod from Brazil effective July 14, 1982, as directed in our notice of "Preliminary Affirmative Countervailing Duty Determination, Carbon Steel Wire Rod from Brazil" is hereby terminated. Any cash deposits on entries of carbon steel wire rod from Brazil pursuant to that suspension of liquidation shall be refunded and any bonds shall be released.

The Department intends to conduct an administrative review within twelve months of the anniversary date of publication of this suspension as provided in section 751 of the Act. Notwithstanding the suspension agreement, the Department will continue the investigation if we receive such a request in accordance with section

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704(g) of the Act within 20 days after the date of publication of this notice. This notice is published pursuant to section 704(f)(1)(A) of the Act.

Gary N. Horlick,

Deputy Assistant Secretary for Import Administration.

September 21, 1982.

Annex 1--Suspension Agreement--Carbon Steel Wire Rod From Brazil

Pursuant to section 704 of the Tariff Act of 1930, as amended ("the Act"), and section 355.31 of the Commerce Regulations, the United States Department of Commerce ("the Department") and the government of Brazil enter into the following suspension agreement ("the agreement") on the basis of which the Department shall suspend its countervailing duty investigation initiated on March 1, 1982 (47 FR 9261) with respect to carbon steel wire rod from Brazil. The agreement shall be in accordance with the terms and provisions set forth below.

A. Scope of the Agreement

The agreement applies to all carbon steel wire rod manufactured in Brazil and exported, directly or indirectly, from Brazil to the United States (hereinafter referred to as the "subject product"). 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 manufactured, and valued over 4 cents per pound, as currently provided for in item 607.17 of the Tariff Schedules of the United States.

B. Basis of the Agreement

1. The government of Brazil hereby agrees to offset completely the amount of the net subsidy determined by the Department to exist with respect to the subject product. The offset shall be accomplished by an export tax applicable to the subject product exported on or after October 20, 1982. The export tax shall be utilized to offset completely any benefits found to exist with respect to the following programs:
(a) The IPI export credit premium,
(b) Resolution 674 financing,
(c) Decree Law 1547 rebates for investment,
(d) Benefits on imported machinery received under the CDI program,
(e) The income tax exemption for export earnings,
(f) Export credits provided through Resolution 68,
(g) Accelerated depreciation for Brazilian-made capital goods, and
(h) Any other program subsequently determined by the Department in this proceeding to constitute a subsidy under the Act to the subject product.

The Department shall officially notify the government of Brazil of any determination made under item (h) above.

2. The government of Brazil certifies that no new or equivalent benefits shall be granted on the subject product as a substitute for any benefits offset by the agreement.

3. The offset of these benefits does not constitute an admission by the government of Brazil that such benefits are subsidies within the meaning of the U.S. countervailing duty law.

4. The government of Brazil agrees that from the effective date of the suspension of the investigation and until the imposition of an export tax no later than October 20, 1982 that completely offsets the net subsidy determined by the Department to exist, the rate of exports of the subject product will not exceed the average monthly rate of exports to the U.S. in the period February 1981-January 1982. The Department will monitor the exports of the subject product to the United States from the effective date of the suspension of the investigation until the imposition of the export tax and will issue instructions to the Customs Service to deny entry, or withdrawal from warehouse, for consumption of the subject product exported in excess of the average monthly rate in the period February 1981-January 1982.

C. Monitoring of the Agreement

1. The government of Brazil agrees to supply to the Department such information as the Department deems necessary to demonstrate that it is in full compliance with the agreement.

2. The government of Brazil shall notify the Department if any exporters of the subject product transship the subject product through third countries or apply for or receive, directly or indirectly, the benefits of the programs described in paragraph B(1) regarding the manufacture, production or export of the subject product.

3. The government of Brazil shall certify to the Department within 15 days after the first day of each three-month period beginning on January 1, 1983 whether it continues to be in compliance with the agreement by offsetting the net subsidy referred to in paragraph B(1) and whether it has substituted any new or equivalent benefits for the benefits offset by the agreement. Failure to supply such information or certification in a timely fashion may result in the immediate resumption of the investigation or issuance of a countervailing duty order.

4. The government of Brazil shall permit such verification and data collection as is requested by the Department in order to monitor the agreement. The Department will request such information and perform such verification periodically pursuant to administrative reviews conducted under section 751 of the Act.

5. The government of Brazil shall promptly notify the Department, with appropriate documentation, of any change in the amount of benefits to the subject product, of any change in the rate of the export tax, or if it decides to alter or terminate its obligations with respect to any of the terms of the agreement.

D. Violation of the Agreement

If the Department determines that the agreement is being or has been violated or no longer meets the requirements of section 704(b) or (d) of the Act, then section 704(i) shall apply.

E. Effective Date

The effective date of the agreement is the date of publication.
Signed on this 21st day of September, 1982.
For the Government of Brazil:

Luiz Felipe P. Lampreia,

Minister-Counselor, Brazilian Embassy.

I have determined that the provisions of paragraph B completely offset the subsidies that the government of Brazil is providing with respect to carbon steel wire rod exported directly or indirectly from Brazil to the United States and that the provisions of paragraph C ensure that this agreement can be monitored effectively pursuant to section 704(d) of the Act. Furthermore, I have determined that the agreement meets the requirements of section 704(b) of the Act and suspension of the investigation is in the public interest. Department of Commerce.

By: Gary N. Horlick,

Deputy Assistant Secretary for Import Administration.

[FR Doc. 82-26460 Filed 9-24-82; 8:45 am]