NOTICES

                                    DEPARTMENT OF COMMERCE

                   Certain Stainless Steel Products From Brazil; Preliminary Affirmative
                               Countervailing Duty Determinations

                                     Friday, November 19, 1982

*52207
                                    (Cite as: 47 FR 52207, *52207)

AGENCY: International Trade Administration, Commerce.

ACTION: Preliminary Affirmative Countervailing Duty Determinations.

SUMMARY: We preliminarily determine that certain benefits which constitute subsidies within the meaning of the
  countervailing duty law are being provided to manufactuers, producers, or exporters in Brazil of hot-rolled
   stainless steel bar, cold-formed stainless steel bar, and stainless steel wire rod (certain stainless steel products). The
estimated net subsidy is 12.50 percent 
                                    (Cite as: 47 FR 52207, *52207)

ad valorem. Therefore, we are directing the U.S. Customs Service to suspend liquidation of all entries of certain stainless
steel products from Brazil which are entered, or withdrawn from warehouse, for consumption, and to require a cash
deposit or bond on these products in the amount equal to the estimated net subsidy.

If these investigations proceed normally, we will make our final determinations by January 27, 1983.

EFFECTIVE DATE: November 19, 1982.

FOR FURTHER INFORMATION CONTACT: Francis R. Crowe, 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) 377-3003.

SUPPLEMENTARY INFORMATION:

  Preliminary Determinations

Based upon our investigations, we preliminarily determine there is 
                                    (Cite as: 47 FR 52207, *52207)

reason *52208
                                    (Cite as: 47 FR 52207, *52208)

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 certain stainless
steel products. For purposes of these investigations, the following programs are preliminarily found to confer subsidies:
IPI export credit premium
Preferential working capital financing for exports
Income tax exemption for export earnings
Long-term loans
IPI rebates for capital investment
Industrial Development Council (CDI) program
We estimate the net subsidy to be 12.50 percent ad valorem.

Case History

On June 16, 1982, we received a petition from Al Tech Speciality Steel Corporation, Carpenter Technology Corporation,
Colt Industries, Inc., Crucible Speciality Metals Division, Cyclops Corporation, Guterl Special Steel Corporation, Joslyn
Stainless Steels, Republic Steel Corporation, filed on behalf of the U.S. industry producing certain stainless steel products.
The 
                                    (Cite as: 47 FR 52207, *52208)

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 certain stainless steel
products.
We found the petition to contain sufficient grounds upon which to initiate countervailing duty investigations, and on
July 13, 1982, we initiated countervailing duty investigations (47 FR 30275), We stated that we expected to issue
  preliminary determinations by September 9, 1982. We subsequently determined that the investigations are
"extraordinarily complicated," as defined in section 703(c) of the Act, and postponed our preliminary
determinations for 65 days until November 15, 1982 (47 FR 40202).
Since Brazil is a "country under the Agreement" within the meaning of section 701(b) of the Act, injury
  determinations are required for these investigations. Therefore, we notified the U.S. International Trade Commission
(ITC) of our initiations. On August 2, 1982, the ITC preliminarily determined that there is a reasonable indication that these
imports are materially injuring, or threatening to materially injure, a U.S. industry (47 FR 36038).
We presented a questionnaire concerning the allegations to the government of Brazil in Washington, D.C. On November
1, 1982, we received the response to that questionnaire.

                                    (Cite as: 47 FR 52207, *52208)


Scope of the Investigations 

The products covered by these investigations are hot-rolled stainless steel bar, cold-formed stainless steel bar, and
stainless steel wire rod. For further description of these products, see Appendix A to this notice.
There are five known producers and exporters in Brazil of certain stainless steel products to the United States. We have
received information from the government regarding three of these companies, Companhia Acos Especiais Itabira
(ACESITA), Acos Finos Priatini S/A (PIRATINI), and Acos Villares S/A (VILLARES), which represented over 85 percent of
exports of this product during the period for which we are measuring subsidization--calendar year 1981.

Analysis of Programs

In its response, the government of Brazil provided data for the applicable periods. 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


                                    (Cite as: 47 FR 52207, *52208)

We preliminarily determine that subsidies are being provided to manufacturers, producers, or exporters in Brazil of
certain stainless steel products under the following programs.

A. Industrialized Products Tax (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.
Exporters of certain stainless steel products are eligible for the maximum IPI export credit premium. Up until March 30,
1982, 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.
Subsequently, the government of Brazil reduced the benefit to 14 percent on March 31, 1982, 12.5 percent on June 30,
1982, and 11 percent on September 30, 1982.
In calculating the amount the exporter is to receive, several deductions may be made to the invoice price to obtain the
"adjusted" f.o.b. value. These adjustments include: any agent commission, rebates or refunds resulting from quality
deficiencies or damage during transit, contractual penalties, and the 
                                    (Cite as: 47 FR 52207, *52208)

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 determine the amount of subsidy, we calculated the value of the IPI credits as of the date of shipment rather than the
date of receipt and did not take into account the devaluation of the cruzeiro in accordance with section 771(6)(B) of the
Act. We then divided the value of the IPI credits by the value of exports and calculated a subsidy value of 12.15 percent.
This rate is premised on an IPI export credit premium of 15 percent. The government of Brazil has made three
reductions in the level of the IPI credit during 1982, the most recent on September 30, 1982 to 11 percent. Accordingly,
the Brazilian government asserts that a downward adjustment in the rate for this program is appropirate to reflect the
current availability of the benefit.
We agree and have made a proportional reduction in our calculation above. On this basis, we calculated an ad valorem
export subsidy of 8.91 percent.

B. Preferential Working Capital Financing For Exports: Resolution 674

Under this program, companies are declared eligible to receive working capital 
                                    (Cite as: 47 FR 52207, *52208)

loans by the Department of Foreign Commerce of the Banco Central do Brasil (CACEX). These loans may have a duration of
up to one year. Firms in the steel industry can obtain this financing at preferential rates 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 *52209
                                    (Cite as: 47 FR 52207, *52209)

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 loans by the total value of exports of the three companies under investigation to calculate the amount of
preferential financing they received.
As in previous Brazilian countervailing duty cases, we are using the rate established by the Banco do Brasil for
discounting sales of accounts receivable 
                                    (Cite as: 47 FR 52207, *52209)

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 1.93 percent.

C. Income Tax Exemption For Export Earnings.

Exporters of certain stainless steel products are eligible to participate in this program, under which the percentage of their
profit attributable to export 
                                    (Cite as: 47 FR 52207, *52209)

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 income tax returns to determine if any benefit was received in fiscal year
1981. VILLARES received benefits under this program in 1981. By dividing the benefit received by the value of exports of
the companies under investigation, we calculated an ad valorem export subsidy of 0.57 percent.

D. Long-Term Loans

Long-term financing in cruzeiros is available in Brazil only through government-controlled financial institutions, such
as the National Bank for Economic Development (BNDE) and FINAME, a program of BNDE for the purchase of capital
equipment manufactured in Brazil. Generally, these loans are fully indexed to the inflation rate in Brazil and are
made at fixed real interest rates. The index used for these loans is the ratio established for the Readjustable Bonds of the
National Treasury (ORTN). FINAME loans are granted through commercial banks rather than directly from BNDE and
carry higher real 
                                    (Cite as: 47 FR 52207, *52209)

interest rates than BNDE loans.
Among exporters of certain stainless steel products, only VILLARES has received any direct BNDE loans. As in previous
steel countervailing investigations, we have determined that BNDE loans, when fully indexed, are not made at preferential
rates, and we preliminarily determine that such BNDE loans are not countervailable.
However, some long-term cruzeiro loans have been granted that are not fully indexed. Under program no longer in
operation, BNDE granted one such loan to VILLARES that is adjusted at only 20 percent of the variation in ORTN.
VILLARES still has an outstanding balance on this loan, and we preliminarily determine that this loan is countervailable.
Based on the information provided by the government of Brazil, we divided the interest payments saved in 1981 due to
the favorable terms of this loan by total sales of the companies under investigation and calculated an ad valorem subsidy of
0.06 percent.
FINAME loans have been received by ACESITA, PIRATINI, and VILLARES and are available to a wide variety of sectors in 
  Brazil. The steel industry has received such loans in proportions similar to other large capital-intensive industries in
  Brazil. This appears to be warranted by the capital requirements of such industries. In addition, numerous other
sectors also received loans from FINAME during this period. Based on the general availability of these fully-indexed loans,
we preliminarily determine that they do not confer a 
                                    (Cite as: 47 FR 52207, *52209)

subsidy.

E. 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
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.
PIRATINI received grants under this program from 1977 to 1981, while ACESITA and VILLARES continue to receive
them. With the enactment of Decree Law 1843 (December 1980), PIRATINI must now pay the IPI tax to the government
which in turn rebates 95 percent to SIDERBRAS, the government holding company to which 
                                    (Cite as: 47 FR 52207, *52209)

PIRATINI belongs, to increase its capital.
We consider the amount rebated each year as an untied grant received in that year. As such, we have allocated the grants
over 15 years, the estimated average life of capital assets in integrated steel mills (based on Internal Revenue Service
studies of actual experience in integrated mills in the U.S.).
To calculate the benefit, we have taken the amount of the rebate received in each month, converted the cruzeiro value to
an ORTN value by using the ORTN index rate in the month of receipt, added the monthly ORTN amounts to determine the
amount of the grant in each year, and used as the discount rate for each year the interest rate of 4 percent on
ORTN-indexed long-term government debt. The total benefit in ORTN for 1981 was converted into cruzeiros using the
average ORTN index rate for the year and then divided by the total value of sales for 1981. The ad valorem benefit of this
subsidy is 0.84 percent.

F. Industrial Development Council (CDI) Program

This program allowed an exemption of 80 pecent of the customs duties and 80 percent of the IPU 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 *52210
                                    (Cite as: 47 FR 52207, *52210)

projects approved prior to repeal may still receive these benefits pending the 
                                    (Cite as: 47 FR 52207, *52210)

completion of the project. The government of Brazil states that ACESITA received such benefits during 1981. By
dividing the benefit received by the total value of sales of the companies under investigation, we calculated the ad valorem
benefit of this subsidy to be 0.19 percent.

II. Program Preliminary Determined Not To Be Subsidies

We preliminarily determine subsidies are not being provided to manufacturers, producers, or exporters in Brazil of
certain stainless steel products under the following program.

Transportation Subsidies

The Brazilian government, in its response to our questionnaire, states that none of the exporters of certain stainless steel
products receive preferential rates when using railroads and ports. We have no evidence that any program exist which give
preferential freight rates to steel exporters.

III. Programs Preliminarily Determined Not To Be Used

We preliminarily deterine that the following programs, listed in the notice 
                                    (Cite as: 47 FR 52207, *52210)

of "Initiation of Countervailing Duty Investigation," were not used by the manufacturers, producers, or exporters in 
  Brazil of certain stainless steel products.

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 yeas. 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 industry in Brazil has been developed primarily 
                                    (Cite as: 47 FR 52207, *52210)

to supply the domestic market. Since manufacturers of certain stainless steel products export only a small portion of their
production, they are not in a position to make the required export commitments. The government also states that neither
ACESITA nor PIRATINI received benefits from this program in 1981, and that VILLARES has received some benefits under
the BEFIEX program but not with respect to certain stainless steel products.

B. 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. The government of Brazil
states that none of the exporters of certain stainless steel products used the accelerated depreciation provisions to reduce
its tax liabilities in 1981.

C. Export Financing Under Resolution 68

This program provides financing for the export of Brazilian goods for a minimum period of 181 days. Such financing is
granted on a transaction-by- transaction basis and may cover up to 85 percent of the f.o.b. invoice price for the
merchandise (plus freight and insurance). To be eligible, the exporter 
                                    (Cite as: 47 FR 52207, *52210)

must show that the foreign purchaser has prepaid 15 percent of the invoice price. The government of Brazil states that
none of the exporters of certain stainless steel products used Resolution 68 to finance exports of this merchandise to the
United States in 1981.
Verification. In accordance with section 776(a) of the Act, we will verify data used in making our final determinations
  .
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 certain stainless steel products 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 12.50 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 determinations. In addition, we are making
available to the ITC all nonprivileged and nonconfidential information relating to these investigations. We will allow the
ITC access to all privileged and confidential information in our files, provided the ITC confirms that it will 
                                    (Cite as: 47 FR 52207, *52210)

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 § 355.35 of the Commerce Department Regulations, if requested, we will hold a public hearing to afford
interested parties an opportunity to comment on these preliminary determinations at 10:00 a.m. on December 13,
1982, at the U.S. Department of Commerce, Room 3080, 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 in at least ten copies must be
submitted to the Deputy Assistant Secretary by December 6, 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, within thirty days of this notice's publication, at
the above address and in at 
                                    (Cite as: 47 FR 52207, *52210)

least ten copies.

Judith Hippler Bello,

Acting Deputy Assistant Secretary for Import Administration.

APPENDIX A

For purpose of these investigations:
1. The term "stainless steel wire rod" covers a coiled, semi-finished, hot- rolled stainless steel product of solid cross
section, approximately round in cross section, not under 0.20 inch nor over 0.74 inch in diameter, not tempered, not
treated, and not partly manufactured as currently provided for in item 607.26 of the Tariff Schedules of the United States
(TSUS) or if tempered, treated, or partly manufactured as provided for in item 607.43 of the TSUS.
*52211
                                    (Cite as: 47 FR 52207, *52211)

2. The term "hot-rolled stainless steel bars" covers hot-rolled stainless steel products of solid section having
cross sections in the shape of circles, segments of circles, ovals, triangles, rectangles, hexagons or octagons, not coated or
plated with metal as currently provided for in item 606.9005 of the Tariff Schedules of the United States Annotated.
3. The term "cold-formed stainless steel bars" covers cold-formed stainless 
                                    (Cite as: 47 FR 52207, *52211)

steel products of solid section having cross sections in the shape of circles, segments of circles, ovals, triangles, rectangles,
hexagons or octagons, not coated of plated with metal as currently provided for in item 606.9010 of the Tariff Schedules of
the United States Annotated.
Stainless steel is an alloy steel which contains by weight less than 1 percent of carbon and over 11.5 percent of chromium.
Iron must predominate by wieght and the alloy is malleable as first cast. Alloy steel is defined as a steel which contains one
or more of the following elements in the quantity, by weight, respectively indicated:
Over 1.65 percent of manganese, or
Over 0.25 percent of phosphorus, or
Over 0.35 percent of sulphur, or
Over 0.60 percent of silicon, or
Over 0.60 percent of copper, or
Over 0.30 percent of aluminum, or
Over 0.20 percent of chromium, or
Over 0.30 percent of cobalt, or
Over 0.35 percent of lead, or
Over 0.50 percent of nickel, or
Over 0.30 percent of tungsten, or
Over 0.10 percent of any other metallic element.

                                    (Cite as: 47 FR 52207, *52211)


[FR Doc. 82-31752 Filed 11-18-82; 8:45 am]

BILLING CODE 3510-25-M